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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1999
or
[ ] 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.
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(Name of Registrant in its charter)
Delaware 11-3164389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common stock, $.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to the
filing requirements for the past ninety (90) days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of March 8, 2000 was approximately
$31,727,858 based on the closing price of the common stock on March 8, 2000.
As of March 8, 2000, 22,658,033 shares of common stock of the registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
US DIAGNOSTIC INC.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. 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, legal, growth and
integration factors, collections of accounts receivable, available financing or
available refinancing for existing debt, the ability to sell assets at fair
market value, cash flow and working capital availability, the availability of
sufficient financial resources to implement its business strategy, as well as
the Company's inability to carry out that strategy and other factors discussed
elsewhere in this report and in other documents filed by the Company with the
Securities and Exchange Commission ("SEC"). Many of these factors are beyond the
Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
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ITEM 1. BUSINESS
GENERAL
US Diagnostic Inc. (the "Company") is one of the nation's largest independent
operators of outpatient diagnostic imaging and related facilities ("Facilities")
with 81 locations owned, operated or managed nationwide at the date hereof. The
majority of services provided by the Company involve the use of Magnetic
Resonance Imaging ("MRI"), Computed Axial Tomography ("CT" or "CAT"),
mammography, x-ray and ultrasound equipment. The use of the type of imaging and
treatment equipment employed by the Company has grown rapidly in recent years
because it allows physicians to quickly and accurately diagnose and treat a wide
variety of diseases and injuries without exploratory surgery or other invasive
procedures, which are usually more expensive, carry more risk and are more
debilitating for patients.
The Company believes that the range of services provided at its Facilities
(which include anatomical and functional imaging) provides cross-referral
opportunities and increases the Company's ability to serve as a "one-stop"
provider of such services to increasingly important managed care organizations.
The Company was incorporated in Delaware in 1993. The Company's executive
offices are located at 777 S. Flagler Drive, Suite 1201E, West Palm Beach,
Florida 33401, its telephone number is (561) 832-0006/(800) 7-USDLAB and its web
site is at WWW.USDL.COM. Unless the context otherwise requires, all references
to the "Company" include US Diagnostic Inc. and its subsidiaries.
STRATEGY
OVERVIEW
During 1995 and 1996, the Company grew primarily through acquisitions of
Facilities from independent owners. In 1997, there was a significant decrease in
acquisition activity by the Company due to constraints on the Company's
financial resources and the need to consolidate prior acquisitions. In late
1997, the Company announced, and throughout 1998 and 1999 the Company pursued, a
four part strategy to: (i) reduce operating costs; (ii) divest non-core and
underperforming assets; (iii) reduce and refinance debt; and (iv) develop new
facilities and engage in prudent acquisitions as detailed below.
As part one of the aforementioned strategy, the Company implemented a cost
reduction plan in 1998 that included a significant reduction in nonessential
staff in the first quarter of 1998; retention of GE Business Solutions to
conduct a Company-wide efficiency and savings review; an emphasis on centralized
purchasing; consolidation of four regional billing offices and four regional
operational offices to three of each (effected in the first quarter of 1999) and
a further consolidation from three to two such offices in January 2000; and a
review of other consolidation synergies. Also, the Company reduced its
professional and outside consulting fees during 1999 and reorganized its data
telecommunications systems to further reduce cost.
The second part of the Company's corporate strategy was a review and sale of all
non-core assets and underperforming facilities. In 1998, the Company disposed of
its mobile imaging operations, its radiation oncology interests and its nuclear
medicine subsidiary in order to more closely focus on the Company's core
business of fixed site MRI and multi-modality imaging facilities. Additionally,
in January and February of 1999, in two separate transactions, the Company sold
its interests in certain subsidiaries
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located in Texas for an aggregate price of $23.4 million in cash, a promissory
note and assumption of certain liabilities. The Company has also divested itself
of non-core or underperforming assets by selling individual centers in
California and New Mexico in 1999, and closing of the Las Vegas center in
February 2000. The proceeds from the sales of both non-core assets and
underperforming facilities were used by the Company to reduce debt, meet
operating needs and generally to bolster the Company's working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Due to financial market conditions in 1998, the Company decided to postpone the
third part of its strategy, which was a refinancing of its long-term debt.
However, in addition to the significant debt reduction described above, in
December 1998 and January 1999, the Company completed the repurchase in the open
market of $35.4 million aggregate principal amount of its 9% Convertible
Subordinated Debentures due 2003 for $25.0 million, resulting in a decrease in
long-term debt and related long-term interest expense. The Company may effect
further debenture repurchases as market conditions warrant and financial
resources allow.
A significant portion of the Company's cash flow is required to amortize debt.
As a result, new center development and additional acquisitions, which were the
fourth part of the Company's strategy, have been constrained by the Company's
limited capital resources and the inability of the Company to extend the
maturities of its debt through refinancing. Accordingly, the Company made only
one minor acquisition, and two new internally developed facilities were opened
in 1999.
RECENT DEVELOPMENTS
Despite the Company's debt and expense reduction efforts during 1998 and 1999,
the Company remains highly leveraged. Furthermore, the relatively short
maturities of its indebtedness require the Company to devote a significant
portion of its annual cash flow to the amortization of debt. The Company also
has ongoing significant capital expenditure requirements in order to maintain
and modernize its imaging equipment. Although the Company's cash flow from
operating activities has been positive, it nevertheless has been and is
projected to be insufficient to meet the Company's scheduled debt repayment
obligations and capital expenditure plans. Moreover, given continuing adverse
financial market conditions relative to healthcare companies, as well as the
highly leveraged nature of the Company's capital structure, a refinancing to
extend the maturity of the Company's indebtedness is not currently anticipated
in the near term. These factors necessitate the incurrence of additional
indebtedness or the meeting of the Company's capital requirements through other
means.
Accordingly, despite the fact that the Company's primary lending source has
made additional funding available to the Company during the first quarter of
2000, the Company has begun a program to sell selected imaging centers (in
addition to the sale of non-core and underperforming centers during 1998 and
1999) in order to raise cash to meet its operating and debt repayment needs.
Although the Company has been successful in the past in selling centers at
advantageous prices and in a timely fashion and, although the Company
anticipates entering into agreements for the sale of selected imaging centers
in the near future, there can be no assurance that the Company will be able to
sell imaging centers at favorable or acceptable prices or at all. If the
Company were unable to raise sufficient cash from these sales, or from its
primary lender, or otherwise, or, even if such sales were successfully
completed and the Company subsequently was required by its capital needs to
continue to sell assets, the Company could be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Notwithstanding the above, management believes it will be successful in
obtaining additional funding and/or will be able to sell selected imaging
centers at advantageous prices such that the Company will have sufficient funds
over the next twelve months to meet operating needs, fund capital expenditure
requirements and repay debt obligations as they become due.
The Company is continuing its evaluation, begun during 1999, of its strategic
alternatives to maximize stockholder value, including, without limitation, the
possible sale of additional imaging centers as the Company's or market
conditions warrant or the diversification of the Company's business into other
medical or nonmedical operations, including internet related opportunities,
utilizing some of the proceeds of divested imaging facilities. However, there
can be no assurance that the Company will have adequate financial resources to
implement any such diversification or, if implemented, that such
diversification would be profitable.
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INDUSTRY OVERVIEW
Total annual spending on diagnostic imaging services in the United States is
estimated to be between $56 billion and $70 billion. While 70% of this spending
is done in hospital settings, a significant share of the market is commanded by
the nation's approximately 2,900 outpatient testing facilities, especially in
relation to the roughly $10 billion subsector of advanced imaging services,
which includes MRI and CAT scans. These approximately 2,900 facilities are
mainly operated individually and represent a fragmented market.
Payment for services comes primarily from third-party payors, such as private
insurers (traditional indemnity and Blue Cross/Blue Shield plans), managed
health plans (HMOs, PPOs), government payors (Medicare, Medicaid), and state-run
worker's compensation programs. Some centers have significant relationships with
attorneys specializing in personal injury litigation. Typically, large
third-party payors, especially managed care programs and Medicare/Medicaid,
demand significant discounts from the list prices paid under direct-bill
circumstances.
The number of non-hospital-affiliated imaging centers has grown due to a number
of factors. First, when Congress reformed Medicare in 1983 by putting strict
controls on inpatient reimbursement, this led to the expansion of all types of
freestanding outpatient services, including outpatient surgery and imaging
centers. Second, the use of MRI, CT and other equipment became more prevalent
due to the quality and quantity of diagnostic information, technological
improvements and increased government and third-party reimbursement. Although
MRI was developed in the late 1970s, it was not approved for Medicare
reimbursement until 1984. Ultrasound and low-dose mammography technology
improved in the late 1980s. New technologies and procedures continue to be
developed, although some, such as positron emission tomography scanners ("PET"),
are relatively expensive and are not considered cost-effective for most
procedures. Third, the number of hospital and physician joint ventures increased
in the 1980s as hospitals were eager to minimize their financial exposure for
expensive equipment and physicians were seeking investments at a time when
traditional tax-sheltered investments were being eliminated or were less
economic. Thus, between 1984 and 1991, the number of outpatient imaging centers
in operation in the U.S. increased from roughly 700 to over 2,000.
The industry suffered setbacks in 1993 as utilization levels generally
stabilized and reimbursement per test declined sharply. Utilization rates
stopped growing primarily for three reasons: (i) the threat of sweeping
government health care reform put expensive procedures under increased scrutiny;
(ii) market forces - in the form of managed care which also discouraged
providers from ordering all but absolutely necessary tests; and (iii) the
extension in 1993 of federal laws (the "Stark Laws") prohibiting the referral by
physicians of Medicare and Medicaid patients to entities with which such
referring physicians have a financial relationship (either an ownership interest
or compensation arrangement). See "Regulation and Government Reimbursement".
Previously, these referral prohibitions had been applicable only to
Medicare-covered clinical laboratory services. Since the early 1990s, the total
installed base of MRI systems has remained relatively flat although the total
number of procedures has increased.
In 1996, Medicare reimbursement for MRI procedures increased approximately 1%-2%
over 1995 levels - the first increase in at least four years. In January 1998,
Medicare reimbursement for diagnostic
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procedures increased an additional 1%-2%. Effective January 2000, Health Care
Financing Administration ("HCFA") increased reimbursement by approximately 3%-4%
depending upon modality of service. A recent initiative by HCFA to impose a 24%
reduction in radiology reimbursement over a four year period beginning January
1999 has been indefinitely postponed due to flaws in the HCFA's imaging center
cost study. However, HCFA has indicated it will continue to evaluate radiology
reimbursement. It is unclear as to whether HCFA will recommend reductions or
increases in reimbursement. See "Regulation and Government Reimbursement".
Public HMOs, which have suffered from declining margins, have indicated that
their corrective actions will more likely take the form of more rational premium
pricing than of further pressure on providers' fee-for-service reimbursement
levels. The Company believes that, as managed care becomes more prevalent,
further decreases in the average reimbursement per test will be mostly
attributable to payor mix shifts to increased managed care business which
generally have lower reimbursement rates than commercial insurance payors. There
is also the potential for a softening pricing environment as companies become
more discerning in negotiating managed care contracts and as the industry
continues to consolidate.
IMAGING OPERATIONS
Diagnostic imaging services are performed on an outpatient basis by experienced
radiological technicians. After the diagnostic procedures are completed, the
images are reviewed by radiologists who have contracted with the Company. The
radiologists prepare reports of the tests and their findings, which are
delivered to the referring physician. Additionally, upon request, a report of
any critical abnormality, or "stat report" is provided by phone as soon as the
test is completed and evaluated.
Each of the Company's Facilities has agreements with radiologists as independent
contractors under long-term agreements to provide all radiology services to the
Facilities. Radiologists' compensation ranges between 10%-21% of net
collections attributable to radiology services performed by the radiologist. The
interpreting physicians are board-certified or board-eligible specialists in
radiology, orthopedics, cardiology or neurology, as appropriate. The Company
currently operates a majority of the Facilities out of two regional billing
offices which bill and collect both for technical services and professional
services of interpreting physicians at the Facilities. A few Facilities bill and
collect independently on individual systems.
Imaging revenues are dependent to a large extent upon the acceptance of
outpatient diagnostic imaging procedures as covered benefits under various
third-party payor programs. In order to receive reimbursement for these
services, payment must be approved by private insurers or the Medicare and
Medicaid reimbursement programs. Although the Company intends to continue its
participation in such reimbursement programs, there can be no assurance that its
imaging procedures will continue to qualify for reimbursement. See "Industry
Overview".
The Company's general operational strategies include the following:
PARTNERING WITH HOSPITALS AND RADIOLOGY GROUPS. Currently, the Company has
several joint ventures to provide services at hospitals with large companies
such as Tenet Healthcare and Universal Health Services. Hospitals are
increasingly outsourcing various components of their operations. The Company
believes opportunities exist to enter into agreements with many hospitals to
manage their in-patient radiology departments and intends to continue its
efforts to improve its partnering with hospitals.
INTERNAL GROWTH. Although the Company was developed through acquisitions, the
Company believes that currently the most advantageous way to build its business
is to develop new Facilities because it believes
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internal Facility development is more cost-effective. To the extent the Company
has the financial resources to do so, new Facility development will be primarily
concentrated in the Company's existing geographic markets. The Company is
experienced in the planning, opening and operation of Facilities, and is in the
process of developing several openings by fiscal year-end 2000 as well as a
schedule of additional openings in the following year. Facilities opened in 1999
include two Facilities in St. Louis, Missouri. Facilities scheduled to open in
2000 include the Westfall (Rochester, New York) and Montclair (Alabama)
Facilities.
ACHIEVE OPERATING EFFICIENCIES. The Company consolidates certain aspects of
imaging center operations, such as accounting, administration, billing,
collections, marketing, productivity, purchasing and materials management. By
rendering support and management functions, the Company seeks to realize
significant economies of scale while enabling the physicians providing services
at the Facilities to spend more time focusing on patient care and quality
control, which in turn positively impacts the utilization rate of the Company's
diagnostic equipment. The Company has made and continues to make a substantial
investment in the development of a state-of-the-art information system designed
to consolidate the Company's billing and collection operations.
CONTRACT WITH MANAGED CARE PROVIDERS. The Company actively pursues contractual
arrangements with managed care organizations. The Company believes that
third-party payors will increasingly prefer to contract for service on a
national or regional basis, and that the Company's network of centers assists it
in obtaining such contracts on favorable terms. Senior management of the Company
actively markets the Company's services to administrators of managed care
organizations in regions where the Company operates Facilities.
UPGRADE EXISTING MEDICAL TECHNOLOGIES. The Company offers state-of-the-art
diagnostic imaging and therapeutic technologies at Facilities. The Company
periodically replaces or upgrades the MRI, CT, and other miscellaneous equipment
at its Facilities with the latest available technology, resulting in improved
image quality and increased referring physician satisfaction. The Company also
has installed new high quality "Open MRI" equipment at certain locations to
accommodate a substantial number of patients who would otherwise forego this
procedure due to claustrophobia or obesity. In addition, the Company
periodically adds new modalities and procedures at its Facilities. Most of the
new technologies are designed to enhance the Company's revenue mix and shorten
examination times, resulting in increased capacity and profitability.
PROVIDE SERVICES WHICH ARE COMPLEMENTARY TO IMAGING. The Company has developed
medical services that are complementary to its core imaging operations such as
bone densitometry which is a specialized x-ray procedure that precisely
quantifies bone density at the spine, femur and other skeletal sites for
diagnosis and treatment of osteoporosis. In addition, the Company is evaluating
other modalities such as PET scanning and coronary scanning for blockage
causing plaque.
PROFESSIONAL MARKETING. In order to expand referral sources, the Company
provides marketing training and materials to Facility personnel to enhance
marketing efforts to area physicians and third-party payors such as managed care
organizations. The Company utilizes a variety of marketing techniques in the
communities where it does business, including meetings between the Facility
administrators or account executives and referring physicians and/or their
staff, and mailings of technical case studies and clinical articles.
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CLIENTS AND PAYORS
The Company is highly dependent on referrals from physicians who have no
contractual obligation or economic incentive to refer patients to the Company's
Facilities. Most Facilities currently receive referrals from several hundred
physicians. If a sufficiently large number of physicians elected at any time to
stop referring patients to the Company's Facilities, it would have a material
adverse effect on the Company's revenues and results of operations. In
particular, due to the potential for disruption of the physician relationship in
connection with the assumption of control of a Facility, there can be no
assurance that the Company will retain all of the business conducted by that
Facility at the time of its acquisition.
In 1999, revenues from conventional indemnity insurance carriers accounted for
approximately 23% of the Company's revenues, Medicare and Medicaid accounted for
approximately 17% of revenues, managed care accounted for approximately 38% of
revenues and the remainder was derived directly from patients and workers'
compensation cases.
The Company is a party to over 1,000 managed care contracts which require it to
provide services on a fixed fee-for-service basis. All Facilities are attempting
to obtain additional managed care contracts.
COMPETITION
The market for diagnostic imaging services is highly competitive. The market is
highly fragmented with over 2,900 outpatient diagnostic imaging centers
nationwide and no dominant national imaging services provider. Competition
varies by market and is generally higher in larger metropolitan areas where
there is likely to be more facilities and more managed care organizations
putting pricing pressure on the market. The Company competes with larger
healthcare providers, such as hospitals, as well as other private clinics and
radiology practices that own diagnostic imaging equipment. Competition often
focuses on physician referrals at the local market level. Successful competition
for referrals is a result of many factors, including participation in healthcare
plans, quality and timeliness of test results, type and quality of equipment,
facility location, convenience of scheduling and availability of patient
appointment times.
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REGULATION AND GOVERNMENT REIMBURSEMENT
OVERVIEW. The healthcare industry is highly regulated and is undergoing
significant change as third-party payors, such as Medicare and Medicaid, health
maintenance organizations and other health insurance carriers increase efforts
to control the cost, utilization and delivery of healthcare services.
Legislation has been proposed or enacted at both the federal and state levels to
regulate healthcare delivery in general and radiology services in particular.
Reductions in reimbursement for Medicare and Medicaid services may be
implemented from time to time, which may lead to reductions in the reimbursement
rates of other third party payors as well. The Company cannot predict the effect
healthcare reforms may have on its business, and there can be no assurance that
such reforms will not have a material adverse effect on the Company's
operations. All of the Company's Facilities are subject to governmental
regulation at the federal, state and local levels.
In 1994 Congress passed legislation that required the Health Care Financing
Administration ("HCFA") to develop a methodology for a new resource-based
relative value unit ("RBRVU") system for determining practice expense resource
value units ("PE-RVUs") for each physician service. Subsequently, Congress
passed the Balanced Budget Act of 1997 that extended the implementation date for
the new practice PE-RVU system to January 1999. On June 5, 1998, HCFA published
a Notice of Proposed Rulemaking ("NPRM") in the Federal Register to implement
these provisions of the Balanced Budget Act. The NPRM proposed a reduced
Medicare payment for the facilities, equipment, staff, supplies and other
"technical component" costs of diagnostic imaging by over 24% to be phased in
over four years at approximately 6% per year beginning January 1999. Industry
members were able to convince HCFA that the data used to determine the proposed
reductions may be flawed, indefinitely postponing the implementation until
further studies can be completed. On November 2, 1998, HCFA published in the
Federal Register a notice setting forth the new PE-RVUs for 1999 and beyond
which essentially maintain current payment levels for technical component
services. However, the notice reduces the professional component (the physician
fees for interpreting exams) for radiology services by 10% to be phased in over
four years at approximately 2.5% per year beginning January 1999. Because the
Company derives the majority of its revenue from the technical component, the
reduction in the professional component will not have a material effect on the
Company's revenue. However, there can be no assurance that HCFA will not attempt
to reduce the technical component of Medicare payments in the future.
In December 1998, HCFA announced its final implementation date by which all
Independent Physiological Laboratories ("IPL") and other provider types are
required to convert to a status of Independent Diagnostic Testing Facility
("IDTF") in order to continue to receive reimbursement from Medicare. An IDTF is
independent of a hospital or physician's office in which diagnostic tests are
performed by licensed, certified nonphysician personnel under appropriate
physician supervision. All Medicare carriers were required to provide notice to
all affected entities that, beginning March 15, 1999, they will no longer be
able to bill as an IPL. In order to accomplish this conversion for all affected
Company Facilities, HCFA required that the respective Medicare carriers receive
all applications no later than February 1, 1999. This allowed for the 45 day
review provided to the Medicare carriers, with a final implementation date of
March 15, 1999. If the cutoff dates were not met by the entity applying for the
IDTF status change, claims for diagnostic testing services might have been
rejected. All applicable Company applications were filed by February 1, 1999.
The Company successfully converted all applicable Facilities to the IDTF status
within the aforementioned timeframes. Currently, the Company is awaiting further
clarification and final regulations from HCFA with respect to the physician
supervision requirements associated with the services performed in each
Facility.
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REGULATION OF OUTPATIENT IMAGING SERVICES. The operation of outpatient imaging
centers requires a number of licenses, including licenses for technical
personnel and certain equipment. Licensure requirements may vary somewhat from
state to state. The Company believes that it is in material compliance with
applicable licensure requirements. The Company further believes that diagnostic
testing will continue to be subject to strict regulation at the federal and
state levels and cannot predict the scope and effect thereof.
Diagnostic imaging centers performing mammography services must meet federal,
and in some jurisdictions, state standards for quality as well as certification
requirements. Under regulations issued by the federal Food and Drug
Administration ("FDA") pursuant to the Mammography Quality Standards Act of 1992
("MQSA"), all mammography Facilities are required to be accredited by an
approved non-profit organization or state agency. Pursuant to the accreditation
process, each Facility providing mammography services must: undergo an annual
mammography facility physics survey; be inspected annually and pay an annual
inspection fee; meet qualification standards for interpreting physicians,
mammography technologists, and medical physicists; meet certification
requirements for adequacy and training and experience of personnel; meet quality
standards for equipment and practices; and meet various requirements governing
record keeping of patient files. Compliance with these standards is required to
obtain payment for Medicare services and to avoid various sanctions, including
monetary penalties, or suspension of certification. Although all of the
Company's Facilities which provide mammography services are currently accredited
by the Mammography Accreditation Program of the American College of Radiology
and the Company anticipates continuing to meet the requirements for
accreditation, the withdrawal of such accreditation could result in the
revocation of certification. Congress has extended Medicare benefits to include
coverage of screening mammography subject to the prescribed quality standards
described above. The regulations apply to diagnostic mammography and image
quality examination as well as screening mammography.
REIMBURSEMENT FOR RADIOLOGY SERVICES. In general, Medicare reimburses radiology
services under a physician fee schedule which covers services provided not only
in a physician's offices, but also in freestanding Facilities, portable x-ray
suppliers, hospitals and other entities. The scheduled amount is based on a
resource-based relative value scale, recognizing three separate components of
the physician's services: professional, technical and malpractice. For radiology
there are separate Medicare scheduled amounts for the professional component of
a service or procedure (i.e. the physician's time) and the technical component
of the service or procedure (i.e. services and supplies necessary to perform
the procedure).
Congress and the U.S. Department of Health and Human Services have taken various
actions over the years to reduce reimbursement rates for radiology services and
proposals to reduce rates further are anticipated. As noted above, there have
been many proposals discussed within the last few years to further modify
reimbursement. The Company is unable to predict which, if any, proposals will be
adopted. Any reductions in Medicare reimbursement for radiology services could
have a material adverse effect on the Company.
REGULATION OF RADIOLOGY OWNERSHIP; FRAUD AND ABUSE. Medicare payment rules
discourage physicians from maintaining an investment interest in radiology
operations. The Omnibus Budget Reconciliation Act of 1989 contains provisions
which prohibit physicians from referring Medicare or Medicaid patients to
clinical laboratories in which the physician has an economic interest. In 1993,
Congress extended the physician self-referral prohibition to entities providing
other designated health care services, including radiology or other diagnostic
services, including MRI, CAT scans and ultrasound services, and radiation
therapy services. Violations of these provisions (collectively known as the
"Stark Laws") may result in
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denial of payments for the service, an obligation to refund payment for the
service, payment of civil monetary penalties and/or exclusion from the Medicare,
Medicaid and other state healthcare programs.
The Anti-Fraud and Abuse Amendments to the Social Security Act prohibit the
solicitation, payment, receipt or offer, directly or indirectly, of any
remuneration for the referral of Medicare or Medicaid patients or for the
provision of services, items or equipment which may be covered by the Medicare
or other state healthcare programs including Medicaid programs. Violations of
these provisions may result in civil and criminal penalties and exclusion from
participation in the Medicare, and Medicaid and other state healthcare programs.
In addition to federal restrictions, which are generally applicable to Medicare,
Medicaid and other state healthcare patients, a number of states in which the
Company operates Facilities have enacted prohibitions against physicians
referring patients to entities with which they have a financial relationship (an
ownership interest or compensation arrangement). Such state laws generally apply
to all patients, not just participants in the Medicare and Medicaid programs.
The Company has structured its acquisitions of physician-owned ventures and
ongoing relationships with physicians in a manner which it believes does not
raise significant issues under federal or state anti-kickback and self-referral
regulations.
CORPORATE PRACTICE OF MEDICINE; FEE SPLITTING. The operation of the Facilities
may be subject to the laws of certain states which prohibit the provision of
certain medical services by non-physicians and/or the splitting of fees between
physicians and non-physicians. The Company believes its operations are conducted
in material compliance with existing applicable laws relating to the corporate
practice of medicine and fee splitting. In response to such laws, in certain
states, the Company may operate Facilities pursuant to a management agreement
with a physician group rather than operating the Facility directly and
contracting with the physicians for professional medical services.
ACR ACCREDITATION. Aetna U.S. Healthcare announced in early 1999 that all of its
MRI providers must be ACR accredited by January 1, 2000. USD began efforts in
April 1999 to achieve this goal for all applicable Facilities. ACR accreditation
of MRI units initially was voluntary, however, with managed care having
reimbursed nearly 100,000 MRI procedures in 1998, this process has now become a
requirement of Aetna's in order to ensure future reimbursements. MRI
accreditation is a lengthy and complex process that requires radiologists,
technologists and physicists to meet certain educational and technical
experience in the field of MRI. In addition to the educational requirements,
phantom tests and clinical images must be submitted or evaluated by a panel of
ACR radiologists and physicists. As of October 20, 1998 the American College of
Radiology had granted accreditation to 115 facilities with 132 systems. Since
ACR began accepting applications, 104 non-USD facilities have failed this
process. Late in 1999, Aetna made the announcement to delay this requirement by
one full year, allowing additional time for all contracted facilities and the
ACR to complete the necessary tasks for accreditation. Currently, USD is working
to achieve this goal. All applications for the applicable facilities were
submitted in April 1999. USD believes other managed care entities will follow
suit in requiring ACR accreditation or similar programs in order to become or
remain participating providers.
INFECTIOUS WASTES. The Company is also subject to licensing and regulation under
federal and state laws relating to the handling and disposal of medical
specimens, infectious and hazardous waste and radioactive materials as well as
to the safety and health of laboratory employees. The sanctions for failure to
comply with these regulations may include denial of the right to conduct
business, significant fines and criminal penalties, any of which, if imposed,
could have a material adverse effect on the Company. The Company believes that
it is in substantial compliance with all applicable laws and regulations
relating to these materials.
11
<PAGE> 12
INSURANCE
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
costs of defending, any such actions could be substantial. The Company currently
maintains liability insurance that 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 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. In the event that a claim exceeds available coverage, the Company's
financial condition and results of operations could be adversely and materially
affected.
EMPLOYEES
As of March 15, 2000, the Company had approximately 995 full-time and 108
part-time employees, none of whom is represented under union contracts or other
collective bargaining arrangements. The Company considers its relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company's executive offices, corporate accounting and certain administrative
and other operations are located in West Palm Beach, Florida where the Company
leases an aggregate of approximately 34,767 square feet at two separate
locations. Annual rental payments under the two leases are $526,000 and $459,000
which expire in 2008 and 2009, respectively.
The Company operates imaging centers that range in size from approximately 800
to 21,600 square feet. During 1999, the Company had three regional billing
offices and three regional operational centers. The aggregate lease expense in
1999 for all such facilities was approximately $9.0 million. In January 2000, a
regional operational center was closed, and the Company relocated it to
corporate headquarters. The imaging centers, billing offices and operational
centers have leases expiring between 2000 and 2008.
ITEM 3. LEGAL PROCEEDINGS
CENTRE COMMONS MRI LTD., ET. AL. VS. US DIAGNOSTIC INC. ET. AL.; SANDERS ET.
AL. VS. US DIAGNOSTIC INC. ET. AL. - These two suits, which were filed against
the Company by sellers of diagnostic imaging centers who received the Company's
common stock in xpartial payment of the purchase price for their centers and who
alleged that undisclosed facts regarding the background of Keith Greenberg (a
former consultant to the Company) were material to their decision to sell, were
settled in 1999. In connection with the first of these actions (Centre Commons
MRI Ltd., et. al. v. US Diagnostic et. al.), in the United States District Court
for the Western District of Pennsylvania, the sellers of multiple centers in
Pennsylvania sought to compel the Company to repurchase approximately 750,000
shares of its common stock at a price of $12.125 per share and also alleged that
the Company's failure to register such shares under the Securities Act of 1933
diminished their value. The lawsuit was settled by agreement that USD would pay
$1,800,000 over a period of 30 months (beginning December 1999). In the second
suit (Sanders et. al. v. US Diagnostic et. al.) in the United States District
Court for the Eastern District of New York, four participants in limited
partnerships which sold the Company three imaging centers in New York sought to
recover damages of up to $2,000,000. The lawsuit was settled by agreement that
USD would pay $180,000 over a period of eight months (beginning October 1999).
12
<PAGE> 13
US DIAGNOSTIC INC. VS. UNITED RADIOLOGY ASSOCIATES, INC. AND L.E. RICHEY; LISA
BROCKETT, AS TRUSTEE FOR REESE GENERAL TRUST VS. US DIAGNOSTIC INC., JEFFREY A.
GOFFMAN, KEITH GREENBERG AND ROBERT D. BURKE; US DIAGNOSTIC INC. VS. UNITED
RADIOLOGY ASSOCIATES, INC. ET. AL. - In April 1999, the Company sued United
Radiology Associates, Inc. ("URA") in the United States District Court for the
Southern District of Texas for breach of contract and related claims relating to
the sale of the stock of U.S. Imaging, Inc. ("USI") to URA by the Company in
February 1999, and the Company simultaneously filed a claim in the same court
against Dr. L.E. Richey, a former director and chairman of the Board of the
Company, for breach of a personal guaranty in connection therewith. Dr. Richey
is the chief executive officer and a director of URA. URA has filed
counterclaims against the Company. The Company intends to vigorously prosecute
its suit against URA and Dr. Richey and believes it has substantive defenses to
URA's counterclaims, although there can be no assurances. In June 1999, Lisa
Brockett, as Trustee for the Reese General Trust, filed suit against the
Company, among others, in the 333rd Judicial District Court of Harris County,
Texas, alleging, among other claims, that (a) undisclosed facts regarding the
background of Keith Greenberg, who provided consulting services to the Company,
were material to the Trust's decision to receive 1,671,000 shares of Company
common stock as partial consideration for the sale by the Trust of the stock of
USI to the Company in June 1996; and (b) the value of the shares was diminished
by the Company's failure to register the shares under the Securities Act and by
the Company's subsequent restatement of its quarterly report for the quarter
ended March 31, 1996. Lisa Brockett is the daughter of Dr. Richey. The Plaintiff
has not specified the amount of actual damages sought and the suit remains in an
early stage. The Company intends to vigorously defend the suit, and it believes
it has substantive defenses and counterclaims but there can be no assurances
that the Company will prevail. Both cases were stayed by agreement of the
parties through late March 2000 pending settlement discussions, and a further
minimum ninety day extension of the stay has been agreed to by the parties
recently, subject to court approval at the end of March.
In connection with the sale of USI, USD received a secured promissory note of
$1.9 million, due February 12, 2001, with interest at 6% payable semi-annually
(the "Note") as part of the total consideration in selling its interest in USI
to URA. URA and Dr. Richey have acknowledged the existence of the Note and Dr.
Richey has further acknowledged his personal guaranty of that Note. USD sued URA
for, among other things, a declaratory judgment, specific performance and breach
of contract, which breach accelerated the due date of the Note. Dr. Richey filed
counterclaims in response to USD's lawsuit and, to this date, has not paid
anything in connection with the Note. Although there can be no assurance, the
Company intends to vigorously pursue this matter as part of the overall
litigation described above and expects ultimately to receive full payment of the
Note.
SHELBY RADIOLOGY, P.C. V. US DIAGNOSTIC INC. ET AL. - In June 1997, the
plaintiff, Shelby Radiology, P.C. ("Shelby Radiology"), filed suit in Alabama
Circuit Court against US Diagnostic Inc. ("USD") alleging breach of a contract
to provide radiology services and, specifically, improper termination of an
alleged oral contract. In January 1998, Shelby Radiology amended its complaint
to include allegations of promissory fraud, misrepresentation and suppression.
Under both its fraud and breach of contract claims, Shelby Radiology was seeking
compensatory damages in the amount of $1.2 million as amounts it would have been
paid under the alleged oral agreement. In addition, Shelby Radiology sought
punitive damages pursuant to its fraud claims. The jury returned a verdict
against the Company in the amount of $1.1 million as compensatory damages on
plaintiff's fraud claim. The jury did not award any punitive damages. Based on
the advice of counsel, the Company believes that it has meritorious grounds for
appeal (although there can be no assurances of success). The Company has filed
its appeal. A ruling is expected by the end of 2000.
13
<PAGE> 14
INVESTIGATION BY SECURITIES AND EXCHANGE COMMISSION - In December 1996, the
Securities and Exchange Commission ("SEC") commenced an investigation into the
Company's former relationship with Coyote Consulting and Keith Greenberg to
determine whether the Company's disclosure concerning that relationship was in
compliance with the federal securities laws. The Company is cooperating fully
with the SEC.
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 in the ordinary course of business. While it is not feasible
to predict the outcome of these matters, and although there can be no
assurances, the Company does not anticipate that the ultimate disposition of any
such proceedings will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has traded under the symbol USDL on the NASDAQ
SmallCap Market since September 22, 1998 and on the NASDAQ National Market
System from October 9, 1995 to September 21, 1998. The following table sets
forth the high and low sales prices for the Company's common stock for each
quarter within the two years ended December 31, 1999 as reported by NASDAQ.
These prices do not reflect retail mark-ups, mark-downs or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998
----
January 1 through March 31, 1998.................................. $ 5 1/4 $3 5/8
April 1 through June 30, 1998..................................... 4 23/32 3 1/2
July 1 through September 30, 1998................................. 3 7/8 1 3/8
October 1 through December 31, 1998............................... 2 1/16 3/4
1999
----
January 1 through March 31, 1999.................................. $ 2 3/16 $ 13/16
April 1 through June 30, 1999..................................... 1 11/16 1 1/8
July 1 through September 30, 1999................................. 1 11/32 3/4
October 1 through December 31, 1999............................... 1 1/10 3/4
</TABLE>
The number of record holders of the Company's common stock as of March 15, 2000
was 270.
The Company has never paid a cash dividend on its common stock and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
The Company has outstanding debt that prohibits the payment of dividends by the
Company without the consent of the lender.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below summarize certain historical
financial data and should be read in conjunction with the more detailed
consolidated financial statements of the Company and the notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue $ 155,602 $ 195,735 $ 216,222 $ 102,061 $ 29,416
Income (loss) before extraordinary item (10,793)(1) (512)(1) (116,712)(2) (6,331) 3,025
Extraordinary item, net of income taxes 2,598 5,311(3) -- -- 306
Net income (loss) (8,195) 4,799 (116,712) (6,331) 3,331
Basic earnings (loss) per common share
Income (loss) before extraordinary item (.47) (.02) (5.26) (.48) .70
Extraordinary item, net of income taxes .11 .23 -- -- .07
Net income (loss) (.36) .21 (5.26) (.48) .77
Diluted earnings (loss) per common share
Income (loss) before extraordinary item (.47) (.02) (5.26) (.48) .64
Extraordinary item, net of income taxes .11 .23 -- -- .06
Net income (loss) (.36) .21 (5.26) (.48) .70
Cash dividends declared per common share -- -- -- -- --
</TABLE>
(1) Includes $2.3 and $4.7 million gain on sale of subsidiaries in 1999 and
1998, respectively. See Note 11 of Notes to Consolidated Financial
Statements.
(2) Includes asset impairment losses of $92.9 million. See Note 5 of Notes
to Consolidated Financial Statements.
(3) Represents gain on repurchase of Convertible Subordinated Debentures.
See Notes 6, 7 and 17 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $217,742 $237,830 $287,999 $339,023 $ 57,279
Current portion of long-term debt
and capital leases 27,705 27,239 27,745 37,627 6,352
Total long-term obligations 128,640 147,701 191,547 123,984 21,653
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
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 AND RECENT DEVELOPMENTS
The Company grew primarily through acquisitions of diagnostic imaging centers
and businesses. The Company's operating performance is substantially dependent
upon: (i) its ability to integrate the operations of acquired Facilities into
the Company's infrastructure; (ii) its ability to bill and collect revenue in an
efficient and timely manner; (iii) its ability to reduce and control operating
expenses; (iv) its ability to effectively market its Facilities to physicians
requiring imaging services; and (v) various other risks associated with the
acquisition and operation of medical businesses, particularly in the
increasingly competitive and cost conscious managed care environment, including
the negotiation of favorable contracts with third-party payors. If the Company
is unable to manage these risks, the Company's operating results could be
materially adversely affected.
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 Company's revenues and profitability may be materially adversely affected by
the current trend in the healthcare industry toward cost containment, continuing
governmental budgetary constraints, reductions in reimbursement rates, changes
in the mix of the Company's patients and other changes in reimbursement for
healthcare services, among other factors, which may put downward pressure on
revenue per scan. See "Business - Clients and Payors" and "Business - Regulation
and Government Reimbursement."
During 1995 and 1996, the Company grew primarily through acquisitions of
Facilities from independent owners. In 1997, there was a significant decrease in
acquisition activity by the Company due to constraints on the Company's
financial resources and the need to consolidate prior acquisitions. Furthermore,
these acquisitions were financed with a significant amount of debt. In addition,
many of these acquisitions were made on valuations which ultimately would not be
supported by the Facilities acquired resulting in a $92.9 million asset
impairment charge in 1997. The Company has also been required to incur
additional debt to maintain and upgrade its
17
<PAGE> 18
Facilities as a result of technological changes. In late 1997, the Company
announced, and throughout 1998 and 1999 the Company pursued, a four part
strategy to: (i) reduce operating costs; (ii) divest non-core and
underperforming assets; (iii) reduce and refinance debt; and (iv) develop new
Facilities and engage in prudent acquisitions as detailed below. See Item 1.
Business - "Overview."
In order to address its liquidity needs, during the first quarter of 2000, the
Company has begun a program to sell selected imaging centers (in addition to the
sale of non-core and underperforming centers during 1998 and 1999) in order to
raise cash to meet its operating and debt repayment needs. Although the Company
has been successful in the past in selling centers at advantageous prices and in
a timely fashion and, although the Company anticipates entering into agreements
for the sale of selected imaging centers in the near future, there can be no
assurance that the Company will be able to sell imaging centers at favorable or
acceptable prices or at all. See "Business - Strategy - Recent Developments."
18
<PAGE> 19
The following table sets forth items of income and expense as a percentage of
total revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET REVENUE 100.0% 100.0% 100.0%
-------- -------- --------
OPERATING EXPENSES
General and administrative 77.1 75.9 76.6
Asset impairment losses -- .3 42.9
Bad debt expense 3.9 3.3 8.2
Depreciation 11.8 10.1 8.9
Amortization 3.2 2.6 5.0
Loss on settlement of lawsuits -- -- 2.6
Settlement with Former Chief Executive Officer -- -- .8
Stock-based compensation .4 .6 .6
-------- -------- --------
TOTAL OPERATING EXPENSES 96.4 92.8 145.6
GAIN ON SALE OF SUBSIDIARIES 1.5 2.3 --
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS 5.1 9.5 (45.6)
TOTAL OTHER EXPENSE (11.0) (8.9) (8.1)
-------- -------- --------
Income (loss) before minority interest, benefit for income
taxes and extraordinary items (5.9) .6 (53.7)
Minority interest and income tax benefit, net 1.1 .9 .3
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (7.0) (.3) (54.0)
Extraordinary item, net of taxes 1.7 2.7 --
-------- -------- --------
NET INCOME (LOSS) (5.3)% 2.4% (54.0)%
======== ======== ========
</TABLE>
19
<PAGE> 20
As discussed above, during 1999 and 1998, the Company sold several non-core and
underperforming facilities. The facilities sold during 1999 (US Imaging ,
Physician's Plaza, Townley, Santa Maria and Santa Fe) and 1998 (Integrated
Health Concepts, MDI, USCC and USH) are collectively referred to as the "1999
sold facilities" and "1998 sold facilities", respectively.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net revenue decreased to $155.6 million in 1999 from $195.7 million in 1998,
primarily as a result of the sale of the facilities in 1998 and 1999. Excluding
the net revenue generated by the 1998 sold facilities as well as the 1999 sold
facilities, net revenue would have increased by 3.8% to $150.0 million in 1999,
from $144.5 million in 1998. For centers which were operational during the
entire comparable 1999 and 1998 periods, revenue was adversely affected due to
the loss of a fee for service contract in June 1999, and the renegotiations of
reimbursement under a contractual arrangement with a group of New York centers
that resulted in a one time reduction. To a lesser extent, net revenue was also
negatively impacted by a shift in mix of both payors and modalities.
General and Administrative ("G&A") expense decreased to $120.0 million in 1999,
compared to 1998 G&A expense of $148.4 million. To a large extent the decrease
resulted from the sale of the 1998 and 1999 sold facilities. Expressed as a
percentage of revenue, G&A increased from 75.9% in 1998 to 77.1% in 1999. The
sold facilities contributed a total of $41.6 million to G&A expenses in 1998,
compared to only $5.0 in 1999. Excluding the G&A expenses generated by the 1998
and 1999 sold facilities, G&A would have increased by 7.6% to $115.0 million in
1999 from $106.9 million in 1998. The increase is due to the fact that in 1999
the Company opened two new centers and added modalities in certain facilities
which resulted in additional G&A costs. New centers traditionally operate at a
loss during the first six to nine months of operation contributing to the
increase in G&A expense as a percentage of revenue. In addition, in 1999, the
Company experienced higher service costs on medical equipment that were no
longer covered by warranty. G&A expense was also increased by higher payroll
expenses, which the Company believes is a result of wage inflation across the
country, particularly for technical salaries.
Bad debt expense decreased to $6.1 million in 1999, compared to $6.5 million in
1998 due to the sale of the 1999 and 1998 sold facilities. As a percentage of
revenue, bad debt expense increased from 3.3% in 1998 to 3.9% in 1999. The
percentage increase is primarily due to $1.3 million of bad debt recoveries,
received in the 1998 period, of accounts receivable written off in 1997 in
conjunction with the conversion of the billing system during the 1997 period. In
addition, 1999 bad debt expense reflects $427,000 recorded for a group of
California centers adversely affected by the bankruptcy of a third-party payor.
Depreciation expense was $18.3 million in 1999, compared to $19.9 million in
1998. The decrease resulted primarily from a reduction in the depreciable asset
base due to the realization in 1999 of the full benefit of the sale of the 1998
sold facilities, as well as partial year savings from the 1999 sold facilities.
The decrease was partially offset by increases in property and equipment in
connection with medical equipment upgrades, enhancement of single modality
centers to multi-modality centers, ongoing improvements to facilities, and the
continued enhancements to the billing system.
Amortization expense remained consistent at approximately $5.0 million for both
periods.
During 1999 and 1998, the Company recorded net gains on sales of subsidiaries of
$2.3 and $4.7 million, respectively. The sale of the 1999 sold facilities
resulted in a gain of $2.3 million. The 1998 sale of
20
<PAGE> 21
MDI, which was purchased in 1997, generated a $5.8 million gain. The remaining
subsidiaries sold in 1998 and early 1999 generated an aggregate loss of $1.1
million. See Note 11 of Notes to Consolidated Financial Statements.
Interest expense decreased to $17.4 million in 1999, compared to $20.0 million
during 1998. This was a result of lower average borrowings outstanding during
1999 in connection with the sale of the 1999 sold facilities, and debt reduction
relating to the Debenture repurchases. During 1998, interest expense included
amortization of the estimated fair value of 250,000 warrants issued to DVI
Business Credit Corporation ("DVIBC").
During 1999 and 1998, the Company recorded extraordinary gains net of income
taxes of $2.6 million and $5.3 million related to the repurchase of
approximately $12.5 million and $22.9 million aggregate principal amounts of its
Convertible Subordinated Debentures, respectively, for amounts less than the
recorded amounts. See Notes 6, 7 and 17 of Notes to Consolidated Financial
Statements.
The Company had a basic and diluted loss per share of $.36 in 1999 compared to
basic and diluted net income per share of $.21 in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net revenue decreased to $195.7 million in 1998 from $216.2 million in 1997,
primarily as a result of the sale of the 1998 sold facilities. Excluding the net
revenue generated by the 1998 sold facilities as well as the facilities sold in
early 1999, net revenue would have decreased by 1% to $149.9 million in 1998,
from $151.1 million in 1997.
General and Administrative ("G&A") expense decreased to $148.4 million in 1998,
compared to 1997 G&A expense of $165.5 million. To a large extent the decrease
resulted from the sale of the 1998 sold facilities. Additionally, the Company
benefited from reduced professional fees related to litigation matters, reduced
accounting costs and the first quarter 1998 implementation of the cost reduction
plan (see "Overview").
Asset impairment loss was $680,000 in 1998 and $92.9 million in 1997. Such
losses related to those centers for which the sum of the expected future cash
flows did not cover the carrying value of the assets acquired. See Note 5 of
Notes to Consolidated Financial Statements.
Bad debt expense decreased to $6.5 million in 1998, compared to $17.6 million in
1997. The significantly higher bad debt expense in 1997 is attributable both to
the Company's overall rapid growth in revenue in 1997, and to an increase in
accounts receivable resulting from a failure to fully collect receivables on the
older billing and collection systems during the phase-in of a new billing and
collection system. During 1997 the new system was affected adversely by training
and operational related problems as well as by the installation complexity. In
addition, 1997 collections were negatively affected by inefficiencies in
realizing receivables in respect to patient co-payments and deductibles.
Depreciation expense was $19.9 million in 1998, compared to $19.2 million in
1997. The increase from 1997 to 1998 resulted primarily from increases in
property and equipment in connection with medical equipment upgrades,
enhancement of single modality centers to multi-modality centers, ongoing
improvements to facilities, and continued implementation of a new billing
system, partially offset by a decrease relating to the sale of the 1998 sold
facilities.
21
<PAGE> 22
Amortization expense decreased to $5.0 million in 1998, from $10.8 million in
1997. The decrease was due to the effect of the $92.9 million impairment loss
write-down of goodwill and certain other long-term assets during the fourth
quarter of 1997 as well as a decrease relating to the sale of the 1998 sold
facilities.
During 1998, the Company recorded a gain on sale of subsidiaries of $4.7
million. The sale of MDI, which was purchased in 1997, generated a $5.8 million
gain. The remaining subsidiaries sold in 1998 and early 1999 generated an
aggregate loss of $1.1 million. See Note 11 of Notes to Consolidated Financial
Statements.
Interest expense increased to $20.0 million in 1998, compared to $19.1 million
during 1997, resulting from higher average borrowings outstanding during 1998,
and interest expense recorded during 1998 relating to amortization of the
estimated fair value of 250,000 warrants issued to DVIBC on September 30, 1997,
partially offset by a decrease relating to the 1998 sold facilities.
During 1998, the Company recorded an extraordinary gain net of income taxes of
$5.3 million related to the repurchase of approximately $22.9 million aggregate
principal amount of its Convertible Subordinated Debentures for amounts less
than the recorded amounts. See Notes 6, 7 and 17 of Notes to Consolidated
Financial Statements.
The Company had basic and diluted net income per share of $.21 in 1998 compared
to a basic and diluted loss per share of $5.26 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had a working capital deficit of $4.6 million,
compared to working capital of $8.3 million at December 31, 1998. The decrease
from 1998 to 1999 was due to several factors, the more significant of which
consist of the following: (i) a decrease in cash from $9.2 million as of
December 31, 1998 to $5.8 million as of December 31, 1999 for reasons discussed
below; (ii) and a decrease in accounts receivable, net of bad debt reserves to
$41.3 million as of December 31, 1999 from $43.4 million as of December 31,
1998, resulting primarily from the sale of the 1998 sold facilities; (iii) an
increase in accounts payable which was $17.8 million as of December 31, 1999
compared to $10.9 million as of December 31, 1998; (iv) an increase in prepaid
expenses and other current assets from $5.3 million as of December 31, 1998 to
$7.3 million as of December 31,1999, resulting from restricted cash of $2.4
million; and (v) offset by a decrease in other receivables from $6.9 million as
of December 31, 1998 to $3.3 million as of December 31, 1999. The Company's
primary short-term liquidity requirements as of December 31, 1999 include the
current portion of long-term debt and capital leases (totaling $27.7 million),
accounts payable, other current liabilities and capital expenditures related to
the opening of new Facilities, the replacement and enhancement of existing
imaging equipment and Facilities, and continued improvements and enhancements to
the Company's management information systems.
Net cash provided by operating activities in 1999 was $17.8 million, compared to
$11.9 million provided by operating activities in 1998. The improved cash flow
from operations in 1999 was primarily a result of an increase in accounts
payable, accrued expenses and other liabilities, which was partially offset by a
growth in the Company's receivables and the net loss in 1999 (net of
the effect of the gain on sale of subsidiaries and extraordinary items).
Additionally, the Company experienced a disruption in its billing and collection
activities in late December 1999 and January 2000 as a direct result of
converting to a Year 2000 compliant version of its billing and collecting
software. While all of the problems associated with the conversion have been
resolved, the Company has not yet fully begun seeing its collections return to
levels experienced before the software conversion. Further, the Company has not
identified any other material impact arising from the Year 2000 issue and does
not expect to experience any further significant Year 2000 problems or
interruptions.
Net cash provided by investing activities was $.3 million in 1999, compared to
net cash provided by investing activities of $10.1 million in 1998. In 1998, the
Company received $33.9 million in net cash proceeds from the 1998 sold
facilities versus $12.8 million in proceeds from the 1999 sold facilities. Cash
expenditures for purchases of equipment and other improvements totaled $12.7
million in 1999 compared to $23.5 million in 1998.
Net cash used in financing activities was $21.5 million in 1999 compared to
$30.3 million used in financing activities in 1998. Proceeds from new borrowings
totaled $42.5 million during 1998 compared to $24.4 million in 1999. Repayments
of notes and capital leases totaled $59.1 million in 1998 compared to $37.8
million in 1999. As discussed in Notes 6 and 7 of Notes to Consolidated
Financial Statements, the Company borrowed approximately $15.9 million in
December 1998 and $9.1 million in January 1999 to repurchase on the open market
and retire approximately $22.9 million and $12.5 million principal amount of
Debentures, respectively. As discussed in Notes 11 of the Notes to Consolidated
Financial Statements, the Company repaid an aggregate of $32.2 million under its
revolving credit loan with DVIBC from proceeds received upon the sales of
facilities in 1999 and 1998.
22
<PAGE> 23
As of December 31, 1999, the Company has approximately $3.4 million of purchase
commitments for capital expenditures which it either already has or expects to
have financing available to meet such commitments. This forward-looking
statement is subject to a number of uncertainties, including the Company's
ability to collect accounts receivable, to manage expenses, to obtain financing
or refinancing of existing debt on acceptable terms, regulatory changes in
Medicare reimbursement rates, and other factors discussed elsewhere in this
report.
Despite the Company's debt and expense reduction efforts during 1998 and 1999,
the Company remains highly leveraged. Furthermore, the relatively short
maturities of its indebtedness require the Company to devote a significant
portion of its annual cash flow to the amortization of debt. The Company also
has ongoing significant capital expenditure requirements in order to maintain
and modernize its imaging equipment. Although the Company's cash flow from
operating activities has been positive, it is projected to be insufficient to
meet the Company's scheduled debt repayment obligations and capital expenditure
plans. Moreover, given continuing adverse financial market conditions relative
to healthcare companies, as well as the highly leveraged nature of the Company's
capital structure, refinancing to extend the maturity of the Company's
indebtedness is not currently anticipated in the near term. These factors
necessitate the incurrence of additional indebtedness or the meeting of the
Company's capital requirements through other means.
Accordingly, despite the fact the Company's primary lending source has made
additional funding available to the Company during the first quarter of 2000,
the Company has begun a program to sell selected imaging centers (in addition to
the sale of non-core and underperforming centers during 1998 and 1999) in order
to raise cash to meet its operating and debt repayment needs. Although the
Company has been successful in the past in selling centers at advantageous
prices and in a timely fashion and, although the Company anticipates entering
into agreements for the sale of selected imaging centers in the near future,
there can be no assurance that the Company will be able to sell imaging centers
at favorable or acceptable prices or at all. If the Company were unable to raise
sufficient cash from these sales, or from its primary lender, or otherwise, or,
even if such sales were successfully completed and the Company subsequently was
required by its capital needs to continue to sell assets, the Company could be
materially and adversely affected.
The Company is continuing its evaluation, begun during 1999, of its strategic
alternatives to maximize stockholder value, including, without limitation, the
possible sale of additional imaging centers as the Company's or market
conditions warrant or the diversification of the Company's business into other
medical or nonmedical operations, including internet related opportunities,
utilizing some of the proceeds of divested imaging facilities. However, there
can be no assurance that the Company will have adequate financial resources to
implement any such diversification or, if implemented, that such diversification
would be profitable.
During December 1999 and January 2000, the Company experienced a significant
disruption in its billing and collections function due to Year 2000 software
upgrades. For a period of several weeks, the Company was unable to bill in the
ordinary course of business. The Company has not yet fully recovered the amounts
affected by such disruption. During January, February and March 2000, the
Company borrowed an aggregate of $9.4 million from its primary lender to meet
its normal operating expenses. See discussions at "Year 2000 Compliance" also.
23
<PAGE> 24
Notwithstanding the above, management believes it will be successful in
obtaining additional funding and/or will be able to sell selected imaging
centers at advantageous prices such that the Company will have sufficient funds
over the next twelve months to meet operating needs, fund capital expenditure
requirements and repay debt obligations as they become due.
Additionally, even if the Company is successful at selling imaging centers, the
degree to which the Company continues to be leveraged could affect its ability
beyond year 2000 to service its indebtedness, make capital expenditures, respond
to market conditions and extraordinary capital needs, take advantage of business
opportunities or obtain additional financing. A failure to significantly improve
the Company's financial performance or obtain a refinancing of its debt or
additional financing could require the Company to continue to sell imaging
centers in order to maintain its operations and meet its obligations. If the
Company is required to continue its sale of imaging centers, its long-term
business and future prospects could be materially and adversely affected.
For a discussion of the Company's debt facilities, see Note 6 to the
Consolidated Financial Statements. For additional information regarding
contingencies and uncertainties related to litigation and regulatory matters,
see Item 1 - Business - Regulation and Government Reimbursement, Item 3 - Legal
Proceedings and Note 20 of Notes to Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming and embedded
code that may exist in computer systems as of January 1, 2000. Systems and
applications that use two digits to store the years might produce unpredictable
results when their digits turn to "double-zero" on January 1, 2000. The issues
are (1) whether such code exists in the Company's mission-critical applications
and/or computer hardware and if that code will produce accurate date-sensitive
calculations on or after January 1, 2000; and (2) whether certain embedded
applications that control certain medical imaging systems should be upgraded to
ensure Year 2000 compliance and the cost of such upgrades, if any.
The Company established a multi-phased Year 2000 Readiness Program and a
timetable to address Year 2000 compliance issues for all of its internal
information technology ("IT") consisting of computer software, hardware, bundled
components, development and support tools as well as non-IT medical equipment.
The Company completed all phases of the Year 2000 Readiness Program for IT
issues at a cost of $75,000, all of which was expensed in 1999. The Company
completed its Year 2000 Readiness Program for non-IT imaging systems at a cost
of approximately $600,000 (the majority of this total reflects totals of lease
payments to be made in the future in the case of equipment replacements); such
costs primarily will be amortized over the remaining lives of the upgraded
assets.
The Company reviewed the computer applications of its significant payors,
consisting of Medicare, Medicaid and private insurance carriers, to determine
whether such applications would be upgraded before January 1, 2000. The Company
obtained written confirmation from each of its private insurance carriers and
Medicare that the carriers were Year 2000 compliant.
The Company experienced a disruption in its billing and collection activities in
late December 1999 and January 2000 as a direct result of converting to a Year
2000 compliant version of its billing and collection software. While all of the
problems associated with the conversion have been resolved, the Company's
collections have not yet fully recovered the amounts affected by such disruption
Further, the Company has not identified any other material impact arising from
the Year 2000 issue and does not expect to experience any further significant
Year 2000 problems or interruptions. (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources").
24
<PAGE> 25
ITEM 7A. QUANTITATIVE INFORMATION ABOUT INTEREST RATE RISK
The table below represents in tabular form contractual balances of the Company's
capitalized lease and long-term debt financial instruments at December 31, 1999.
The expected maturity categories take into consideration actual amortization of
principal and do not take prepayments into consideration. The weighted-average
interest rates for the various liabilities presented are as of December 31,
1999.
In thousands
<TABLE>
<CAPTION>
Principal Amount Maturing in:
---------------------------------------------------------------------------------------------
Fair Value
2000 2001 2002 2003 2004 Thereafter Total At 12/31/99
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive
liabilities:
Long-term debt
adjustable-rate
borrowings $ 51 $ 14,862 $ 61 $ 67 $ 73 $ 789 $ 15,903 $ 15,903
Average interest rate 9.07% 10.50% 9.07% 9.07% 9.07% 9.07% 10.40%
Long-term debt
fixed-rate borrowings 22,528 52,324 12,325 27,043 2,643 2,662 119,525 119,525
Average interest rate 10.04% 9.61% 10.34% 9.08% 10.14% 9.26% 9.65%
Capitalized lease
obligations
fixed-rate borrowings 5,126 5,073 3,785 2,979 1,530 -- 18,493 18,493
Average interest rate 10.46% 10.64% 10.75% 10.78% 10.71% -- 10.64%
---------- ---------- ---------- ---------- ---------- ---------- -------- --------
Total $ 27,705 $ 72,259 $ 16,171 $ 30,089 $ 4,246 $ 3,451 $153,921 $153,921
========== ========== ========== ========== ========== ========== ======== ========
Weighted-Average
Interest Rates 10.12% 9.86% 10.43% 9.25% 10.33% 9.21% 9.85%
========== ========== ========== ========== ========== ========== ========
</TABLE>
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report (1999 and 1998) ................................... 27
Report of Independent Certified Public Accountants (1997) ...................... 28
Consolidated Balance Sheets as of December 31, 1999 and 1998 ................... 29
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1999 .............................................. 30
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1999 ....................................... 31
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1999 .......................................... 33
Notes to Consolidated Financial Statements ..................................... 36
</TABLE>
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
US Diagnostic Inc.:
We have audited the accompanying consolidated balance sheets of US Diagnostic
Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. Our audits also included the consolidated
financial statement schedule shown as Schedule II. These consolidated financial
statements and consolidated financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. Also, in
our opinion, the consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 22, 2000
27
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
US Diagnostic Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of US Diagnostic Inc. (a Delaware
corporation) and its subsidiaries for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of US Diagnostic Inc. and
subsidiaries operations and their cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for the year ended December
31, 1997 is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
West Palm Beach, Florida,
April 13, 1998.
28
<PAGE> 29
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
In thousands, except share data
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,811 $ 9,177
Accounts receivable, net of allowance for bad debts of $7,110
and $8,300 in 1999 and 1998, respectively 41,366 43,405
Other receivables 3,307 6,886
Prepaid expenses and other current assets 7,335 5,263
--------- ---------
TOTAL CURRENT ASSETS 57,819 64,731
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
of $45,401 and $39,475 in 1999 and 1998, respectively 83,888 91,345
INTANGIBLE ASSETS, net of accumulated amortization of $16,008
and $11,773 in 1999 and 1998, respectively 68,797 75,445
OTHER ASSETS 2,762 5,049
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES 4,476 1,260
--------- ---------
TOTAL ASSETS $ 217,742 $ 237,830
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,786 $ 10,932
Accrued expenses 12,979 13,763
Current portion of long-term debt 22,579 20,982
Obligations under capital leases - current portion 5,126 6,257
Other current liabilities 3,695 4,226
Purchase price due on companies acquired 294 296
--------- ---------
TOTAL CURRENT LIABILITIES 62,459 56,456
Subordinated convertible debentures 21,750 33,969
Long-term debt, net of current portion 91,099 100,956
Obligations under capital leases, net of current portion 13,367 10,227
Other liabilities 2,424 2,549
--------- ---------
TOTAL LIABILITIES 191,099 204,157
MINORITY INTEREST 2,815 2,120
COMMITMENTS AND CONTINGENCIES (Notes 14 and 20) -- --
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 22,641,033 and
22,712,433 shares issued and outstanding in 1999 and 1998,
respectively 226 227
Additional paid-in capital 147,945 148,047
Deferred stock-based compensation (400)
(973)
Accumulated deficit (123,943) (115,748)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 23,828 31,553
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 217,742 $ 237,830
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
29
<PAGE> 30
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands, except per share data
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET REVENUE $ 155,602 $ 195,735 $ 216,222
--------- --------- ---------
OPERATING EXPENSES
General and administrative 120,007 148,433 165,549
Asset impairment losses -- 680 92,853
Bad debt expense 6,062 6,493 17,630
Depreciation 18,280 19,861 19,232
Amortization 5,000 5,012 10,790
Loss on settlement of lawsuits -- -- 5,739
Settlement with Former Chief Executive Officer -- -- 1,809
Stock-based compensation 573 1,219 1,261
--------- --------- ---------
TOTAL OPERATING EXPENSES 149,922 181,698 314,863
GAIN ON SALE OF SUBSIDIARIES 2,306 4,676 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 7,986 18,713 (98,641)
--------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (17,369) (20,032) (19,114)
Amortization of lender equity participation fees (1,853) -- --
Interest and other income 2,105 2,545 1,225
Gain on sale of marketable equity securities -- -- 407
--------- --------- ---------
TOTAL OTHER EXPENSE (17,117) (17,487) (17,482)
--------- --------- ---------
Income (loss) before minority interest, benefit
for income taxes and extraordinary item (9,131) 1,226 (116,123)
Minority interest in income of subsidiaries 2,811 2,423 2,428
--------- --------- ---------
Loss before benefit for income taxes
and extraordinary item (11,942) (1,197) (118,551)
Benefit for income taxes (1,149) (685) (1,839)
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (10,793) (512) (116,712)
Extraordinary item, net of income taxes 2,598 5,311 --
--------- --------- ---------
NET INCOME (LOSS) $ (8,195) $ 4,799 $(116,712)
========= ========= =========
BASIC AND DILUTED LOSS PER COMMON SHARE
Loss before extraordinary item $ (.47) $ (.02) $ (5.26)
Extraordinary item .11 .23 --
--------- --------- ---------
Net income (loss) $ (.36) $ .21 $ (5.26)
========= ========= =========
Weighted-average common shares outstanding 22,719 22,594 22,182
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
30
<PAGE> 31
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Additional Total
Common Common Paid-in Unrealized Deferred Accumulated Stockholders'
Shares Stock Capital Gain Compensation Deficit Equity
--------- --------- ---------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 23,749 $ 237 $ 141,941 $ 526 $ (5,357) $ (3,835) $ 133,512
Release of escrow shares
related to 1996
acquisitions -- -- 4,185 -- -- -- 4,185
Issuance of contingent shares
related to 1996
acquisitions 79 1 528 -- -- -- 529
Cancellation of escrow shares (1,164) (11) 11 -- -- -- --
Sale of marketable equity
securities -- -- -- (526) -- -- (526)
Stock options exercised 17 -- 73 -- -- -- 73
Bridge warrants exercised 7 -- 34 -- -- -- 34
Restricted stock issued 202 2 438 -- (440) -- --
Deferred compensation
component of settlement
with former executive
officer -- -- -- -- 2,344 -- 2,344
Amortization of deferred
compensation -- -- -- -- 1,261 -- 1,261
Adjustment of income tax
benefit from options
exercised -- -- (767) -- -- -- (767)
Warrants issued in connection
with financing agreement -- -- 1,407 -- -- -- 1,407
Net loss -- -- -- -- -- (116,712) (116,712)
--------- --------- --------- --------- --------- --------- ---------
BALANCE - DECEMBER 31, 1997 22,890 $ 229 $ 147,850 $ -- $ (2,192) $(120,547) $ 25,340
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
31
<PAGE> 32
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Concluded)
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Additional Total
Common Common Paid-in Deferred Accumulated Stockholders'
Shares Stock Capital Compensation Deficit Equity
--------- --------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 22,890 $ 229 $ 147,850 $ (2,192) $(120,547) $ 25,340
Restricted stock issued 28 -- -- -- -- --
Purchase and retirement of stock (206) (2) (1,203) -- -- (1,205)
Release of escrow shares related to a
1996 acquisition -- -- 1,217 -- -- 1,217
Amortization of deferred compensation -- -- -- 1,219 -- 1,219
Warrants issued in connection
with financing agreement -- -- 183 -- -- 183
Net income -- -- -- -- 4,799 4,799
--------- --------- --------- --------- --------- ---------
BALANCE - DECEMBER 31, 1998 22,712 227 148,047 (973) (115,748) 31,533
Restricted stock issued 34 -- -- -- -- --
Purchase and retirement of stock (105) (1) (102) -- -- (103)
Amortization of deferred compensation -- -- -- 573 -- 573
Net loss -- -- -- -- (8,195) (8,195)
--------- --------- --------- --------- --------- ---------
BALANCE - DECEMBER 31, 1999 22,641 $ 226 $ 147,945 $ (400) $(123,943) $ 23,828
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
32
<PAGE> 33
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In thousands
Years Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (8,195) $ 4,799 $(116,712)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Asset impairment losses -- 680 92,853
Depreciation and amortization 23,280 24,873 30,022
Bad debt expense 6,062 6,493 17,630
Deferred income tax benefit -- -- (3,002)
Stock-based compensation expense 573 1,219 1,261
Amortization of non-cash financing and other costs 965 1,305 239
Minority interest in income of subsidiaries 2,811 2,423 2,428
Gain on sale of marketable securities -- -- (406)
Loss on settlement of lawsuits -- -- 5,739
Settlement with former CEO -- -- 1,809
Loss on sale of fixed assets 419 -- 225
Gain on sale of subsidiaries (2,306) (4,676) --
Extraordinary item (3,936) (8,047) --
Changes in Assets and Liabilities
(Increase) decrease in, net of sales and acquisitions
of businesses:
Accounts receivable (10,918) (5,201) (31,101)
Other receivables 5,585 3,455 (4,757)
Prepaid expenses (2,334) (1,464) 4,308
Other assets 952 1,007 1,452
Increase (decrease) in, net of sales and acquisitions
of businesses:
Accounts payable and accrued expenses 5,558 (5,921) (3,199)
Minority interest (partnership distributions) (2,062) (2,722) (3,470)
Other liabilities 1,381 (6,353) (3,158)
--------- --------- ---------
Total adjustments 26,030 7,071 108,873
--------- --------- ---------
NET CASH - OPERATING ACTIVITIES 17,835 11,870 (7,839)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (269) (457) (21,827)
Equipment purchases (12,741) (23,450) (18,858)
Payment of purchase price due on companies acquired -- (75) (5,258)
Sale of marketable equity securities -- -- 7,161
Proceeds from dispositions of property and equipment 488 222 1,887
Investment in and advances to subsidiaries -- -- (724)
Proceeds from the sale of subsidiaries, net of cash
retained by purchasers 12,783 33,897 --
--------- --------- ---------
NET CASH - INVESTING ACTIVITIES 261 10,137 (37,619)
--------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
33
<PAGE> 34
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt $ 24,351 $ 42,482 $ 78,729
Repayments of long-term debt and
obligations under capital leases (37,785) (59,135) (34,558)
Purchase of subordinated convertible debentures (7,925) (13,637) --
Common stock issued -- -- 106
Repurchase of common stock (103) -- --
-------- -------- --------
NET CASH-FINANCING ACTIVITIES (21,462) (30,290) 44,277
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,366) (8,283) (1,181)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,177 17,460 18,641
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 5,811 $ 9,177 $ 17,460
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 18,201 $ 19,517 $ 18,469
======== ======== ========
Income taxes $ 547 $ 2,961 $ 911
======== ======== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Borrowing under capital leases were $9.0 million, $9.0 million and $4.8 million
in 1999, 1998 and 1997, respectively.
In 1999, long-term debt and capital lease obligations decreased by $3.3 million
from the sale of subsidiaries, and long-term debt and certain long-term assets
increased by $637,000 from the purchase of the operating assets of a center.
In 1998, long-term debt and capital lease obligations decreased by $27.5 million
from the sale of subsidiaries, and increased by $6.4 million from the purchase
of a partnership interest from a minority holder.
In 1999, the goodwill decreased by $2.9 million and investment in unconsolidated
subsidiaries increased by the same amount. This was due to conversion of a
partnership that was previously being consolidated, into an unconsolidated joint
venture.
The value of 271,000 shares of common stock released from escrow in 1998
relating to a 1996 acquisition was $1.2 million.
The value of 206,000 shares of common stock repurchased for debt and
subsequently retired in 1998 was $1.2 million.
Long-term debt, property and equipment and intangible assets increased by
$500,000 as a result of a 1998 acquisition.
In 1998, the Company acquired the remaining 50% interest in a subsidiary in
exchange for notes payable of $1.3 million.
In 1997, the Company acquired the remaining 20% interest in a subsidiary in
exchange for a note payable of $3.1 million.
Warrants issued in connection with financing arrangements were valued at
$183,000 and $1.4 million in 1998 and 1997, respectively.
The fair market value of common stock and options issued in connection with
acquisitions totaled $4.7 million in 1997.
34
<PAGE> 35
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
- --------------------------------------------------------------------------------
Restricted common stock with a value of $440,000 was issued for services
rendered to the Company in 1997.
Information with regard to the Company's acquisitions, all of which are
accounted for under the purchase method of accounting, is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Fair value of non-cash assets acquired, net of
liabilities $ (451) $ 1,038 $ 3,492
Goodwill 720 3,469 18,335
Non-cash consideration paid -- (4,050) --
------- ------- -------
Cash, net of cash acquired $ 269 $ 457 $21,827
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
35
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[1] DESCRIPTION OF THE COMPANY
The accompanying consolidated financial statements include the accounts of US
Diagnostic Inc. (formerly U.S. Diagnostic Labs Inc., the "Company"), its
wholly-owned subsidiaries and non-wholly-owned but controlled subsidiaries.
The Company was incorporated in Delaware on June 17, 1993, and is a medical
services provider specializing in the operation and management of multi-modality
diagnostic imaging centers and related medical facilities. The Company owns,
operates or manages 81 centers located throughout the United States. The Company
provides a variety of medical diagnostic testing and evaluation service
procedures including magnetic resonance imaging, computerized tomography
scanning, ultrasound, and various radiological services.
MANAGEMENT'S PLANS
Despite the Company's debt and expense reduction efforts during 1998 and 1999,
the Company remains highly leveraged. Furthermore, the relatively short
maturities of its indebtedness require the Company to devote a significant
portion of its annual cash flow to the amortization of debt. The Company also
has ongoing significant capital expenditure requirements in order to maintain
and modernize its imaging equipment. Although the Company's cash flow from
operating activities has been positive, it is projected to be insufficient to
meet the Company's scheduled debt repayment obligations and capital expenditure
plans. Moreover, given continuing adverse financial market conditions relative
to healthcare companies, as well as the highly leveraged nature of the Company's
capital structure, refinancing to extend the maturity of the Company's
indebtedness is not currently anticipated in the near term. These factors
necessitate the incurrence of additional indebtedness or the meeting of the
Company's capital requirements through other means.
Accordingly, despite the fact the Company's primary lending source has made
additional funding available to the Company during the first quarter of 2000,
the Company has begun a program to sell selected imaging centers (in addition to
the sale of non-core and underperforming centers during 1998 and 1999) in order
to raise cash to meet its operating and debt repayment needs. Although the
Company has been successful in the past in selling centers at advantageous
prices and in a timely fashion and, although the Company anticipates entering
into agreements for the sale of selected imaging centers in the near future,
there can be no assurance that the Company will be able to sell imaging centers
at favorable or acceptable prices or at all. If the Company were unable to raise
sufficient cash from these sales, or from its primary lender, or otherwise, or,
even if such sales were successfully completed and the Company subsequently was
required by its capital needs to continue to sell assets, the Company could be
materially and adversely affected.
Notwithstanding the above, management believes it will be successful in
obtaining additional funding and/or will be able to sell selected imaging
centers at advantageous prices such that the Company will have sufficient funds
over the next twelve months to meet operating needs, fund capital expenditure
requirements and repay debt obligations as they become due.
Additionally, even if the Company is successful at selling imaging centers, the
degree to which the Company continues to be leveraged could affect its ability
beyond year 2000 to service its indebtedness, make capital expenditures, respond
to market conditions and extraordinary capital needs, take advantage of business
opportunities or obtain additional financing. A failure to significantly improve
the Company's financial performance or obtain a refinancing of its debt or
additional financing could require the Company to continue to sell imaging
centers in order to maintain its operations and meet its obligations. If the
Company is required to continue its sale of imaging centers, its long-term
business and future prospects could be materially and adversely affected.
36
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries and
non-wholly-owned but controlled subsidiaries. Investments in affiliates which
are not majority owned are reported using the equity method. Income recorded
under the equity method is included in other income. Significant intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets, liabilities,
income and expense and disclosures of contingencies. The most significant
estimates relate to contractual and bad debt allowances on accounts receivable,
useful lives of medical equipment, the realizability of long-lived and
intangible assets and reserves for litigation contingencies. Future events could
alter such estimates in the near term. In addition, healthcare industry reforms
and reimbursement practices will continue to impact the Company's operations and
the determination of contractual and other allowance estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of cash and
certain highly liquid investments with a maturity of three months or less when
purchased. The carrying amount of cash equivalents approximates fair value due
to their short-term nature.
PREPAID EXPENSES AND OTHER CURRENT ASSETS - Prepaid expenses and other current
assets are comprised of prepaid insurance, restricted cash, and other prepaid
items, as well as medical supplies inventory. The inventory is carried at lower
of cost or market, using the first-in, first-out method. As of December 31,
1999, the company has approximately $2.4 million of restricted cash recorded in
other current assets.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets or the remaining lease term. The equipment used by the
Company is technologically sophisticated and subject to accelerated obsolescence
the company in the event of significant technological change. Included in
property and equipment are capitalized costs for software and implementation
costs paid to external consultants related to the Company's billing and general
ledger systems.
INTANGIBLE ASSETS - Goodwill consists of the cost of purchased businesses in
excess of the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis for a period of twenty years. Customer lists and covenants
not to compete are amortized on a straight line basis for a period of fifteen
years and five to ten years, respectively.
LONG-LIVED ASSETS - The Company recognizes impairment losses on impaired
long-lived assets (property and equipment and intangible assets) based on the
amount by which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value modeling
approach or by evaluating the current market value of the acquired business
using fundamental analysis.
NET REVENUE - Revenues are reported at the estimated net realizable amounts from
patients, third-party payors and others for services rendered including
estimated prospectively determined adjustments under reimbursement agreements
with third-party payors. These adjustments are accrued on an estimated basis
37
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
in the period the related services are rendered and adjusted in future periods
as final settlements are determined. The Company also has relatively
insignificant amounts of revenue comprised of fees charged by the Company for
management services for the technical component of procedures performed in
certain corporate practice of medicine states provided at non-Company owned
imaging facilities. This revenue also includes fees for management, billing and
collection, and marketing. Additionally, the Company has relatively
insignificant amounts of revenue generated from the sublease of real property
and equipment.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
COMPREHENSIVE INCOME - Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company adopted SFAS No. 130 effective January
1, 1998. The components of comprehensive income which are excluded from net
income are not significant individually or in the aggregate, and therefore no
separate statement of comprehensive income has been presented.
EARNINGS (LOSS) PER SHARE - Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-average
number of common stock outstanding for the period. Diluted EPS assumes
conversion of convertible debt and the issuance of common stock for all other
potentially dilutive shares, unless the effect of issuance would have an
anti-dilutive effect.
STOCK-BASED COMPENSATION PLANS - The Company accounts for stock-based
compensation using the intrinsic value method. Accordingly, compensation cost
for stock options issued is measured as the excess, if any, of the fair value of
the Company's common stock at the date of grant over the exercise price of the
options. The pro forma net earnings (loss) per common stock amounts as if the
fair value method had been used are presented in Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Generally accepted accounting principles
requires companies to disclose the fair value of financial instruments.
Management believes that the carrying values of its financial instruments
approximate their fair values and any differences which may exist between the
carrying values and fair values are not significant.
SEGMENT REPORTING - The Company adopted SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information" effective January 1, 1998. The Company
currently has one reporting segment and therefore the adoption of SFAS No. 131
had no impact on the consolidated financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which requires
38
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
reporting every derivative instrument at its fair value on the balance sheet.
This statement also requires recognizing any change in the derivatives' fair
value in earnings for the current period unless specific hedge accounting
criteria are met. In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of adoption of SFAS No. 133 for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Management has not determined the effect,
if any, of adopting SFAS No. 133.
RECLASSIFICATIONS - Certain prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year presentation.
[3] PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, is as follows:
In thousands
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Life
--------- --------- -----------
<S> <C> <C> <C>
Land $ 1,868 $ 1,868 --
Buildings 4,581 5,561 40 Years
Medical equipment 89,442 90,462 7 Years
Furniture and fixtures 3,055 3,451 7-10 Years
Office, data processing equipment and software 11,058 11,351 3-10 Years
Vehicles 572 626 3 Years
Leasehold improvements 18,713 17,501 10 Years
--------- ---------
Total 129,289 130,820
Less: accumulated depreciation
and amortization (45,401) (39,475)
--------- ---------
Property and equipment, net $ 83,888 $ 91,345
========= =========
</TABLE>
Included in property and equipment is equipment under capital leases amounting
to $36.7 million and $28.9 million at December 31, 1999 and 1998, respectively.
Accumulated depreciation for equipment under capital leases was $12.9 million
and $9.1 million as of December 31, 1999 and 1998, respectively. Depreciation
expense amounted to approximately $18.3 million, $19.9 million and $19.2 million
for the years ended December 31, 1999, 1998 and 1997, respectively, of which
$4.0 million, $4.6 million and $4.3 million was attributable to the equipment
under capital leases, respectively.
39
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[4] INTANGIBLE ASSETS
A summary of intangible assets at December 31, is as follows:
In thousands
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Life
-------- -------- -----------
<S> <C> <C> <C>
Goodwill $ 78,247 $ 80,660 20 Years
Covenants not to compete 3,192 3,192 5-10 Years
Customer lists 3,189 3,189 15 Years
Other intangibles 177 177 3-5 Years
-------- --------
Total 84,805 87,218
Less: accumulated amortization (16,008) (11,773)
-------- --------
Intangible assets, net $ 68,797 $ 75,445
======== ========
</TABLE>
[5] ASSET IMPAIRMENT LOSSES
The majority of acquired businesses and imaging centers which comprise the
Company were purchased in 1996. As a result, 1997 was the first year of
uninterrupted operation for such acquired entities as part of the Company's
consolidated group. During 1997, management became aware that many of the
acquired centers were not performing as originally projected. At year-end 1997
all acquired businesses were analyzed in depth, in light of the additional
operating data during the period of the Company's ownership, to determine
whether such shortfalls in performance were of a temporary nature and if current
and expected future operating income would be sufficient to cover annual
amortization of intangible and long-lived assets acquired (see Note 2). The
analysis was repeated at the close of 1998 and 1999. Management has recorded
impairment losses for those centers for which the sum of the expected future
cash flows does not cover the carrying value of the assets acquired. No
impairment losses have been recorded for 1999. The components of the impairment
losses for 1998 and 1997 are as follows:
In thousands
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Intangible assets $ 250 $75,980
Investment in unconsolidated subsidiaries accounted for
using the equity method (primarily intangible assets
included therein) -- 6,269
Property and equipment 430 4,609
Acquired receivables -- 4,817
Other long-lived assets -- 1,178
------- -------
$ 680 $92,853
======= =======
</TABLE>
40
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[6] LONG-TERM DEBT
Long-term debt at December 31 consists of the following (also, see Note 7):
In thousands
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revolving credit loan, up to $35.0 million maximum, interest at prime plus 2%
(10.5% at December 31, 1999), due February 2001.
Collateralized by accounts receivable. $ 14,807 $ 16,475
Acquisition and equipment line of credit, up to $25.0 million maximum, interest
from 10% to 11%, due in monthly installments
through June 2002. Collateralized by equipment. 5,718 8,983
10% to 11% term loans to lending institution, up to $15.0 million
maximum, due through October 2002. Collateralized by equipment. 9,317 11,982
Unsecured loan, up to $25.0 million maximum, interest at 10.75%,
due July 2001. 21,934 15,719
6 1/2% convertible note, discounted to yield 9%, due in June 2001. 9,727 9,555
6% convertible notes maturing through June 2000. 10 19
6% to 13% notes payable to lending institutions, due in monthly
installments through April 2012. Collateralized by property and
medical equipment. 44,669 48,343
5% to 11% notes payable related to acquisitions, due in monthly
installments through April 2004. Collateralized by
substantially all of the assets of the companies acquired. 7,496 10,862
--------- ---------
Total 113,678 121,938
Less: current portion (22,579) (20,982)
--------- ---------
Long-term debt $ 91,099 $ 100,956
========= =========
</TABLE>
41
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
At December 31, 1999, aggregate maturities of long-term debt, not including
subordinated convertible debentures (see Note 7), were as follows:
In thousands
2000 $ 22,579
2001 67,278
2002 12,478
2003 5,082
2004 2,716
Thereafter 3,545
--------
Total $113,678
========
In February 1997, the Company entered into a financing agreement with DVI
Business Credit Corporation ("DVIBC") to provide two credit facilities of $25.0
million each. Borrowings are subject to certain conditions such as the
availability of unencumbered assets to collateralize advances and maintenance of
at least $5.0 million in cash during all reporting periods. The first $25.0
million (increased to $35.0 million pursuant to an amendment dated September 29,
1997) is a revolving credit loan from DVIBC secured by accounts receivable and
was initially due on February 28, 1998 (extended to February 28, 1999 pursuant
to an amendment dated September 29, 1997, extended to February 28, 2000 pursuant
to an amendment dated March 31, 1998 and further extended to February 28, 2001
pursuant to an amendment dated March 31, 1999), and bears interest, payable
monthly, at prime plus two percent (10.5% at December 31, 1999). The second
$25.0 million is an acquisition and equipment line of credit from DVI Financial
Services Inc. ("DVIFS") and is collateralized by equipment. Advance of funds
under the acquisition and equipment line of credit is based upon a review by
DVIFS of the entity acquired and/or a review of the assets securing the loan.
Each advance under the acquisition and equipment line of credit is repayable in
sixty monthly installments with interest from 10% to 11% per annum (see Note
22).
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 $15.0 million, the repayment of which was 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 loans is repayable in 60 equal monthly installments
inclusive of principal and interest at the rate of 10% per annum as to the first
$7.5 million borrowed and 11% per annum as to any additional amounts borrowed.
As further discussed in Note 11, in May 1998, the Company sold MDI. The Company
has retained all of the outstanding borrowings under the loan, which amounted to
$9.3 million and $12.0 million at December 31, 1999 and 1998, respectively, and
DVIFS released the liens it had on MDI's equipment and on the Company's
ownership in MDI common stock.
In connection with the term loans and pursuant to the modification of the
revolving credit loan (see above), the Company issued to DVIFS 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
42
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 was exercisable immediately,
and a second warrant to purchase 125,000 shares of common stock was 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 $12.5 million (exclusive of
regularly scheduled amortization) prior to the date of exercise. Both of the
warrants were to expire on September 30, 2004. The estimated fair value of the
warrants was $1.4 million as of the date of issuance. This amount is being
amortized to interest expense over the term of the related indebtedness. The
unamortized balance at December 31, 1999 and 1998 was $88,000 and $614,000,
respectively, and is offset against long-term debt in the accompanying
consolidated balance sheets. As discussed below, in December 1998, both of the
warrants were canceled and a new warrant was issued to DVIFS in connection with
additional financing from DVIFS. The unamortized balance relating to the
original warrants will continue to be amortized over the life of the revolving
credit loan because the valuation placed on these warrants when originally
issued was deemed to be a cost of the loan.
In December 1998, the Company entered into an unsecured loan agreement with
DVIFS. Advances under the loan agreement were limited to $25.0 million, could
only be made until January 31, 1999, and could only be used to purchase the
Company's Subordinated Convertible Debentures on the open market (see Note 7).
The loan was initially due June 21, 2000 with interest payable monthly at
10.75%. By an amendment dated July 1999, the loan was extended to July 1, 2001.
Additional terms of the loan agreement require that the Company pay DVIFS an
origination fee of 3% on amounts borrowed, as well as pay an equity
participation fee to DVI Private Capital ("DVIPC"), an affiliate of DVIFS, equal
to a percentage of the profit realized by the Company from the purchase of
Subordinated Convertible Debentures as more fully described in Note 7. The total
unamortized portion of such origination fees and equity participation aggregated
$1.2 million and $2.3 million as of December 31, 1999 and 1998, respectively.
These costs have been capitalized to other assets in the accompanying
consolidated balance sheets and are being amortized over the original life of
the related indebtedness. Borrowings outstanding were $21.9 million and $15.7
million at December 31, 1999 and 1998, respectively. In connection with the
loan, the Company canceled the two warrants issued to DVIFS in September 1997 to
purchase an aggregate of 250,000 shares of common stock of the Company (see
discussion of such warrants above) and issued a new warrant to purchase an
aggregate of 250,000 shares of common stock of the Company at an exercise price
of $.938 per share, which was the fair market value of a share of such common
stock on the date the warrant was issued. The new warrant expires on September
30, 2005. The estimated fair value of the new warrant was $184,000 as of the
date of issuance, and is being amortized to interest expense over the original
life of the related indebtedness. The unamortized balance at December 31, 1999
and 1998 was $54,000 and $184,000, respectively, and is offset against long-term
debt in the accompanying consolidated balance sheets.
The 6 1/2% Convertible Note (the "Note") was originally issued to HEICO
Corporation ("HEICO") in 1996, and subsequently modified on September 10, 1997,
as partial consideration for the Company's acquisition of all of the outstanding
stock of MediTek Health Corporation from HEICO (see Note 21). The Note matures
on June 30, 2001, and originally was convertible into the Company's common stock
at $9.25 per share for an aggregate of 1,081,081 shares (adjusted to $8.50 per
share for an aggregate of 1,176,472 shares as modified on September 10, 1997 as
consideration for deferring the demand feature of the Note). The Note may be
prepaid by the Company, at its $10 million face value, upon 60 days written
notice, after January 1, 1999. The Company granted to the holder of the Note
registration rights to the common stock into which the Note is convertible.
Until such time as the shares were registered, the
43
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
holder could require the Company to redeem the Note for cash at its face value
of $10 million at anytime after January 1, 1999. Effective December 1998, the
Company registered the shares for resale under the Securities Act. The Company
can require the holder to convert the Note at the conversion price if the last
sale price of the common stock averages at least $9.25 per share for the ten
trading days immediately preceding the "required conversion date". The "required
conversion date" was any time commencing on the later of December 31, 1997
(extended to January 1, 1999 as modified on September 10, 1997) or December 8,
1998 (the date that the shares of common stock into which the Note is
convertible were registered for resale by the Company under the Securities Act
of 1933).
On September 16, 1997, HEICO sold the Note to Forum Capital Markets L.P.
("Forum") and, also on September 16, 1997, Forum resold the Note to eighteen
(18) individual parties in various amounts totaling $10 million, resulting in
the Company re-issuing separate Notes to each of the purchasers for their
respective amounts. Each individual Note contains the same terms and conditions
as the amended Note that HEICO sold to Forum. In November, 1997, the Company
listed a global note for trading on the PORTAL Market; and the Company has given
holders that qualify as Qualified Institutional Buyers (as defined under Rule
144A of the Securities Act of 1933) 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.
The 6% convertible notes are convertible into shares of common stock at an
average conversion price of $6.50 per share or 1,477 shares as of December 31,
1999.
The 6% to 13% notes payable to lending institutions represent several different
notes payable, and are collateralized by property and medical equipment.
The 5% to 11% notes payable relate to acquisitions from 1996 and earlier and are
collateralized by substantially all of the assets of the companies acquired
to which they relate.
44
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[7] SUBORDINATED CONVERTIBLE DEBENTURES
In 1996, the Company consummated a $57.5 million offering of 9% Subordinated
Convertible Debentures (the "Debentures") due in 2003. Interest is payable
semi-annually in March and September. 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 was not permitted to 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 must
offer to repurchase each holder's Debenture at a purchase price equal to 100% of
the principal amount, plus accrued interest.
In December 1998, the Company repurchased approximately $22.9 million of its
Debentures in the open market, and immediately retired the Debentures. The
Company financed the purchase of the Debentures from borrowings under a $25.0
million loan agreement entered into with DVIFS in December 1998 (see Note 6).
The Debentures were purchased at a total price of $15.9 million, consisting of
$13.6 million paid directly to the Debenture holders, $409,000 paid to DVIFS
representing a 3% loan origination fee on amounts borrowed under the loan
agreement, and $1.9 million paid to DVIPC as equity participation for services
rendered by DVIPC. This equity participation was paid to DVIPC in lieu of normal
and customary investment banking fees and amounted to 20% of the difference
between the face amount of the Debentures repurchased and the amount paid to the
Debenture holders. The difference between the aggregate carrying value of the
Debentures (as well as pro rata portions of unamortized capitalized financing
costs and unamortized fair value of warrants issued to the underwriter when the
Debentures were originally issued), and the amounts paid to the Debenture
holders, was recorded as an extraordinary gain after taxes of $5.3 million in
the accompanying consolidated statement of operations (see Note 17). The loan
origination fees and the equity participation amount aggregating $2.3 million
was capitalized to other assets in the accompanying balance sheets and is being
amortized over the original life of the related indebtedness. At December 31,
1998, the balance outstanding under the Debentures was $34.0 million.
In January 1999, the Company made additional open market purchases of its
Debentures aggregating $12.5 million, and immediately retired the Debentures.
The Company financed the purchase of the Debentures from borrowings under a
$25.0 million loan agreement entered into with DVIFS in December 1998 (see Note
6). The Debentures were purchased at a total price of $9.1 million, consisting
of $7.9 million paid directly to the Debenture holders, $238,000 paid to DVIFS
representing a 3% loan origination fee on amounts borrowed under the loan
agreement, and $922,000 paid to DVIPC, as equity participation for services
rendered by DVIPC. This equity participation was paid to DVIPC in lieu of normal
and customary investment banking fees and amounted to 20% of the difference
between the face amount of the Debentures repurchased and the amount paid to the
Debenture holders. The loan origination fees were capitalized to other assets in
the accompanying consolidated balance sheets and the amortization of such amount
is included in interest expense. The equity participation fees were capitalized
to other assets in the accompanying consolidated balance sheets and the
amortization of such amount is classified as amortization of lender equity
participation fees. The difference between the aggregate carrying value of the
Debentures (as well as pro rata portions of unamortized capitalized financing
costs and unamortized fair value of certain warrants issued to the underwriter
when the Debentures were originally issued), and the amounts paid to the
Debenture holders, was recorded as an
45
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
extraordinary gain of $2.6 million (net of related costs and income taxes) - See
Note 17. At December 31, 1999, the balance outstanding under the Debentures was
$21.8 million.
Warrants to acquire 319,445 shares of the Company's common stock at $9.00 per
share were issued in 1996 to the underwriter of the offering of the Debentures.
The estimated fair value of the warrants at the date of the offering was $1.7
million. This amount is being amortized to interest expense over the term of the
related Debentures. In December 1998 and January 1999, $405,000 and $214,000,
respectively, of the proportionate share of the unamortized balances, were
written off as an offset to extraordinary gain in connection with the Company's
open market purchase and cancellation of a portion of its Debentures (see Note
17). The unamortized balance at December 31, 1999 and 1998 is $293,000 and
$610,000, respectively, and is offset against long-term debt in the accompanying
consolidated balance sheets.
Debenture issuance costs of $3.5 million are being amortized as interest expense
over the term of the related Debentures. In December 1998 and January 1999,
$831,000 and $455,000, respectively, of the proportionate share of the
unamortized balances, were written off as an offset to extraordinary gain in
connection with the Company's open market purchase and cancellation of a portion
of its Debentures (see Note 17). The unamortized balance at December 31, 1999
and 1998 is $592,000 and $1.3 million, respectively, and is included in other
assets in the accompanying consolidated balance sheets.
Pursuant to the Indenture, the Company is required to maintain consolidated net
worth of at least $18.0 million. In the event that the Company's consolidated
net worth at the end of two consecutive fiscal quarters is below $18.0 million,
the Company must 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 if the ratio of debt to operating cash flow, as
defined, of the Company and its subsidiaries after giving pro forma effect to
such debt is 6.5 to 1 or less.
As the Company previously disclosed in its annual report on Form 10-K for the
year ended December 31, 1997, in March 1998, the Company determined that it was
not in compliance with the Indenture's debt to operating cash flow ratio in the
fourth quarter of 1997. The non-compliance was due to the required treatment of
certain items in the ratio calculation relating to significant non-operating
write-offs, reserves and expenses taken by the Company in 1996 and 1997 for
various items including the settlement of shareholder class action claims, the
previously disclosed NASDAQ and SEC proceedings and related legal and accounting
professional services fees totaling approximately $10.0 million. The Company
obtained the consent of a majority of the holders of outstanding Debentures to
waive any non-compliance in the fourth quarter of 1997 and permit the Company to
modify the Indenture to add back $10.0 million representing the above noted
items to the operating cash flow calculation for each quarter ended March 31,
1998, June 30, 1998 and September 30, 1998 (the "Consent"). Based upon the
receipt of the Consent, the Company was in compliance with the modified debt
to operating cash flow ratio during the quarter ended March 31, 1998, and was in
compliance with the original and the modified debt to operating cash flow ratio
during the quarters ended June 30, 1998, September 30, 1998 and December 31,
1998. The Company was in compliance with all of the above noted ratios at each
of the four quarters ending December 31, 1999.
46
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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.
[8] OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases are stated on the accompanying consolidated
balance sheets at the present value of future minimum lease payments. Interest
rates on capital leases ranged primarily between 7 1/2% and 15%.
Future minimum lease payments under capital leases, together with the present
value of minimum lease payments subsequent to December 31, 1999, are as follows:
In thousands
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
2000 $ 6,812
2001 6,222
2002 4,481
2003 3,315
2004 1,635
Thereafter --
--------
Total 22,465
Less: amount representing interest (3,972)
--------
Total 18,493
Less: current portion (5,126)
--------
Long-term portion $ 13,367
========
</TABLE>
47
<PAGE> 48
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[9] INCOME TAXES
The provision (benefit) for income taxes shown in the consolidated statements of
operations consists of the following:
<TABLE>
<CAPTION>
In thousands
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current
Federal $(1,332) $(3,288) $ 115
State 183 2,603 1,048
------- ------- -------
(1,149) (685) 1,163
------- ------- -------
Deferred
Federal -- -- (2,600)
State -- -- (402)
------- ------- -------
-- -- (3,002)
------- ------- -------
Total $(1,149) $ (685) $(1,839)
======= ======= =======
</TABLE>
FEDERAL TAX RATE RECONCILIATION
The difference between the effective income tax rate and the federal income tax
rate is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal tax rate (34)% (34)% (34)%
Impairment of non-deductible intangible assets -- 38 17
Non-deductible amortization of intangible assets 7 51 2
Increase (decrease) in valuation allowance 64 (242) 12
State taxes, net of federal benefit 1 144 1
Sale of subsidiaries (51) (38) --
Meals and entertainment -- 6 --
Debenture gain -- 11 --
Other 3 7 --
-------- -------- --------
Effective tax rate (10)% (57)% (2)%
======== ======== ========
</TABLE>
For the years ended December 31, 1999 and 1998, the extraordinary gains of $3.9
million and $8.0 million are shown net of $1.3 million and $2.7 million in
income taxes, respectively.
48
<PAGE> 49
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1999 and 1998 are as follows:
In thousands
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current
Deferred tax assets:
Allowance for bad debts $ 2,214 $ 2,796
Other allowances and reserves 528 733
Deferred tax liabilities:
Cash to accrual differences on acquired entities -- (459)
Valuation allowance (2,742) (3,070)
-------- --------
Net current deferred tax assets -- --
-------- --------
NON-CURRENT
Deferred tax assets:
Net operating losses 20,012 16,353
Basis differences of intangible assets 8,976 11,061
Compensatory options 615 430
Asset impairment 24 533
Capital loss carryforward 7,714 --
Other 2,372 2,240
Deferred tax liabilities:
Equipment basis differences (7,346) (7,025)
Other (1,772) (269)
Valuation allowance (30,595) (23,323)
-------- --------
Net non-current deferred tax liability -- --
-------- --------
Net deferred income tax asset $ -- $ --
======== ========
</TABLE>
The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In 1997, management
provided a valuation allowance for the net deferred tax asset for which it
is more likely than not that a tax benefit will not be realized. During 1999 the
valuation allowance increased $6.9 million primarily due to generated capital
loss carryforwards ($7.7 million), current year net operating loss generated
($3.7 million) and a decrease in intangible assets ($2.1 million).
The Company has tax operating loss carryforwards of approximately $58.9 million
expiring through the year 2013. Approximately $22.3 million of the operating
loss carryforwards relate to acquired entities. The utilization of the acquired
loss carryforwards is limited to approximately $2.2 million per year. The
49
<PAGE> 50
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Company has capital loss carryforwards of $19.7 million expiring through the
year 2004. Approximately $18.0 million and $1.7 million were generated in 1999
and 1998, respectively, due to the sale of subsidiaries.
[10] CAPITAL TRANSACTIONS
In connection with the Company's initial public offering in 1994, all of the
Company's stockholders at that time entered into an escrow agreement pursuant to
which they placed into escrow 1,163,853 shares (the "IPO Escrow Shares") of the
Company's common stock owned by them. Because the Company did not meet specified
minimum income goals, all of the IPO Escrow Shares were canceled in early 1997.
During 1997, earnings targets were achieved for certain companies, and 720,785
of such shares were released from escrow. Additionally, 79,135 shares were
issued during 1997 related to such earnings targets for one of its acquisitions.
As of December 31, 1997, 271,000 shares remained in escrow, pending achievement
of specified earnings. During 1998, the earnings target was met and the
remaining 271,000 shares were released from escrow. As of December 31, 1998,
there were no shares held in escrow. There were no activities in 1999.
In December 1996, the Company and Jeffrey Goffman, who was at the time the
Company's Chief Executive Officer, entered into a Settlement Agreement with
Consolidated General Ltd. ("General"), U.K. Errington Ltd. ("Errington"), and
certain other persons (collectively, the "Claimants"). Under the Settlement
Agreement, the Company issued an aggregate of 68,400 shares of its common stock,
with a fair market value of $654,000 at the date of issuance, to the Claimants
and paid to the Claimants an aggregate of $1.3 million in cash. In exchange, the
Claimants executed general releases in favor of the Company and Mr. Goffman.
Under the Settlement Agreement, the Claimants settled claims relating to
allegations that they had escrowed too many shares of their common stock under
the escrow agreement entered into in connection with the Company's initial
public offering. The Claimants also released their claims relating to promissory
notes in the aggregate principal amount of $850,000 executed by Mr. Goffman in
favor of the Claimants, which promissory notes were collateralized by 150,000
shares of the Company's common stock owned by Mr. Goffman. After the execution
of these promissory notes, Mr. Goffman executed an assignment and assumption
agreement on behalf of himself and the Company, under which the Company
purportedly assumed Mr. Goffman's obligations under such promissory notes. These
promissory notes were executed by Mr. Goffman in payment of consideration to the
Claimants under consulting agreements between Mr. Goffman and the Claimants,
which Mr. Goffman asserted were entered into by him for the benefit of the
Company. Under the terms of these consulting agreements, the Claimants were to
provide consulting and advisory services to Mr. Goffman, purportedly on behalf
of the Company, to assist in funding, evaluating and structuring business
opportunities and transactions. The fair market value of the shares issued and
the cash paid totaled $2.0 million, which was included in loss on settlement of
claims in 1996. Subsequently, the Claimants alleged that the Company had not
registered the aforementioned 68,400 shares of common stock by the date
contemplated in the Settlement Agreement and made claims against the Company.
The dispute was settled as to General in November 1997 and as to Errington in
January 1998 by payment by the Company to the Claimants of a total of
approximately $364,000 to settle all additional claims and the Company was
released from any further liability under the Settlement Agreement. The
settlement amount was expensed in the accompanying consolidated statement of
operations for 1997.
See Note 12 regarding activity under the Company's stock option plans and
warrants issued by the Company.
50
<PAGE> 51
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Prior to January 1997, the Company granted contractual rights to certain persons
to whom the Company issued securities to register such securities under the
Securities Act of 1933, and state securities registration statutes, and in some
instances the Company agreed to repurchase the stock issued to these persons or
to pay specified liquidated damages if such registration was not effected in a
timely manner. The Company's inadvertent failure to timely file a Form 8-K
report in connection with one of its 1996 acquisitions made it impracticable for
the Company to file registration statements under the Securities Act of 1933
until June 1998. As such, the Company had not registered certain securities in
accordance with provisions of various registration rights agreements. In
November 1997 and January 1998 the Company entered into settlement agreements
with two of the holders of such registration rights who had received a total of
68,400 shares of common stock as part of an earlier settlement with the Company
in December 1996. Pursuant to the November 1997 and January 1998 settlements
pertaining to registrations, the Company paid an aggregate of $364,000 in
December 1997 and February 1998 in full and final satisfaction of its
registration and any other obligations. Such amount is included in general and
administrative expense in the accompanying consolidated statement of operations
for 1997. Another individual who asserted an agreement to register securities
requested and received a commitment to provide piggyback registration rights for
50,000 shares of the Company's common stock, at no cost to the Company, in full
satisfaction of the Company's registration obligations, if any. Such agreement
has been delivered to the individual.
The only other parties to assert non-compliance with an agreement to register
the Company's common stock was a group of sellers of centers in Pennsylvania and
certain sellers of centers in New York. Both of these lawsuits were settled in
1999 as more specifically described in Note 20.
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 inadequacy of disclosure regarding
the background of Keith Greenberg, as more fully discussed in Note 20. In
addition to the class action lawsuits which had been settled in 1998, two other
suits have also been settled in 1999. The two suits are more specifically
described in Note 20.
In August 1999, the Board of Directors approved the repurchase of up to 10% of
the Company's outstanding common stock from time to time on the open market. In
October 1999, 105,000 shares were purchased and retired by the Company. No
further shares have been repurchased as of the date herein.
At December 31, 1999, the Company had 22,641,033 shares of common stock issued
and outstanding.
A summary of shares of common stock reserved for potential future issuance as of
December 31, 1999, is as follows (in thousands of shares):
Subordinated convertible debentures 2,449
Stock option plans 2,274
Underwriter options and warrants 966
$10.0 million convertible note 1,176
Warrants issued to lender 250
Warrants outside of stock option plans 225
Other convertible debt 1
1996 restricted stock grants not yet issued 166
------
Total 7,507
======
51
<PAGE> 52
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[11] SALES AND ACQUISITIONS OF BUSINESSES
In December 1999, the Company sold a facility for a total purchase price of $2.2
million; $615,000 in cash and $1.6 million assumption of certain liabilities. In
September 1999, the Company sold a facility for $2.75 million in cash. During
the second quarter of 1999, the Company sold its interest in two facilities for
approximately $1.3 million.
On February 12, 1999, the Company sold its 100% interest in US Imaging, Inc.,
("USI"), to United Radiology Associates, Inc. ("URA"). USI and its subsidiaries
owned and operated eight diagnostic imaging centers in Houston and San Antonio,
Texas. Additionally, on February 12, 1999, the Company sold to URA certain
assets relating to the Company's billing and regional corporate offices located
in Houston and San Antonio, Texas. URA is affiliated with Dr. L.E. Richey, M.D.,
who was Chairman of the Board of the Company. Effective February 12, 1999, Dr.
Richey resigned as Chairman of the Board and as a Director of the Company. The
Company obtained a fairness opinion in connection with the transaction. The
consideration received for the stock of USI and for the billing and regional
corporate office assets totaled $11.7 million, consisting of cash received of
$8.6 million, a secured promissory note of $1.9 million, due February 12, 2001,
with interest at 6% payable semi-annually, and debt assumed by URA of $1.2
million. Immediately upon the closing, $6.2 million of the cash proceeds were
used to repay a portion of the outstanding balance under the DVIBC credit loan
(see Note 6), and another $1.4 million was paid to DVI in full payment of an
equipment loan. In April 1999, URA defaulted on the note (see Note 20).
On January 22, 1999, the Company sold its interest in Integrated Health
Concepts, Inc. ("IHC") to Dr. Mohammad Athari, M.D., ("Athari") the owner of a
minority interest in IHC. IHC and its subsidiaries owned and operated six
diagnostic imaging centers in Houston, Texas. The sales price was $11.7 million,
consisting of cash received of $3.3 million and the assumption by Athari of debt
amounting to $8.4 million. Immediately upon the closing, $1.0 million of the
cash proceeds were used to repay a portion of the outstanding balance under the
DVIBC credit loan (see Note 6).
In November 1998, the Company sold its 100% interest in US Heartcare Management,
Inc. ("US Heartcare"). US Heartcare provided management services to several
third party nuclear medicine and diagnostic imaging centers in the New York City
metropolitan area. The sale was effective as of October 1, 1998. The $12.0
million aggregate consideration received consisted of $2.7 million in cash,
notes receivable of $1.0 million ($500,000 of which is due in various monthly
and quarterly installments with interest at 7% per annum, and the remaining
$500,000 due on September 30, 2001 with interest at 7% per annum payable
quarterly), and the assumption and forgiveness of debt by the purchaser
aggregating $8.3 million. Additionally, as part of the transaction, the Company
entered into an agreement for the provision of general consulting services to US
Heartcare for an annual fee of $500,000, payable quarterly in arrears, for a
period of three years. During February and March 1999, the purchaser of US
Heartcare paid the entire $1.0 million of notes receivable to the Company
without penalty.
In May 1998, the Company sold certain non-core assets consisting of the
Company's mobile subsidiary, Medical Diagnostics, Inc. ("MDI"), which had been
acquired during 1997, to Alliance Imaging Inc. for $35.5 million in cash less
debt assumed of $5.9 million. Immediately upon the closing, the Company used
$25.0 million of the cash proceeds to repay a portion of the outstanding balance
under the DVIBC credit loan.
52
<PAGE> 53
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Also in May 1998, the Company sold its 50.1% interest in United States Cancer
Care Inc., a non-core asset, and its 100% interest in a subsidiary which held a
50% interest in a radiation oncology partnership, (collectively, the "Oncology
Interests"), to USCC Acquisition Corp. ("USCC"), a Delaware corporation. Upon
the closing, USCC changed its name to U.S. Cancer Care, Inc. The sale price
consisted of $2.0 million in cash, a promissory note for $750,000 due in
twenty-four equal installments from May 1999 through April 2001 with interest at
8% per annum, and the assumption by USCC of certain additional liabilities
aggregating approximately $1.4 million.
All of the acquisitions made by the Company during each of the three years in
the period ended December 31, 1999, were accounted for under the purchase method
of accounting. The Company allocates the purchase price to net assets acquired
based upon their estimated fair market values. During the initial year after
acquisition the Company may adjust the allocation of the purchase price as more
information becomes available.
During 1997, the only acquisition made by the Company was Medical Diagnostics,
Inc. in the first fiscal quarter. Total consideration paid was approximately
$22.0 million in cash and assumption of debt of $8.6 million. MDI provided fixed
and mobile diagnostic imaging services to approximately 40 hospitals. As further
discussed above, in May 1998 the Company sold MDI.
Effective April 1, 1998, the Company purchased from Phycor of Jacksonville, Inc.
("Phycor"), a wholly-owned subsidiary of Phycor, Inc., certain accounts
receivable owned by Phycor as well as Phycor's 50% interest in Diagnostic Equity
Partners ("DEP"), a joint venture between the Company and Phycor. The purchase
price was $2.0 million, of which $1.5 million was paid (without interest) in
July 1998, and the remaining $500,000 was paid in two equal installments
(without interest) in October 1998 and January 1999. The Company's interest in
DEP had previously been accounted for under the equity method of accounting. As
a result of the purchase, DEP was dissolved, and the assets and liabilities of
DEP have been recorded by the Company. The Company operates the imaging centers
previously managed by DEP.
On December 31, 1998, the Company purchased the remaining 50% interest in
Imaging Center of Orlando for $1.3 million. Half of such purchase price is
payable in six equal quarterly installments beginning April 1999 including
interest at 7% per annum. The other half of such purchase price is payable at
any time at the discretion of the Company for a period of five years from date
of purchase with an option to extend for an additional five years, with
accumulated interest at 4.5% which was the federal interest rate under Internal
Revenue Code Section 1274 (d) at December 31, 1998.
During the second quarter of 1999, the Company acquired a facility for
approximately $900,000 and merged its operations with an existing facility.
In connection with a certain 1996 acquisition, the Company guaranteed to
repurchase 206,000 shares of the Company's common stock issued to the seller if,
on the last trading day prior to the second anniversary of the closing date (as
defined), the market price of the Company's common stock was more than $2.00
below a defined price. The Company placed 103,000 of these shares into escrow,
which were released in late 1997 when certain earnings targets were met. The
Company's share price was more than $2.00 below the defined price as of the
specified date, resulting in a liability to repurchase the common stock at a
total price of approximately $1.9 million. As of December 31, 1997, the Company
had
53
<PAGE> 54
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
recorded $1.2 million ($825,000 in 1996 and $379,000 in 1997) in paid-in
capital to reflect the market price as of the date earned of the 206,000 shares
and recorded a "purchase price due on companies acquired" of approximately
$694,000 (representing the difference between amount to be paid of $1.9 million
and the recorded value of the shares to be repurchased). As a result, goodwill
of $1.9 million related to the required repurchase of the 206,000 shares was
recorded as of December 31, 1997. In June, 1998, the Company reached an
agreement with the seller for the payment of $1.9 million over 36 equal
installments plus interest at 10%, and the 206,000 shares were returned to the
Company and retired. As a result, the Company recorded a liability of $1.9
million, reduced common stock and paid-in capital by $1.2 million, and reduced
purchase price due on companies acquired by $700,000.
The Company also entered into non-compete agreements with certain individuals of
some of the companies acquired. The cost of these non-compete agreements is
recorded as an intangible asset as of the date of the related acquisition and
amortized over the contractual life of the agreement.
The results of operations of the acquired businesses are included in the
Company's consolidated statements of operations from the date of acquisition.
54
<PAGE> 55
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following summarizes the unaudited pro forma effect of the businesses
acquired in 1999, 1998 and 1997, accounted for under the purchase method as if
the businesses had been acquired as of the beginning of the year immediately
preceding the year of acquisition. This presentation is prepared in accordance
with generally accepted accounting principles and does not reflect estimates for
potential operating efficiencies and other cost savings.
UNAUDITED:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
In thousands, except per share data
Net revenue as reported $ 155,602 $ 195,735 $ 216,222
Effect of acquisitions 164 3,319 11,305
--------- --------- ---------
Pro forma net revenue $ 155,766 $ 199,054 $ 227,527
========= ========= =========
Loss before extraordinary item as reported $ (10,793) $ (512) $(116,712)
Effect of acquisitions 56 62 109
--------- --------- ---------
Pro forma loss before extraordinary item $ (10,737) $ (450) $(116,603)
========= ========= =========
Net income (loss) as reported $ (8,195) $ 4,799 $(116,712)
Effect of acquisitions 56 62 109
--------- --------- ---------
Pro forma net income (loss) $ (8,139) $ 4,861 $(116,603)
========= ========= =========
Basic and diluted loss per common share
Loss before extraordinary item as reported $ (.47) $ (.02) $ (5.26)
Effect of acquisitions -- -- --
--------- --------- ---------
Pro forma loss before extraordinary item $ (.47) $ (.02) $ (5.26)
========= ========= =========
Basic and diluted loss per common share
Net income (loss) as reported $ (.36) $ .21 $ (5.26)
Effect of acquisitions -- -- --
--------- --------- ---------
Pro forma net income (loss) $ (.36) $ .21 $ (5.26)
========= ========= =========
</TABLE>
55
<PAGE> 56
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[12] STOCK OPTION PLANS AND WARRANTS
At December 31, 1999, the Company has two stock-based compensation plans. In
accordance with SFAS No. 123 "Accounting for Stock-Based Compensation", ("SFAS
No. 123"), the Company has accounted for all stock-based compensation grants
issued to non-employees subsequent to December 15, 1995 as provided for by SFAS
No. 123. The Company has elected to continue to account for its stock-based
compensation grants to employees and directors in accordance with the provisions
of APB Opinion No. 25 "Accounting for Stock Issued to Employees". However, in
accordance with SFAS No. 123, the pro forma effect of the issuance of such
options is set forth below. The fair value of each option granted subsequent to
December 15, 1995 to non-employees and employees has been estimated as of the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 5.7 percent
to 6.6 percent for 1997, 4.3 percent to 5.5 percent for 1998, and 5.9 percent
for 1999; dividend yield of zero percent for all years; expected lives ranging
from 3 to 6 years for 1997, and 2 to 5 years for 1998, and 1 to 5 years for
1999; and volatility of 82 percent for 1997, 87 percent for 1998, and 90 percent
for 1999. Compensation cost charged to operations in connection with the
Company's stock-based compensation plans totaled $3.6 million (including $2.3
million which is included in the net Settlement to Former Chief Executive
Officer) in 1997, $1.2 million in 1998, and $573,000 in 1999, respectively.
The following represents the pro forma effect had the Company valued all of its
stock-based compensation in accordance with SFAS No. 123 using the option
pricing model assumptions described above.
In thousands, except per share data
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)
As reported $ (8,195) $ 4,799 $ (116,712)
Pro forma $ (8,305) $ 2,893 $ (120,758)
Basic and diluted earnings (loss) per share
As reported $ (.36) $ 0.21 $ (5.26)
Pro forma $ (.36) $ 0.13 $ (5.44)
</TABLE>
The Company's 1993 Stock Option Plan (the "1993 Plan") provides for the issuance
of incentive stock options and non-qualified stock options. Under the terms of
the 1993 Plan, a maximum of 200,000 shares of the Company's common stock may be
issued upon the exercise of stock options granted thereunder. The 1993 Plan
provides for administration by the Company's Board of Directors (or a committee
of the Board of Directors) which, subject to the terms of the 1993 Plan,
determines to whom grants are made and the vesting, timing, amounts and other
terms of such grants. Incentive stock options may be granted only to employees
of the Company, while non-qualified stock options may be granted to the
Company's employees, officers, directors, consultants and advisors. The exercise
price of incentive stock options may not be less than the fair market value of
the Company's common stock on the date of grant and the term of these options
may not exceed 10 years; however, with respect to incentive stock options
granted to holders of more than 10% of the Company's common stock, the exercise
price may not be less than 110% of the fair market value of the Company's common
stock on the date of grant and the term of these options may not exceed five
years. The 1993 Plan has no options available for new grants since December 31,
1998.
56
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The Company's 1995 Long-Term Incentive Plan (the "1995 LTIP") provides for the
issuance of incentive stock options and non-qualified stock options. The 1995
LTIP also provides for awards of restricted stock. Under the terms of the 1995
LTIP, as amended, a maximum of 4,000,000 shares of the Company's common stock
may be issued upon the exercise of stock options granted thereunder and a
maximum of 700,000 shares of common stock are available for restricted stock
awards. The 1995 LTIP provides for administration by the Company's Board of
Directors (or a committee of the Board of Directors) which, subject to the terms
of the 1995 LTIP, determines to whom grants are made and the vesting, timing,
amounts and other terms of such grants. The 1995 LTIP provides that the total
number of shares of common stock that may be subject to stock options or
restricted stock awards granted to any person in any calendar year may not
exceed 25% of the maximum number of shares that may be issued and sold under the
Plan. The Company has a policy pursuant to which non-employee directors shall
receive an option to purchase shares of common stock under the 1995 LTIP on the
date that such director first becomes a director. Effective August 1999, the
Board of Directors approved a new non-employee director compensation plan which
included a grant to each non-employee director of 100,000 options to purchase
the Company's common stock. The options granted to current non-employee
directors were granted at a price equal to $.91 per share, the closing price of
the Company's stock on August 27, 1999. The options vest immediately and have a
five year term.
A summary of the status of the Company's two stock option plans at December 31,
1999, 1998 and 1997, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,556 $ 4.42 3,171 $ 7.97 2,620 $ 8.42
Granted:
Exercise price equals market price 400 .91 2,410 1.68 695 6.76
Exercise price is less than market price -- -- -- -- -- --
Exercised -- -- -- -- (16) (4.44)
Forfeited (1,682) 6.00 (2,025) (6.72) (128) (11.06)
------ --------- ------ --------- ------ ---------
Outstanding at end of year 2,274 $ 2.61 3,556 $ 4.42 3,171 $ 7.97
====== ========= ====== ========= ====== =========
Options exercisable at end of year 1,691 1,807 1,975
Weighted-average fair value of options
granted during the year:
Exercise price equals market price $ .91 $ 1.68 $ 6.76
Exercise price is less than market price N/A N/A N/A
</TABLE>
57
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following table summarizes information about stock options outstanding at
December 31, 1999. (Shares in thousands)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
Shares Shares
Range of Exercise Outstanding at Weighted-Average Weighted-Average Exercisable Weighted-Average
Price 12/31/99 Remaining Life Exercise Price at 12/31/99 Exercise Price
----------------- -------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.91 - $ 0.91 400 4.65 $ 0.91 400 $ 0.91
$ 0.94 - $ 0.94 1,135 3.95 0.94 630 0.94
$ 4.00 - $7.00 465 1.49 4.99 416 5.09
$ 7.13 - $9.00 250 1.58 7.41 233 7.32
$13.63 - $13.63 24 3.43 13.63 12 13.63
----- ------ ------ ----- ------
$ 0.91 - $13.63 2,274 3.30 $ 2.61 1,691 $ 2.92
===== ====== ====== ===== ======
</TABLE>
Not issued pursuant to the plans discussed above are a total of 225,000 warrants
outstanding at December 31, 1999, issued during 1995 to individuals to purchase
common stock at exercise prices ranging from $5.00 to $5.13.
In connection with the Company's 1994 and 1995 public stock offerings, the
Company issued unit purchase options to the underwriters. The 1994 options allow
the holder to acquire 170,000 shares of common stock at $7.25 per share, 170,000
warrants convertible into common stock at $6.25 per share and 340,000 warrants
convertible into shares of common stock at $8.00 per share. These options and
related warrants expired in October 1999. The 1995 options allow the holder to
acquire 161,500 shares of common stock at $7.82 per share, 161,500 warrants
convertible into shares of common stock at $6.25 per share and 323,000 warrants
convertible into shares of common stock at $8.00 per share. These options and
related warrants, which are convertible into a total of 646,000 shares, are
outstanding at December 31, 1999, and expire November 15, 2000.
In connection with the 1996 issuance of the Company's Subordinated Convertible
Debentures, warrants to acquire 319,445 shares of the Company's common stock at
$9.00 per share were issued to the underwriter, such warrants expire March 31,
2003. All of these warrants are outstanding at December 31, 1999.
During 1995 and 1996, the Company granted, respectively, 50,000 and 195,000
shares of restricted common stock to the Company's former Chief Executive
Officer under the 1995 LTIP. These restricted stock grants vested over two and
five years, and the Company recorded deferred charges of $175,000 and $2.5
million, respectively, to be amortized over the vesting period of the stock. The
unamortized deferred compensation balance of approximately $2.1 million was
recorded as part of Settlement with Former Chief Executive Officer during the
second quarter ended June 30, 1997 (see Note 19).
The Company granted 94,000 and 51,000 shares of restricted common stock to
certain other officers and directors of the Company in 1996 and 1997,
respectively, under the 1995 LTIP. These restricted stock grants have vesting
periods ranging from two to five years. Related deferred charges in 1996 and
1997 amounted to $1.2 million and $440,000, respectively, which are being
amortized to compensation expense over the vesting periods of the restricted
stock. The unamortized deferred compensation
58
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
balance as of December 31, 1999 and 1998 is $247,000 and $567,000, respectively.
In March 1997, the Company granted options to acquire 100,000 shares of the
Company's common stock to its then Chairman of the Board and options to acquire
35,000 shares of the Company's common stock to each of two directors, all under
the 1995 LTIP. 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 19). The options vested on
September 30, 1997. 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. As of December
31, 1999 all of these options were canceled.
During 1997, the Company issued to one of its lenders 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. In connection with additional financing in December
1998 by the same lender, the two warrants were canceled and a new warrant was
issued to purchase 250,000 shares of common stock of the Company at an exercise
price of $0.938 per share. See Notes 6 and 7.
On July 13, 1998, the Board of Directors of the Company elected Dr. L.E. Richey,
M.D., then a Co-Chairman of the Board of the Company, to the position of sole
Chairman of the Board. Concurrently, the Company granted Dr. Richey options to
purchase 350,000 shares of the Company's common stock under the 1995 LTIP in
recognition of the extensive amount of time he devoted to the Company and in
anticipation of his future contributions as Chairman. The options were
exercisable at a price of $3.50, which represented the closing price of the
Company's common stock on the day immediately preceding the date of grant, and
fully vest one year from the date of grant.
On December 11, 1998, options to purchase 1,966,000 shares of the Company's
common stock under its 1995 LTIP were canceled. These canceled options were
granted at various times in the past and under various terms and conditions (at
exercise prices ranging from $3.69 to $13.50), with 1,215,000 of such total
having been issued to current directors and executive officers of the Company
and 751,000 having been issued to other employees. Concurrent with the
cancellation of these options, options (hereinafter defined as "new options") to
purchase 1,165,001 shares of the Company's common stock under the 1995 LTIP were
granted to current directors and executive officers, and new options to purchase
530,000 shares of common stock were granted to certain other employees. The
December 1998 cancellation and reissuance was consummated in lieu of the July
1998 cancellation and reissuance previously disclosed which was not consummated.
The new options were issued in order to provide an appropriate incentive to the
grantees, especially those whose previous options were granted with exercise
prices substantially above the current market price of the Company's common
stock. All such new options are exercisable at a price of $0.937, which
represents the closing price of the Company's common stock on the day
immediately preceding the date of grant. New options issued to non-employee
directors fully vest on the first anniversary of the date of grant and have a
term of five years. All other new options granted vested 25% at date of grant
and will vest 25% on each anniversary date thereafter, and have a term of five
years. During 1999, 560,000 of these options were canceled, of which 515,000
were granted to previous executive officers and directors and 45,000 were
granted to other employees. As of December 31, 1999, 1,135,000 of these options
remain outstanding. At December 31, 1999, Dr. Richey was no longer on the
Company's Board of Directors, and all of his options granted as described herein
have been canceled.
59
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[13] EARNINGS PER SHARE
The Company had a loss before extraordinary item in each of the three years in
the period ended December 31, 1999, and all potentially dilutive securities were
excluded from basic and diluted earnings per share in each year since the effect
would be anti-dilutive. Such potentially dilutive securities consist of the
following: (i) unexercised stock options and warrants to purchase 3.7 million,
6.1 million and 5.7 million shares of the Company's common stock as of December
31, 1999, 1998 and 1997, respectively; (ii) 3.6 million, 5.0 million and 7.8
million shares of the Company's common stock issuable upon conversion of
convertible debt as of December 31, 1999, 1998 and 1997, respectively; (iii)
unvested restricted stock amounting to 165,600, 199,000 and 228,000 shares of
the Company's common stock as of December 31, 1999, 1998 and 1997, respectively;
and (iv) 271,000 shares of the Company's common stock held in escrow as of
December 31, 1997, to be released to the sellers related to certain acquisitions
only if certain earnings targets were achieved. As of December 31, 1998, all
shares of the Company's common stock held in escrow had been released.
[14] COMMITMENTS
The Company and its subsidiaries have non-cancelable operating leases for use of
their facilities and various equipment. These leases may require payment of
various expenses as additional rent. Certain leases contain renewal options and
escalation clauses.
Minimum future rental payments for each of the next five years and thereafter
under non-cancelable operating leases having remaining terms in excess of one
year as of December 31, 1999 are:
In thousands
Date Amount
---- --------
2000 $ 12,929
2001 10,322
2002 8,055
2003 6,936
2004 5,727
Thereafter 15,769
--------
Total $ 59,738
========
Rent expense for the years ended December 31, 1999, 1998 and 1997, under various
operating leases amounted to $9.8 million, $13.2 million and $10.5 million,
respectively.
The Company has comprehensive maintenance contracts with its equipment vendors
for its magnetic resonance imaging ("MRI"), computerized tomography ("CT") and
other diagnostic medical equipment. The terms of these contracts are between one
and five years, but may be canceled by the Company under certain circumstances.
Such non-cancelable service contracts are included in the minimum future rental
payments schedule above. In addition, the Company has approximately $3.4 million
of purchase commitments for capital expenditures as of December 31, 1999.
The Company has entered into employment agreements with certain officers. The
employment agreements have original terms of one to five years. All of the
agreements provide for a specific amount
60
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
of annual base salary. Certain of the agreements provide for incentive bonuses,
stated minimum base salary increases, and options to acquire the Company's
common stock. In addition, certain of the employment agreements, including at
will contracts, provide that in the event of certain changes in control of the
Company, the officers may deem their employment terminated and receive lump sum
payments pursuant to terms provided in each of the applicable employment
agreements. The aggregate amount of compensation under all existing employment
agreements, based upon the base salaries in effect at December 31, 1999, for the
remaining terms of the respective employment agreements, was approximately $1.3
million at December 31, 1999. In addition, the amount of compensation in the
event of certain changes in control of the Company, was approximately $2.6
million at December 31, 1999.
Each of the Company's Facilities has agreements with radiologists as independent
contractors under long-term agreements to provide all radiology services to the
Facilities. Radiologist compensation ranges between 10% and 21% of net
collections attributable to radiology services performed by the radiologist.
[15] CONCENTRATION OF CREDIT RISKS
The Company's imaging centers grant credit without collateral to its patients,
most of whom are residents of the areas where the centers are located and are
insured under third-party payor agreements.
The mix of receivables from third-party payors and patients at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Medicare and Medicaid 13% 12%
Workers' Compensation and Self Pay 11 10
Commercial 17 17
Managed Care 36 36
Other 23 25
-------- --------
Total 100% 100%
======== ========
</TABLE>
[16] 401(k) PROFIT SHARING PLAN
The 401(k) Profit Sharing Plan (the "401(k) Plan") is offered to full-time
employees who have completed six months of service. Eligible employees may make
elective deferrals in any amount up to 15% of their compensation. The Company
contributes 100% of the amount withheld from the Participant's compensation (up
to a maximum of 3%) and may make additional discretionary contributions.
Employer contributions to the 401(k) Plan totaled $464,000, $486,000 and
$526,000 in fiscal 1999, 1998 and 1997, respectively.
[17] EXTRAORDINARY ITEM
The Company repurchased approximately $12.5 and $22.9 million, aggregate
principal amount of its Convertible Subordinated Debentures in the open market
during 1999 and 1998, respectively, for amounts less than the recorded amounts
(see Note 7). The Company financed the purchase of the Debentures from
borrowings under a $25.0 million loan agreement entered into with DVIFS in
December
61
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1998 (see Note 6). The transaction resulted in an extraordinary gain after taxes
in 1999 and 1998 of approximately $2.6 and $5.3 million, respectively.
[18] INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
In 1997, as the result of losses incurred by Diversified Therapy Corporation
("DTC"), a previously 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 quarter ended June 30, 1997, representing the Company's entire
recorded investment in DTC. Such loss amount is included in asset impairment
losses in 1997 as discussed in Notes 2 and 5. On December 31, 1998, the Company
sold its interest in DTC for a nominal amount which included a note receivable
for $250,000, and a common stock purchase warrant for 416,662 shares of DTC.
Effective April 1, 1998, the Company purchased from Phycor certain accounts
receivable owned by Phycor as well as Phycor's 50% interest in DEP (see Note
11). The Company's interest in DEP had previously been accounted for under the
equity method of accounting. As a result of the purchase, DEP was dissolved, and
the assets and liabilities of DEP have been recorded by the Company. The Company
operates the centers previously managed by DEP. For the three months ended March
31, 1998, DEP had total revenues of $3.0 million, total expenses of $3.3
million, and a net loss of $320,000. At December 31, 1997 DEP had current assets
of $444,000 and total assets of $11.0 million, current liabilities of $4.0
million and total liabilities of $9.3 million and total partnership capital of
$1.7 million. During 1997, DEP had total revenues of $11.5 million, total
expenses of $12.5 million, and a net loss of $1.0 million.
62
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US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following is a combined financial summary of all unconsolidated subsidiaries
(other than DEP discussed above), which the Company is accounting for under the
equity method. The Company's ownership interests in the partnerships varies
between 18% and 50%. On December 17, 1998, one of the partnership entities was
dissolved and the operations were terminated. In 1998, the Company opened a
center in the same city that provides similar as well as expanded services. The
Company's combined investments in and advances to these entities were $4.5
million and $1.3 million as of December 31, 1999 and 1998, respectively.
In thousands, as of December 31:
1999 1998
------ ------
Current Assets $5,105 $5,121
Non-Current Assets 3,297 3,359
------ ------
Total Assets $8,402 $8,480
====== ======
Current Liabilities $1,725 $1,650
Non-Current Liabilities 2,175 2,921
Partnership Capital 4,502 3,909
------ ------
Total Liabilities and Capital $8,402 $8,480
====== ======
1999 1998 1997
------- ------- -------
Results of Operations
Net Revenue $12,798 $12,571 $12,237
Expenses 7,706 7,345 7,224
------- ------- -------
Net Income $ 5,092 $ 5,226 $ 5,013
======= ======= =======
During July 1999, the Company contributed certain assets of a wholly-owned
subsidiary to a 50% owned joint venture, Jefferson Magnetic Resonance Imaging,
LLC. The goodwill related to these assets was recorded as Investment in
Unconsolidated Subsidiaries. Equity in the net income of the subsidiary which
has been reduced by the amortization of goodwill, is reflected in the
accompanying consolidated statements of operations. Goodwill is being amortized
using the straight-line method over seven years, the term of the joint venture
agreement. Amortization expense of $192,000 was recorded in 1999.
The reconciliation of the investment in the unconsolidated subsidiaries at
December 31, 1999, in thousands, is as follows:
Equity Interest at Respective Ownership Percentages $1,491
Advances to Unconsolidated Subsidiaries 244
Unamortized Goodwill 2,741
------
Carrying Value $4,476
======
63
<PAGE> 64
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[19] TERMINATION OF EMPLOYMENT AND CONSULTING AGREEMENTS
On February 3, 1997, Jeffrey Goffman, at the time the Company's Chairman and
Chief Executive Officer, was voluntarily placed on administrative leave by the
Company's Board of Directors. During this administrative leave, he was relieved
of all corporate duties and did not participate in any meetings of the Company's
Board of Directors. On March 25, 1997, Mr. Goffman declared his election to
treat himself as having been terminated without cause by the Company under his
employment contract, thus, invoking constructive termination provisions of his
employment agreement. This action followed the recommendation of a Special
Committee of the Board of Directors reviewing the Company's former relationship
with Coyote Consulting and Keith Greenberg, an employee of Coyote who had
provided services to the Company.
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 $33,000 implementing the terms of the letter and
agreed to pay an additional $267,000 in sixteen equal monthly consecutive
installments of $17,000 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) would become vested and
be placed in an escrow account. All of Mr. Goffman's options were canceled as of
December 31, 1999.
The $165,000 paid to Mr. Goffman upon execution of the Letter, the $33,000 paid
within two days of the execution of the Settlement Agreement, the $267,000 to be
paid over sixteen months and unamortized deferred compensation relating to Mr.
Goffman in the amount of $2.3 million were recorded in Settlement with Former
Chief Executive Officer during the second 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 including
ownership of the escrow account previously established. Pursuant to this
settlement, Mr. Goffman agreed to contribute $1.0 million to the Company's
settlement of the class actions in the form of $850,000 cash and the forgiveness
of the next nine monthly payments totaling $150,000 which would otherwise be due
to him from the Company under the earlier settlement. Mr. Goffman delivered the
$850,000 to the Company on March 17, 1998. The Company thereafter released its
claim to the remainder of the securities covered by the Escrow and Settlement
Agreement.
During the quarter ended September 30, 1997, a credit of $1.0 million was
recorded in Settlement with Former Chief Executive Officer to reflect the
contributions and debt forgiveness from Mr. 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.
64
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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. During this administrative leave, Mr. Karsch 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. 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.
The Company has not agreed to any severance arrangements with Mr. Karsch. At
December 31, 1998, the Company had deferred compensation totaling $93,000
relating to Mr. Karsch which is included in Deferred Stock-Based Compensation in
the accompanying consolidated balance sheets. Such deferred compensation has
been fully amortized in 1999.
Coyote Consulting and Keith Greenberg (an employee of Coyote) sued the Company
alleging that they were entitled to receive additional cash, stock and/or
options in an unspecified amount in connection with the Company's December 1996
termination of its consulting relationship with Coyote. The complaint was
dismissed in 1999.
[20] LITIGATION
CENTRE COMMONS MRI LTD., ET. AL. VS. US DIAGNOSTIC INC. ET. AL.; SANDERS ET. AL.
VS. US DIAGNOSTIC INC. ET. AL. - These two suits, which were filed against the
Company by sellers of diagnostic imaging centers who received the Company's
common stock in partial payment of the purchase price for their centers and who
alleged that undisclosed facts regarding the background of Keith Greenberg (a
former consultant to the Company) were material to their decision to sell, were
settled in 1999. In connection with the first of these actions (Centre Commons
MRI Ltd., et. al. v. US Diagnostic et. al.), in the United States District Court
for the Western District of Pennsylvania, the sellers of multiple centers in
Pennsylvania sought to compel the Company to repurchase approximately 750,000
shares of its common stock at a price of $12.125 per share and also alleged that
the Company's failure to register such shares under the Securities Act of 1933
diminished their value. The lawsuit was settled by agreement that USD would pay
$1,800,000 over a period of 30 months (beginning December 1999). In the second
suit (Sanders et. al. v. US Diagnostic et. al.) in the United States District
Court for the Eastern District of New York, four participants in limited
partnerships which sold the Company three imaging centers in New York sought to
recover damages of up to $2,000,000. The lawsuit was settled by agreement that
USD would pay $180,000 over a period of eight months (beginning October 1999).
US DIAGNOSTIC INC. VS. UNITED RADIOLOGY ASSOCIATES INC. AND L.E. RICHEY; LISA
BROCKETT, AS TRUSTEE FOR REESE GENERAL TRUST VS. US DIAGNOSTIC INC., JEFFREY A.
GOFFMAN, KEITH GREENBERG AND ROBERT D. BURKE; US DIAGNOSTIC INC. VS. UNITED
RADIOLOGY ASSOCIATES, INC. ET. AL. - In April 1999, the Company sued United
Radiology Associates, Inc. ("URA") in the United States District Court for the
Southern District of Texas for breach of contract and related claims relating to
the sale of the stock of U.S. Imaging Inc. ("USI") to URA by the Company in
February 1999, and the Company simultaneously filed a claim in the same court
against Dr. L.E. Richey, a former director and chairman of the Board of the
Company, for breach of a personal guaranty in connection therewith. Dr. Richey
is the chief executive officer and a director of URA. URA has filed
counterclaims against the Company. The Company intends to vigorously prosecute
its suit against URA and Dr. Richey and believes it has substantive defenses to
URA's counterclaims, although there can be no assurances. In June 1999, Lisa
Brockett, as Trustee for the Reese General Trust, filed suit against the
Company, among others, in the 333rd Judicial District
65
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Court of Harris County, Texas, alleging, among other claims, that (a)
undisclosed facts regarding the background of Keith Greenberg, who provided
consulting services to the Company, were material to the Trust's decision to
receive 1,671,000 shares of Company common stock as partial consideration for
the sale by the Trust of the stock of USI to the Company in June 1996; and (b)
the value of the shares was diminished by the Company's failure to register the
shares under the Securities Act and by the Company's subsequent restatement of
its quarterly report for the quarter ended March 31, 1996. Lisa Brockett is the
daughter of Dr. Richey. The Plaintiff has not specified the amount of actual
damages sought and the suit remains in an early stage. The Company intends to
vigorously defend the suit, and it believes it has substantive defenses and
counterclaims but there can be no assurances that the Company will prevail. Both
cases were stayed by agreement of the parties through late March 2000 pending
settlement discussions, and a further minimum ninety day extension of the stay
has been agreed to by the parties recently, subject to court approval at the end
of March.
In connection with the sale of USI, USD received a secured promissory note of
$1.9 million, due February 12, 2001, with interest at 6% payable semi-annually
(the "Note") as part of the total consideration in selling its interest in USI
to URA. URA and Dr. Richey have acknowledged the existence of the Note and Dr.
Richey has further acknowledged his personal guaranty of that Note. USD sued URA
for, among other things, a declaratory judgment, specific performance and breach
of contract, which breach accelerated the due date of the Note. Dr. Richey filed
counterclaims in response to USD's lawsuit and, to this date, has not paid
anything in connection with the Note. Although there can be no assurance, the
Company intends to vigorously pursue this matter as part of the overall
litigation described above and expects ultimately to receive full payment of the
Note.
SHELBY RADIOLOGY, P.C. V. US DIAGNOSTIC INC. ET AL. - In June 1997, the
plaintiff, Shelby Radiology, P.C. ("Shelby Radiology"), filed suit in Alabama
Circuit Court against US Diagnostic Inc. ("USD") alleging breach of a contract
to provide radiology services and, specifically, improper termination of an
alleged oral contract. In January 1998, Shelby Radiology amended its complaint
to include allegations of promissory fraud, misrepresentation and suppression.
Under both its fraud and breach of contract claims, Shelby Radiology was seeking
compensatory damages in the amount of $1.2 million as amounts it would have been
paid under the alleged oral agreement. In addition, Shelby Radiology sought
punitive damages pursuant to its fraud claims. The jury returned a verdict
against the Company in the amount of $1.1 million as compensatory damages on
plaintiff's fraud claim. The jury did not award any punitive damages. Based on
the advice of counsel, the Company believes that it has meritorious grounds for
appeal (although there can be no assurances of success). The Company has filed
its appeal. A ruling is expected by the end of 2000.
INVESTIGATION BY SECURITIES AND EXCHANGE COMMISSION - In December 1996, the
Securities and Exchange Commission ("SEC") commenced an investigation into the
Company's former relationship with Coyote Consulting and Keith Greenberg to
determine whether the Company's disclosure concerning that relationship was in
compliance with the federal securities laws. The Company is cooperating fully
with the SEC.
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
66
<PAGE> 67
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 in the ordinary course of business. While it is not feasible
to predict the outcome of these matters, and although there can be no
assurances, the Company does not anticipate that the ultimate disposition of any
such proceedings will have a material adverse effect on the Company.
[21] RELATED PARTY TRANSACTIONS
As of January 1, 1995, and amended effective September 1995, the Company entered
into a consulting agreement with Gordon Rausser, a member of the Company's Board
of Directors until June 10, 1999, to retain his services as an economic
consultant to the Company. The compensation under this agreement was (a) $25,000
cash for each quarter commencing January 1, 1995, through December 31, 1999, for
which he offered or agreed to serve on the Company's Board of Directors and
provided other consulting services to the Company; and (b) warrants to acquire
400,000 shares of the Company's common stock immediately exercisable at $5.00
per share through December 31, 1999. The warrants expired unexercised at
December 31, 1999.
In connection with Mr. Karsch, a former executive officer and director of the
Company, employment agreement, the Company provided him a loan of up to $100,000
for relocation expenses, of which $51,000 was outstanding as of December 31,
1999.
A member of the Company's Board of Directors, Keith Hartley, is the managing
partner of Forum Capital Markets L.P. ("Forum"). Forum was the underwriter of
the Company's $57.5 million Subordinated Convertible Debenture Offering
consummated in 1996 (see Note 7), and was paid an underwriting fee of $2.9
million. In addition, the Company sold to Forum, for nominal consideration,
warrants which entitle Forum to purchase 319,445 shares of common stock of the
Company at an exercise price of $9.00 per share. The warrants are outstanding as
of December 31, 1999. Mr. Hartley was elected to the Board of Directors of the
Company on September 19, 1996, subsequent to the Debenture Offering.
In connection with the MediTek acquisition, the Company issued a Note to HEICO
for $10.0 million. On September 10, 1997, certain terms of the Note were
amended, and on September 16, 1997, HEICO sold the Note to Forum, which on the
same day resold the note to 18 individual parties.
The Company entered into an Installation Agreement ("Installation Agreement")
dated February 27, 1997, and a Network Support Agreement ("Support Agreement")
dated July 31, 1997, with CIERRA Solutions, Inc. ("CSI"). A brother of Todd
Smith, who was a Vice President and the Chief Information Officer of the Company
through October 1998, was a substantial minority shareholder of CSI. CSI
provided project management services to the Company in connection with the
deployment of a wide area computer network to over 100 of the Company's
locations and other services from February 1996 to April 1999. The Installation
Agreement had a one-year term. The Support Agreement covered a six-month term
and was renewable by mutual consent of the parties for successive periods. The
Company decided not to renew the Support Agreement with CIERRA and let the
contract lapse on April 30, 1999. Payments made to CSI in the years ended
December 31, 1999, 1998, and 1997 totaled $347,000,
67
<PAGE> 68
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
$1.0 million, and $1.1 million, respectively, including reimbursement for
expenses and equipment purchases of $117,000, $206,000, and $268,000,
respectively.
The Company has a policy pursuant to which non-employee directors shall receive
an option under the Company's 1995 Long-Term Incentive Plan to purchase shares
of common stock on the date that such director first becomes a director.
Effective August 1999, the Board of Directors approved a new non-employee
director compensation plan which included a grant to each non-employee director
of 100,000 options to purchase the Company's common stock. See Note 12 for
further detail.
On January 20, 1998, Michael O'Hanlon, the President and Chief Executive Officer
of DVI, Inc., an affiliate of DVIBC and DVIFS, was elected to the Board of
Directors of the Company. DVIFS and DVIBC are lenders to the Company. As of
December 31, 1999, DVI had loans with aggregate principal amounts outstanding
with the Company of approximately $90.0 million. In 1999, the Company paid an
aggregate of approximately $25.9 million in principal and interest to DVI and
its affiliates on these loans. In 2000, it is anticipated that the Company will
pay an aggregate of approximately $26.5 million in principal and interest to DVI
and its affiliates on these loans. In addition, in December 1998 and January
1999, the Company paid DVIFS loan fees totaling $647,000 and paid DVIPC an
equity participation fee totaling $2.8 million, each in connection with certain
new financing. The Company had also issued DVI a warrant to purchase an
aggregate of 250,000 shares of common stock of the Company at an exercise price
of $.938 per share. In February 2000, the Company paid DVIFS $150,000 in
connection with a $3.2 million borrowing, effected after December 31, 1999. See
Notes 6 and 7.
In January 1998, the Company reimbursed Leon F. Maraist, the Company's Chief
Operating Officer, for $65,000 in relocation costs to facilitate his relocation
to Palm Beach County, Florida.
In August 1998, the Company purchased a condominium from J. Wayne Moor, the
Company's former Chief Financial Officer, for $200,000 to facilitate Mr. Moor's
relocation to Palm Beach County, Florida. In February 1999, the Company sold the
condominium for $187,000. Mr. Moor resigned as the Chief Financial Officer in
January 2000.
On February 12, 1999, L.E. Richey, M.D., a director and Chairman of the Board of
the Company, resigned in connection with the purchase of US Imaging, Inc. from
the Company by a corporation with which Dr. Richey is affiliated (see Note 11
for further discussions).
68
<PAGE> 69
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[22] SUBSEQUENT EVENTS
The Company borrowed $4.0 million from DVIBC in January 2000. The Company also
borrowed $4.2 million from DVIFS in February 2000, and $1.2 million in March
2000. The $4.2 million and the $1.2 million borrowings are collateralized by
existing medical equipment. The borrowings were incurred in order to meet the
Company's normal operating expenses.
During December 1999 and January 2000, the Company experienced a significant
disruption in its billing and collections function due to Year 2000 software
upgrades. For a period of several weeks, the Company was unable to bill in the
ordinary course of business. The Company has not yet fully recovered the amounts
affected by such disruption.
[23] SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 (a)
-----------------------------------------------------
(In thousands, except per share data) Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 39,928 $ 39,929 $ 38,469 $ 37,276
Loss before extraordinary items (1,427) (2,212) (2,914) (4,240)
Net income (loss) 1,171 (2,212) (2,914) (4,240)
Loss before extraordinary items per common
share - basic and diluted (.06) (.10) (.13) (.18)
Net income (loss) per common share - basic and diluted .05 (.10) (.13) (.18)
</TABLE>
<TABLE>
<CAPTION>
1998 (a)
-----------------------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net revenue $ 54,458 $ 52,459 $ 46,289 $ 42,529
Income (loss) before extraordinary items 746 3,411 (1,424) (3,245)
Net income (loss) 746 3,411 (1,424) 2,066
Income (loss) before extraordinary items per common
share - basic and diluted .03 .15 (.06) (.14)
Net income (loss) per common share - basic and diluted .03 .15 (.06) .09
</TABLE>
(a) Certain amounts have been reclassified to be consistent with the
presentation of the financial statements for the years ended December 31,
1999 and 1998. Net income (loss) during these periods was not affected for
these reclassifications.
69
<PAGE> 70
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Previously reported on Form 8-K dated October 30, 1998.
70
<PAGE> 71
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The following sets forth the names and ages of the four individuals serving on
the Company's Board of Directors, their respective principal occupations or
employment histories and the period during which each has served as a director
of the Company.
C. Keith Hartley -- age 57-- has been a member of the Board of Directors of the
Company since September 1996 and served as Co-Chairman of the Board from
December 1, 1997 to July 1998. Since August 1995, Mr. Hartley also has been
Managing Partner, Corporate Finance, of Forum Capital Markets LLC, 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, Inc.
David McIntosh -- age 53-- has been a member of the Board of Directors of the
Company since October 1998. Since June 1998, Mr. McIntosh has been the Chief
Executive Officer of Barricade International, Inc., a developer and distributor
of a fire-blocking gel. From 1984 through April 1998, Mr. McIntosh was the Chief
Executive Officer of Gunster, Yoakley, Valdes-Fauli and Stewart, P.A., a
prominent Florida-based international law firm. Prior to 1984, Mr. McIntosh was
a partner with Coopers & Lybrand, a public accounting firm. He is a director,
officer and active member of numerous local, state and national foundations,
committees, task forces, associations and charitable organizations. Mr. McIntosh
also is a director of Florida Banks, Inc., which operates a community banking
system in Florida through its wholly-owned banking subsidiary, Florida Bank,
N.A.
Michael A. O'Hanlon -- age 53-- has served as a director of the Company since
January 1998. Since November 1995, Mr. O'Hanlon has served as the President and
Chief Executive Officer of DVI, Inc. ("DVI"), the largest independent financier
to the health care market in the United States. Mr. O'Hanlon was President and
Chief Operating Officer of DVI from September 1994 to November 1995, and
previously served as Executive Vice President of DVI. For nine years prior to
joining DVI, Mr. O'Hanlon served as President and Chief Executive Officer of
Concord Leasing, Inc., a provider of medical, aircraft, shipping, industrial and
medical imaging equipment financing. Mr. O'Hanlon also is a director of DVI.
Joseph A. Paul -- age 42 -- has been a member of the Company's Board of
Directors and its President since July 1, 1996, its Chief Operating Officer from
July 1, 1996 through October 31, 1997, its interim Chief Executive Officer
effective February 1, 1997 and became the Company's Chief Executive Officer in
March 1997. From May 1994 to June 30, 1996, he was President of MediTek Health
Corporation ("MediTek"), 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. 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, served as a
Vice President of Columbia Ventures, Inc., a private investment company.
Mr. Paul is a member of the American Institute of Certified Public Accountants
and the Florida Institute of Certified Public Accountants.
71
<PAGE> 72
EXECUTIVE OFFICERS
The following sets forth certain information with respect to the executive
officers of the Company who served in 1999:
Francis J. Harkins, Jr. -- age 50 -- joined the Company in December 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 1996, as Corporate Secretary from 1995 to 1997 and as Vice President and
Associate General Counsel from 1996 to 1997, of Peoples Telephone Company, Inc.,
one of the largest independent operators of public pay telephones in the United
States.
Leon F. Maraist -- age 57 -- has served as Executive Vice President and Chief
Operating Officer of the Company since November 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 $1
billion nationwide dialysis division of NMC.
J. Wayne Moor -- age 48 -- served as the Chief Financial Officer and Executive
Vice President of the Company from June 1997 through January 2000 when Mr. Moor
resigned. From October 1994 until June 1997, Mr. Moor was an independent
accounting consultant, and he served in that capacity for the Company from
February 1997 until June 1997. From 1989 to October 1994, he was Executive Vice
President in charge of commercial real estate and business lending at Cartaret
Savings and AmeriFirst Banks.
P. Andrew Shaw -- age 43 -- has been Executive Vice President of the Company
since July 1996 . He was appointed Executive Vice President & Chief Financial
Officer in January 2000, having previously served as Chief Financial Officer of
the Company from July 1996 until June 1997. Previously, he served as Controller
of MediTek Health Corporation from February 1992 until June 1996 when MediTek
was acquired by the Company and was Controller of ExpoSystems for more than
seven years until February 1992. He is a Certified Public Accountant licensed in
Florida with six years of public accounting experience with KPMG Peat Marwick
and is a member of the Florida Institute of Certified Public Accountants and the
Financial Executives Institute.
72
<PAGE> 73
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 1999, 1998 and
1997, the compensation paid or accrued by the Company to its current Chief
Executive Officer and its three most highly compensated executive officers as of
December 31, 1999, (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------- -----------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Compensation Award(s) Options Compensation
Principal Position Year Salary($) Bonus($) ($)(1) ($)(2) (#) ($)
- ------------------- ---- --------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Paul 1999 281,918 100,000 12,000 -- -- 4,800(3)
Chief Executive Officer, 1998 235,000 100,000 12,000 -- 375,001 6,010(3)
President and Director 1997 222,346 50,000 15,240 -- 200,000 7,450(3)
Leon F. Maraist (4) 1999 200,000 33,333 9,000 -- -- 4,800(3)
Executive Vice President, 1998 200,000 50,000 9,000 -- 75,000 65,173(4)
Chief Operating Officer 1997 26,154 -- 1,177 -- 80,000 --
J. Wayne Moor (5) 1999 165,288 33,333 9,000 -- -- --
Former Executive Vice President, 1998 155,354 50,000 7,154 -- 75,000 622(5)
Chief Financial Officer 1997 76,154 -- 3,486 -- 50,000 46,110(5)
Francis J. Harkins, Jr. (6) 1999 145,385 43,333 6,000 -- -- 4,800(3)
Executive Vice President, 1998 135,000 20,000 6,000 -- 50,000 2,090(3)
General Counsel and Corporate 1997 4,154 -- 185 -- 25,000 --
Secretary
</TABLE>
- ----------
(1) Represents car allowance.
(2) The number of shares of unissued restricted stock at December 31,
1999 totaled 10,000 shares, all issued to Joseph A. Paul, which vest in
two equal annual installments, beginning on October 9, 2000. The
aggregate value of the restricted stock was $10,630 at December 31,
1999 based upon the closing market price of the Company's common stock
on that date. Dividends will be paid on restricted stock to the extent
paid on common stock.
(3) Represents Company contributions to the 401(k) Plan.
(4) Mr. Maraist's employment began in November 1997. During 1998, Mr.
Maraist was paid $64,932 as reimbursement for relocation expenses, and
the Company's contributions to the 401(k) Plan on his behalf totaled
$241.
(5) Mr. Moor's employment began in June 1997. Mr. Moor was paid $622 as
reimbursement for relocation expenses in 1998. During 1997, the Company
paid Mr. Moor a total of $46,110 in consulting fees prior to his
employment by the Company. Mr. Moor resigned on January 21, 2000.
(6) Mr. Harkins' employment began in December 1997.
73
<PAGE> 74
STOCK OPTIONS
The following table sets forth year-end option values for the Named Executive
Officers who held unexercised options at December 31, 1999:
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The-Money
Shares Unexercised Options At Options At
Acquired On Value Fiscal Year End (#) Fiscal Year End ($)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Joseph A. Paul 0 0 187,501/187,500 23,625/23,625
Leon F. Maraist 0 0 37,500/37,500 4,725/4,725
J. Wayne Moor 0 0 37,500/37,500 4,725/4,725
Francis J. Harkins, Jr. 0 0 25,000/25,000 3,150/3,150
</TABLE>
- ----------
(1) As of December 31, 1999, these options were in the money.
DIRECTOR COMPENSATION:
Prior to August 1999, directors who were not officers or employees of the
Company received (i) a payment of $1,000 for each meeting of the Board that they
attended and $500 for each committee meeting they attended, and (ii) options to
purchase 10,000 shares of common stock on the date such director was first
elected or appointed to the Board of Directors and each year thereafter on the
day of the first meeting of the Board of Directors immediately following the
Annual Meeting of Stockholders (so long as the director's term as a director
continued after such annual meeting).
In August 1999, the Board of Directors approved a new non-employee director
compensation plan which consists of (a) an annual cash retainer of ten thousand
dollars ($10,000) to each non-employee director, (b) one thousand dollars
($1,000) for each board meeting attended by a non-employee director and five
hundred dollars ($500) for a board committee meeting attended by a non-employee
director, and (c) a grant to each non-employee director of one hundred thousand
(100,000) options to purchase the Company's common stock. The options granted to
current non-employee directors were granted at a price equal to $.906 per share,
the closing price of the Company's stock on August 27, 1999. The options vest
immediately and have a five (5) year term. Board members are also reimbursed for
their reasonable expenses incurred in serving as a director of the Company. The
Board approved the new plan in order to enable the Company to attract and retain
board members of a high caliber and in light of studies which showed the
Company's existing director compensation plan to be lagging behind the
non-employee director compensation plans of other health care companies and
companies in general.
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 on July 1, 1996. 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 as amended provides for an
annual base salary of $235,000 during the first year of its term, and for annual
increases in each of the remaining years of at least 5%. The agreement also
provides for an annual bonus of $50,000 during the first year and a bonus in
each subsequent year as currently determined by the Compensation Committee. The
agreement provides that all options and restricted stock awards granted to Mr.
Paul will vest if he is terminated
74
<PAGE> 75
without cause or upon a change of the Company. The agreement also provides that,
upon the occurrence of certain events including a "change in control" of the
Company as defined in the agreement and a material breach of the agreement by
the Company, 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 year.
Leon F. Maraist and the Company entered into an employment agreement effective
on November 1, 1997 and continuing through November 1, 2000, pursuant to which
Mr. Maraist serves as Executive Vice President and Chief Operating Officer of
the Company. The agreement provides for an annual base salary of $200,000 and
payment of annual bonuses at the discretion of the Board of Directors. In
addition, Mr. Maraist has been granted 75,000 stock options pursuant to the
terms and conditions of the 1995 Plan. In the event of a "change in control" of
the Company as defined in the 1995 Plan, the unvested portion of the 75,000
options would automatically vest. The agreement also provided for reimbursement
of relocation expenses. In the event that the Company materially breaches the
employment agreement or in the event of the occurrence of certain changes in
control or ownership of the Company enumerated in the agreement, Mr. Maraist may
elect, by written notice to the Company, to deem his employment terminated by
the Company without cause and would be entitled to receive lump sum compensation
equal to twice his annual salary and incentive or bonus payments, if any, paid
to Mr. Maraist during the Company's most recent fiscal year.
J. Wayne Moor and the Company entered into a three-year employment agreement
effective on June 18, 1997 and ending June 17, 2000, pursuant to which Mr. Moor
would serve as Vice President and Chief Financial Officer of the Company. Mr.
Moor became an Executive Vice President of the Company on October 20, 1998. Mr.
Moor resigned on January 21, 2000. The agreement provided for an annual base
salary of $150,000 and payment of annual bonuses at the discretion of the Board
of Directors. The determination of bonus entitlement was based 50% upon the
profitability and performance of the Company and 50% upon Mr. Moor's
performance. Mr. Moor has been granted 75,000 stock options, 37,500 of which
were vested as of the date of his resignation.
P. Andrew Shaw and the Company entered into a one-year employment agreement
effective on January 27, 2000 and continuing through January 27, 2001 pursuant
to which Mr. Shaw serves as Executive Vice President and Chief Financial Officer
of the Company. The agreement provides for an annual base salary of $150,000 and
payment of bonus at the discretion of the CEO. Mr. Shaw has been granted 60,000
stock options pursuant to the terms and conditions of the 1995 Plan. In the
event of a "change in control" of the Company as defined in the 1995 Plan, the
unvested portion of the 60,000 options will automatically vest. In the event of
the occurrence of certain changes in control or ownership of the Company
enumerated in the agreement, Mr. Shaw may elect, by written notice to the
Company, to deem his employment terminated by the Company without cause and
would be entitled to receive lump sum compensation equal to twice his annual
salary and incentive or bonus payments, if any, paid to Mr. Shaw during the
Company's most recent fiscal year. In case of a termination without cause, Mr.
Shaw is entitled to a one-year severance agreement equal to his annual salary
and incentive or bonus payments, if any, paid to him during the Company's most
recent fiscal year.
Francis J. Harkins, Jr. and the Company entered into an employment agreement
effective on December 9, 1997 and continuing through November 30, 2000, pursuant
to which Mr. Harkins serves as Executive Vice President and General Counsel of
the Company. As amended, the agreement currently provides for an annual base
salary of $150,000 and payment of annual bonuses at the discretion of the
Company. In addition, Mr. Harkins has been granted 50,000 stock options pursuant
to the terms and conditions of the
75
<PAGE> 76
1995 Plan. In the event of a "change in control" of the Company as defined in
the 1995 Plan, the unvested portion of the 50,000 options would automatically
vest. In the event that the Company materially breaches the employment agreement
or in the event of the occurrence of certain changes in control or ownership of
the Company enumerated in the agreement, Mr. Harkins may elect, by written
notice to the Company, to deem his employment terminated by the Company without
cause and would be entitled to receive lump sum compensation equal to twice his
annual salary and incentive or bonus payments, if any, paid to Mr. Harkins
during the Company's most recent fiscal year.
In addition, each of the Named Executive Officers is entitled during the term of
his employment with the Company to customary employee benefits, such as paid
vacation, health insurance and a car allowance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Kenneth R. Jennings, Ph.D. and David McIntosh served on the Company's
Compensation Committee during 1999. Neither of the Compensation Committee
Members is or has been an officer or employee of the Company or any of its
subsidiaries. In addition, neither Jennings nor McIntosh has, or has had, any
relationship with the Company which is required to be disclosed under "Certain
Relationships and Related Transactions." No Company executive officer currently
serves on the compensation committee or any similar committee of another public
company.
76
<PAGE> 77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth, as of March 8, 2000, the
beneficial ownership of the Company's Common Stock ("Common Stock") by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock in reliance upon information set forth in any statements filed with
the Securities and Exchange Commission ("SEC") under Section 13(d) or 13(g) of
the Exchange Act, (ii) each director and Named Executive Officer of the Company
and (iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
-------------------------
Name Common Stock Percent
- ---- ------------ -------
<S> <C> <C>
Steel Partners II, L.P. 3,384,000(12) 14.9
150 East 52nd Street
21st Floor
New York, New York 10029
The Robert C. Fanch Revocable Trust 1,755,300(12) 7.7
1873 South Bellaire Street, Suite 1550
Denver, CO 80222
Lighthouse Capital Insurance Company 1,687,750 7.4
Anderson Square
3rd Floor
P.O. Box 112356T
Grand Cayman, BVI
Dimensional Fund Advisors Inc. 1,185,700(12) 5.2
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Francis D. Hussey, Jr. d/b/a Magnetic Scans 1,138,100(12) 5.0
2660 Airport Road South
Naples, FL 34112
C. Keith Hartley 494,445(2) 2.1
Michael A. O'Hanlon 138,000(3) *
Kenneth R. Jennings, Ph.D 110,000(4) *
David McIntosh 120,000(5) *
Joseph A. Paul 251,227(6) 1.1
Leon F. Maraist 47,664(7) *
J. Wayne Moor 37,500(8) *
Francis J. Harkins, Jr 25,100(9) *
P. Andrew Shaw 30,000(10) *
All directors and executive officers as a group (9 persons) 1,253,936(11) 5.3
</TABLE>
- ----------
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. Each beneficial owner's
percentage ownership is determined by assuming that convertible
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<PAGE> 78
securities, options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60 days
after March 8, 2000 have been exercised. Calculation of percentage
ownership was based on 22,658,033 shares of Common Stock outstanding as of
March 8, 2000.
(2) Mr. Hartley is a Managing Partner, Corporate Finance, of Forum Capital
Markets LLC ("Forum"), which served as an underwriter in connection with
the Company's $57.5 million subordinated convertible debenture offering.
Forum is the holder of record of warrants to purchase 319,445 shares of
Common Stock. Mr. Hartley disclaims beneficial ownership of such shares.
Amount also includes 175,000 shares subject to options.
(3) Includes 130,000 shares subject to options.
(4) Includes 110,000 shares subject to options.
(5) Includes 110,000 shares subject to options.
(6) Includes 187,502 shares subject to options.
(7) Includes 37,500 shares subject to options.
(8) Includes 37,500 shares subject to options.
(9) Includes 25,000 shares subject to options.
(10) Includes 30,000 shares subject to options.
(11) Includes all shares and options described in footnotes 2-10 above.
(12) Information obtained from Schedule 13(d) or 13(g) filed with the SEC by
the beneficial owners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, the Company entered into an agreement with Steel Partners II,
L.P., ("Steel Partners"), currently a 14.9% shareholder, which allows, for a
period of three years, Steel Partners to acquire up to 45% of the voting stock
of the Company without prior board approval. Further, Steel Partners has agreed
that for a period of three years after it becomes an Interested Stockholder, as
defined by the Delaware Business Combination Statute (the "Delaware Statute")
any transaction proposed by Steel Partners to the shareholders must be one in
which all shareholders are treated alike. In addition, in order to enhance the
Company's strategic flexibility, the board of directors voted to make the
restrictive provisions of the Delaware Statute inapplicable to Steel Partners.
See the Company's Report on Form 8-K dated January 7, 2000.
The Company was a party to a Consulting Agreement effective as of January 1,
1995, with Dr. Gordon C. Rausser, as amended, pursuant to which Dr. Rausser
acted as a consultant to the Company on economic, financial and strategic
matters. Under the agreement, as amended, Dr. Rausser was entitled to a
consulting fee of $25,000 per calendar quarter until December 31, 1999, provided
that he offered or agreed to serve as a director of the Company and offered or
agreed 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. The warrant expired unexercised at December
31, 1999. Also in connection with the Consulting Agreement, 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. As of
December 31, 1999, 26,600 of the restricted shares had not yet vested. In
January 2000, 17,000 of these shares vested and were issued to Mr. Rausser. The
remaining 9,600 restricted shares will vest 4,800 in October 2000, and 4,800 in
October 2001. Dr. Rausser was a director until June 10, 1999.
In June 1996, the Company acquired 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
78
<PAGE> 79
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. Dr. L.E. Richey,
a former director, disclaims beneficial ownership of these shares. The shares
held in escrow were to be released to Lighthouse if U.S. Imaging achieved
certain financial results in 1997 and 1998. Of the shares held in escrow,
400,000 shares were released in 1997 and the balance was released in 1998. Dr.
Richey was the President of U.S. Imaging at the time of the merger, and became a
director of the Company in June 1997. In December 1997, Dr. Richey became a
Co-Chairman of the Board of the Company and in July 1998, Dr. Richey became
Chairman of the Board of the Company. Dr. Richey was not a director or an
employee of the Company at the time that the Company acquired U.S. Imaging. On
February 12, 1999, the Company sold U.S. Imaging to United Radiology Associates,
Inc., a company with which Dr. Richey was affiliated, for $11,650,000 including
a secured promissory note payable to the Company in the aggregate principal
amount of $1,850,000, which was personally guaranteed by Dr. Richey. Also on
February 12, 1999, Dr. Richey resigned as a director and Chairman of the Board
of the Company. See detail of the legal proceeding against Dr. Richey at Note 20
of Notes to Consolidated Financial Statements.
Pursuant to the terms of a Subscription Agreement dated December 1, 1996, the
Company purchased approximately 5,000,000 shares (which as a result of a reverse
4:1 stock split in 1998 currently number 1,250,000 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 September 11, 1998. 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. Mr. Amos F. Almand, III, an executive officer of the company until
October 20, 1998, is the Chairman of the Board and a more than 5% beneficial
owner of DTC. Dr. Rausser, a director of the Company until June 10, 1999, is
also a director of DTC. On December 31, 1998, the Company sold its interest in
DTC for a nominal amount which included a note receivable for $250,000, and a
common stock purchase warrant for 416,662 shares of DTC. DTC subsequently
defaulted on the note and failed to deliver the common stock purchase warrant.
As a result, USD retained 1,250,000 shares as collateral and exercised its right
to sell the pledged stock. On January 31, 2000, the pledged stock was sold for
$250,000 in cash to stockholders of DTC. DTC has executed a promissory note for
unpaid interest due December 31, 2000, and has issued a common stock purchase
warrant to the Company for 416,662 shares.
On January 20, 1998, Michael O'Hanlon, the President and Chief Executive Officer
of DVI, Inc., an affiliate of DVIBC and DVIFS, was elected to the Board of
Directors of the Company. DVIFS and DVIBC are lenders to the Company. As of
December 31, 1999, DVI had loans with aggregate principal amounts outstanding
with the Company of approximately $90 million. In 1999, the Company paid an
aggregate of approximately $25.9 million in principal and interest to DVI and
its affiliates on these loans. In 2000, it is anticipated that the Company will
pay an aggregate of approximately $26.5 million in principal and interest to DVI
and its affiliates on these loans. In addition, in December 1998 and January
1999, the Company paid DVIFS loan fees totaling $647,000 and paid DVI Private
Capital an equity participation totaling $2.8 million, each in connection with
certain new financing. The Company had also issued DVI a warrant to purchase an
aggregate of 250,000 shares of common stock of the Company at an exercise price
of $.938 per share. In February 2000, the Company paid DVIFS $150,000 in
connection with a $3.2 million borrowing, effected after December 31, 1999. See
Notes 6 and 7 of Notes to Consolidated Financial Statements.
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<PAGE> 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report
(1) Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999
Notes to Consolidated Financial Statements
(2) Schedule II, Valuation and Qualifying Accounts and Reserves,
for each of the three years ended December 31, 1999 is
submitted herewith.
(b) Reports on Form 8-K
A report on Form 8-K dated March 1, 1999 was filed during the
quarter ended March 31, 1999 disclosing an Item 2 event and
an Item 7 event.
A report on Form 8-K dated April 7, 1999 was filed during the
quarter ended June 30, 1999 disclosing an Item 5 event.
A report on Form 8-K dated September 2, 1999 was filed during
the quarter ended September 30, 1999 disclosing an Item 5
event.
(c) Exhibits -- (See Index to Exhibits included elsewhere herein.)
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SIGNATURES
Pursuant to the requirements of Section 13 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: March 29, 2000 By: /s/ Joseph A. Paul
-----------------------------------
Joseph A. Paul
Chief Executive Officer, President,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Joseph A. Paul Chief Executive Officer, President March 29, 2000
- ---------------------------------------- and Director (Principal Executive Officer)
Joseph A. Paul
/s/ P. Andrew Shaw Executive Vice President and Chief Financial March 29, 2000
- ---------------------------------------- Officer (Principal Financial Officer and
P. Andrew Shaw Principal Accounting Officer)
/s/ C. Keith Hartley Director March 29, 2000
- ----------------------------------------
C. Keith Hartley
/s/ David McIntosh Director March 29, 2000
- ----------------------------------------
David McIntosh
/s/ Michael O'Hanlon Director March 29, 2000
- ----------------------------------------
Michael O'Hanlon
</TABLE>
81
<PAGE> 82
US DIAGNOSTIC INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
IN THOUSANDS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Deductions End of
Description Period Expenses Accounts (describe) Period
------------ ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1999
- ------------------------
Reserves deducted from assets to which they apply:
Allowance for possible loss on
accounts receivable $ 8,300 $ 6,062 $ -- $ 7,252(a) $ 7,110
Allowance for possible loss on
other receivables $ -- $ -- $ -- $ -- $ --
YEAR ENDED DEC. 31, 1998
- ------------------------
Reserves deducted from assets to which they apply:
Allowance for possible loss on
accounts receivable $17,312 $ 6,493 $ -- $15,505(a) $ 8,300
Allowance for possible loss on
other receivables $ -- $ -- $ -- $ -- $ --
YEAR ENDED DEC. 31, 1997
- ------------------------
Reserves deducted from assets to which they apply:
Allowance for possible loss on
accounts receivable $ 9,670 $15,179 $ 1,822(b) $ 9,359(a) $17,312
Allowance for possible loss on
other receivables $ 923 $ 2,451 $ 3,491(b) $ 6,865(a) $ --
</TABLE>
(a) Accounts written off.
(b) Amount represents the allowance for estimated uncollectable portion of
acquired accounts receivable from the various acquisitions.
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<PAGE> 83
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Restated Bylaws of the Registrant.(2)
3.3 Restated Bylaws as amended October 20, 1998 of the Registrant.
4.1 Form of Unit Purchase Option.(1)
4.2 Form of Warrant Agreement.(1)
4.3 Indenture relating to 9% Subordinated Convertible Debentures by the
Company to American Stock Transfer & Trust Company, as Trustee, dated as
of March 29, 1996.(14)
4.4 Registration Rights Agreement.(12)
4.5 Form of Amended and Restated 6 1/2% Convertible Negotiable Note Due June
30, 2001. (15)
4.6 First Supplemental Indenture to Indenture relating to 9% Subordinated
Convertible Debentures dated as of March 24, 1998. (15)
10.1 1993 Stock Option Plan.(1)
10.2 Asset Purchase Agreement among the Company, Columbus Diagnostic Center
Inc. and Physicians Diagnostic Associates of Columbus, L.P. (1)
10.3 Equipment Lease with Ventura Partners.(1)
10.4 Lease between the Company and United Properties Co.(1)
10.5 Stock Purchase Agreement dated as of February 15, 1995 among the Company,
Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D.(3)
10.6 Employment Agreement dated as of February 15, 1995 among the Company,
Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D.(3)
10.7 1995 Long Term Incentive Plan.(4)
10.8 Consulting Agreement with Gordon Rausser.(4)
10.9 Consulting Agreement with Coyote Consulting.(4)
10.10 Asset Purchase Agreement dated as of October 10, 1995 among the Company,
Central Alabama Medical Enterprises, Inc. and Advanced Medical Imaging
Center, Inc., a subsidiary of the Company.(5)
10.11 Property Lease dated as of October 10, 1995 among the Company, Central
Alabama Medical Enterprises, Inc. and Advanced Medical Imaging Center,
Inc., a subsidiary of the Company.(5)
10.12 Employment Agreement dated as of August 1, 1995 between the Company and
David Cohen.(5)
10.13 Amendment to Employment Agreement of Jeffrey Goffman.(6)
10.14 Amendment to Coyote Consulting Agreement.(6)
10.15 Asset Purchase Agreement dated as of June 28, 1996 among the Company,
Allegheny Open MRI/CT Group and USDL Pittsburgh Inc., a subsidiary of the
Company.(7)
10.16 Registration and Sale Rights Agreement dated as of June 28, 1996 among
the Company and the Allegheny Open MRI/CT Group.(7)
10.17 Employment Agreement dated as of June 18, 1996 between the Company and
Joseph Paul.(7)
10.18 Employment Agreement dated as of June 1, 1996 between the Company and
Michael Karsch.(7)
10.19 Employment Agreement dated as of July 1, 1996 between the Company and P.
Andrew Shaw. (7)
10.20 Stock Purchase Agreement dated as of June 20, 1996 among the Company,
MediTek Health Corporation and HEICO Corporation.(8)
10.21 Registration and Sale Rights Agreement dated as of June 20, 1996 between
the Company and HEICO Corporation.(8)
10.22 Termination Agreement dated January 29, 1997 among the Company, Coyote
Consulting & Financial Services LLC and Keith Greenberg.(10)
10.23 Loan and Security Agreement and Secured Promissory Note among US
Diagnostic Inc. and DVI Credit Corporation dated as of February 25,
1997.(13)
10.24 Subscription Agreement between Diversified Therapy Corp. and US
Diagnostic Inc.(13)
10.25 Employment Agreement dated August 31, 1994 between US Diagnostic Labs,
Inc. and Jeffrey A. Goffman.(13)
10.26 Employment Agreement dated June 30, 1995 between the Company and Amos F.
Almand, III.(13)
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<PAGE> 84
10.27 Employment Agreement dated October 15, 1996 between the Company and Len
Platt.(13)
10.28 Employment Agreement dated May 1, 1996 between the Company and Alan M.
Winakor.(13)
10.29 Employment Agreement dated October 15, 1996 between the Company and
Arthur Quillo.(13)
10.30 Consulting Agreement dated October 1, 1996 between the Company and Robert
Burke, M.D.(13)
10.31 Memorandum of Understanding.(16)
10.32 Settlement Agreement and General Release dated July 11,1997 between the
Company and Jeffrey Goffman. (15)
10.33 Escrow Agreement between the Company, Jeffrey Goffman and Roberto
Martinez. (15)
10.34 Promissory Note between the Company and Jeffrey Goffman. (15)
10.35 Voting Agreement between the Company and Jeffrey Goffman. (15)
10.36 Employment Agreement dated June 18, 1997 between the Company and Wayne
Moor. (15)
10.37 Employment Agreement dated October 20, 1997 between the Company and Leon
Maraist. (16)
10.38 Settlement Agreement and General Release dated September 30, 1997 between
the Company and Jeffrey Goffman. (16)
10.39 Common Stock Purchase Warrant dated September 29, 1997 of the Company
issued to DVI Financial Services Inc. (16)
10.40 Common Stock Purchase Warrant dated September 29, 1997 of the Company
issued to DVI Financial Services Inc. (16)
10.41 Amended and Restated Note dated December 21, 1998 between US Diagnostic
Inc. and DVI Financial Services, Inc. (21)
10.42 Amended and Restated Common Stock Purchase Warrant Agreement between US
Diagnostic Inc., and DVI Financial Services, Inc. (21)
10.43 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. (16)
10.44 Stock Purchase Agreement among Alliance Imaging, Inc., US Diagnostic Inc.
and Medical Diagnostics, Inc. dated as of March 30, 1998. (18)
10.45 Stock Purchase Agreement, dated as of February 11, 1999, by and among US
Imaging, Inc., US Diagnostic Inc. and United Radiology Associates, Inc.
(20)
10.46 Secured Promissory Note dated February 12, 1999. (20)
10.47 Guaranty dated as of February 12, 1999. (20)
10.48 Security Agreement dated as of February 12, 1999. (20)
10.49 Stock Purchase Agreement, dated as of January 21, 1999, by and among
Integrated Health Concepts, Inc., US Diagnostic Inc., and Mohammad
Athari, M.D. (20)
10.50 Amendment No. 1 to Stock Purchase Agreement, dated as of January 21,
1999, by and among Integrated Health Concepts, Inc., US Diagnostic Inc.,
and Mohammad Athari, M.D. (20)
10.51 Asset Purchase Agreement, dated as of February 11, 1999, by and among US
Diagnostic Inc. and United Radiology Associates, Inc. (20)
10.52 Stock Redemption and Purchase Agreement dated November 5, 1998 among US
Diagnostic Inc., US Heartcare Management, Inc., Lawrence Lee and Barry
Enholm. (21)
10.53 Amendment No. 2 dated March 31, 1999 to the Loan and Security Agreement
by DVI Business Credit Corporation of the Thirty-Five Million Dollar Note
dated February 25, 1997.
10.54 Letter of Agreement dated July 19, 1999 between the Company and DVI
Financial Services, Inc. confirming amendment of the Twenty-Five Million
Dollar Note dated December 21, 1998.
10.55 Nondiscrimination Agreement between US Diagnostic, Inc. and Steel
Partners II, L.P. dated January 6, 2000. (22)
10.56 Employment Agreement dated November 1, 1999 between the Company and Len
Platt.
10.57 Employment Agreement dated November 15, 1999 between the Company and
Arthur Quillo.
10.58 Employment letter dated January 27, 2000 between the Company and P.
Andrew Shaw.
10.59 Employment Agreement dated December 9, 1997 between the Company and
Francis J. Harkins, Jr.
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<PAGE> 85
10.60 Amendment No. 4 dated November 8, 1999 to the Loan and Security Agreement
by DVI Business Credit Corporation of the Thirty-Five Million Dollar Note
dated February 25, 1997.
10.61 Secured Promissory Note A dated November 8, 1999, relating to Amendment
No. 4.
10.62 Secured Promissory Note B dated November 8, 1999, relating to Amendment
No. 4.
10.63 Amendment to Security Agreements (Loan A Guarantors) dated November 8,
1999, relating to Amendment No. 4.
10.64 Amendment to Security Agreements (Loan B Guarantors) dated November 8,
1999, relating to Amendment No. 4.
10.65 Security Agreement (Springing Lien A) dated November 8, 1999, relating to
Amendment No. 4.
10.66 Security Agreement (Springing Lien B) dated November 8, 1999, relating to
Amendment No. 4.
10.67 Acknowledgement and Confirmation of Guaranties dated November 8, 1999,
relating to Amendment No. 4.
10.68 Amendment No. 6 dated January 18, 2000 to the Loan and Security Agreement
by DVI Business Credit Corporation of the Thirty-Five Million Dollar Note
dated February 25, 1997.
16.1 Letter of Arthur Andersen LLP to the Securities and Exchange Commission
dated October 30, 1998. (19)
21 Subsidiaries.
23.1 Consent of Arthur Andersen LLP dated March 27, 2000.
23.2 Consent of Deloitte & Touche LLP dated March 29, 2000.
27 Financial Data Schedule.
99.1 Press release dated January 29, 1997.(10)
99.2 Complaints filed in the United States District Court of the Southern
District of Florida entitled Lynne M. Golden, Trustee, UAD 1/6/96; Lynne
M. Golden Trust; individually and on behalf of a class of all persons
similarly situated vs. U.S. Diagnostic Inc., Jeffrey A. Goffman, Keith G.
Greenberg, Joseph A. Paul, Robert D. Burke; Amos F. Almand, III and
Coyote Consulting & Financial Services LLC: Muriel Edelstein vs. U.S.
Diagnostic Inc., Jeffrey A. Goffman, Joseph A. Paul, Dr. Robert D. Burke
and Keith G. Greenberg: Steven Shapiro, Plaintiff; vs. U.S. Diagnostic
Inc., et al, Defendants: Sandra Neuman, Plaintiff vs. U.S. Diagnostic
Inc., et al., Defendants.(10)
99.3 Permanent Injunction against Keith Greenberg.(10)
99.4 Information and Guilty Plea by Keith Greenberg.(10)
99.5 Press Release of U.S. Diagnostic Inc. dated February 3, 1997.(11)
99.6 Press Release of U.S. Diagnostic Inc. dated July 31, 1997.(14)
99.7 Press Release of U.S. Diagnostic Inc. dated January 6, 2000.(22)
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (file no. 33- 73414).
(2) Incorporated by reference to the Company's Report on Form 8-K dated
January 11, 1995.
(3) Incorporated by reference to the Company's Report on Form 8-K dated March
20,1994.
(4) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (file no. 33- 93536).
(5) Incorporated by reference to the Company's Report on Form 8-K dated
October 30,1995.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,1995.
(7) Incorporated by reference to the Company's Report on Form 8-K dated June
28, 1996.
(8) Incorporated by reference to the Company's Report on Form 8-K dated July
24, 1996.
(9) Incorporated by reference to the Company's Report on Form 10-QSB for the
three months ended June 30, 1996.
(10) Incorporated by reference to the Company's Report on Form 8-K dated
January 29, 1997.
(11) Incorporated by reference to the Company's Report on Form 8-K dated
February 3, 1997.
(12) Incorporated by reference to the Company's Registration Statement on Form
S-3 dated June 6, 1996.
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<PAGE> 86
(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A
for the year ended December 31, 1996.
(14) Incorporated by reference to the Company's Report on Form 8-K dated July
31, 1997.
(15) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended June 30, 1997.
(16) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended September 30, 1997.
(17) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1997.
(18) Incorporated by reference to the Company's Report of Form 8-K dated May
19, 1998.
(19) Incorporated by reference to the Company's Report on Form 8-K dated
October 30, 1998.
(20) Incorporated by reference to the Company's Report on Form 8-K dated
January 22, 1999.
(21) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1998.
(22) Incorporated by reference to the Company's Report on Form 8-K dated
January 7, 2000.
86
<PAGE> 1
EXHIBIT 3.3
AS AMENDED OCTOBER 20, 1998
BY-LAWS OF
US DIAGNOSTIC LABS INC.
(A Delaware Corporation)
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the stockholders of US
Diagnostic Labs Inc. (hereinafter called the "Corporation") for the election of
directors and for the transaction of such other business as may come before the
meeting shall be held at such date and time as shall be designated by the Board
or Chairman of the Board or the President.
Section 2. SPECIAL MEETING. Special meetings of the stockholders,
unless otherwise prescribed by statute, may be called at any time by resolution
of the Board, by the Chairman of the Board or the President. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice of meeting sent to stockholders.
Section 3. NOTICE OF MEETINGS. Notice of the place, date and time of
the holding of each annual and special meeting of the stockholders and, in the
case of a special meeting, the purpose or purposes thereof shall be given
personally or by mail in a postage prepaid envelope to each stockholder entitled
to vote at such meeting, not less than ten (10) nor more than sixty (60) days
before the date of such meeting and, if mailed, it shall be directed to such
stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at some other address. If mailed, such notice shall be
deemed to be delivered when deposited in United States mail so addressed with
postage thereon prepaid. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board shall fix after the
adjournment a new record date for an adjourned meeting, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. PLACE OF MEETINGS. Meetings of the stockholders may be held
at such place, within or without the State of Delaware, as the Board or other
officer calling the same shall specify in the notice of such meeting, or in a
duly executed waiver of notice thereof.
Section 5. QUORUM. At all meetings of the stockholders the holders of a
majority of the votes of the shares of stock of the Corporation issued and
<PAGE> 2
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except when
stockholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or in the
Certificate of Incorporation. In the absence of a quorum, the holders of a
majority of the votes of the shares of stock present in person or by proxy and
entitled to vote, or if no stockholder entitled to vote is present, then any
officer of the Corporation may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
Section 6. ORGANIZATION. At each meeting of the stockholders the
Chairman of the Board, or in his absence or inability to act, the President, or
in the absence or inability to act of the Chairman of Board and the President, a
Vice President, or in the absence of all the foregoing, any person chosen by a
majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 7. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. VOTING. Except as otherwise provided by statute, the
Certificate of Incorporation, or any certificate duly filed in the office of the
Department of State of Delaware, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation on the date fixed by the Board as
the record date for the determination of the stockholders who shall be entitled
to notice of and to vote at such meeting; or if such record date shall not have
been so fixed, then at the close of business on the day next preceding the day
on which the meeting is held; or each stockholder entitled to vote at any
meeting of stockholders may authorize another person or persons to act for him
by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. No proxy
shall be valid after the expiration of three years from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where an irrevocable
proxy is permitted by law. Except as otherwise provided by statute, these
By-laws, or the Certificate of Incorporation, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total
votes, or when stockholders are required to vote by class by a majority of the
votes of the appropriate class, cast a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action. Unless required by statute, or determined by the chairman of the meeting
to be advisable, the vote on any question need not be by written ballot. On a
vote by written ballot, each ballot shall be signed by the stockholder voting,
or by his proxy, if there be such proxy, and shall state the number of shares
voted.
Section 9. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation, or the transfer agent of the Corporation's
stock, if there be one then acting, shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
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each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at leas ten days prior to the meeting, either at a place within the
city where the meeting is to be held, at the place where the meeting is to be
held, or at the office of the transfer agent. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
Section 10. INSPECTORS. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an other faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in the By-laws shall be eligible to
serve as Directors. Nominations of persons for election to the board of
Directors of the Corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 11 who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 11. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
officers of the Corporation not less than 90 days nor more than 120 days prior
to the meeting; provided, however, that in the event that the date of the annual
meeting is changed by more than 30 days from such anniversary date, notice by
the stockholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure was made, and (ii) in the
case of a special meeting at which directors are to be elected, not later than
the close of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a Director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); and (b) as to the
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stockholder giving the notice (I) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible to
serve a s a Director of the Corporation unless nominated in accordance with the
procedures set forth in this By-law. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by the By-laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 11, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this
Section.
Section 12. NOTICE OF BUSINESS. At any meeting of the stockholders,
only such business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 12, who shall be entitled to
vote at such meeting and who complies with the notice procedures set forth in
this Section 12. For business to be properly brought before a stockholder
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 90 days nor more than 120 days prior to
the meeting; provided, however, that in the event that the date of the annual
meeting in changed by more than 30 days from such anniversary date, notice by
the stockholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure was made, and (ii) in the
case of a special meeting at which directors are to be elected, not later than
the close of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and (d) any material interest in the stockholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures set
forth in this Section 12. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of the By-laws,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
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ARTICLE II
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
statute or the Certificate of Incorporation or by these By-laws directed or
required to be exercised or done by the stockholders.
Section 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors of the Corporation shall consist of up to nine members. All
of the directors shall be of full age and need not be stockholders. Except as
otherwise provided by statute or these By-laws, the directors shall be elected
at the annual meeting of the stockholders for the election of directors at which
a quorum is present, and the persons receiving a plurality of the votes cast at
such meeting shall be elected. Each director shall hold office until the next
annual meeting of the stockholders and until his successor shall have been duly
elected and qualified, or until his death, or until he shall have resigned, or
have been removed, as hereinafter provided in this By-laws, or as otherwise
provided by statute or the Certificate of Incorporation.
Section 3. PLACE OF MEETINGS. Meetings of the Board may be held at such
place, within or without the State of Delaware, as the Board may from time to
time determine or as shall be specified in the notice or waiver of notice of
such meeting.
Section 4. ANNUAL MEETING. The Board shall meet for the purpose of
organization, the election of officers and the transaction of other business, as
soon as practicable after each annual meeting of the stockholders, on the same
day and at the same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any other time or
place (within or without the State of Delaware) which shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article II.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be
held at such time and place as the Board may from time to time determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board need not be given except as otherwise required
by statute or these By-laws.
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required) shall be
given by the Secretary as hereinafter provided in this Section 7, in which
notice shall be stated the time and place (within or without the State of
Delaware) of the meeting. Notice of each such meeting shall be delivered to each
director either personally or by telephone, telegraph or telecopy at least
twenty-four (24) hours before the time at which such meeting is to be held or by
first-class mail, postage prepaid, addressed to him at his residence, or usual
place of business, at least three (3) days before the day on which such meeting
is to be held. If mailed, such notice shall be deemed to be delivered when
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deposited in the United States mail. Notice of any such meeting need not be
given to any director who shall, either before or after the meeting, submit a
signed waiver of notice or who shall attend such meeting without protesting,
prior to or at its commencement, the lack of notice to him. Except as otherwise
specifically required by these By-laws, a notice or waiver of notice of any
regular or special meeting need not state the purposes of such meeting.
Section 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of he Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat, or if no director be present, the Secretary, may adjourn such
meeting to another time and place, or such meeting, unless it be the annual
meeting of the Board, need not be held. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in Article
III of these By-laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. ORGANIZATION. At each meeting of the Board, the Chairman of
the Board (or, in his absence or inability to act, the President, or, in his
absence or inability to act, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his absence or inability to act, any person appointed by the
chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 10. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board or Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 11. VACANCIES. Vacancies, including newly created
directorships, may be filled by a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this Section for the filling of other vacancies.
Section 12. REMOVAL OF DIRECTORS. any director may be removed, only
with cause, at any time, by the affirmative vote of a majority of the votes of
the issued and outstanding shares of stock entitled to vote for the election of
the stockholders or by a majority vote of the Board of Directors at a meeting
called for such purpose, and the vacancy in the Board caused by any such removal
may be filled by the directors in the manner as provided by these By-laws.
Section 13. COMPENSATION. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
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Section 14. ACTION BY THE BOARD. To the extent permitted under the laws
of the State of Delaware, any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. EXECUTIVE AND OTHER COMMITTEES. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
Committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to revision or alteration by the Board, provided,
however, that third parties shall not be prejudiced by such revision or
alteration.
Section 2. GENERAL. A majority of any committee may determine its
action and fix the time and place of its meetings, unless the Board shall
otherwise provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Article II, Section 7. The Board shall
have the power at any time to fill vacancies in, to change the membership of, or
to dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority of the Board.
ARTICLE IV
OFFICERS
THIS SECTION 1 AMENDED AS OF OCTOBER 20, 1998
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall include the Chief Executive Officer, the President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice President or
Senior Vice President), the Treasurer, and the Secretary. The Chairman of the
Board shall be an officer of the Corporation only if the position of Chairman is
held by a full time employee. Any two or more offices may be held by the same
person. Such officers shall be elected from time to time by the board, each to
hold office until the meeting of the Board following the next annual meeting of
stockholders or until their respective successors shall have been duly elected
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and shall have qualified, or until their death, or until such individual shall
have resigned, or have been removed, as hereinafter provided in these By-laws.
The Board may from time to time elect a Vice Chairman of the Board, and the
Board may from time to time elect, or the Chief Executive Officer or the
President may appoint, such other officers (including one or more Assistant Vice
Presidents, Assistant Secretaries, and Assistant Treasurers), as may be
necessary or desirable for the business of the Corporation. Such other officers
and agents shall have such duties and shall hold their offices for such terms as
may be prescribed by the Board or by the appointing authority.
Section 2. RESIGNATION. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. REMOVAL. Any officer or agent of the Corporation may be
removed, either with or without cause, at any time, by the vote of the majority
of the entire Board at any meeting of the Board or, except in the case of an
officer or agent elected or appointed by the Board, by the Chairman of the Board
or the President. Such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
Section 4. VACANCIES. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-laws for the regular election or appointment to such
office.
Section 5. a. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one be elected, shall, if present, preside at each meeting of the stockholders
and of the Board and shall be an ex officio member of all committees of the
Board. He shall perform all duties incident to the office of Chairman of the
Board and such other duties as may from time to time be assigned to him by the
Board.
b. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, if one be elected, shall have such powers and perform all such duties as
from time to time may be assigned to him by the Board or the Chairman of the
Board and, unless otherwise provided by the Board, shall in the case of the
absence or inability to act of the Chairman of the Board, perform the duties of
the Chairman of the Board and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the Chairman of the Board.
Section 6. THE PRESIDENT. The President shall be the chief operating
and executive officer of the Corporation and shall have general and active
supervision and direction over the business and affairs of the Corporation and
over its several officers, subject, however, to the direction of the Chairman of
the Board and the control of the Board. If no Chairman of the Board is elected,
or at the request of the Chairman of the Board, or in the case of his absence or
inability to act, unless there be a Vice Chairman of the Board so designated to
act, the President shall perform the duties of the Chairman of the Board and
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when so acting shall have all the powers of, and be subject to all the
restrictions upon, the Chairman of the Board. He shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Board or the Chairman of the Board.
Section 7. VICE PRESIDENTS. Each Executive Vice President, each Senior
Vice President and each Vice President shall have such powers and perform all
such duties as from time to time may be assigned to him by the Board, the
Chairman of the Board, or the President. They shall, in the order of their
seniority, have the power and may perform the duties of the Chairman of the
Board and the President.
Section 8. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall exercise general supervision over the
receipt, custody and disbursement of Corporate funds. He shall have such further
powers and duties as may be conferred upon him from time to time by the
President or the Board of Directors. He shall perform the duties of controller
if no one is elected to that office.
Section 9. THE SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal be a facsimile, as hereinafter provided) and affix
and attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and filed are
properly kept and filed, and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman of the Board, or the President.
Section 10. OFFICER'S BONDS OR OTHER SECURITY. If required by the
Board, any officer of the Corporation shall give a bond or other security for
the faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 11. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board, provided, however, that the Board may delegate to the Chairman of
the Board or the President the power to fix the compensation of officers and
agents appointed by the Chairman of the Board or the President, as the case may
be. an officer of the Corporation shall not be prevented from receiving
compensation by reason of the fact that he is also a director of the
Corporation, but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to him.
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ARTICLE V
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by the laws of
the state of incorporation, indemnify any and all persons whom it shall have
power to indemnify against any and all of the costs, expenses, liabilities or
other matters incurred by them by reason of having been officers or directors of
the Corporation, any subsidiary of the Corporation or of any other corporation
for which he acted as officer or director a the request of the Corporation.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNT, ETC.
Section 1. EXECUTION OF CONTRACTS. Except as otherwise required by
statute, the Certificate of Incorporation or these By-laws, any contracts or
other instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such authority may be
general or confined to specific instances as the Board may determine. Unless
authorized by the Board or expressly permitted by these By-laws, an officer or
agent or employee shall not have any power or authority to bind the Corporation
by any contract or engagement or to pledge its credit or to render it
pecuniarily liable for any purpose or to any amount.
Section 2. LOANS. Unless the Board shall otherwise determine, either
(a) the Chairman of the Board, the Vice Chairman of the Board or the President,
singly, or (b) a Vice President, together with the Treasurer, may effect loans
and advances at any time for the Corporation or guarantee any loans and advances
to any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. CHECK, DRAFTS, ETC. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidences of indebtedness of the Corporation, shall be signed
in the name and on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board.
Section 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may from time
to time designate or as may be designated by any officer or officers of the
Corporation to whom such power of designation may from time to time be delegated
by the Board. For the purpose of deposit an for the purpose of collection for
the account of the Corporation, checks, drafts and other orders for the payment
of money which are payable to the order of the Corporation may be endorsed,
assigned and delivered by any officer or agent of the Corporation, or in such
manner as the Board may determine by resolution.
Section 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may
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designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these By-laws, as it
may deem expedient.
Section 6. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS.
Unless otherwise provided by resolution adopted by the Board of Directors, the
Chairman of the Board, the President, or a Vice President may from time to time
appoint an attorney or attorneys or agent or agents, of the Corporation, in the
name and on behalf of the Corporation to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII
SHARES, ETC.
Section 1. STOCK CERTIFICATES. Each holder of shares of stock of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board, certifying the number of shares of the Corporation owned
by him. The certificates representing shares of stock shall be signed in the
name of the Corporation by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation (which seal may
be a facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such officer before such certificates shall
be issued, they may nevertheless be issued by the Corporation with the same
effect as if such officer were still in office at the date of their issue.
Section 2. BOOKS OF ACCOUNT AND RECORD OF SHAREHOLDERS. The books and
records of the Corporation may be kept at such places within or without the
state of incorporation as the Board of Directors may from time to time
determine. The stock record books and the blank stock certificate books shall be
kept by the Secretary or by any other officer or agent designated by the Board
of Directors.
Section 3. TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate or
11
<PAGE> 12
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation may hold any such stockholder of
record liable for calls and assessments and the Corporation shall to be bound to
recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof. Whenever any transfers of shares shall be made for
collateral security and not absolutely, and both the transferor and transferee
request the Corporation to do so, such fact shall be stated in the entry of the
transfer.
Section 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these By-laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any item.
Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen, or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representative to give the Corporation a bond in such sum, limited to unlimited,
and in such form and with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, or destruction of
any such certificate, or the issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Delaware.
Section 6. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
12
<PAGE> 13
ARTICLE VIII
OFFICES
Section 1. PRINCIPAL OR REGISTERED OFFICE. The principal registered
office of the Corporation shall be at such place as may be specified in the
Certificate of Incorporation of the Corporation or other certificate filed
pursuant to law, or if none be so specified, at such place as may from time to
time be fixed by the Board.
Section 2. OTHER OFFICES. The Corporation also may have an office or
offices other than said principal or registered office, at such place or places
either within or without the State of Delaware.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board.
ARTICLE X
SEAL
The Board shall provide a corporate seal which shall contain the name
of the Corporation, the words "Corporate Seal" and the year and State of
Delaware.
ARTICLE XI
AMENDMENTS
Section 1. STOCKHOLDERS. Except as set forth in the Certificate of
Incorporation of the Corporation, these By-laws may be amended or repealed, or
new By-laws may be adopted, at any annual or special meeting of the
stockholders, by the affirmative vote of at least 66 2/3% of the total voting
power of the stockholders or when stockholders are required to vote by class by
a majority of the appropriate class, in person or represented by proxy and
entitled to vote on such action; provided, however, that the notice shall
mention that amendment or repeal of these By-laws, or the adoption of new
By-laws, is one of the purposes of such meeting.
Section 2. BOARD OF DIRECTORS. These By-laws may also be amended or
repealed or new By-laws may be adopted, by the Board at any meeting thereof;
provided, however, that notice of such meeting shall have been give as provided
in these By-laws, which notice shall mention that amendment or repeal of the
By-laws, or the adoption of new By-laws, is one of the purposes of such
meetings. By-laws adopted by the Board may be amended or repealed by the
stockholders as provided in Section 1 of this Article XI.
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<PAGE> 14
ARTICLE XII
MISCELLANEOUS
Section 1. INTERESTED DIRECTORS. No contract or other transaction
between the Corporation and any other corporation shall be affected and
invalidated by the fact that any one or more of the Directors of the Corporation
is or are interested in or is a Director or officer or are Directors or officers
of such other corporation, and any Director or Directors, individually or
jointly, may be a party or parties to or may be interested in any contract or
transaction of the Corporation or in which the Corporation is interested; and no
contract, act or transaction of the Corporation with any person or persons, firm
or corporation shall be affected or invalidated by the fact that any Director or
Directors of the Corporation is a party or are parties to or interested in such
contract, act or transaction, or in any way connected with such person or
persons, firms or associations, and each and every person who may become a
Director of the Corporation is hereby relieved from any liability that might
otherwise exist from contracting with the Corporation for the benefit of
himself, any firm, association or corporation in which he may be in any way
interested.
Section 2. RATIFICATION. Any transaction questioned in any
stockholders' derivative suit on the grounds of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation, or the application of improper principles or
practices of accounting, may be ratified before or after judgment, by the Board
of Directors or by the stockholders in case less than a quorum of Directors are
qualified, and, if so ratified, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the Corporation and its stockholders, and
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
14
<PAGE> 1
Exhibit 10.53
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
DATED FEBRUARY 25, 1997 ("AGREEMENT")
BETWEEN
U.S. DIAGNOSTIC INC. ("BORROWER")
AND
DVI BUSINESS CREDIT CORPORATION ("LENDER")
This Amendment No. 2 ("Amendment") to the Loan and Security Agreement is made
and entered into as of March 31, 1999, by and between U.S. Diagnostic Inc.
("Borrower") and DVI Business Credit Corporation ("Lender").
RECITALS
A. Borrower and Lender entered into a Loan and Security Agreement
dated February 25, 1997, and all amendments thereto
(collectively referred to as the "Agreement") pursuant to
which Borrower obtained a revolving loan in the amount of
Thirty Five Million Dollars ($35,000,000).
B. Borrower and Lender desire to amend the terms of the
Agreement.
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. The following new Section 2.12 is incorporated into the Agreement:
"2.12 Overadvance Facility. Subject to the terms of this
Agreement, Lender agrees, for so long as no Event of Default exists, to
provide Borrower, and Borrower agrees to accept, overadvance financing
for the purposes described herein (each advance being an "Overadvance
Loan"), up to an aggregate unpaid principal amount not to exceed at any
time Three Million Dollars ($3,000,000), on and subject to the following
terms and conditions (the "Overadvance Facility"):
(a) An Overadvance Loan may be made to satisfy Borrower's working
capital needs to the extent they exceed the formula-determined Borrowing
Base;
(b) Each Overadvance Loan shall be due and payable in accordance
with the terms of this Agreement and shall constitute Obligations secured
by the Collateral;
(c) No Guaranty shall be in default and each shall be in full
force and effect at the time any Overadvance Loan is made;
(d) Borrower will pay Lender interest on the principal amount of
any Overadvance Loan outstanding at the rates provided for Loans herein;
and
(e) Except as provided to the contrary in clauses (a) through (d)
above, Overadvance Loans pursuant to this Section 2.12 shall be subject
to all other terms and conditions of this Agreement.
Notwithstanding anything else herein, the total outstanding principal
amount of all Loans under this Agreement shall not at any time exceed
$35,000,000."
1
<PAGE> 2
2. The definition of "Loan Availability" in Section 1.1 of the Agreement is
deleted in its entirety and replaced with the following:
""Loan Availability" shall mean the lesser of (a) the Commitment Amount
or (b) the sum of (i) the Borrowing Base plus (ii) the $3,000,000
maximum amount of the Overadvance Facility, minus the aggregate
Advances and other monetary Obligations outstanding under this
Agreement."
3. The Term set forth in Section 2.7 of the Agreement shall be extended to
February 28, 2001.
4. Except as expressly amended by this Amendment, the Agreement remains
in full force and effect. References to the Agreement are deemed to mean the
Agreement as amended by this Amendment.
5. This Amendment may be executed in counterparts, all of which when taken
together constitute one and the same instrument.
6. This Amendment is governed by and must be interpreted and construed in
accordance with the laws of the State of California.
Lender is entering into this Amendment without any forbearance, and without
waiver or prejudice of defaults, events of default, and any rights or remedies
Lender has or may have under the Agreement and applicable law. Lender hereby
expressly reserves the right to declare a default in accordance with the
Agreement and exercise all of Lender's rights and remedies thereunder.
All capitalized terms used herein and not otherwise defined herein shall have
the same meaning as in the Agreement. Any provision in the Amendment hereof that
may be contrary to any provision of the Agreement shall prevail and override the
Agreement. Except as expressly set forth herein, all other provisions of the
Agreement shall remain in full force and effect. Borrower and Lender warrant to
each other that this Amendment has been authorized and duly executed and is
binding on all parties hereto.
BORROWER: LENDER:
U.S. DIAGNOSTIC INC. DVI BUSINESS CREDIT CORPORATION
By: /s/ Joseph A. Paul By: /s/ Mark H. Idzerda
------------------------------------ -----------------------------
Print Name: Joseph A. Paul Print Name: Mark H. Idzerda
----------------------------- ---------------------
Title: President Title: President
-------------------------------- --------------------------
2
<PAGE> 1
Exhibit 10.54
[US Diagnostic Logo] Joseph A. Paul
President & CEO
Sent via facsimile 215-230-1845
July 19, 1999
Mr. Rich Miller
DVI financial Services, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Dear Rich:
In connection with our discussions, we are requesting DVI's approval for the
following Item in connection with the filing of our 10Q for the period ended
June 30, 1999.
Both US Diagnostic Inc. ("USD") and DVI agree that any further documentation
necessary to accomplish the matter outlined herein will be followed up on
expeditiously under separate cover. The following item is being requested by
USD:
1. DVI hereby agrees to amend the outstanding twenty-five million dollar note,
dated December 21, 1998, to extend the maturity date from June 21, 2000
until July 1, 2001.
If you have any questions regarding the above, please feel free to give me a
call otherwise, please execute a copy of this letter where indicated
acknowledging your approval to the above.
Very truly yours,
US DIAGNOSTIC INC.
By: /s/ JOSEPH A. PAUL
------------------------------
Joseph A. Paul
President & Chief Executive Officer
ACKNOWLEDGED & AGREED TO
This ___ day of __________, 1999
By: /s/ RICHARD E. MILLER
------------------------------
Printed Name: Richard E. Miller
--------------------
Title: President
----------------------------
DVI Financial Services, Inc.
777 South Flagler Drive, West Palm Beach, Florida 33401
<PAGE> 1
EXHIBIT 10.56
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this
15th day of October 1999, between US Diagnostic Inc. (the "Company"), and Len
Platt (the "Executive"), effective November 1st, 1999.
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.
WHEREAS, any previous employment agreement between the parties is now
expired, null and void and superseded by 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. Executive is hired as an "at will employee" and this
document does not establish a right or guarantee or contract of continued
employment. Executive may be terminated at any time with or without cause for
any reason by the Company.
(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 shall serve as Executive Vice
President of the Company in charge of the "Southeast Region" with duties and
responsibilities that are customary for such executives. 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 or serve as a consultant
to, or in any way perform any services with or without compensation to, any
other persons, business or organization 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.
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<PAGE> 2
3. COMPENSATION AND EXPENSES.
(a) SALARY. For the services of the Executive to be rendered under
this Agreement, the Company shall pay the Executive an annual base salary of
$148,000.00. In addition, Executive will be eligible for an annual bonus of up
to 40% of his base salary on an annual basis. Executive will be guaranteed a
minimum bonus of $25,000.00, which will be paid in the same intervals as his
base salary, which will be applied against (deducted from) the annual bonus.
(b) ANNUAL BONUS. The Executive bonus will be based on two (2)
components. For the first component Executive will be entitled to a 10% bonus of
Executive's base salary upon achieving the budgeted earnings before taxes (EBT)
for the centers assigned. In addition, Executive will be entitled to 15% of the
excess EBT over the budgeted base amount with the sum of the 10% and 15% amounts
not to exceed 40% of the Executive's base salary. The second component will be
based upon achieving certain objectives as established by the Company and the
bonus for this component will be 10% of Executive's base salary, such
combination of both components may not exceed 40% of Executive's base salary.
Bonuses are to be paid on the fiscal year results and are payable within 30 days
of release of the Company's fiscal year's financial statement. The terms of the
bonus may be amended each fiscal year at the Company's discretion.
(c) STOCK OPTIONS. Executive shall be entitled to future
discretionary grants of options under the Plan as may be determined by the
Company from time to time in its sole and absolute discretion.
(d) EXPENSES. In addition to any compensation received pursuant to
Section 3(a) and (b), the Company will reimburse Executive for all legitimate
customary and reasonable business related expenses, pursuant to the Company's
policies concerning properly accounted for reasonable travel, entertainment and
miscellaneous expenses incurred in the performance of the Executive's duties.
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 the affairs of the
Company may permit.
(b) EMPLOYEE BENEFIT PROGRAMS. During the Term, the Executive will
be entitled to health insurance in accordance with the Company's existing
benefit package for senior management. This will include company paid premiums
for employment coverage as well as the right to participate in the Company 401K
plan, etc.
(c) AUTOMOBILE. The Company shall provide the Executive with a
$750 automobile car allowance which will be paid to Executive monthly.
5. TERMINATION.
(a) TERMINATION. The Company may terminate the Executive at any
time with or without cause for any reason.
(b) TERMINATION FOR CAUSE. Upon any termination for cause, the
Executive shall have no right to compensation, bonus or reimbursement under
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<PAGE> 3
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 Executive is convicted of a felony which is related to the
Executive's employment or the business of the Company; (ii) the Executive, in
carrying out his duties hereunder, has been found in a civil action to have
committed gross negligence, willful gross misconduct, misappropriated Company
funds or otherwise defrauded the Company, in any case, resulting in material
harm to the Company; and (iii) the Executive materially breaches any provision
of Sections 2, 6 or 7.
(c) TERMINATION WITHOUT CAUSE. The Company may terminate the
Executive at any time without cause. In the event the Company terminates
Executive without cause, Executive will be entitled to a four (4) month
severance pay based on Executive's annual salary and guaranteed minimum four (4)
monthly bonus payments including the $750.00 monthly automobile allowance.
(d) SPECIAL TERMINATION. In the event 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 the
merger, consolidation, reorganization or liquidation of the Company (a "Change
in Control"), the Executive may elect within 30 days after the Change of Control
to deem the Executive's employment hereunder to have been terminated by the
Company, without cause, in which event the Executive shall receive a lump sum
compensation equal to one year of Executive's annual compensation for the last
fiscal year including annual car allowance and guaranteed minimum bonus of
$25,000.00.
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 for cause or date of
voluntary resignation, the Executive, directly or indirectly, in association
with or as a stockholder, director, officer, consultant, employee, partner,
joint venturer, member or otherwise of or through any person, firm, corporation,
partnership, association or other entity, will not compete with the Company or
any of its affiliates in the offer, sale or marketing of radiology products or
services, including radiology practice management services, that are competitive
with the products or services offered by the Company as of the date of this
Agreement, or any other business engaged in by the Company after the date of
this Agreement in which Executive is actively involved on behalf of the Company,
within any metropolitan area in the United States or elsewhere in which the
Company is then engaged in the offer and sale of competitive products or
services except as provided in (b) below. Additionally, the foregoing shall not
prevent Executive from accepting employment with an enterprise engaged in two or
more lines of business, one of which is the same or similar to the Company's
business (the "Prohibited Business") if Executive's employment is totally
unrelated to the Prohibited Business; provided, further, the foregoing shall not
prohibit Executive from owning up to 5% of the securities of any publicly-traded
enterprise provided Executive is not an employee, director, officer, consultant
to such enterprise or otherwise reimbursed for services rendered to such
enterprise. If any term of this paragraph shall be found by a court of
appropriate jurisdiction to be too broad in timing, activities or geographic
area and such court modifies such terms, then the remainder of the non-compete
provision shall be interpreted as broadly as it can be within such court
restriction so as to extend over the maximum period of time, range of activities
or geographic area as to which such court shall consider enforceable. On a
termination without cause all the above provisions apply with the exception that
the covered period following termination will be four (4) months.
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<PAGE> 4
(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.
9. SEVERABILITY.
(a) The Executive expressly agrees that the character, duration
and geographical scope of the provisions set forth in 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 by an arbitration proceeding
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<PAGE> 5
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 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, acceptance 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: 1192 Tiffany Way
Tequesta, Florida 33469
Attention: Len Platt
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
12. ARBITRATION. Any controversy, dispute or claim arising out of
or relating to this Agreement, or its interpretation, application,
implementation, breach or enforcement which the parties are unable to resolve by
mutual agreement, shall be settled by submission by either party of the
controversy, claim or dispute to binding arbitration in West Palm Beach, Florida
-5-
<PAGE> 6
(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 attorney's
fee, 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 or 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 the
party or parties against which enforcement or the change, waiver discharge or
termination is sought.
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.
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<PAGE> 7
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
US DIAGNOSTIC INC.
By: /s/ Leon Maraist
----------------------------------
Printed Name: LEON MARAIST
------------------------
Title: CHIEF OPERATING OFFICER
------------------------------
By: /s/ Len Platt
----------------------------------
Len Platt, ("Executive")
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<PAGE> 1
Exhibit 10.57
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this
15th day of October 1999, between US Diagnostic Inc. (the "Company"), and Arthur
Quillo (the "Executive"), effective November 15th, 1999.
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.
WHEREAS, any previous employment agreement between the parties is now
expired, null and void and superseded by 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. Executive is hired as an "at will employee" and this document
does not establish a right or guarantee or contract of continued employment.
Executive may be terminated at any time with or without cause for any reason by
the Company.
(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 shall serve as Executive Vice
President of the Company in charge of the "West Coast Region" with duties and
responsibilities that are customary for such executives. 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 or serve as a consultant to, or in any way
perform any services with or without compensation to, any other persons,
business or organization 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.
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3. COMPENSATION AND EXPENSES.
(a) SALARY. For the services of the Executive to be rendered under this
Agreement, the Company shall pay the Executive an annual base salary of
$146,000.00. In addition, Executive will be eligible for an annual bonus of up
to 40% of his base salary on an annual basis. Executive will be guaranteed a
minimum bonus of $25,000.00, which will be paid in the same intervals as his
base salary, which will be applied against (deducted from) the annual bonus.
(b) ANNUAL BONUS. The Executive bonus will be based on two (2)
components. For the first component Executive will be entitled to a 10% bonus of
Executive's base salary upon achieving the budgeted earnings before taxes (EBT)
for the centers assigned. In addition, Executive will be entitled to 15% of the
excess EBT over the budgeted base amount with the sum of the 10% and 15% amounts
not to exceed 40% of the Executive's base salary. The second component will be
based upon achieving certain objectives as established by the Company and the
bonus for this component will be 10% of Executive's base salary, such
combination of both components may not exceed 40% of Executive's base salary.
Bonuses are to be paid on the fiscal year results and are payable within 30 days
of release of the Company's fiscal year's financial statement. The terms of the
bonus may be amended each fiscal year at the Company's discretion.
(c) STOCK OPTIONS. Executive shall be entitled to future discretionary
grants of options under the Plan as may be determined by the Company from time
to time in its sole and absolute discretion.
(d) EXPENSES. In addition to any compensation received pursuant to
Section 3(a) and (b), the Company will reimburse Executive for all legitimate
customary and reasonable business related expenses, pursuant to the Company's
policies concerning properly accounted for reasonable travel, entertainment and
miscellaneous expenses incurred in the performance of the Executive's duties.
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 the affairs of the Company may permit.
(b) EMPLOYEE BENEFIT PROGRAMS. During the Term, the Executive will be
entitled to health insurance in accordance with the Company's existing benefit
package for senior management. This will include company paid premiums for
employment coverage as well as the right to participate in the Company 401K
plan, etc.
(c) AUTOMOBILE. The Company shall provide the Executive with a $750
automobile car allowance which will be paid to Executive monthly.
5. TERMINATION.
(a) TERMINATION. The Company may terminate the Executive at any time
with or without cause for any reason.
(b) TERMINATION FOR CAUSE. Upon any termination for cause, the
Executive shall have no right
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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 Executive is
convicted of a felony which is related to the Executive's employment or the
business of the Company; (ii) the Executive, in carrying out his duties
hereunder, has been found in a civil action to have committed gross negligence,
willful gross misconduct, misappropriated Company funds or otherwise defrauded
the Company, in any case, resulting in material harm to the Company; and (iii)
the Executive materially breaches any provision of Sections 2, 6 or 7.
(c) TERMINATION WITHOUT CAUSE. The Company may terminate the Executive
at any time without cause. In the event the Company terminates Executive without
cause, Executive will be entitled to a four (4) month severance pay based on
Executive's annual salary and guaranteed minimum four (4) monthly bonus payments
including the $750.00 monthly automobile allowance.
(d) SPECIAL TERMINATION. In the event 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 the
merger, consolidation, reorganization or liquidation of the Company (a "Change
in Control"), the Executive may elect within 30 days after the Change of Control
to deem the Executive's employment hereunder to have been terminated by the
Company, without cause, in which event the Executive shall receive a lump sum
compensation equal to one year of Executive's annual compensation for the last
fiscal year including annual car allowance and guaranteed minimum bonus of
$25,000.00.
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 for cause or date of voluntary
resignation, the Executive, directly or indirectly, in association with or as a
stockholder, director, officer, consultant, employee, partner, joint venturer,
member or otherwise of or through any person, firm, corporation, partnership,
association or other entity, will not compete with the Company or any of its
affiliates in the offer, sale or marketing of radiology products or services,
including radiology practice management services, that are competitive with the
products or services offered by the Company as of the date of this Agreement, or
any other business engaged in by the Company after the date of this Agreement in
which Executive is actively involved on behalf of the Company, within any
metropolitan area in the United States or elsewhere in which the Company is then
engaged in the offer and sale of competitive products or services except as
provided in (b) below. Additionally, the foregoing shall not prevent Executive
from accepting employment with an enterprise engaged in two or more lines of
business, one of which is the same or similar to the Company's business (the
"Prohibited Business") if Executive's employment is totally unrelated to the
Prohibited Business; provided, further, the foregoing shall not prohibit
Executive from owning up to 5% of the securities of any publicly-traded
enterprise provided Executive is not an employee, director, officer, consultant
to such enterprise or otherwise reimbursed for services rendered to such
enterprise. If any term of this paragraph shall be found by a court of
appropriate jurisdiction to be too broad in timing, activities or geographic
area and such court modifies such terms, then the remainder of the non-compete
provision shall be interpreted as broadly as it can be within such court
restriction so as to extend over the maximum period of time, range of activities
or geographic area as to which such court shall consider enforceable. On a
termination without cause all
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the above provisions apply with the following exception that the covered period
following termination will be four (4) months.
(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.
9. SEVERABILITY.
(a) The Executive expressly agrees that the character, duration and
geographical scope of the provisions set forth in this Agreement are reasonable
in light of the circumstances as they exist on the date
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hereof. Should a decision, however, be made at a later date by an arbitration
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 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, acceptance 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: 35 Woodhaven Drive
Laguna Niguel, CA 92677
Attention: Arthur Quillo
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
12. ARBITRATION. Any controversy, dispute or claim arising out of or
relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the parties are unable to resolve by mutual
agreement, shall be settled by submission by either party of the controversy,
claim or
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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 attorney's
fee, 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 or 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 the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
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.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
US DIAGNOSTIC INC.
By: /s/ Leon Maraist
------------------------------
Printed Name: Leon Maraist
Title: Chief Operating Officer
By: /s/ Arthur Quillo
------------------------------
Arthur Quillo, ("Executive")
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EXHIBIT 10.58
[LOGO]
January 27, 2000
Mr. P. Andrew Shaw
762 Pine Chase Court
Wellington, FL 33414
RE: EMPLOYMENT
Dear Andy:
This letter will serve as acknowledgement that your employment, which is
presently on a month to month basis, shall be amended as follows:
1. Your current salary, which is $125,008 shall be adjusted effective January
27, 2000 to $150,000 per year.
2. You will be entitled to the same benefits as you have been currently
receiving (i.e. employee insurance, car allowance, etc).
3. You will be entitled to a special termination pay-out which shall be equal
to two times your last twelve months salary and benefits paid by the
Company to you in the event your employment is terminated for the
following:
SPECIAL TERMINATION. In the event that (i) 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 (ii) 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.
TERMINATION "WITHOUT CAUSE". In the event you are terminated without cause,
you shall be entitled to a one-year severance agreement equal to your last
twelve months salary and benefits paid by the Company to you.
4. Your title shall be Executive Vice President and Chief Financial Officer.
5. You will be entitled to a bonus in the amount of $20,000 in connection with
the Company's year-end audit and the filing of the 10K. This amount is
subject to sole discretion by the CEO and shall be based on successful and
timely filing of the 10K, etc.
6. This letter shall expire January 27, 2001.
<PAGE> 2
In the event that any change in the status of your employment is made (such as a
replacement chief financial officer) your salary and bonus terms may be amended
from time to time, however, the special termination provisions shall remain in
effect.
Very truly yours,
/s/ Joseph A. Paul
- -------------------------------------
Joseph A. Paul
President & Chief Executive Officer
<PAGE> 1
EXHIBIT 10.59
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this 9th
day of December 1997, between US Diagnostic Inc. (the "Company"), and Francis J.
Harkins, Jr. (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 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 30, 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 General Counsel 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, business or organization 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.
3. COMPENSATION AND EXPENSES.
(a) SALARY. For the services of the Executive to be rendered under
this Agreement, the Company shall pay the Executive an annual base salary of
$135,000. 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.
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(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.
(c) STOCK OPTIONS. Executive will be granted 25,000 options under
the Company's 1995 Long Term Incentive Plan ("Plan") at an exercise price equal
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 25,000 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) and (b), the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous expenses
incurred in connection with the performance of his duties under this Agreement,
provided that the Executive properly accounts for such expenses to the Company
in accordance with the Company's practices. Such reimbursement or advances will
be made in accordance with policies and procedures of the Company in effect from
time to time relating to reimbursement of or advances to executive officers.
4. BENEFITS.
(a) VACATION. For each 12-month period during the Term, the
Executive will be entitled to four (4) weeks of vacation without loss of
compensation or other benefits to which he is entitled under this Agreement, to
be taken at such times as the Executive may select and as shall be convenient
for the affairs of the Company.
(b) EMPLOYEE BENEFIT PROGRAMS. During the Term, the Executive will
be entitled to participate in any pension, insurance or other employee benefit
plan that is maintained at that time by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of membership
fees in civic, social and professional organizations.
(c) AUTOMOBILE. The Company shall provide the Executive with a
non-accountable automobile allowance of $500 per month which includes all costs
associated with the use of an automobile including, without limitation, lease or
loan payments, fuel, maintenance and insurance.
5. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment for 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.
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(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
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
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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.
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
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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, acceptance 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: Francis J. Harkins, Jr.
9778 NW Terrace
Miami, Florida 33178
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
12. ARBITRATION. Any controversy, dispute or claim arising out of
or relating to this Agreement, or its interpretation, application,
implementation, breach or enforcement which the parties are unable to resolve by
mutual agreement, shall be settled by submission by either party of the
controversy, claim or dispute to binding arbitration in West Palm Beach, Florida
(unless the parties agree in writing to a different location), before a single
arbitrator in accordance with the rules of the American Arbitration Association
then in effect. In any such arbitration proceeding the parties agree to provide
all discovery deemed necessary by the arbitrator. The decision and award made by
the arbitrator shall be final, binding and conclusive on all parties hereto for
all purposes, and judgment may be entered thereon in any court having
jurisdiction thereof.
-5-
<PAGE> 6
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 attorney's
fee, 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 or 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.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
US DIAGNOSTIC. INC.
By: /s/ Joseph A. Paul
-----------------------------------------
Joseph A. Paul, Chief Executive Officer
--------------------------------------------
Francis J. Harkins, Jr.
-7-
<PAGE> 1
Exhibit 10.60
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT (the "AMENDMENT")
is made and entered into as of November 8, 1999, by and between US DIAGNOSTIC
INC. (the "BORROWER") and DVI BUSINESS CREDIT CORPORATION (the "LENDER").
BACKGROUND
A. Pursuant to a certain Loan and Security Agreement dated February 25,
1997, by and between Borrower and Lender, (as amended by various amendments and
side letters collectively the "LOAN AGREEMENT"), Lender agreed to extend to
Borrower a revolving line of credit up to a maximum amount of Thirty-Five
Million Dollars ($35,000,000.00) (the "LOAN").
B. Borrower's obligation to repay the amounts outstanding under the
Loan is evidenced by that certain Note dated February 25, 1997, given by
Borrower to Lender (the "NOTE").
C. At Lender's request, Borrower has agreed to execute, or to cause to
be executed, this Amendment and certain other documents related thereto, to,
INTER ALIA, divide the Loan and the Note into two (2) separate and distinct
obligations.
D. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Loan Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound and
for good and valuable consideration, agree as follows:
1. DIVISION OF LOAN. The Loan is hereby divided into two (2) separate
and distinct obligations as follows:
(a) LOAN A. Loan "A" ("LOAN A") shall (i) have a Commitment Amount of
Twenty-Four Million Dollars ($24,000,000.00) ("COMMITMENT AMOUNT A"), which
includes the Overadvance Facility, (ii) be evidenced by, and payable in
accordance with the terms of, a secured promissory note ("NOTE A") in the form
attached hereto as EXHIBIT "A-1", (iii) have an initial outstanding principal
balance of $8,023,316.00, as of the date hereof, which principal balance
includes all Overadvance Loans currently outstanding under the Overadvance
Facility, (iv) have a Borrowing Base ("BORROWING BASE A") calculated using only
those Eligible Accounts of the Guarantors listed on EXHIBIT "A-2" (the "LOAN A
GUARANTORS"), thus limiting the Advances made under Note A to Borrowing Base A,
(v) be secured by the Guaranty, as confirmed by that certain Acknowledgment and
Confirmation of Guaranty executed and delivered by the Guarantors
contemporaneously herewith in the form attached hereto as EXHIBIT "C", (vi) be
secured by a security interest in, and lien on, the Collateral ("LOAN A
COLLATERAL") pledged by (A) the Borrower pursuant to the Loan Agreement, and (B)
the Loan A Guarantors pursuant to their respective Security Agreements dated
February 25, 1997, June 29, 1999, or November 8, 1999, as the case may be, as
amended by an Amendment to Security Agreement executed and delivered by the Loan
A Guarantors contemporaneously herewith in the form attached hereto as EXHIBIT
"A-3", and (vii) upon the occurrence of certain events, be secured by
1
<PAGE> 2
a springing security interest in, and lien on, the Loan B Collateral (as
hereafter defined) pledged by the Loan B Guarantors (as hereafter defined)
pursuant to that certain Security Agreement executed and delivered by the Loan B
Guarantors contemporaneously herewith in the form attached hereto as EXHIBIT
"A-4"; and
(b) LOAN B. Loan "B" shall (i) have a commitment amount of Eleven
Million Dollars ($11,000,000.00) ("COMMITMENT AMOUNT B"), (ii) be evidenced by,
and payable in accordance with the terms of, a secured promissory note ("NOTE
B") in the form attached hereto as EXHIBIT "B-1", (iii) have an initial
outstanding principal balance of $5,819,357.83, as of the date hereof, (iv) have
a Borrowing Base ("BORROWING BASE B") calculated using only those Eligible
Accounts of the Guarantors listed on EXHIBIT "B-2" (the "LOAN B GUARANTORS"),
thus limiting the Advances made under Note B to Borrowing Base B, (v) be secured
by the Guaranty, as confirmed by that certain Acknowledgment and Confirmation of
Guaranty executed and delivered by the Guarantors in the form attached hereto as
EXHIBIT "C", (vi) be secured by a security interest in, and lien on, the
Collateral ("LOAN B COLLATERAL") pledged by the Loan B Guarantors pursuant to
their respective Security Agreements dated February 25, 1997, or June 29, 1999,
as the case may be, as amended by an Amendment to Security Agreement executed
and delivered by the Loan B Guarantors contemporaneously herewith in the form
attached hereto as EXHIBIT "B-3", and (vii) upon the occurrence of certain
events, be secured by a springing security interest in, and lien on, the Loan A
Collateral pledged by the Loan A Guarantors pursuant to that certain Security
Agreement executed and delivered by the Loan A Guarantors contemporaneously
herewith in the form attached hereto as EXHIBIT "B-4".
2. EFFECT OF DIVISION.
(a) RIGHT TO EXERCISE REMEDIES. Notwithstanding the division of the
Loan into Loan A and Loan B, Lender and all its successors and assigns, whether
as the holder of Note A, Note B, or both Note A and Note B, shall be entitled to
exercise any and all rights and remedies of Lender as set forth in the Loan
Agreement with respect to its respective Note and related collateral. To the
extent that Collateral consists of books and records, the parties hereto agree
that the holder of either Note A or Note B may take possession of such books and
records on its own behalf and as agent and bailee for the holder of the other
Note.
(b) DEFINITIONS. For the purpose of interpreting the Loan Agreement,
the terms "Borrowing Base", "Collateral", "Commitment Amount", "Guarantor",
"Loan" and "Note" shall be deemed to mean collectively or individually, as the
case may be, "Borrowing Base A" and/or "Borrowing Base B", "Loan A Collateral"
and/or "Loan B Collateral", "Commitment Amount A" and/or "Commitment Amount B",
"Loan A Guarantors" and/or "Loan B Guarantors", "Loan A" and/or "Loan B" and
"Note A" and/or "Note B".
3. REPORTING. Borrower agrees to provide, or to cause to be provided,
to Lender all Borrowing Base and other reporting information required under the
Loan Agreement in a format that permits Lender to accurately and timely
calculate and test Borrowing Base A and Borrowing Base B for purposes of making
Advances under Note A and/or Note B or otherwise.
2
<PAGE> 3
4. BASE RATE. The definition of "BASE RATE" in SECTION 1.1 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"BASE RATE" means the variable rate of interest, per annum, published
by THE WALL STREET Journal as the "Prime Rate". The Base Rate is nothing more
nor less than an index for determining the interest rate payable under the terms
of this Agreement. The Base Rate is not necessarily the lowest or best rate
actually charged by Lender to any customer. In the event THE WALL STREET JOURNAL
ceases to publish the "Prime Rate", Lender may substitute any similar index for
the Base Rate."
5. COUNTERPARTS. This Amendment may be executed in counterparts, all of
which when taken together constitute one and the same instrument.
6. GOVERNING LAW. This Amendment is governed by and must be interpreted
and construed in accordance with the laws of the State of California (without
giving effect to any principles of conflicts of law).
7. NO WAIVER. Lender is entering into this Amendment without any
forbearance, and without waiver or prejudice of, any Unmatured Default, any
Event of Default or any rights or remedies Lender has or may have under the Loan
Agreement and applicable law, all of which rights and remedies Lender hereby
expressly reserves.
8. INTERPRETATION. Any provision in this Amendment that may be contrary
to any provision of the Loan Agreement shall prevail and override the Loan
Agreement. Except as expressly set forth herein, all other provisions of the
Loan Agreement shall remain unmodified and in full force and effect and there
shall be no diminishment in the rights and privileges of the Borrower or the
right and remedies of the Lender under the Loan Agreements as a result of the
division of the Loan as provided hereunder.
IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as
of the date first above written.
US DIAGNOSTIC INC. DVI BUSINESS CREDIT
CORPORATION
By: /s/ Joseph A. Paul By: /s/ Richard E. Miller
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Richard E. Miller
----------------------------- ------------------------------
Title: CEO Title: President
---------------------------- -----------------------------
3
<PAGE> 4
FORM OF PROMISSORY NOTE A
(See Attached)
EXHIBIT "A - 1"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
4
<PAGE> 5
LOAN A GUARANTORS
HE Imaging Partners, Ltd.
Pinnacle Imaging Associates
Valley Presbyterian Magnetic Resonance Center, LP
Columbus Diagnostic Center, Inc.
MediTek - Broward, Inc.
MediTek - Palm Beach Gardens, Inc.
Advanced Medical Imaging Center, Inc.
MediTek - Greystone, Inc.
MediTek - ICOT, Inc.
Kaley Imaging, Inc.
MediTek - Palms, Inc.
MediTek - Premier North, Inc.
MediTek - Sun Coast, Inc.
Computerized Medical Imaging Center, Inc.
San Francisco Magnetic Resonance Center, Inc.
Modesto Imaging Center, Inc.
South Coast Radiologists, a Corporation
MediTek Premier, Inc.
Orange Park Diagnostic Center, Inc.
Salisbury Imaging, Inc.
Jefferson Magnetic Resonance Imaging, LLC
EXHIBIT "A-2"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
5
<PAGE> 6
FORM OF AMENDMENT TO SECURITY AGREEMENT
(LOAN A GUARANTORS)
(See Attached)
EXHIBIT "A - 3"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
6
<PAGE> 7
FORM OF SECURITY AGREEMENT
(SPRINGING LIEN - LOAN A GUARANTORS)
(See Attached)
EXHIBIT "A-4"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
7
<PAGE> 8
FORM OF PROMISSORY NOTE B
(See Attached)
EXHIBIT "B - 1"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
8
<PAGE> 9
LOAN B GUARANTORS
MR of Kansas City, L.P.
Outpatient Radiology Center
Community Radiology of Virginia, Inc.
USDL Pittsburgh, Inc.
MediTek - Chatham Industries, Inc.
Heights Imaging Center, Inc.
Medical Marketing Development, Inc.
Santa Fe Imaging Center, Inc.
Affiliated Medical Imaging Network, Inc.
USD Dayton, Inc.
Westlake Diagnostic Center, Inc.
MICA Imaging, Inc.
Bridgeton MRI Center, Inc.
Kirkwood MRI Center, Inc.
AH Imaging, Inc.
DI Imaging Center, Inc.
LB Imaging, Inc.
EXHIBIT "B-2"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
9
<PAGE> 10
FORM OF AMENDMENT TO SECURITY AGREEMENTS
(LOAN B GUARANTORS)
(See Attached)
EXHIBIT "B-3"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
10
<PAGE> 11
FORM OF SECURITY AGREEMENT
(SPRINGING LIEN - LOAN B GUARANTORS)
(See Attached)
EXHIBIT "B-4"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
11
<PAGE> 12
FORM OF ACKNOWLEDGEMENT AND
CONFIRMATION OF GUARANTY
(See Attached)
EXHIBIT "C"
to
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
12
<PAGE> 1
Exhibit 10.61
SECURED PROMISSORY NOTE A
February 28, 2001
FOR VALUE RECEIVED, US DIAGNOSTIC INC., a Delaware corporation
("MAKER"), hereby promises to pay to DVI BUSINESS CREDIT CORPORATION or its
assignee ("HOLDER"), or order, principal in the sum of TWENTY-FOUR MILLION
DOLLARS ($24,000,000), or such amount as may be advanced thereon from time to
time, with interest on the unpaid principal balance from time to time
outstanding at the Base Rate plus two percent (2%) per annum, computed on the
basis of a 360-day year and actual days elapsed, until paid. Interest is payable
on the first business day of each calendar month for the preceding month, with
all unpaid principal and interest due and payable in full on February 28, 2001.
1. If any part of the principal or interest of the Note is not paid
when due, it will be added to the principal amount of this Note and thereafter
bear interest at the rate provided above 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.
2. This Note may be prepaid in accordance with SECTION 2.6 of that
certain Loan and Security Agreement dated as of February 25, 1997, between
Holder as Lender and Maker as Borrower (as amended by various amendments and
side letters, the "AGREEMENT"). Notwithstanding the foregoing, the Agreement may
not be terminated, and is not terminated by any prepayment.
3. Principal and interest are payable to Holder at 4041 MacArthur
Blvd., Suite 401, Newport Beach, California 92660, or such other place as the
Holder may, from time to time in writing, designate.
4. This Note is made pursuant to 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
secured, INTER ALIA, by (a) the Guaranty, (b) a first priority, perfected
security interest in, and lien on, the Collateral granted to Holder by the Maker
pursuant to the Agreement, (c) a first priority, perfected security interest in,
and lien on, the Loan A Collateral granted to Holder by the Loan A Guarantors
pursuant to those certain Security Agreements dated February 25, 1997, June 29,
1999, or November 8, 1999, as the case may be, as amended by an Amendment of
even date herewith, and (d) upon the occurrence of certain events, a springing
security interest in, and lien on, the Loan B Collateral granted to Holder by
the Loan B Guarantors pursuant to that certain Security Agreement of even date
herewith (all of the foregoing being collectively, the "SECURITY DOCUMENTS").
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.
5. The occurrence of an Event of Default under the Agreement or any
Security Document 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 without notice of default,
1
<PAGE> 2
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character.
6. Failure of the Holder to exercise the acceleration option of SECTION
5 of this Note on the occurrence of an Event of Default does constitute a waiver
of the right to exercise such option on the subsequent occurrence of an Event of
Default.
7. 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.
8. 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 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 the
date it is due and payable is a reasonable estimate of the damages to the
Holder, which sum Maker agrees to pay on demand.
9. 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.
10. 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.
2
<PAGE> 3
11. 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.
12. 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.
13. This Note, along with Maker's Secured Promissory Note B of even
date herewith ("NOTE B"), amend and restate, but do not repay or satisfy,
Maker's obligations to Holder under that certain Secured Promissory Note dated
February 25, 1997, given by Maker to Holder in the original principal amount of
Twenty-Five Million Dollars ($25,000,000.00).
14. The obligations of Maker to Holder evidenced by this Note and Note
B shall merge and become one obligation secured by and entitled to all rights
under the Loan and Security Documents (as defined hereunder) and the Loan and
Security Documents (as defined in Note B) if, at any time, after the date hereof
and DVI Business Credit Corporation's original assignment of this Note to a
third party assignee, this Note and Note B are held by the same Holder (whether
such Holder is DVI Business Credit Corporation or otherwise).
15. THIS NOTE IS GOVERNED BY AND MUST BE CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONFLICTS OF
LAW) AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE OR FEDERAL
COURTS IN THE STATE OF CALIFORNIA.
Dated: November 8, 1999
US DIAGNOSTIC INC.
By: /s/ Joseph A. Paul
-------------------------
Name:
-----------------------
Title:
-----------------------
3
<PAGE> 1
Exhibit 10.62
SECURED PROMISSORY NOTE B
Due February 28, 2001
FOR VALUE RECEIVED, US DIAGNOSTIC INC., a Delaware corporation
("MAKER"), hereby promises to pay to DVI BUSINESS CREDIT CORPORATION or its
assignee ("HOLDER"), or order, principal in the sum of ELEVEN MILLION DOLLARS
($11,000,000), or such amount as may be advanced thereon from time to time, with
interest on the unpaid principal balance from time to time outstanding at the
Base Rate plus two percent (2%) per annum, computed on the basis of a 360-day
year and actual days elapsed, until paid. Interest is payable on the first
business day of each calendar month for the preceding month, with all unpaid
principal and interest due and payable in full on February 28, 2001.
1. If any part of the principal or interest of the Note is not paid
when due, it will be added to the principal amount of this Note and thereafter
bear interest at the rate provided above 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.
2. This Note may be prepaid in accordance with SECTION 2.6 of that
certain Loan and Security Agreement dated as of February 25, 1997, between
Holder as Lender and Maker as Borrower (as amended by various amendments and
side letters, the "AGREEMENT"). Notwithstanding the foregoing, the Agreement may
not be terminated, and is not terminated by any prepayment.
3. Principal and interest are payable to Holder at 4041 MacArthur
Blvd., Suite 401, Newport Beach, California 92660, or such other place as the
Holder may, from time to time in writing, designate.
4. This Note is made pursuant to 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
secured, INTER ALIA, by (a) the Guaranty, (b) a first priority, perfected
security interest in, and lien on, the Collateral granted to Holder by Maker
pursuant to the Agreement, (c) a first priority, perfected security interest in,
and lien on, the Loan B Collateral granted to Holder by the Loan B Guarantors
pursuant to those certain Security Agreements dated February 25, 1997, or June
29, 1999, as the case may be, as amended by an Amendment of even date herewith,
and (d) upon the occurrence of certain events, a springing security interest in,
and lien on, the Loan A Collateral granted to Holder by the Loan A Guarantors
pursuant to that certain Security Agreement of even date herewith (all of the
foregoing being collectively, the "SECURITY DOCUMENTS"). 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.
5. The occurrence of an Event of Default under the Agreement or any
Security Document 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 without notice of default,
1
<PAGE> 2
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character.
6. Failure of the Holder to exercise the acceleration option of SECTION
5 of this Note on the occurrence of an Event of Default does constitute a waiver
of the right to exercise such option on the subsequent occurrence of an Event of
Default.
7. 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.
8. 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 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 the
date it is due and payable is a reasonable estimate of the damages to the
Holder, which sum Maker agrees to pay on demand.
9. 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.
10. 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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<PAGE> 3
11. 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.
12. 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.
13. This Note, along with Maker's Secured Promissory Note A of even
date herewith ("NOTE A"), amend and restate, but do not repay or satisfy,
Maker's obligations to Holder under that certain Secured Promissory Note dated
February 25, 1997, given by Maker to Holder in the original principal amount of
Twenty-Five Million Dollars ($25,000,000.00).
14. The obligations of Maker to Holder evidenced by this Note and Note
A shall merge and become one obligation secured by and entitled to all rights
under the Loan and Security Documents (as defined hereunder) and the Loan and
Security Documents (as defined in Note A) if, at any time, after the date hereof
and DVI Business Credit Corporation's original assignment of this Note to a
third party assignee, this Note and Note A are held by the same Holder (whether
such Holder is DVI Business Credit Corporation or otherwise).
15. THIS NOTE IS GOVERNED BY AND MUST BE CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONFLICTS OF
LAW) AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE OR FEDERAL
COURTS IN THE STATE OF CALIFORNIA.
Dated: November 8, 1999
US DIAGNOSTIC INC.
By: /s/ Joseph A. Paul
-----------------------------
Name:
---------------------------
Title:
--------------------------
3
<PAGE> 1
Exhibit 10.63
AMENDMENT TO SECURITY AGREEMENTS
(LOAN A GUARANTORS)
THIS AMENDMENT TO SECURITY AGREEMENTS (the "AMENDMENT") is made and
entered into as of November 8, 1999, by and between the entities listed on
EXHIBIT "A" attached hereto (each a "GUARANTOR" and collectively, the
"GUARANTORS") and DVI BUSINESS CREDIT CORPORATION ("LENDER").
BACKGROUND
A. Pursuant to various Security Agreements dated February 25, 1997 June
29, 1999, or November 8, 1999, as the case may be, by and between Guarantors and
Lender (collectively, the "SECURITY AGREEMENTS"), each Guarantor has granted to
Lender a continuing first priority pledge and security interest in all existing
and after-acquired Collateral (as to each Guarantor, the "SECURITY INTEREST" and
collectively, the "SECURITY INTERESTS").
B. Each Security Interest secures the prompt payment and performance of
all obligations of the applicable Guarantor under its respective Unconditional
Continuing Guaranty dated February 25, 1997, June 29, 1999, or November 8, 1999,
as the case may be, pursuant to which that Guarantor agreed to guaranty and
become surety for all present and future obligations of US Diagnostic, Inc.
("BORROWER") to Lender, including, without limitation, all obligations arising
under that certain Loan and Security Agreement dated February 25, 1997, by and
between Borrower and Lender, as amended, and all documents, instruments and
agreements related thereto (collectively, the "LOAN DOCUMENTS").
C. Pursuant to the terms and conditions of Amendment No. 4 to Loan and
Security Agreement of even date herewith by and between Borrower and Lender (the
"AMENDMENT NO. 4"), Borrower has agreed to divide its obligations under the Loan
and Note into two (2) separate and distinct obligations, each secured by a
separate pool of collateral.
D. At Lender's request, Guarantors have agreed that the Security
Interests granted under the Security Agreements shall hereafter secure only the
obligations of Borrower under that certain Secured Promissory Note A of even
date herewith given by Borrower to Lender in the original principal amount of
Twenty-Four Million Dollars ($24,000,000.00) ("NOTE A"), and NOT the obligations
of Borrower under that certain Secured Promissory Note B of even date herewith
given by Borrower to Lender in the original principal amount of Eleven Million
Dollars ($11,000,000.00) ("NOTE B"), except upon the merger of the obligations
of Borrower under Note A and Note B in accordance with their terms.
E. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Amendment No. 4.
1
<PAGE> 2
NOW, THEREFORE, the parties hereto, intending to be legally bound and
for good and valuable consideration, agree as follows:
1. OBLIGATIONS. SECTION 1.1 of the Security Agreement shall be and is
hereby amended by deleting in its entirety the definition of "OBLIGATIONS"
contained therein and inserting in its place the following:
""OBLIGATIONS" mean the due and punctual payment of all amounts due
under Note A and the performance of all obligations of Guarantor under the
Guaranty, solely to the extent such obligations directly relate to Note A;
provided, however, that if the obligations of Borrower under Note A and Note B
are ever merged in accordance with their terms, the term "OBLIGATIONS" as used
herein shall thereafter be automatically deemed to include the payment of all
amounts due under Note A and under Note B."
2. COUNTERPARTS. This Amendment may be executed in counterparts, all of
which when taken together constitute one and the same instrument.
3. GOVERNING LAW. This Amendment is governed by and must be interpreted
and construed in accordance with the laws of the State of California (without
giving effect to any principles of conflicts of law).
4. NO WAIVER. Lender is entering into this Amendment without any
forbearance, and without waiver or prejudice of, any Unmatured Default, any
Event of Default or any rights or remedies Lender has or may have under the Loan
Documents and applicable law, all of which rights and remedies Lender hereby
expressly reserves.
5. INTERPRETATION. Any provision in this Amendment that may be contrary
to any provision of any of the Security Agreements shall prevail and override
that provision of that Security Agreement. Except as expressly set forth herein,
all other provisions of the Security Agreements shall remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
HE IMAGING PARTNERS, LTD. PINNACLE IMAGING ASSOCIATES
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
VALLEY PRESBYTERIAN MAGNETIC COLUMBUS DIAGNOSTIC CENTER,
RESONANCE CENTER, LP INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
2
<PAGE> 3
MEDITEK - BROWARD, INC. MEDITEK - PALM BEACH
GARDENS, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
ADVANCED MEDICAL IMAGING MEDITEK - GREYSTONE, INC.
CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - ICOT, INC. KALEY IMAGING, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - PALMS, INC. MEDITEK - PREMIER NORTH, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - SUN COAST, INC. COMPUTERIZED MEDICAL
IMAGING CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SAN FRANCISCO MAGNETIC MODESTO IMAGING CENTER, INC.
RESONANCE CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SOUTH COAST RADIOLOGISTS, MEDITEK PREMIER, INC.
A CORPORATION
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
3
<PAGE> 4
ORANGE PARK DIAGNOSTIC SALISBURY IMAGING, INC.
CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
JEFFERSON MAGNETIC
RESONANCE IMAGING, LLC
By: /s/ Joseph A. Paul
-------------------------------
Name: Joseph A. Paul
-----------------------------
Title: President
----------------------------
4
<PAGE> 5
GUARANTORS
HE Imaging Partners, Ltd.
Pinnacle Imaging Associates
Valley Presbyterian Magnetic Resonance Center, LP
Columbus Diagnostic Center, Inc.
MediTek - Broward, Inc.
MediTek - Palm Beach Gardens, Inc.
Advanced Medical Imaging Center, Inc.
MediTek - Greystone, Inc.
MediTek - ICOT, Inc.
Kaley Imaging, Inc.
MediTek - Palms, Inc.
MediTek - Premier North, Inc.
MediTek - Sun Coast, Inc.
Computerized Medical Imaging Center, Inc.
San Francisco Magnetic Resonance Center, Inc.
Modesto Imaging Center, Inc.
South Coast Radiologists, a Corporation
MediTek Premier, Inc.
Orange Park Diagnostic Center, Inc.
Salisbury Imaging, Inc.
Jefferson Magnetic Resonance Imaging, LLC
EXHIBIT "A"
to
AMENDMENT TO SECURITY AGREEMENTS
(LOAN A GUARANTORS)
5
<PAGE> 1
Exhibit 10.64
AMENDMENT TO SECURITY AGREEMENTS
(LOAN B GUARANTORS)
THIS AMENDMENT TO SECURITY AGREEMENT (the "AMENDMENT") is made and
entered into as of November 8, 1999, by and between the entities listed on
EXHIBIT "A" attached hereto (each a "GUARANTOR" and collectively, the
"GUARANTORS") and DVI BUSINESS CREDIT CORPORATION ("LENDER").
BACKGROUND
A. Pursuant to various Security Agreements dated February 25, 1997, or
June 29, 1999, as the case may be, by and between Guarantors and Lender
(collectively, the "SECURITY AGREEMENTS"), each Guarantor has granted to Lender
a continuing first priority pledge and security interest in all existing and
after-acquired Collateral (as to each Guarantor, the "SECURITY INTEREST" and
collectively, the "SECURITY INTERESTS").
B. Each Security Interest secures the prompt payment and performance of
all obligations of the applicable Guarantor under its respective Unconditional
Continuing Guaranty dated February 25, 1997 or June 29, 1999, as the case may
be, pursuant to which that Guarantor agreed to guaranty and become surety for
all present and future obligations of US Diagnostic, Inc. ("BORROWER") to
Lender, including, without limitation, all obligations arising under that
certain Loan and Security Agreement dated February 25, 1997, by and between
Borrower and Lender, as amended, and all documents, instruments and agreements
related thereto (collectively, the "LOAN DOCUMENTS").
C. Pursuant to the terms and conditions of Amendment No. 4 to Loan and
Security Agreement of even date herewith by and between Borrower and Lender (the
"AMENDMENT NO. 4"), Borrower has agreed to divide its obligations under the Loan
and Note into two (2) separate and distinct obligations, each secured by a
separate pool of collateral.
D. At Lender's request, Guarantors have agreed that the Security
Interests granted under the Security Agreements shall hereafter secure only the
obligations of Borrower under that certain Secured Promissory Note B of even
date herewith given by Borrower to Lender in the original principal amount of
Eleven Million Dollars ($11,000,000.00) ("NOTE B"), and NOT the obligations of
Borrower under that certain Secured Promissory Note A of even date herewith
given by Borrower to Lender in the original principal amount of Twenty-Four
Million Dollars ($24,000,000.00) ("NOTE A"), except upon the merger of the
obligations of Borrower under Note A and Note B in accordance with their terms.
E. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Amendment No. 4.
1
<PAGE> 2
NOW, THEREFORE, the parties hereto, intending to be legally bound and
for good and valuable consideration, agree as follows:
1. OBLIGATIONS. SECTION 1.1 of the Security Agreement shall be and is
hereby amended by deleting in its entirety the definition of "OBLIGATIONS"
contained therein and inserting in its place the following:
""OBLIGATIONS" mean the due and punctual payment of all amounts due
under Note B and the performance of all obligations of Guarantor under the
Guaranty, solely to the extent such obligations directly relate to Note B;
provided, however, that if the obligations of Borrower under Note A and Note B
are ever merged in accordance with their terms, the term "OBLIGATIONS" as used
herein shall thereafter be automatically deemed to include the payment of all
amounts due under Note A and under Note B."
2. COUNTERPARTS. This Amendment may be executed in counterparts, all of
which when taken together constitute one and the same instrument.
3. GOVERNING LAW. This Amendment is governed by and must be interpreted
and construed in accordance with the laws of the State of California (without
giving effect to any principles of conflicts of law).
4. NO WAIVER. Lender is entering into this Amendment without any
forbearance, and without waiver or prejudice of, any Unmatured Default, any
Event of Default or any rights or remedies Lender has or may have under the Loan
Documents and applicable law, all of which rights and remedies Lender hereby
expressly reserves.
5. INTERPRETATION. Any provision in this Amendment that may be contrary
to any provision of any of the Security Agreements shall prevail and override
that provision of that Security Agreement. Except as expressly set forth herein,
all other provisions of the Security Agreements shall remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
AH IMAGING, INC. KIRKWOOD MRI CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MR OF KANSAS CITY, L.P. BRIDGETON MRI CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
2
<PAGE> 3
OUTPATIENT RADIOLOGY CENTER DI IMAGING CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
LB IMAGING, INC. COMMUNITY RADIOLOGY OF
VIRGINIA, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
USDL PITTSBURGH, INC. MEDITEK - CHATHAM
INDUSTRIES, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
HEIGHTS IMAGING CENTER, INC. MEDICAL MARKETING
DEVELOPMENT, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SANTA FE IMAGING CENTER, INC. AFFILIATED MEDICAL IMAGING
NETWORK, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
USD DAYTON, INC. WESTLAKE DIAGNOSTIC CENTER,
INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MICA IMAGING, INC.
By: /s/ Joseph A. Paul
-------------------------------
Name: Joseph A. Paul
-----------------------------
Title: President
----------------------------
3
<PAGE> 4
GUARANTORS
MR of Kansas City, L.P.
Outpatient Radiology Center
Community Radiology of Virginia, Inc.
USDL Pittsburgh, Inc.
MediTek - Chatham Industries, Inc.
Heights Imaging Center, Inc.
Medical Marketing Development, Inc.
Santa Fe Imaging Center, Inc.
Affiliated Medical Imaging Network, Inc.
USD Dayton, Inc.
Westlake Diagnostic Center, Inc.
MICA Imaging, Inc.
Bridgeton MRI Center, Inc.
Kirkwood MRI Center, Inc.
AH Imaging, Inc.
DI Imaging Center, Inc.
LB Imaging, Inc.
EXHIBIT "A"
to
AMENDMENT TO SECURITY AGREEMENTS
(LOAN B GUARANTORS)
4
<PAGE> 1
Exhibit 10.65
SECURITY AGREEMENT
(SPRINGING LIEN A)
THIS SECURITY AGREEMENT (this "AGREEMENT") is entered into as of
November 8, 1999, by and between DVI BUSINESS CREDIT CORPORATION, a Delaware
corporation ("LENDER"), and those entities listed on EXHIBIT "A" attached hereto
(each a "GUARANTOR"), each of which is, directly or indirectly, a subsidiary of
US Diagnostic Inc., a Delaware corporation ("BORROWER").
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions apply:
"ACCOUNT DEBTORS" mean each Guarantor's customers, the insurance
companies or other payors responsible for their customers' obligations and all
other persons who are obligated or indebted to a Guarantor in any manner,
whether directly or indirectly, primarily or secondarily, contingently or
otherwise, with respect to Accounts.
"ACCOUNTS" mean all accounts, contract rights, instruments, documents,
general intangibles, chattel paper and obligations in any form owing to a
Guarantor arising out of the sale or lease of goods or the rendition of services
by a Guarantor whether or not earned by performance; all credit insurance,
guaranties, letters of credit, advises of credit and other security for any of
the above; all merchandise returned to or reclaimed by Guarantor; and each
Guarantor's Books relating to any of the foregoing.
"COLLATERAL" has the meaning specified in SECTION 3.1 hereof.
"EVENT OF DEFAULT" has the meaning specified in SECTION 10 hereof.
"GUARANTOR'S BOOKS" means all of each Guarantor's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing a Guarantor's assets, liabilities and the Accounts;
all information relating to a Guarantor's business operations or financial
condition; 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.
"GUARANTY" means those certain Unconditional Continuing Guaranties
dated February 25, 1997, June 29, 1999, or November 8, 1999, as the case may be,
given by each Guarantor to Lender, as acknowledged and confirmed by that certain
Acknowledgement and Confirmation of Guaranties of even date herewith pursuant to
which Guarantors have unconditionally guaranteed Borrower's obligations under
the Loan Agreement.
1
<PAGE> 2
"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 each loan or any other loan or loans made by Lender to
Borrower pursuant to the Loan Agreement.
"LOAN AGREEMENT" means the Loan and Security Agreement dated February
25, 1997, between Borrower and Lender, as amended, pursuant to which Lender has
agreed to extend Advances to Borrower in an aggregate amount not to exceed
Thirty-Five Million Dollars ($35,000,000.00).
"OBLIGATIONS" mean the due and punctual payment of all amounts due
under the Guaranty and the performance of all obligations of each Guarantor
thereunder.
"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 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 have been subordinated to the Liens of
Lender in a manner satisfactory to Lender; (iii) Liens granted to Lender or any
Affiliate of Lender and (iv) Liens existing on the date of this Agreement that
secure indebtedness outstanding on such date and that are disclosed on SCHEDULE
1.1 hereto.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM
COMMERCIAL CODE. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under GAAP. 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
2
<PAGE> 3
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 1.4. LOAN AGREEMENT. Capitalized terms used but not otherwise
defined herein have the meaning given to them in the Loan Agreement.
SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions and relying
on the representations and warranties set forth in the Loan Agreement, Lender
has advanced, or will advance, to and for the benefit of Borrower and Borrower
has borrowed, or will borrow, from Lender one or more revolving loans in an
aggregate amount not to exceed Thirty-Five Million Dollars ($35,000,000). As a
condition of Amendment No. 4 to the Loan Agreement, Borrower was required to
deliver this Security Agreement signed by certain of its, directly or
indirectly, subsidiaries. Each Guarantor has had the opportunity to review the
Loan Agreement, as amended.
SECTION 2.2. ACCOUNT RECEIPTS.
(a) Borrower is, and will remain until such time as this Agreement is
terminated, a party to the Lock Box Agreements which provide for the receipt and
processing of Account payments. Each Guarantor shall irrevocably direct: (i) all
non-government payors to remit payment to the servicer's post office box in
Lender's name and control, and (ii) all government payors to remit payment to a
second post office box of such servicer in Borrower's name. The Lock Box
Agreements provide for the servicer to deposit daily all receipts of the post
office boxes into deposit accounts, with non-government payor receipts paid into
an account subject to Lender's control and, government payor receipts paid into
an account in Borrower's name. All government payor receipts will be immediately
transferred to an account in the name and control of Lender. Any receipts from
Accounts received by a Guarantor must be deposited in a deposit box account
promptly upon receipt.
(b) Lender will debit the lock box account at the end of each day in
payment of (i) all Lender and other fees, reimbursements, principal payments and
other amounts then due and payable; and (ii) on the first day of each month with
respect to interest accrued on the Loan during the preceding month. Lender shall
apply excess receipts remaining in the lock box account after the payment of
fees, interest, reimbursements and other amounts to the principal amount of the
Loan on a daily basis.
(c) Borrower shall bear all charges for establishing and maintaining
the post office box accounts and all bank charges for such deposit accounts.
Lender shall deduct from the deposit accounts all sums Borrower owes to it
hereunder, including fees, interest, reimbursements and principal payments.
3
<PAGE> 4
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure prompt
payment and performance of the Obligations, each Guarantor hereby grants to
Lender a springing pledge and security interest in the Accounts owned by it
together with such third-party consents, lien waivers and estoppel certificates
as Lender reasonably requires (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 shall attach to all
Collateral, without further action on the part of Lender or any Guarantor, only
upon the termination of the obligations of Borrower under Note A and the release
by the holder of Note A, or its trustee or custodian, of its security interest
in, and lien on, the Loan A Collateral securing such Note A obligations.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF GUARANTOR. The exact name of each Guarantor and
the state in which it was formed is set forth on the attached SCHEDULE 4.1.
Except as set forth on SCHEDULE 4.1 each Guarantor has no previous legal name
use, no trade names and has used no other names in the past.
SECTION 4.2. CHANGE OF NAME OR IDENTITY. A Guarantor shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
SECTION 4.3. CORPORATE STRUCTURE. Borrower, directly or indirectly,
owns that percentage interest of the equity of each Guarantor as set forth on
SCHEDULE 4.1 attached hereto.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF GUARANTOR. Each Guarantor's chief
executive offices and the location at which it maintains all of its records with
respect to Accounts is listed on SCHEDULE 5.1. No Guarantor has at any time
within the past four (4) months maintained its chief executive office or its
records with respect to Accounts at any other location and may not do so
hereafter except with the prior written consent of Lender.
SECTION 5.2. REPRESENTATIONS. Each Guarantor represents and warrants
that each of its Accounts at the time of its attachment of the security interest
pursuant to SECTION 3.1 hereof to Lender (a) will be owned solely by Guarantor,
(b) will be for a liquidated amount maturing as stated in Guarantor's Books; (c)
will be a bona fide existing obligation created by the rendition of services to
Account Debtors or their insured by Guarantor in the ordinary course of its
business;
4
<PAGE> 5
and (d) will not be subject to any known deduction, offset, counterclaim, return
privilege, or other condition, except as reflected on Guarantor's Books. A
Guarantor shall neither redate any invoices nor reissue new invoices in full or
partial satisfaction of old invoices. Allowances, if any, as between a Guarantor
and its customers will be on the same basis and in accordance with the usual
customary practices of a Guarantor as they exist on the date of this Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS. Each Guarantor shall notify
Lender within five (5) business days of the occurrence of all material claims
asserted by Account Debtors.
SECTION 5.4. LENDER'S RIGHTS. Any officer, employee or agent of Lender
has the right, at any time or times hereafter, in the name of Lender or its
nominee (including any Guarantor), with prior notice to a Guarantor, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone or otherwise. Lender or its designee may at any time after an Event of
Default has occurred and is continuing notify customers or Account Debtors that
Accounts have been assigned to Lender or of Lender's security interest therein
and thereafter collect the same directly and charge all reasonable collection
costs and expenses to Guarantor's account.
SECTION 5.5. DISCLAIMER OF LIABILITY. Lender shall not be liable to a
Guarantor or any third person for the correctness, validity or genuineness of
any instruments or documents released or endorsed to a Guarantor by Lender
(which are automatically deemed to be without recourse to Lender in any event)
or for the existence, character, quantity, quality, condition, value or delivery
of any goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to a
Guarantor, is not deemed to have assumed any obligation or liability to any
supplier or creditor of Guarantor or to any other third party. Each Guarantor
shall indemnify and defend Lender and hold it harmless in respect to any claim
or proceeding arising out of any matter referred to in this Section 5.5.
SECTION 5.6. POST DEFAULT RIGHTS. If an Event of Default has occurred
and is continuing, no discount, credit or allowance may be granted or permitted
by a Guarantor to any Account Debtor; provided, however, that, notwithstanding
the existence of an Event of Default, (i) each Guarantor may continue to invoice
and bill Account Debtors under discount, credit and allowance arrangements that
such Guarantor maintained in the ordinary course of business prior to such Event
of Default occurring, and (ii) Account Debtors may, during the continuance of an
Event of Default, utilize discount, credit and allowance arrangements that a
Guarantor extended to them in the ordinary course of business. Lender may, if an
Event of Default has occurred and is continuing, settle or adjust disputes and
claims directly with Account Debtors for amounts and upon terms that Lender
considers advisable.
SECTION 5.7. ACCOUNTS OWED BY FEDERAL GOVERNMENT. If any Accounts arise
out of a contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, a Guarantor which owns such Account
shall promptly notify Lender thereof in writing and take all other action
reasonably requested by Lender to protect Lender's Lien on such Accounts under
the provisions of the federal laws on assignment of claims.
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SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
(a) SCHEDULE 6.1. is a true and complete list of all radiology and
partnership agreements to which any Guarantor is a party and all contracts and
agreements listed in any filing by Borrower with the Securities and Exchange
Commission.
(b) A Guarantor may not amend, modify or supplement any contract or
agreement included in the Collateral or waive any provision thereof other than
in accordance with a Guarantor's standard business practice, nor may such
standard business practice be materially changed without Lender's consent, which
may not be unreasonably withheld.
(c) A Guarantor remains liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed. Lender does not have any
obligation or liability under such contracts and agreements by reason of this
Agreement or otherwise.
(d) A Guarantor need not pay any amount due under any contract or
agreement listed on SCHEDULE 6.1, nor otherwise perform any action required
under the terms of any such contract or agreement, if such payment or
performance 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 Guarantor establishes any reserve or other appropriate provision
required by GAAP.
SECTION 7
PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. FURTHER ASSURANCES. Each Guarantor shall execute and
deliver to Lender, concurrent with Guarantor's 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. Each Guarantor hereby irrevocably makes, constitutes,
and appoints Lender (and any of Lender's officers, employees or agents
designated by Lender) as such Guarantor's true and lawful attorney with power to
sign the name of 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 each Guarantor's 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.
SECTION 7.2. 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
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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 a 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 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 each Guarantor.
SECTION 7.3. REINSTATEMENT OF LIENS. If, at any time after payment in
full of all Obligations and termination of Lender's Liens, any payments on
Obligations previously made by a Guarantor or any other Person must be disgorged
by Lender for any reason whatsoever (including, the insolvency, bankruptcy, or
reorganization of a Guarantor or such other Person), this Agreement and Lender's
Liens granted hereunder are reinstated as to all disgorged payments as though
such payments had not been made, and a Guarantor shall sign and deliver to
Lender all documents and things necessary to perfect all terminated Liens.
SECTION 7.4. LENDER EXPENSES. If a 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 a Guarantor could have a material adverse
effect on Lender's interest in the Collateral, in its discretion and without
prior notice to such Guarantor, make payment of the same or any part thereof.
Any amounts paid or deposited by Lender constitute Advances, become part of the
Obligations, 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. Each Guarantor hereby authorizes and
approves all advances and payments by Lender for items constituting Lender
Expenses.
SECTION 7.5. 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. Lender also has the right
at any time or times hereafter, during usual business hours to inspect and
verify each Guarantor's Books in order to verify the amount or condition of, or
any other matter relating to, the Collateral and to copy and make extracts
therefrom. Each Guarantor waives 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 7.6. WAIVERS. Except as specifically provided for herein, each
Guarantor 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,
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extension or renewal of any or all commercial paper, accounts, documents,
instruments, chattel paper, and guaranties at any time held by Lender on which a
Guarantor may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
Each Guarantor each hereby warrants and represents to Lender the
following with respect to itself:
SECTION 8.1. STATUS. Guarantor is an entity validly existing and in
good standing under the laws of the state of its incorporation, 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 8.2. AUTHORIZATION. The execution, delivery, and performance by
Guarantor of this Agreement and each Loan Document have been duly authorized by
all necessary action of the equity holders of such Guarantor. Guarantor, has
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each of them constitutes a valid and binding obligation of
Guarantor.
SECTION 8.3. NO BREACH. The execution, delivery and performance by
Guarantor of this Agreement and each Loan Document to which it is a party (a)
will not contravene any law or any governmental rule or order binding on
Collateral owned by it; (b) will not violate any provision of the formation
document of Guarantor; (c) will not violate any agreement or instrument by which
Guarantor or its 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 Guarantor except the Lien to Lender granted herein.
SECTION 8.4. TAXES. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against
Guarantor, or its property have been paid in full before delinquency or before
the expiration of any extension period; and 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 Guarantor are
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS. Guarantor has made all
required contributions to all deferred compensation plans to which such person
is required to contribute, and Guarantor has no liability for any unfunded
benefits of any single-employer or multi-employer plans. Guarantor is not nor at
any time has been a sponsor of, provided, or maintained for any employees any
defined benefit plan.
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SECTION 8.6. LITIGATION AND PROCEEDINGS. Except as set forth on
SCHEDULE 8.6 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. Guarantor has no
knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Guarantor, except for ongoing collection matters in which Guarantor is the
plaintiff and except as set forth in SCHEDULE 8.6 hereto.
SECTION 8.7. BUSINESS. Guarantor has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to advantageously
conduct its business. They are all in full force and effect and are not in known
conflict with the rights of others. Guarantor is not 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 Guarantor's business, properties or prospects.
SECTION 8.8. LAWS AND AGREEMENTS. Guarantor is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Guarantor is in material compliance with all laws applicable to it.
SECTION 8.9. OWNERSHIP OF ACCOUNTS. Prior to the Lender making any
Advance, Guarantor is the sole owner of, and has good and marketable title to
the Accounts pledged by it as security for such Loan.
SECTION 8.10. SECURITY INTEREST. After giving effect to Advances Lender
will be the holder of a valid perfected first priority security interest in the
Accounts pledged by the Guarantor. Accounts pledged to the Lender in connection
with any Loan will be free and clear of all liens other than Permitted Liens.
SECTION 8.11. NO DEFAULTS. As of the date on which an Eligible Account
is pledged to the Lender pursuant to the terms hereof there has been no default
under such Account.
SECTION 8.12. ORIGINATION. Each Account has been originated by
Guarantor in the ordinary course of its business in accordance with Guarantor's
regular credit approval process and does not contravene any laws, rules or
regulations applicable thereto.
SECTION 8.13. LEGALITY. No Eligible Account will have been originated
in, or be subject to the laws of, any jurisdiction whose laws would make the
terms hereof or any transaction contemplated hereby unlawful.
SECTION 8.14. CONSENTS. Except as set forth on SCHEDULE 8.14, no
consent or approval is required for the pledging of any Accounts to the Lender
pursuant to the terms of this Agreement, except for such consents or approvals
as have been obtained prior to the Closing Date.
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SECTION 8.15. HEALTH CARE LAWS.
(a) Guarantor has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Guarantor
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) Guarantor 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 Guarantor, relating in any way to
Health Care Laws.
SECTION 8.16. 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 Guarantor
gives, or cause to be given, to Lender, either now or hereafter.
SECTION 8.17. FULL DISCLOSURE. No representation, warranty or statement
by Guarantor contained in this Agreement, any Schedule or any document,
instrument or certificate furnished by or on behalf 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 8.18. GUARANTOR SOLVENCY.
(a) Immediately following the execution of this Agreement and the Loan
Documents, and the completion of the transactions contemplated thereby,
Guarantor 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.
(b) Guarantor does not intend to incur debts beyond its ability to pay
them as they mature and the aggregate of Guarantor's property at a fair
valuation is sufficient in amount to pay its debts.
(c) Guarantor is not contemplating filing a petition in bankruptcy or
for an arrangement or reorganization under the Bankruptcy Code, nor is there any
threatened bankruptcy or insolvency proceedings against any Guarantor.
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SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL. Each Guarantor shall not
create, incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by such Guarantor, except for Liens to Lender and Permitted
Liens.
SECTION 9.2. BUSINESS. Each Guarantor shall engage primarily in
business of the same general character as that now conducted by such Guarantor.
SECTION 9.3. TAXES. Each Guarantor 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 a Guarantor establishes any reserve or other appropriate
provision required by GAAP. Each Guarantor 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 a Guarantor has made such payments or deposits.
SECTION 9.4. ACCOUNTING SYSTEM. Each 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. A Guarantor shall not modify or change its method of accounting or
enter into any agreement hereafter with any third-party accounting firm or
service bureau for the preparation or storage of such Guarantor's accounting
records without the accounting firm's or service bureau's agreeing to provide to
Lender information regarding the Collateral and such Guarantor's financial
condition.
SECTION 9.5. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF ASSETS,
ISSUANCE OF STOCK, ETC. Unless authorized by Lender, a Guarantor may not:
(a) merge or consolidate with any Person unless Guarantor is the
surviving entity or the surviving entity becomes a Subsidiary of Borrower;
(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;
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(d) become subject to any agreement or instrument which by its terms
would restrict Guarantor'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.
SECTION 9.6. HEALTH CARE COVENANTS.
(a) Each Guarantor shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to them.
(b) Each Guarantor 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 Guarantor would be required
to notify any Governmental Authority with jurisdiction over Health Care Laws.
SECTION 10
EVENTS OF DEFAULT
An Event of Default is deemed to exist if an Event of Default has
occurred and is continuing under the Loan Agreement.
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES. After the attachment of the security
interest granted hereunder pursuant to the provisions of SECTION 3.1 and upon
the occurrence of any Event of Default with respect to each Guarantor, Lender
may:
(a) 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
Guarantor;
(b) set off against the Obligations all Collateral, balances, credits,
deposits, accounts, or moneys of Guarantor then or thereafter held with Lender,
including amounts represented by certificates of deposit;
(c) 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;
(d) (i) notify Account Debtors to make payment on Account directly to
Lender; (ii) settle, adjust, compromise, extend or renew Accounts, whether
before or after legal
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proceedings to collect such Accounts have commenced; (iii) prepare and file any
bankruptcy proofs of claim or similar documents against any Account Debtor; (iv)
prepare and file any notice, assignment, satisfaction, or release of Lien, UCC
termination statement or any similar document; (v) sell or assign Accounts,
individually or in bulk, upon such terms, for such amounts, and at such time or
times as Lender deems advisable; and (vi) complete the performance required of a
Guarantor under any contract or agreement to which Guarantor is a party and out
of which Accounts arise or may arise; and
(e) (i) endorse Guarantor's name on all checks, notes, drafts, money
orders or other forms of payment of or security for Accounts or other
Collateral; (ii) sign Guarantor's name on drafts drawn on Account Debtors or
issuers of letters of credit; and (iii) notify the postal authorities in
Guarantor's name to change the address for delivery of Guarantor's mail to an
address designated by Lender, receive and open all mail addressed to Guarantor,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Guarantor.
SECTION 11.2. POWER OF ATTORNEY. Each Guarantor hereby appoints Lender
(and any of Lender's officers, employees, or agents designated by Lender) as
such Guarantor's attorney, with power whether before or after the occurrence of
an Event of Default: (a) to endorse Guarantor's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Lender's possession; (b) to sign Guarantor's name on drafts against
Account Debtors, on schedules and assignments of Accounts, on verifications of
Accounts, and on notices to Account Debtors; (c) to notify the post office
authorities to change the address for delivery of Guarantor's mail to an address
designated by Lender, to receive and open all mail addressed to Guarantor and to
retain all mail relating to the Collateral and forward all other mail to
Guarantor; (d) to send requests for verification of Accounts; (e) to execute UCC
Financing Statements; and (f) to do all things necessary to carry out this
Agreement. The appointment of Lender as each Guarantor's attorney 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. Lender may not exercise
the power granted in clauses 11.2(a) through 11.2(c) unless an Event of Default
has occurred and is continuing and may not exercise the power granted in clause
11.2(d) prior to notification of a Guarantor of its intent to do so, but such
limitations do not limit the effectiveness of such power of attorney at any
time. 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 each Guarantor's stationery in connection with exercising
its rights and remedies and performing the Obligations of a Guarantor.
SECTION 11.3. EXPENSES SECURED. All expenses, including attorney fees,
incurred by Lender in the exercise of its rights and remedies provided in this
Agreement or by law are payable by each Guarantor to Lender, are part of the
Obligations, and are secured by the Collateral.
SECTION 11.4. EQUITABLE RELIEF. Each Guarantor recognizes that in the
event such Guarantor fails to perform, observe, or discharge any of its
Obligations or liabilities under this Agreement, no remedy of law will provide
adequate relief to Lender, and Lender is entitled
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to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
SECTION 11.5. 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 a Guarantor or Borrower or any other
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. Each Guarantor on
its behalf waives any rights to require Lender to proceed against Borrower or
any other Guarantor or any other party; or proceed against or exhaust any
security held from Borrower or any other Guarantor. Lender may at any time and
from time to time, without notice to, or consent of, a Guarantor, and without
affecting or impairing the obligation of Guarantor hereunder do any of the
following: (i) renew or extend any obligations of Borrower or any other
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Borrower or any other Guarantor; (ii)
accept partial payments of the obligations of Borrower or any other Guarantor;
(iii) settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the obligations of Borrower or any other Guarantor
and the security therefor in any manner; (iv) consent to the transfer or sale of
any security or bid and purchase at any sale of any security of either Borrower
or any other Guarantor. The validity of this Agreement and the Obligations of a
Guarantor are not terminated, affected or impaired by reason of the waiving,
delaying, exercising or non-exercising, of any of Lender's rights against
Borrower or any other Guarantor or as a result of the substitution, release,
repossession, sale, disposition or destruction of any Collateral securing any
obligations of Borrower or any other Guarantor. A Guarantor 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 Borrower or any other Guarantor or to protect the
property covered by such security interest.
SECTION 12
MISCELLANEOUS
SECTION 12.1. 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 12.2. COMPLETE AGREEMENT. This Agreement, the Schedules and the
other Loan Documents 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.
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SECTION 12.3. 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 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 12.4. 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, a Guarantor 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 12.5. 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, telecopy, or similar electronic medium to the following
addresses:
To Guarantor: c/o US Diagnostic Inc.
777 S. Flagler Drive, 12th Floor
West Palm Beach, FL 33401
Attention: Joseph Paul, President
Telephone: (561) 832-0006
Facsimile: (561) 833-8391
Copies to: Greenberg Traurig, P.A.
777 South Flagler Drive
Suite 300 East
West Palm Beach, FL 33401
Attention: Denise A. Gordan, Esq.
Telephone: (561) 650-7900
Facsimile: (561) 655-6222
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Telephone: (714) 474-6100
Facsimile: (714) 474-6199
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Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esq.
General Counsel
Telephone: (215) 230-2931
Facsimile: (215) 345-7759
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.
SECTION 12.6. GOVERNING LAW. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA (WITHOUT GIVING EFFECT
TO ANY PRINCIPLES OF CONFLICTS OF LAW).
SECTION 12.7. WAIVER OF TRIAL BY JURY. LENDER AND GUARANTOR 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
AND GUARANTOR.
SECTION 12.8. SUBMISSION TO JURISDICTION.
(a) GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. GUARANTOR
HEREBY AGREES THAT SERVICE OF COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE
MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF
THIS AGREEMENT.
(b) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i) ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT
16
<PAGE> 17
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN
INCONVENIENT FORUM OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA
OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN
ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE LOANS.
IN WITNESS WHEREOF, each Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
HE IMAGING PARTNERS, LTD. PINNACLE IMAGING ASSOCIATES
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
VALLEY PRESBYTERIAN MAGNETIC COLUMBUS DIAGNOSTIC CENTER,
RESONANCE CENTER, LP INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - BROWARD, INC. MEDITEK - PALM BEACH
GARDENS, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
ADVANCED MEDICAL IMAGING MEDITEK - GREYSTONE, INC.
CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - ICOT, INC. KALEY IMAGING, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
17
<PAGE> 18
MEDITEK - PALMS, INC. MEDITEK - PREMIER NORTH, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK - SUN COAST, INC. COMPUTERIZED MEDICAL
IMAGING CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SAN FRANCISCO MAGNETIC MODESTO IMAGING CENTER, INC.
RESONANCE CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SOUTH COAST RADIOLOGISTS, JEFFERSON MAGNETIC
A CORPORATION RESONANCE IMAGING, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MEDITEK PREMIER, INC. ORANGE PARK DIAGNOSTIC
CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SALISBURY IMAGING, INC. DVI BUSINESS CREDIT
CORPORATION
By: /s/ Joseph A. Paul By: /s/ Richard E. Miller
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Richard E. Miller
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
18
<PAGE> 19
GUARANTORS
HE Imaging Partners, Ltd.
Pinnacle Imaging Associates
Valley Presbyterian Magnetic Resonance Center, LP
Columbus Diagnostic Center, Inc.
MediTek - Broward, Inc.
MediTek - Palm Beach Gardens, Inc.
Advanced Medical Imaging Center, Inc.
MediTek - Greystone, Inc.
MediTek - ICOT, Inc.
Kaley Imaging, Inc.
MediTek - Palms, Inc.
MediTek - Premier North, Inc.
MediTek - Sun Coast, Inc.
Computerized Medical Imaging Center, Inc.
San Francisco Magnetic Resonance Center, Inc.
Modesto Imaging Center, Inc.
South Coast Radiologists, a Corporation
MediTek Premier, Inc.
Orange Park Diagnostic Center, Inc.
Salisbury Imaging, Inc.
Jefferson Magnetic Resonance Imaging, LLC
EXHIBIT "A"
to
SECURITY AGREEMENT
19
<PAGE> 1
Exhibit 10.66
SECURITY AGREEMENT
(SPRINGING LIEN B)
THIS SECURITY AGREEMENT (this "AGREEMENT") is entered into as of
November 8, 1999, by and between DVI BUSINESS CREDIT CORPORATION, a Delaware
corporation ("LENDER"), and those entities listed on EXHIBIT "A" attached hereto
(each a "GUARANTOR"), each of which is, directly or indirectly, a subsidiary of
US Diagnostic Inc., a Delaware corporation ("BORROWER").
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions apply:
"ACCOUNT DEBTORS" mean each Guarantor's customers, the insurance
companies or other payors responsible for their customers' obligations and all
other persons who are obligated or indebted to a Guarantor in any manner,
whether directly or indirectly, primarily or secondarily, contingently or
otherwise, with respect to Accounts.
"ACCOUNTS" mean all accounts, contract rights, instruments, documents,
general intangibles, chattel paper and obligations in any form owing to a
Guarantor arising out of the sale or lease of goods or the rendition of services
by a Guarantor whether or not earned by performance; all credit insurance,
guaranties, letters of credit, advises of credit and other security for any of
the above; all merchandise returned to or reclaimed by Guarantor; and each
Guarantor's Books relating to any of the foregoing.
"COLLATERAL" has the meaning specified in SECTION 3.1 hereof.
"EVENT OF DEFAULT" has the meaning specified in SECTION 10 hereof.
"GUARANTOR'S BOOKS" means all of each Guarantor's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing a Guarantor's assets, liabilities and the Accounts;
all information relating to a Guarantor's business operations or financial
condition; 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.
"GUARANTY" means those certain Unconditional Continuing Guaranties
dated February 25, 1997, or June 29, 1999, as the case may be, given by each
Guarantor to Lender, as acknowledged and confirmed by that certain
Acknowledgement and Confirmation of Guaranties of even date herewith pursuant to
which Guarantors have unconditionally guaranteed Borrower's obligations under
the Loan Agreement.
1
<PAGE> 2
"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 each loan or any other loan or loans made by Lender to
Borrower pursuant to the Loan Agreement.
"LOAN AGREEMENT" means the Loan and Security Agreement dated February
25, 1997, between Borrower and Lender, as amended, pursuant to which Lender has
agreed to extend Advances to Borrower in an aggregate amount not to exceed
Thirty-Five Million Dollars ($35,000,000.00).
"OBLIGATIONS" mean the due and punctual payment of all amounts due
under the Guaranty and the performance of all obligations of each Guarantor
thereunder.
"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 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 have been subordinated to the Liens of
Lender in a manner satisfactory to Lender; (iii) Liens granted to Lender or any
Affiliate of Lender and (iv) Liens existing on the date of this Agreement that
secure indebtedness outstanding on such date and that are disclosed on SCHEDULE
1.1 hereto.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM
COMMERCIAL CODE. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under GAAP. 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
2
<PAGE> 3
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 1.4. LOAN AGREEMENT. Capitalized terms used but not otherwise
defined herein have the meaning given to them in the Loan Agreement.
SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions and relying
on the representations and warranties set forth in the Loan Agreement, Lender
has advanced, or will advance, to and for the benefit of Borrower and Borrower
has borrowed, or will borrow, from Lender one or more revolving loans in an
aggregate amount not to exceed Thirty-Five Million Dollars ($35,000,000). As a
condition of Amendment No. 4 to the Loan Agreement, Borrower was required to
deliver this Security Agreement signed by certain of its, directly or
indirectly, subsidiaries. Each Guarantor has had the opportunity to review the
Loan Agreement, as amended.
SECTION 2.2. ACCOUNT RECEIPTS.
(a) Borrower is, and will remain until such time as this Agreement is
terminated, a party to the Lock Box Agreements which provide for the receipt and
processing of Account payments. Each Guarantor shall irrevocably direct: (i) all
non-government payors to remit payment to the servicer's post office box in
Lender's name and control, and (ii) all government payors to remit payment to a
second post office box of such servicer in Borrower's name. The Lock Box
Agreements provide for the servicer to deposit daily all receipts of the post
office boxes into deposit accounts, with non-government payor receipts paid into
an account subject to Lender's control and, government payor receipts paid into
an account in Borrower's name. All government payor receipts will be immediately
transferred to an account in the name and control of Lender. Any receipts from
Accounts received by a Guarantor must be deposited in a deposit box account
promptly upon receipt.
(b) Lender will debit the lock box account at the end of each day in
payment of (i) all Lender and other fees, reimbursements, principal payments and
other amounts then due and payable; and (ii) on the first day of each month with
respect to interest accrued on the Loan during the preceding month. Lender shall
apply excess receipts remaining in the lock box account after the payment of
fees, interest, reimbursements and other amounts to the principal amount of the
Loan on a daily basis.
(c) Borrower shall bear all charges for establishing and maintaining
the post office box accounts and all bank charges for such deposit accounts.
Lender shall deduct from the deposit accounts all sums Borrower owes to it
hereunder, including fees, interest, reimbursements and principal payments.
3
<PAGE> 4
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure prompt
payment and performance of the Obligations, each Guarantor hereby grants to
Lender a springing pledge and security interest in the Accounts owned by it
together with such third-party consents, lien waivers and estoppel certificates
as Lender reasonably requires (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 shall attach to all
Collateral, without further action on the part of Lender or any Guarantor, only
upon the termination of the obligations of Borrower under Note B and the release
by the holder of Note B, or its trustee or custodian, of its security interest
in, and lien on, the Loan B Collateral securing such Note B obligations.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF GUARANTOR. The exact name of each Guarantor and
the state in which it was formed is set forth on the attached SCHEDULE 4.1.
Except as set forth on SCHEDULE 4.1 each Guarantor has no previous legal name
use, no trade names and has used no other names in the past.
SECTION 4.2. CHANGE OF NAME OR IDENTITY. A Guarantor shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
SECTION 4.3. CORPORATE STRUCTURE. Borrower, directly or indirectly,
owns that percentage interest of the equity of each Guarantor as set forth on
SCHEDULE 4.1 attached hereto.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF GUARANTOR. Each Guarantor's chief
executive offices and the location at which it maintains all of its records with
respect to Accounts is listed on SCHEDULE 5.1. No Guarantor has at any time
within the past four (4) months maintained its chief executive office or its
records with respect to Accounts at any other location and may not do so
hereafter except with the prior written consent of Lender.
SECTION 5.2. REPRESENTATIONS. Each Guarantor represents and warrants
that each of its Accounts at the time of attachment of the security interest
granted pursuant to SECTION 3.1 hereof to Lender (a) will be owned solely by
Guarantor, (b) will be for a liquidated amount maturing as stated in Guarantor's
Books; (c) will be a bona fide existing obligation created by the rendition of
services to Account Debtors or their insured by Guarantor in the ordinary course
of
4
<PAGE> 5
its business; and (d) will not be subject to any known deduction, offset,
counterclaim, return privilege, or other condition, except as reflected on
Guarantor's Books. A Guarantor shall neither redate any invoices nor reissue new
invoices in full or partial satisfaction of old invoices. Allowances, if any, as
between a Guarantor and its customers will be on the same basis and in
accordance with the usual customary practices of a Guarantor as they exist on
the date of this Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS. Each Guarantor shall notify
Lender within five (5) business days of the occurrence of all material claims
asserted by Account Debtors.
SECTION 5.4. LENDER'S RIGHTS. Any officer, employee or agent of Lender
has the right, at any time or times hereafter, in the name of Lender or its
nominee (including any Guarantor), with prior notice to a Guarantor, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone or otherwise. Lender or its designee may at any time after an Event of
Default has occurred and is continuing notify customers or Account Debtors that
Accounts have been assigned to Lender or of Lender's security interest therein
and thereafter collect the same directly and charge all reasonable collection
costs and expenses to Guarantor's account.
SECTION 5.5. DISCLAIMER OF LIABILITY. Lender shall not be liable to a
Guarantor or any third person for the correctness, validity or genuineness of
any instruments or documents released or endorsed to a Guarantor by Lender
(which are automatically deemed to be without recourse to Lender in any event)
or for the existence, character, quantity, quality, condition, value or delivery
of any goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to a
Guarantor, is not deemed to have assumed any obligation or liability to any
supplier or creditor of Guarantor or to any other third party. Each Guarantor
shall indemnify and defend Lender and hold it harmless in respect to any claim
or proceeding arising out of any matter referred to in this Section 5.5.
SECTION 5.6. POST DEFAULT RIGHTS. If an Event of Default has occurred
and is continuing, no discount, credit or allowance may be granted or permitted
by a Guarantor to any Account Debtor; provided, however, that, notwithstanding
the existence of an Event of Default, (i) each Guarantor may continue to invoice
and bill Account Debtors under discount, credit and allowance arrangements that
such Guarantor maintained in the ordinary course of business prior to such Event
of Default occurring, and (ii) Account Debtors may, during the continuance of an
Event of Default, utilize discount, credit and allowance arrangements that a
Guarantor extended to them in the ordinary course of business. Lender may, if an
Event of Default has occurred and is continuing, settle or adjust disputes and
claims directly with Account Debtors for amounts and upon terms that Lender
considers advisable.
SECTION 5.7. ACCOUNTS OWED BY FEDERAL GOVERNMENT. If any Accounts arise
out of a contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, a Guarantor which owns such Account
shall promptly notify Lender thereof in writing and take all other action
reasonably requested by Lender to protect Lender's Lien on such Accounts under
the provisions of the federal laws on assignment of claims.
5
<PAGE> 6
SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
(a) SCHEDULE 6.1. is a true and complete list of all radiology and
partnership agreements to which any Guarantor is a party and all contracts and
agreements listed in any filing by Borrower with the Securities and Exchange
Commission.
(b) A Guarantor may not amend, modify or supplement any contract or
agreement included in the Collateral or waive any provision thereof other than
in accordance with a Guarantor's standard business practice, nor may such
standard business practice be materially changed without Lender's consent, which
may not be unreasonably withheld.
(c) A Guarantor remains liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed. Lender does not have any
obligation or liability under such contracts and agreements by reason of this
Agreement or otherwise.
(d) A Guarantor need not pay any amount due under any contract or
agreement listed on SCHEDULE 6.1, nor otherwise perform any action required
under the terms of any such contract or agreement, if such payment or
performance 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 Guarantor establishes any reserve or other appropriate provision
required by GAAP.
SECTION 7
PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. FURTHER ASSURANCES. Each Guarantor shall execute and
deliver to Lender, concurrent with Guarantor's 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. Each Guarantor hereby irrevocably makes, constitutes,
and appoints Lender (and any of Lender's officers, employees or agents
designated by Lender) as such Guarantor's true and lawful attorney with power to
sign the name of 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 each Guarantor's 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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<PAGE> 7
SECTION 7.2. 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 a 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 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 each Guarantor.
SECTION 7.3. REINSTATEMENT OF LIENS. If, at any time after payment in
full of all Obligations and termination of Lender's Liens, any payments on
Obligations previously made by a Guarantor or any other Person must be disgorged
by Lender for any reason whatsoever (including, the insolvency, bankruptcy, or
reorganization of a Guarantor or such other Person), this Agreement and Lender's
Liens granted hereunder are reinstated as to all disgorged payments as though
such payments had not been made, and a Guarantor shall sign and deliver to
Lender all documents and things necessary to perfect all terminated Liens.
SECTION 7.4. LENDER EXPENSES. If a 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 a Guarantor could have a material adverse
effect on Lender's interest in the Collateral, in its discretion and without
prior notice to such Guarantor, make payment of the same or any part thereof.
Any amounts paid or deposited by Lender constitute Advances, become part of the
Obligations, 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. Each Guarantor hereby authorizes and
approves all advances and payments by Lender for items constituting Lender
Expenses.
SECTION 7.5. 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. Lender also has the right
at any time or times hereafter, during usual business hours to inspect and
verify each Guarantor's Books in order to verify the amount or condition of, or
any other matter relating to, the Collateral and to copy and make extracts
therefrom. Each Guarantor waives 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.
7
<PAGE> 8
SECTION 7.6. WAIVERS. Except as specifically provided for herein, each
Guarantor 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 a Guarantor may in any way be
liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
Each Guarantor each hereby warrants and represents to Lender the
following with respect to itself:
SECTION 8.1. STATUS. Guarantor is an entity validly existing and in
good standing under the laws of the state of its incorporation, 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 8.2. AUTHORIZATION. The execution, delivery, and performance by
Guarantor of this Agreement and each Loan Document have been duly authorized by
all necessary action of the equity holders of such Guarantor. Guarantor, has
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each of them constitutes a valid and binding obligation of
Guarantor.
SECTION 8.3. NO BREACH. The execution, delivery and performance by
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 owned by it; (b) will not violate any provision of the formation
document of Guarantor; (c) will not violate any agreement or instrument by which
Guarantor or its 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 Guarantor except the Lien to Lender granted herein.
SECTION 8.4. TAXES. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against
Guarantor, or its property have been paid in full before delinquency or before
the expiration of any extension period; and 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 Guarantor are
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS. Guarantor has made all
required contributions to all deferred compensation plans to which such person
is required to contribute, and Guarantor has no liability for any unfunded
benefits of any single-employer or multi-
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<PAGE> 9
employer plans. Guarantor is not nor at any time has been a sponsor of,
provided, or maintained for any employees any defined benefit plan.
SECTION 8.6. LITIGATION AND PROCEEDINGS. Except as set forth on
SCHEDULE 8.6 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. Guarantor has no
knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Guarantor, except for ongoing collection matters in which Guarantor is the
plaintiff and except as set forth in SCHEDULE 8.6 hereto.
SECTION 8.7. BUSINESS. Guarantor has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to advantageously
conduct its business. They are all in full force and effect and are not in known
conflict with the rights of others. Guarantor is not 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 Guarantor's business, properties or prospects.
SECTION 8.8. LAWS AND AGREEMENTS. Guarantor is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Guarantor is in material compliance with all laws applicable to it.
SECTION 8.9. OWNERSHIP OF ACCOUNTS. Prior to the Lender making any
Advance, Guarantor is the sole owner of, and has good and marketable title to
the Accounts pledged by it as security for such Loan.
SECTION 8.10. SECURITY INTEREST. After giving effect to Advances Lender
will be the holder of a valid perfected first priority security interest in the
Accounts pledged by the Guarantor. Accounts pledged to the Lender in connection
with any Loan will be free and clear of all liens other than Permitted Liens.
SECTION 8.11. NO DEFAULTS. As of the date on which an Eligible Account
is pledged to the Lender pursuant to the terms hereof there has been no default
under such Account.
SECTION 8.12. ORIGINATION. Each Account has been originated by
Guarantor in the ordinary course of its business in accordance with Guarantor's
regular credit approval process and does not contravene any laws, rules or
regulations applicable thereto.
SECTION 8.13. LEGALITY. No Eligible Account will have been originated
in, or be subject to the laws of, any jurisdiction whose laws would make the
terms hereof or any transaction contemplated hereby unlawful.
SECTION 8.14. CONSENTS. Except as set forth on SCHEDULE 8.14, no
consent or approval is required for the pledging of any Accounts to the Lender
pursuant to the terms of this Agreement, except for such consents or approvals
as have been obtained prior to the Closing Date.
9
<PAGE> 10
SECTION 8.15. HEALTH CARE LAWS.
(a) Guarantor has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Guarantor
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) Guarantor 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 Guarantor, relating in any way to
Health Care Laws.
SECTION 8.16. 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 Guarantor
gives, or cause to be given, to Lender, either now or hereafter.
SECTION 8.17. FULL DISCLOSURE. No representation, warranty or statement
by Guarantor contained in this Agreement, any Schedule or any document,
instrument or certificate furnished by or on behalf 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 8.18. GUARANTOR SOLVENCY.
(a) Immediately following the execution of this Agreement and the Loan
Documents, and the completion of the transactions contemplated thereby,
Guarantor 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.
(b) Guarantor does not intend to incur debts beyond its ability to pay
them as they mature and the aggregate of Guarantor's property at a fair
valuation is sufficient in amount to pay its debts.
(c) Guarantor is not contemplating filing a petition in bankruptcy or
for an arrangement or reorganization under the Bankruptcy Code, nor is there any
threatened bankruptcy or insolvency proceedings against any Guarantor.
10
<PAGE> 11
SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL. Each Guarantor shall not
create, incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by such Guarantor, except for Liens to Lender and Permitted
Liens.
SECTION 9.2. BUSINESS. Each Guarantor shall engage primarily in
business of the same general character as that now conducted by such Guarantor.
SECTION 9.3. TAXES. Each Guarantor 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 a Guarantor establishes any reserve or other appropriate
provision required by GAAP. Each Guarantor 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 a Guarantor has made such payments or deposits.
SECTION 9.4. ACCOUNTING SYSTEM. Each 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. A Guarantor shall not modify or change its method of accounting or
enter into any agreement hereafter with any third-party accounting firm or
service bureau for the preparation or storage of such Guarantor's accounting
records without the accounting firm's or service bureau's agreeing to provide to
Lender information regarding the Collateral and such Guarantor's financial
condition.
SECTION 9.5. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF ASSETS,
ISSUANCE OF STOCK, ETC. Unless authorized by Lender, a Guarantor may not:
(a) merge or consolidate with any Person unless Guarantor is the
surviving entity or the surviving entity becomes a Subsidiary of Borrower;
(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;
11
<PAGE> 12
(d) become subject to any agreement or instrument which by its terms
would restrict Guarantor'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.
SECTION 9.6. HEALTH CARE COVENANTS.
(a) Each Guarantor shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to them.
(b) Each Guarantor 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 Guarantor would be required
to notify any Governmental Authority with jurisdiction over Health Care Laws.
SECTION 10
EVENTS OF DEFAULT
An Event of Default is deemed to exist if an Event of Default has
occurred and is continuing under the Loan Agreement.
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES. After the attachment of the security
interest granted hereunder pursuant to the provisions of SECTION 3.1 and upon
the occurrence of any Event of Default with respect to each Guarantor, Lender
may:
(a) 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
Guarantor;
(b) set off against the Obligations all Collateral, balances, credits,
deposits, accounts, or moneys of Guarantor then or thereafter held with Lender,
including amounts represented by certificates of deposit;
(c) 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;
(d) (i) notify Account Debtors to make payment on Account directly to
Lender; (ii) settle, adjust, compromise, extend or renew Accounts, whether
before or after legal
12
<PAGE> 13
proceedings to collect such Accounts have commenced; (iii) prepare and file any
bankruptcy proofs of claim or similar documents against any Account Debtor; (iv)
prepare and file any notice, assignment, satisfaction, or release of Lien, UCC
termination statement or any similar document; (v) sell or assign Accounts,
individually or in bulk, upon such terms, for such amounts, and at such time or
times as Lender deems advisable; and (vi) complete the performance required of a
Guarantor under any contract or agreement to which Guarantor is a party and out
of which Accounts arise or may arise; and
(e) (i) endorse Guarantor's name on all checks, notes, drafts, money
orders or other forms of payment of or security for Accounts or other
Collateral; (ii) sign Guarantor's name on drafts drawn on Account Debtors or
issuers of letters of credit; and (iii) notify the postal authorities in
Guarantor's name to change the address for delivery of Guarantor's mail to an
address designated by Lender, receive and open all mail addressed to Guarantor,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Guarantor.
SECTION 11.2. POWER OF ATTORNEY. Each Guarantor hereby appoints Lender
(and any of Lender's officers, employees, or agents designated by Lender) as
such Guarantor's attorney, with power whether before or after the occurrence of
an Event of Default: (a) to endorse Guarantor's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Lender's possession; (b) to sign Guarantor's name on drafts against
Account Debtors, on schedules and assignments of Accounts, on verifications of
Accounts, and on notices to Account Debtors; (c) to notify the post office
authorities to change the address for delivery of Guarantor's mail to an address
designated by Lender, to receive and open all mail addressed to Guarantor and to
retain all mail relating to the Collateral and forward all other mail to
Guarantor; (d) to send requests for verification of Accounts; (e) to execute UCC
Financing Statements; and (f) to do all things necessary to carry out this
Agreement. The appointment of Lender as each Guarantor's attorney 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. Lender may not exercise
the power granted in clauses 11.2(a) through 11.2(c) unless an Event of Default
has occurred and is continuing and may not exercise the power granted in clause
11.2(d) prior to notification of a Guarantor of its intent to do so, but such
limitations do not limit the effectiveness of such power of attorney at any
time. 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 each Guarantor's stationery in connection with exercising
its rights and remedies and performing the Obligations of a Guarantor.
SECTION 11.3. EXPENSES SECURED. All expenses, including attorney fees,
incurred by Lender in the exercise of its rights and remedies provided in this
Agreement or by law are payable by each Guarantor to Lender, are part of the
Obligations, and are secured by the Collateral.
SECTION 11.4. EQUITABLE RELIEF. Each Guarantor recognizes that in the
event such Guarantor fails to perform, observe, or discharge any of its
Obligations or liabilities under this Agreement, no remedy of law will provide
adequate relief to Lender, and Lender is entitled
13
<PAGE> 14
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
SECTION 11.5. 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 a Guarantor or Borrower or any other
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. Each Guarantor on
its behalf waives any rights to require Lender to proceed against Borrower or
any other Guarantor or any other party; or proceed against or exhaust any
security held from Borrower or any other Guarantor. Lender may at any time and
from time to time, without notice to, or consent of, a Guarantor, and without
affecting or impairing the obligation of Guarantor hereunder do any of the
following: (i) renew or extend any obligations of Borrower or any other
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Borrower or any other Guarantor; (ii)
accept partial payments of the obligations of Borrower or any other Guarantor;
(iii) settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the obligations of Borrower or any other Guarantor
and the security therefor in any manner; (iv) consent to the transfer or sale of
any security or bid and purchase at any sale of any security of either Borrower
or any other Guarantor. The validity of this Agreement and the Obligations of a
Guarantor are not terminated, affected or impaired by reason of the waiving,
delaying, exercising or non-exercising, of any of Lender's rights against
Borrower or any other Guarantor or as a result of the substitution, release,
repossession, sale, disposition or destruction of any Collateral securing any
obligations of Borrower or any other Guarantor. A Guarantor 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 Borrower or any other Guarantor or to protect the
property covered by such security interest.
SECTION 12
MISCELLANEOUS
SECTION 12.1. 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 12.2. COMPLETE AGREEMENT. This Agreement, the Schedules and the
other Loan Documents 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.
14
<PAGE> 15
SECTION 12.3. 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 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 12.4. 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, a Guarantor 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 12.5. 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, telecopy, or similar electronic medium to the following
addresses:
To Guarantor: c/o US Diagnostic Inc.
777 S. Flagler Drive, 12th Floor
West Palm Beach, FL 33401
Attention: Joseph Paul, President
Telephone: (561) 832-0006
Facsimile: (561) 833-8391
Copies to: Greenberg Traurig, P.A.
777 South Flagler Drive
Suite 300 East
West Palm Beach, FL 33401
Attention: Denise A. Gordan, Esq.
Telephone: (561) 650-7900
Facsimile: (561) 655-6222
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Telephone: (714) 474-6100
Facsimile: (714) 474-6199
15
<PAGE> 16
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esq.
General Counsel
Telephone: (215) 230-2931
Facsimile: (215) 345-7759
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.
SECTION 12.6. GOVERNING LAW. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA (WITHOUT GIVING EFFECT
TO ANY PRINCIPLES OF CONFLICTS OF LAW).
SECTION 12.7. WAIVER OF TRIAL BY JURY. LENDER AND GUARANTOR 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
AND GUARANTOR.
SECTION 12.8. SUBMISSION TO JURISDICTION.
(a) GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. GUARANTOR
HEREBY AGREES THAT SERVICE OF COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE
MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF
THIS AGREEMENT.
(b) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i) ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT
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<PAGE> 17
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN INCONVENIENT
FORUM OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA OR FEDERAL
COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN ACCORDANCE
WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY OR
OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE LOANS.
IN WITNESS WHEREOF, each Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
AH IMAGING, INC. BRIDGETON MRI CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MR OF KANSAS CITY, L.P. KIRKWOOD MRI CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
OUTPATIENT RADIOLOGY CENTER DI IMAGING CENTER, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
LB IMAGING, INC. COMMUNITY RADIOLOGY OF
VIRGINIA, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
USDL PITTSBURGH, INC. MEDITEK - CHATHAM
INDUSTRIES, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
17
<PAGE> 18
HEIGHTS IMAGING CENTER, INC. MEDICAL MARKETING
DEVELOPMENT, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
SANTA FE IMAGING CENTER, INC. AFFILIATED MEDICAL IMAGING
NETWORK, INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
USD DAYTON, INC. WESTLAKE DIAGNOSTIC CENTER,
INC.
By: /s/ Joseph A. Paul By: /s/ Joseph A. Paul
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------------- ------------------------------
Title: President Title: President
---------------------------- -----------------------------
MICA IMAGING, INC. DVI BUSINESS CREDIT
CORPORATION
By: /s/ Joseph A. Paul By: /s/ Richard E. Miller
------------------------------- -------------------------------
Name: Joseph A. Paul Name: Richard E. Miller
----------------------------- ------------------------------
Title: President Title: Vice President
---------------------------- -----------------------------
18
<PAGE> 19
GUARANTORS
MR of Kansas City, L.P.
Outpatient Radiology Center
Community Radiology of Virginia, Inc.
USDL Pittsburgh, Inc.
MediTek - Chatham Industries, Inc.
Heights Imaging Center, Inc.
Medical Marketing Development, Inc.
Santa Fe Imaging Center, Inc.
Affiliated Medical Imaging Network, Inc.
USD Dayton, Inc.
Westlake Diagnostic Center, Inc.
MICA Imaging, Inc.
Bridgeton MRI Center, Inc.
Kirkwood MRI Center, Inc.
AH Imaging, Inc.
DI Imaging Center, Inc.
LB Imaging, Inc.
EXHIBIT "A"
to
SECURITY AGREEMENT
19
<PAGE> 1
Exhibit 10.67
ACKNOWLEDGEMENT AND CONFIRMATION OF GUARANTIES
THIS ACKNOWLEDGEMENT AND CONFIRMATION (the "ACKNOWLEDGEMENT") is made
and entered into as of November 8, 1999, by and between the entities listed
on EXHIBIT "A" attached hereto (each a "GUARANTOR" and collectively, the
"GUARANTORS") and DVI BUSINESS CREDIT CORPORATION ("LENDER").
BACKGROUND
A. Pursuant to various Unconditional Continuing Guaranties dated
February 25, 1997, June 29, 1999, or November 8, 1999, as the case may be, by
and between Guarantors and Lender (each a "Guaranty" and collectively, the
"GUARANTIES"), each Guarantor has agreed to guaranty and become surety for all
present and future obligations of US Diagnostic, Inc. ("BORROWER") to Lender,
including, without limitation, all obligations arising under that certain Loan
and Security Agreement dated February 25, 1997, by and between Borrower and
Lender, as amended (the "LOAN AGREEMENT"), the Notes executed thereunder and
all documents, instruments and agreements related thereto (all of the
foregoing being collectively, the "LOAN DOCUMENTS").
B. Borrower has agreed to divide the Loan, the Notes and the
Collateral under the Loan Documents into two (2) distinct and separate
obligations, which obligations may subsequently be merged or
cross-collateralized.
C. All capitalized terms not defined herein shall have the meaning set
forth in the Loan Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound and
for good and valuable consideration, agree as follows:
1. ACKNOWLEDGEMENT AND CONFIRMATION OF OBLIGATIONS. Each Guarantor
hereby acknowledges and confirms its unconditional continuing guarantee of the
due and punctual payment, performance and discharge of any and all present and
future Obligations (as defined in that Guarantor's Guaranty) of Borrower to
Lender, including, without limitation, Borrower's obligations under Note A and
under Note B, whether or not such obligations are divided or subsequently
merged or cross-collateralized.
2. COUNTERPARTS. This Acknowledgement may be executed in counterparts,
all of which when taken together constitute one and the same instrument.
3. GOVERNING LAW. This Acknowledgement is governed by and must be
interpreted and construed in accordance with the laws of the State of
California (without giving effect to any principles of conflicts of law).
1
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Acknowledgement
as of the date first above written.
HE IMAGING PARTNERS, LTD PINNACLE IMAGING ASSOCIATES
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
VALLEY PRESBYTERIAN MAGNETIC COLUMBUS DIAGNOSTIC CENTER,
RESONANCE CENTER, LP INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
MEDITEK - BROWARD, INC. MEDITEK - PALM BEACH
GARDENS, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
ADVANCED MEDICAL IMAGING MEDITEK - GREYSTONE, INC.
CENTER, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
MEDITEK - ICOT, INC. KALEY IMAGING, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
MEDITEK - PALMS, INC. MEDITEK - PREMIER NORTH, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
------------------------- -------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
----------------------- -----------------------
Title: President Title: President
---------------------- ----------------------
2
<PAGE> 3
MEDITEK -- SUN COAST, INC. COMPUTERIZED MEDICAL
IMAGING CENTER, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
SAN FRANCISCO MAGNETIC MODESTO IMAGING CENTER, INC.
RESONANCE CENTER, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
SOUTH COAST RADIOLOGISTS, AH IMAGING CENTER, INC.
A CORPORATION
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
DI IMAGING CENTER, INC. LB IMAGING, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
MEDITEK PREMIER, INC. ORANGE PARK DIAGNOSTIC
CENTER, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
SALISBURY IMAGING, INC. BRIDGETON MRI CENTER, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
JEFFERSON MAGNETIC RESONANCE KIRKWOOD MRI CENTER, INC.
IMAGING, LLC
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
3
<PAGE> 4
MR OF KANSAS CITY, L.P. OUTPATIENT RADIOLOGY CENTER
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
COMMUNITY RADIOLOGY OF USDL PITTSBURGH, INC.
VIRGINIA, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
MEDITEK -- CHATHAM HEIGHTS IMAGING CENTER, INC.
INDUSTRIES, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
MEDICAL MARKETING SANTA FE IMAGING CENTER, INC.
DEVELOPMENT, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
AFFILIATED MEDICAL IMAGING USD DAYTON, INC.
NETWORK, INC.
By: /s/ JOSEPH A. PAUL By: /s/ JOSEPH A. PAUL
----------------------- ------------------------
Name: Joseph A. Paul Name: Joseph A. Paul
--------------------- ----------------------
Title: President Title: President
-------------------- ---------------------
WESTLAKE DIAGNOSTIC CENTER
INC.
By: /s/ JOSEPH A. PAUL
-----------------------
Name: Joseph A. Paul
---------------------
Title: President
--------------------
4
<PAGE> 5
GUARANTORS
HE Imaging Partners, Ltd.
Pinnacle Imaging Associates
Valley Presbyterian Magnetic Resonance Center, LP
Columbus Diagnostic Center, Inc.
MediTek -- Broward, Inc.
MediTek -- Palm Beach Gardens, Inc.
ADvanced Medical Imaging Center, Inc.
MediTek -- Greystone, Inc.
MediTek -- ICOT, Inc.
Kaley Imaging, Inc.
MediTek -- Palms, Inc.
MediTek -- Premier North, Inc.
MediTek -- Sun Coast, Inc.
Computerized Medical Imaging Center, Inc.
San Francisco Magnetic Resonance Center, Inc.
Modesto Imaging Center, Inc.
South Coast Radiologists, a Corporation
AH Imaging, Inc.
DI Imaging Center, Inc.
LB Imaging, Inc.
MediTek Premier, Inc.
Orange Park Diagnostic Center, Inc.
Salisbury Imaging, Inc.
Jefferson Magnetic Resonance Imaging, LLC
MR of Kansas City, L.P.
Outpatient Radiology Center
Community Radiology of Virginia, Inc.
USDL Pittsburgh, Inc.
MediTek -- Chatham Industries, Inc.
Heights Imaging Center, Inc.
Medical Marketing Development, Inc.
Santa Fe Imaging Center, Inc.
Affiliated Medical Imaging Network, Inc.
USD Dayton, Inc.
EXHIBIT "A"
TO
ACKNOWLEDGMENT AND CONFIRMATION
OF GUARANTIES
5
<PAGE> 6
Westlake Diagnostic Center, Inc.
MICA Imaging, Inc.
Bridgeton MRI Center, Inc.
Kirkwood MRI Center, Inc.
EXHIBIT "A" (continued)
to
ACKNOWLEDGMENT AND CONFIRMATION
OF GUARANTORS
6
<PAGE> 1
Exhibit 10.68
AMENDMENT NO. 6
TO
LOAN AND SECURITY AGREEMENT
DATED FEBRUARY 25, 1997 ("AGREEMENT")
BETWEEN
U.S. DIAGNOSTIC INC. ("BORROWER")
AND
DVI BUSINESS CREDIT CORPORATION ("LENDER")
This Amendment No. 6 ("Amendment") to the Loan and Security Agreement
is made and entered into as of January 18, 2000, by and between U.S. Diagnostic
Inc. ("Borrower") and DVI Business Credit Corporation ("Lender").
RECITALS
A. Borrower and Lender entered into a Loan and Security Agreement
dated February 25, 1997, and all amendments thereto (collectively
referred to as the "Agreement") pursuant to which Borrower
obtained a revolving loan in the amount of Thirty Five Million
Dollars ($35,000,000).
B. The parties now desire to amend certain terms of the Agreement on
and subject to the terms hereof.
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. A new Section 2.13 is hereby inserted in the Agreement:
"2.13 Loan B Additional Facility. Subject to the terms of
this Agreement, Lender agrees, for so long as no Event of Default
exists, to provide Borrower, and Borrower agrees to accept,
overadvance financing for the purposes described herein (each advance
being a "Loan B Additional Advance"), up to an aggregate unpaid
principal amount not to exceed at any time Two Million Dollars
($2,000,000), subject to the provisions of item (e) below, and
otherwise on and subject to the following terms and conditions (the
"Loan B Additional Facility"):
(a) A Loan B Additional Advance may be made to satisfy
Borrower's working capital needs to the extent they exceed the
formula-determined Borrowing Base B.
(b) Each Loan B Additional Advance shall be due and payable in
accordance with the terms of this Agreement and shall constitute
Obligations.
(c) No Guaranty shall be in default and each shall be in full
force and effect at the time any Loan B Additional Advance is made.
(d) Borrower will pay Lender interest on the principal amount
of any Loan B Additional Advance outstanding at the rates provided for
Loans herein.
(e) The Loan B Additional Facility, shall be repaid in whole
on or before May 20, 2000, and to achieve such limitation, the Loan B
Additional Facility shall be reduced by $180,000 per week
1
<PAGE> 2
commencing on March 1, 2000. If the foregoing provisions for repayment,
or any of them, are not satisfied by Borrower, it shall constitute an
Event of Default. To the extent that the Loan B Additional Facility is
not repaid by the final maturity date described above, all cash
receipts and other monies received on Loan B will immediately serve to
repay the Loan B Additional Facility.
(f) Except as provided to the contrary in the provisions
above, the Loan B Additional Facility pursuant to this Section 2.13
shall be subject to all other terms and conditions of this Agreement.
In no event shall any amount of the Loan B Additional Facility be
available under Loan A.
Notwithstanding anything else herein, the total outstanding principal
amount of all Loans under Loan B shall at no time exceed $11,000,000.
2. The definition of "Loan Availability" in Section 1.1 of the
Agreement is deleted in its entirety and replaced with the following:
"'Loan Availability A' shall mean the lesser of (a) the Commitment
Amount A or (b) the sum of (i) the Borrowing Base A, plus (ii) the then
existing maximum amount of the Overadvance Facility, minus the
aggregate Advances under Loan A and other monetary Obligations
outstanding under this Agreement allocable to Loan A.
"'Loan Availability B' shall mean the lesser of (a) the Commitment
Amount B or (b) the sum of (i) the Borrowing Base B, plus (ii) the then
existing maximum amount of the Loan B Additional Facility, minus the
aggregate Advances under Loan B and other monetary Obligations
outstanding under this Agreement allocable to Loan B."
For purposes of the Agreement any reference to the term Loan
Availability in the Loan Documents shall be interpreted with the
foregoing amendment, as the context so requires.
3. The Agreement shall be amended to provide that on or before the
first day of each month following the date hereof, Borrower shall pay Lender a
monthly maintenance fee of Eight Thousand Five Hundred Dollars ($8,500).
Increases to the Loan Availability during the term will be charged an
incremental increase in the monthly maintenance fee proportionate to the
percentage increase in the Loan Availability.
4. The term "Borrowing Base" in Section 1 of the Agreement, is hereby
amended by deleting the reference therein to "eighty percent (80%)" and
replacing it with "eighty-five percent (85%)".
5. Wilkes Barre Imaging is hereby added as a Loan B Guarantor under
the Agreement.
6. Except as expressly amended by this Amendment, the Agreement
remains in full force and effect. References to the Agreement are deemed to mean
the Agreement as amended by this Amendment.
7. This Amendment may be executed in counterparts, all of which when
taken together constitute one and the same instrument.
8. This Amendment is governed by and must be interpreted and construed
in accordance with the laws of the State of California.
2
<PAGE> 3
Lender is entering into this Amendment without any forbearance, and without
waiver or prejudice of defaults, events of default, and any rights or remedies
Lender has or may have under the Agreement and applicable law. Lender hereby
expressly reserves the right to declare a default in accordance with the
Agreement and exercise all of Lender's rights and remedies thereunder.
All capitalized terms used herein and not otherwise defined herein shall have
the same meaning as in the Agreement. Any provision in the Amendment hereof
that may be contrary to any provision of the Agreement shall prevail and
override the Agreement. Except as expressly set forth herein, all other
provisions of the Agreement shall remain in full force and effect. Borrower and
Lender warrant to each other that this Amendment has been authorized and duly
executed and is binding on all parties hereto as of the date first above
written.
BORROWER LENDER
U.S. DIAGNOSTIC INC. DVI BUSINESS CREDIT CORPORATION
By: By:
---------------------------- ----------------------------
Name: Paul Andrew Shaw Name: Cynthia J. Cohen
-------------------------- --------------------------
Title: Executive Vice President Title: Executive Vice President
------------------------- -------------------------
3
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Corporate
Name Incorporation %Owned
- ---- ------------------ ------
<S> <C> <C>
Advanced Medical Imaging Center, Inc. Delaware 100.00%
Affiliated Medical Imaging Network, Inc. California 100.00%
AH Imaging Center, Inc. Delaware 100.00%
Columbus Diagnostic Center Inc. Delaware 100.00%
Community Radiology of Virginia Inc. Virginia 100.00%
Computerized Medical Imaging Center Inc. Delaware 56.90%
DI Imaging Center Inc. Delaware 100.00%
FCA of Van Nuys, Inc. Delaware 100.00%
Finance Funding Corp. Florida 100.00%
First Choice Networks, Inc. Florida 100.00%
Future Care Affiliates, Inc. Delaware 100.00%
Heights Imaging Center Inc. Delaware 100.00%
Imaging Management Services Inc. Delaware 100.00%
Kaley Imaging, Inc. Florida 100.00%
Laborde Diagnostic Inc. Louisiana 80.00%
LB Imaging Center, Inc. Delaware 100.00%
Medical Marketing Development, Inc. New York 100.00%
Medical Imaging Centers of America, Inc. California 100.00%
Medical Imaging Equipment Leasing, Inc. Florida 100.00%
MediTek-Broward, Inc. Florida 100.00%
MediTek-Chatham Industries, Inc. Florida 100.00%
MediTek-Greystone, Inc. Florida 100.00%
MediTek-HE, Inc. Florida 100.00%
MediTek-ICOT, Inc. Florida 100.00%
MediTek-Newark, Inc. Florida 100.00%
MediTek-Palm Beach Gardens, Inc. Florida 100.00%
MediTek-Palms, Inc. Florida 100.00%
MediTek-PBGMRI, Inc. Florida 100.00%
MediTek-Premier North, Inc. Florida 100.00%
MediTek-Premier, Inc. Florida 100.00%
MediTek-Sun Coast, Inc. Florida 100.00%
MediTek Anesthesia, Inc. Florida 100.00%
MediTek Capital Corp. Florida 100.00%
MediTek Gwinnet, Inc. Florida 100.00%
MediTek Health Care Management, Inc. Florida 100.00%
MediTek Health Corporation Florida 100.00%
MediTek Industries, Inc. Florida 100.00%
MediTek Therapy, Inc. Florida 100.00%
MICA CAL II, Inc. California 100.00%
MICA CAL X, Inc. California 100.00%
MICA FLO I, Inc. California 100.00%
MICA Imaging, Inc. Illinois 100.00%
MICA OR I, Inc. California 100.00%
MICA Pacific, Inc. California 100.00%
</TABLE>
87
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF CORPORATE
NAME INCORPORATION % OWNED
- ---- ------------------ -------
<S> <C> <C>
Modesto Imaging Center Inc. Delaware 100.00%
Owner Diagnostics, Inc. California 67.53%
San Francisco Magnetic Resonance Center, Inc. Delaware 100.00%
Santa Fe Imaging Center Inc. Delaware 100.00%
South Coast Radiologists, A Corporation Oregon 100.00%
USD Dayton Inc. Delaware 100.00%
MICA CAL III, Inc. California 100.00%
MICA CAL IV, Inc. California 100.00%
MICA CAL I, Inc. California 100.00%
MediTek-Wellington Corp. Florida 100.00%
MICA CAL VII, Inc. California 100.00%
MediTek-Winter Park, Inc. Florida 100.00%
Orange Park Diagnostic Center, Inc. Delaware 100.00%
LINC Medical Imaging, Inc. Delaware 100.00%
Fremont Imaging Center, Inc. (f/k/a FCA Management, Inc.) Delaware 100.00%
USDL Pittsburgh, Inc. Delaware 100.00%
Chatham MRI, Inc. New Jersey 100.00%
Salisbury Imaging Inc. Florida 100.00%
USD Wilkes Barre, Inc. Delaware 100.00%
Town & Country MRI & Diagnostic Center, Inc. Texas 100.00%
Westlake Diagnostic Center, Inc. California 100.00%
Bridgeton MRI Center, Inc. Missouri 100.00%
Chesterfield MRI Center, Inc. Missouri 100.00%
Kirkwood MRI Center, Inc. Missouri 100.00%
Las Vegas Diagnostic Center, Inc. Delaware 100.00%
USD Montclair, Inc. Delaware 100.00%
</TABLE>
88
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement Nos.
333-45879, 333-13033, 333-13035, and 3333-16901 of US Diagnostic Inc. on Forms
S-8 and Registration Statement Nos. 333-05395 and 333-67959 of US Diagnostic
Inc. on Forms S-3 of our report dated April 13, 1998 appearing in this Annual
Report on Form 10-K of US Diagnostic Inc. for the year ended December 31, 1999.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 27, 2000.
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-45879, 333-13033, 333-13035, and 333-16901 of US Diagnostic Inc. on Forms
S-8 and Registration Statement Nos. 333-05395 and 333-67959 of US Diagnostic
Inc. on Forms S-3 of our report dated March 22, 2000, appearing in this Annual
Report on Form 10-K of US Diagnostic Inc. for the year ended December 31, 1999.
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> $ 5,811
<SECURITIES> 0
<RECEIVABLES> 51,783
<ALLOWANCES> 7,110
<INVENTORY> 0
<CURRENT-ASSETS> 57,819
<PP&E> 129,289
<DEPRECIATION> 45,401
<TOTAL-ASSETS> 217,742
<CURRENT-LIABILITIES> 62,459
<BONDS> 126,216
0
0
<COMMON> 226
<OTHER-SE> 23,602
<TOTAL-LIABILITY-AND-EQUITY> 217,742
<SALES> 0
<TOTAL-REVENUES> 155,602
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 143,860
<LOSS-PROVISION> 6,062
<INTEREST-EXPENSE> 19,222
<INCOME-PRETAX> (11,942)
<INCOME-TAX> (1,149)
<INCOME-CONTINUING> (10,793)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,598
<CHANGES> 0
<NET-INCOME> (8,195)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
