<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24696
NATIONAL DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-3248917
------- (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
755 West Brandon Blvd., Brandon, Florida 33511
- ---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (813) 661-9501
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 Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<S> <C>
Class: Common Stock, No Par Value Outstanding at November 12, 1997: 3,093,430
</TABLE>
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
Page 1 of 50
<PAGE> 2
NATIONAL DIAGNOSTICS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1996 and September 30, 1997 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30,
1996 and 1997 5
Condensed Consolidated Statements of Cash Flows
for the three and nine months ended September 30,
1996 and 1997 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
ITEM - 1
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
December 31, 1997
1996 (Unaudited)
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 104,335 $ 39,325
Accounts receivable, net of allowance of $664,402 in
1996 and $739,106 in 1997 2,131,284 2,360,262
Due from related party - 23,819
Prepaid expenses and other current assets 220,864 155,075
------------- -------------
Total current assets 2,456,483 2,578,481
------------- -------------
Property and equipment 9,481,198 9,989,183
Less: accumulated depreciation and
amortization (3,264,655) (4,258,732)
------------- -------------
Net property and equipment 6,216,543 5,730,451
------------- -------------
Other assets:
Excess of purchase price over net assets
acquired, net of accumulated amortization
of $61,274 in 1996 and $79,631 in 1997 428,187 409,830
Organization and start-up costs, net 47,444 35,592
Deposits 51,020 55,409
------------- -------------
Total other assets 526,651 500,831
------------- -------------
$ 9,199,677 $ 8,809,763
============= =============
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30,
December 31, 1997
1996 (Unaudited)
------------ -------------
<S> <C> <C>
Current liabilities:
Lines of credit $ 993,818 $ 1,242,546
Note payable 4,294 -
Note due related party 99,882 66,075
Current installments of long-term debt 105,410 210,000
Current installments of obligations under
capital leases 1,103,952 1,417,000
Accounts payable 1,080,236 1,485,200
Accrued radiologist fees 489,785 515,514
Accrued expenses other 738,687 661,128
----------- -----------
Total current liabilities 4,616,064 5,597,463
Long-term liabilities:
Long-term debt, excluding current installments 619,227 600,082
Obligations under capital leases, excluding
current installments 3,454,456 2,752,579
Deferred lease payments 236,912 190,580
----------- -----------
Total liabilities 8,926,659 9,140,704
----------- -----------
Stockholders' equity:
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 9,000,000 shares
authorized, 2,539,629 and 3,093,430 shares
issued and outstanding in 1996 and 1997 686 779
Additional paid-in capital 2,320,497 2,899,138
Retained earnings (accumulated deficit) (2,048,165) (3,230,858)
----------- ----------
Net stockholders' equity (deficit) 273,018 (330,941)
=========== ==========
$ 9,199,677 $8,809,763
=========== ==========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net $ 2,123,105 $ 2,535,390 $ 6,606,240 $ 7,724,625
----------- ----------- ----------- -----------
Operating expenses:
Direct operating expenses 1,211,186 1,256,417 3,403,597 4,152,251
General and administrative 981,830 1,186,388 2,488,178 3,166,349
Depreciation and amortization 353,747 350,260 854,654 1,089,187
----------- ----------- ----------- -----------
Total operating expenses 2,546,763 2,793,065 6,746,429 8,407,787
----------- ----------- ----------- -----------
Operating income (loss) (423,658) (257,675) (140,189) (683,162)
Interest expense 150,854 153,962 364,784 512,236
Other income 1,938 7,094 43,563 12,875
----------- ----------- ----------- -----------
Income (loss) before income taxes (572,574) (404,543) (461,410) (1,182,523)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (572,574) $ (404,543) $ (461,410) $(1,182,523)
=========== =========== =========== ===========
Net income (loss) per
common share $ (.22) $ (.10) $ (.18) (.37)
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 2,598,077 *4,182,828 2,563,282 3,180,942
----------- ----------- ----------- -----------
</TABLE>
* Note: 1,800,000 shares were re-acquired seventy one days into the quarter.
See Accompanying Notes.
5
<PAGE> 6
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(572,114) $(404,543) $(461,410) $(1,182,523)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Income taxes -- -- -- --
Depreciation and amortization 346,114 350,260 847,021 1,089,187
Provision for Bad Debts (3,283) 3,351 70,817 74,704
(Increase) decrease in accounts receivable (4,149) (24,603) (652,423) (303,682)
Loss on disposition of equipment 346 5,260 5,217 7,863
(Increase) decrease in prepaid
expenses and other current assets 10,935 (16,743) 65,808 66,242
Increase (decrease) in accounts payable (32,265) 245,427 387,095 585,832
Increase (decrease) in accrued radiologist fees 3,556 (47,126) 96,852 25,729
Increase (decrease) in other accrued expenses 72,958 132,929 65,344 106,405
Increase (decrease) in due to related parties 107,282 -- 107,282 --
Increase (decrease) in deferred lease payments (15,343) (16,637) 40,243 (46,332)
Value of warrants issued for services rendered 8,000 -- 8,000 --
--------- --------- --------- -----------
Net cash provided (used) by operating activities (77,963) 227,575 579,846 423,425
--------- --------- --------- -----------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (282,112) (7,887) (574,134) (225,175)
Increase in deposits 3,820 (7,146) (7,539) (7,965)
Increase in organization & start-up costs -- -- (134,728) (66,588)
--------- --------- --------- -----------
Net cash used by investing activities (278,292) (15,033) (716,401) (299,728)
--------- --------- --------- -----------
Cash flows provided (used) by financing activities:
Increase in line of credit 384,597 17,892 485,597 248,728
Proceeds from long-term borrowings -- -- -- 150,000
Repayment of long-term borrowings (5,162) (26,305) (53,344) (64,555)
Proceeds of borrowing from related parties -- -- 16,255 125,000
Repayment of borrowings from related parties (7,871) (61,000) (7,871) (67,167)
Proceeds from other notes payable -- -- -- 205,000
Repayment from other notes payable -- (67,082) (8,000) (209,294)
Principal payments under capital lease obligations (138,117) (187,586) (413,304) (654,409)
Proceeds from issuance of common stock net 149,475 77,990 149,475 77,990
--------- --------- --------- -----------
Net cash provided (used) by financing activities 382,922 (246,091) 168,808 (188,707)
--------- --------- --------- -----------
Net increase (decrease) in cash 26,667 (33,549) 32,253 (65,010)
Cash at beginning of period 133,680 72,874 128,094 104,335
--------- --------- --------- -----------
Cash at end of period $ 160,347 $ 39,325 $ 160,347 $ 39,325
========= ========= ========= ===========
</TABLE>
See Accompanying Notes.
6
<PAGE> 7
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash
flow information - Interest paid $ 102,000 $ 131,200 $ 322,000 $ 533,500
========= ========= ========= =========
Stock issued as satisfaction for trade creditor debt $ - $ 29,620 $ - $ 205,140
========= ========= ========= =========
Stock issued for equipment acquisition $ - $ - $ - $ 20,000
========= ========= ========= =========
Stock issued as satisfaction of related party debt $ - $ - $ 67,299 $ 275,604
========= ========= ========= =========
Stock issued in exchange for marketable securities $ - $ - $ - $ 1,800,000
========= ========= ========= =========
Stock exchange for marketable securities rescinded $ - $(1,800,000) $ - $(1,800,000)
========= ========= ========= =========
Asset added under capital lease $1,331,285 $ - $2,020,622 $ 265,580
========= ========= ========= =========
Note received for pre-opening costs $ - $ - $ 77,904 $
========= ========= ========= =========
Note received on disposal of equipment $ - $ - $ 9,770 $
========= ========= ========= =========
</TABLE>
See Accompanying Notes.
7
<PAGE> 8
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by National Diagnostics, Inc., and
Subsidiaries (the "Company") for quarterly financial reporting purposes are the
same as those disclosed in the Company's annual financial statements. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of the information presented.
The quarterly condensed consolidated financial statements herein have been
prepared by the Company without audit. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Although the Company management believes the disclosures are adequate to make
the information not misleading, it is suggested that these quarterly condensed
consolidated financial statements be read in conjunction with the audited
annual financial statements and footnotes thereto.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
MARKETABLE SECURITIES
The Company on June 27, 1997 acquired 127,773 shares of common stock (net of
14,197 shares given in payment of commission) of Equisure, Inc. (American Stock
Exchange: EQE) from an investment trust in exchange for its own common stock.
There was an agreement in place with the trust that in the event the market
value of the shares would go down, additional shares would be issued to
effectively eliminate the market risk. On August 4, 1997 the AMEX called a halt
to trading EQE shares on the AMEX. On September 9, 1997 the Company and the
trust agreed to rescind the transaction in its entirety.
OPERATIONAL MATTERS AND LIQUIDITY
The Company has a net loss for the quarter ending September 30, 1997 of
$404,543 and at September 30, 1997 has a working capital deficiency of
approximately $3,019,000. Collectively, these factors have resulted in late
lease payments which have payment acceleration provisions. In view of these
matters, recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon continued operation of the
Company, which in turn is dependent upon either the Company's ability to
succeed in its future operations or its ability to obtain additional funding.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence. The following commentary addresses the
Company's operations for the third quarter of 1997 and its plan to improve
future results.
The Company attributes the loss in the third quarter primarily to the effect
the losses from its new start up facilities had on the Company: Orange Park in
its second full year of operation incurred a third quarter loss of $147,000 and
Riverside (opened July of 1996) had a loss of $126,000. Due to the expansion
and growth the Company's working capital has decreased to the extent that the
Company has fallen behind in meeting its lease and vendor obligations. Most of
the vendors have been
8
<PAGE> 9
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
cooperative by allowing extended terms. The Company has received from its major
lessor a waiver of default based on the Company adhering to a workout schedule
which will bring the leases to current status by December, 1997. Other lessors
have also been cooperative with extended terms. The Company believes as the
increase in revenues for start ups continues and certain cost cutting measures
(estimated unaudited annual savings approximately $298,000) take effect that
the Company will return to a profitable position though no absolute assurances
can be given.
(2) NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128.
Earnings Per Share, which is effective for financial statements issued after
December 15,1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure
of how the per share amounts were computed. The adoption of this new standard
is not expected to have a material impact on the disclosure of earnings per
share in the financial statements.
(3) LEGAL ACTION
In December of 1995, the physician group terminated its contract for reading
service with the Brandon and SunPoint centers and in February of 1996, filed
suit against the centers alleging the centers materially breached the contract
by failing to pay physician fees timely and incorrectly billed certain
procedures. The physician group sought payment for services rendered
(approximately $178,000) and lost profits (approximately $850,000). In February
of 1997, the court denied the claim for lost profits and entered an award in
favor of the physician group relating to services rendered.
The company in prior years substantially reserved for the claim for services
and satisfied the judgement in February of 1997 by obtaining financing (which
has been repaid) for approximately $205,000 from its accounts receivable
lender. Subsequently, a motion by the physicians for a rehearing was denied.
The physicians filed a notice of appeal for the lost profits claim in April,
1997, which is currently pending.
(4) MARKET DE-LISTING
On August 18, 1997 the Company was de-listed by the Nasdaq Stock Market, Inc.
("Nasdaq") from the Nasdaq Small Cap Market due to the Company no longer
meeting the listing requirements.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
Net revenues for the nine months ended September 30, 1997 were $7,725,000
compared to $6,606,000 for the same period in 1996, representing a 17%
increase. The increase is primarily attributable to an increase in the volume
of procedures performed. The Company generated net revenues of $776,000 in the
first three quarters of 1997 as a result of the addition of the National
Diagnostics/Riverside ("Riverside").
Direct operating expenses for the nine months ended September 30, 1997 were
$4,152,000 compared to $3,404,000 for the same period in 1996, representing a
22% increase. Approximately 54% of the increase in direct costs is directly
attributable to the addition of Riverside. The balance of the increase is the
result of higher medical supply costs experienced in each center, maintenance
contracts and repair costs in the Company's most mature and productive center,
and higher reading fee costs experienced in three of the four facilities.
Management believes it can obtain more favorable medical supply costs if
working capital were sufficient to meet vendor terms.
General and administrative expenses for the nine months ended September 30,
1997 were $3,166,000 compared to $2,488,000 for the same period in 1996,
representing a 27% increase. The increase is primarily attributable to the
addition of the Riverside facility and additional personnel costs. Personnel
were added in response to the increase volume of procedures performed overall
and the expansion of facilities.
The 27% increase in depreciation and amortization costs for the first nine
months of 1997 over that for the same period in the preceding year is primarily
attributable to the additional equipment acquired for the Riverside facility
and the fully amortized start-up costs of Riverside (approximately $54,000 in
first nine months).
The increased revenues over the revenues experienced in the same period in 1996
were offset by the 25% increase in operating expenses resulting in a net loss
of $405,000 and $1,183,000 for the quarter ending and nine month period ending
September 30, 1997, respectively. Year to date revenues for the Brandon
Diagnostic Center ("Brandon"), the Company's most mature center, were down by
four percent after a one time write down in the second quarter of approximately
$60,000 for a terminated capitation contract. The contract has been replaced
with fee for service contracts which the Company feels will allow for a more
timely realization of receipts. The slight decline in revenue coupled with
increased costs for maintenance contracts and medical supplies resulted in a
third quarter profit of $116,000 compared to $174,000 in the same quarter of
1996. Sunpoint Diagnostic Center ("Sunpoint") experienced a net loss in the
third quarter of approximately $17,000 on revenues of $375,000 compared to a
net loss of $23,000 on revenues of $292,000 in the same quarter of 1996. This
resulted primarily from an increase in personnel costs. Orange Park experienced
a loss of $147,000 on revenues of $698,000 for the quarter ending September 30,
1997 compared to a loss of $294,000 on revenues of $542,000 for the same
quarter in 1996. This is the result of the increased volume. Riverside, which
started up in the third quarter of 1996, experienced a $126,000 loss on
revenues of $303,000 compared to a $262,000 loss on revenues of $77,000 for the
same quarter in 1996.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Due to the rapid expansion of facilities and increase in additional personnel
and related costs the Company has continued to experience difficulty in meeting
timely its current obligation to its vendors and lessors. At September 30,
1997, the Company had a working capital deficiency of more than $3,000,000. Due
to late payments in the first quarter of 1997 the Company was in default of its
capital leases. In April the Company received a conditional waiver of default
from its major lessor. The conditional waiver of default from its major lessor
contains a work out schedule where in all leases will be brought to a current
status by December 31, 1997. The Company is currently in compliance with the
work out agreement. The other lessors (approximately 17% of the total loans
outstanding at September 30, 1997) have been cooperating with the Company,
generally allowing not more than 60 days past due on lease payments. There is
no assurance the Company will be successful in achieving these goals.
Capital expenditures for the quarter ending September 30, 1997 approximated
$15,000.
In February of 1997 the Company settled its litigation with its prior
radiologists (see Item 2-Legal Proceedings). The settlement plus legal fees
approximated $205,000. This amount was borrowed from DVI in 1997, the balance
to be paid in full by August 29, 1997. The Company has satisfied the loan.
The Company refinanced its $2,000,000 line of credit with HealthCare Financial
Partners Funding, Inc. ("HFCP"), a lender specializing in medical receivables.
The lender has a first security interest on all accounts receivable. Interest
is at prime plus 2%. At September 30, 1997 the line availability and loan
balance approximated $14,000 and $1,243,000, respectively. After refinancing,
the loan balance on November 12, 1997 approximated $1,477,000 with an
additional side loan of $235,000. The loan balance on the line at November 12,
1997 was over advanced by approximately $230,000; which the Company is
satisfying with current charges and collections in accordance with a verbal
agreement with the lender.
The Company issued 19,398 shares of common stock in satisfaction of trade
creditor debt. In August of 1997, 52,000 warrants were exercised at a strike
price of $1.50 per share. The remaining unexercised warrants (approximately
85,000) expired September 19, 1997. On August 4, 1997, the AMEX called a halt
to the trading of EQE shares on the AMEX. On September 9, 1997 the Company, in
agreement with the trust, rescinded the stock exchange transaction in its
entirety and returned the EQE shares for the Company's own 1,459,188 shares it
had issued in the original exchange. The transactions are intended to improve
the operating and financial flexibility of the Company.
On August 18, 1997 the Company was notified by The Nasdaq Stock Market, Inc.
("Nasdaq") that the Company's securities would be de-listed from the Nasdaq
Small Cap Market (SM) effective with the close of business on August 18, 1997.
The Company had previously announced it was in discussions with Nasdaq
concerning the Nasdaq listing requirements and the Company's capital surplus.
Nasdaq took this action as a result of the Company no longer meeting the
listing requirements for continued listing.
In the quarter ending September 30, 1997 the company decreased its cash by
approximately $34,000. Operations contributed $228,000 of the total increases.
Purchases of equipment and a minor increase in other assets contributed $15,000
to the cash reduction. Financing activities used $246,000.
In May of 1997, the Company entered into a Consulting Agreement with Capital
Access Bureau, Inc. ("CABI") for investor and public relations services. CABI
was to receive as compensation $350,000 recognizable and payable over the one
year term of the agreement in common shares of the Company. The Company was to
also issue six incentive stepped options of 75,000 shares each step beginning
at $1.50 per share (which approximates the value of stock at date of grant) and
stepped in fifty cent increments. CABI agreed to execute any in the money
options quarterly throughout the term of
11
<PAGE> 12
the agreement. The Company has ceased issuing additional stock to CABI and is
currently negotiating a termination of the contract due to just cause. No loss
provision has been recognized by the Company.
The Company intends to curtail further external expansion (new start-ups or
acquisitions) until the Company's current new start-ups achieve acceptable
levels of operation, and/or the Company achieves additional capital infusion.
The Company is currently considering different alternatives which includes but
are not limited to capital infusion and/or merger or sale of the Company.
The Company continues to obtain new provider contracts and realize increasing
revenues from its new starts. Year to date revenues through September 30, 1997
have increased 17% over that realized for the same period of the preceding
year. The Company continues to look for cost cutting measures. In the third
quarter, the Company initiated steps to better utilize its human resources
which will result in an annual savings of approximately $298,000. As a result
of the Company increasing revenues, satisfaction of its property and equipment
needs for current operations, and if the Company's vendors and lessors continue
to allow a grace period of sixty to ninety days, the Company believes that its
presently anticipated short-term needs for operation, capital repayments and
capital expenditures for its current operations can be satisfied through
internally generated funds and existing credit facilities with HCFP. The
Company feels that its ability in the short-term to improve its working capital
is reasonably attainable. However, the Company is currently discussing capital
infusion alternatives which may consist of selling additional stock. Should the
above possibilities not materialize and to assure continued operations the
Company is prepared to sell off certain assets that have not yet matured
sufficiently to allow a positive return. There is no assurance that these
short-term needs can be met.
The Company's long term growth strategies will require additional funds. In the
event that the Company proceeds with the establishment of additional
facilities, or encounters favorable acquisition opportunities in the near
future, the Company may incur, from time to time, additional indebtedness and
attempt to issue equity or debt securities in public or private transactions.
There is no assurance that the Company will be successful in securing
additional financing or capital through equity or debt securities.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company's independent certified public
accountant's report on the Company's 1996 Financial Statements contained in the
Company's Annual Form 10-KSB included a going concern qualification. The
information contained in Note 2 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 remains relevant related to the status of certain of the Company's
operational and funding matters and, accordingly, should be referred to in
conjunction with this Form 10-QSB.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
No significant change.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(a) Exhibits
10.48 Loan and Security Agreement, dated October 3, 1997 by and
between National Diagnostics, Inc., SunPoint Diagnostic
Center, Inc., National Diagnostics/Orange Park, Inc., National
Diagnostics/Riverside, Inc., Alpha Associates, Inc., Alpha
Acquisitions, Inc., Brandon Diagnostic Center, Ltd., and
HealthCare Financial Partners Funding, Inc.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed on July 22, 1997, a Form 8-K indicating the
private placement with Sud Afric Suisse Trust in exchange for
Equisure, Inc. Common Shares valued at $1.8 million and debt
to equity conversions approximating $471 thousand.
The following financial statements were filed in the Form 8-K:
Condensed consolidated balance sheet as of March 31,
(historical and proforma) and May 31, 1997 (proforma).
Condensed consolidated statements of operations for year ended
December 31, 1996 and May 31, 1997 (proforma).
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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.
Date: November 14, 1997
NATIONAL DIAGNOSTICS, INC.
/s/Curtis L. Alliston
-------------------------------------
Curtis L. Alliston
President and Chief Operating Officer
/s/Dennis C. Hult
-------------------------------------
Dennis C. Hult
Comptroller
14
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NATIONAL DIAGNOSTICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------ ----------------------- ----
<S> <C> <C>
10.48 Loan and Security Agreement, dated October 3, 1997 by and between 17
National Diagnostics, Inc., SunPoint Diagnostic Center, Inc., National
Diagnostics/Orange Park, Inc., National Diagnostics/Riverside, Inc.,
Alpha Associates, Inc., Alpha Acquisitions, Inc., Brandon Diagnostic
Center, Ltd., and HealthCare Financial Partners Funding, Inc.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
The Company filed on July 22, 1997, a Form 8-K indicating the private
placement with Sud Afric Suisse Trust in exchange for Equisure, Inc.
Common Shares valued at $1.8 million and debt to equity conversions
approximating $471 thousand.
The following financial statements were filed in the Form 8-K:
Condensed consolidated balance sheet as of March 31, (historical and
proforma) and May 31, 1997 (proforma).
Condensed consolidated statements of operations for year ended
December 31, 1996 and May 31, 1997 (proforma).
</TABLE>
15
<PAGE> 1
EXHIBIT 10.48
$2,000,000.00
LOAN AND SECURITY AGREEMENT
by and between
NATIONAL DIAGNOSTICS, INC.
SUNPOINT DIAGNOSTIC CENTER, INC.
NATIONAL DIAGNOSTICS/ORANGE PARK, INC.
NATIONAL DIAGNOSTICS/RIVERSIDE, INC.
ALPHA ASSOCIATES, INC.
ALPHA ACQUISITION, INC.
BRANDON DIAGNOSTIC CENTER, LTD.
("Borrower")
and
HCFP FUNDING, INC.
("Lender")
October 3, 1997
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this
3rd day of October, 1997, by and among NATIONAL DIAGNOSTICS, INC., a Florida
corporation, SUNPOINT DIAGNOSTIC CENTER, INC., a Florida corporation, NATIONAL
DIAGNOSTICS/ORANGE PARK, INC., a Florida corporation, NATIONAL
DIAGNOSTICS/RIVERSIDE INC., a Florida corporation, ALPHA ASSOCIATES, INC., a
Florida corporation, ALPHA ACQUISITION, INC., a Florida corporation, and BRANDON
DIAGNOSTIC CENTER, LTD., a Florida limited partnership (collectively,
"Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with
and borrow funds from Lender, and Lender is willing to establish such
arrangements for and make loans and extensions of credit to Borrower, on the
terms and conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement, and for other consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
SECTION 1.1. ACCOUNT. "Account" means any right to payment for goods
sold or leased or services rendered, whether or not evidenced by an instrument
or chattel paper, and whether or not earned by performance.
SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person
obligated on any Account of Borrower, including without limitation, any Insurer
and any Medicaid/Medicare Account Debtor.
SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified
Person, any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person, including without limitation their
stockholders and any Affiliates thereof. A
<PAGE> 3
Person shall be deemed to control a corporation or other entity if the Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and business of the corporation or other entity, whether through
the ownership of voting securities, by contract, or otherwise.
SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security
Agreement, as it may be amended or supplemented from time to time.
SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest equal to
two percent (2.0%) above the "Prime Rate of Interest".
SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any obligation to
repay money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of Borrower or which is the substantial equivalent
of the financing of the property so leased.
SECTION 1.7. BORROWER. "Borrower" has the meaning set forth in the
Preamble.
SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set forth
in Section 2.1(d).
SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which
financial institutions are open for business in the State of Maryland, excluding
Saturdays and Sundays.
SECTION 1.10. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have
the meanings set forth in Section 5.3.
SECTION 1.11. COLLATERAL. "Collateral" has the meaning set forth in
Section 3.1.
SECTION 1.12. COMMITMENT FEE. "Commitment Fee" has the meaning set
forth in Section 2.4(a).
SECTION 1.13. CONCENTRATION ACCOUNT. "Concentration Account" has the
meaning set forth in Section 2.3(a).
SECTION 1.14. CONTROLLED GROUP. "Controlled Group" means a "controlled
group" within the meaning of Section 4001(b) of ERISA.
SECTION 1.15. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement
Account" means an "Account" owed to Borrower by a Medicaid/Medicare Account
Debtor pursuant to any cost report, either interim, filed or audited, as the
context may require.
SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per annum equal
to five percent (5%) above the then applicable Base Rate.
<PAGE> 4
SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12.
SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of
Default" have the meanings set forth in Section 8.1.
SECTION 1.19. GAAP. "GAAP" means generally accepted accounting
principles applied in a matter consistent with the financial statements referred
to in Section 4.7.
SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority" means
and includes any federal, state, District of Columbia, county, municipal, or
other government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any
substances defined or designated as hazardous or toxic waste, hazardous or toxic
material, hazardous or toxic substance, or similar term, by any environmental
statute, rule or regulation or any Governmental Authority.
SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the
maximum lawful rate of interest referred to in Section 2.7 that may accrue
pursuant to this Agreement.
SECTION 1.23. INSURER. "Insurer" means a Person that insures a Patient
against certain of the costs incurred in the receipt by such Patient of Medical
Services, or that has an agreement with Borrower to compensate Borrower for
providing services to a Patient.
SECTION 1.24. LENDER. "Lender" has the meaning set forth in the
Preamble.
SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section 2.1(a).
SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes this
Agreement, the Note, and each and every other document now or hereafter
delivered in Iconnection therewith, as any of them may be amended, modified, or
supplemented from time to time.
SECTION 1.27. Intentionally Deleted.
SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in Section
2.3.
SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in
Section 2.3.
SECTION 1.30. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the
meaning set forth in Section 2.1(a).
3
<PAGE> 5
SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/Medicare
Account Debtor" means any Account Debtor which is (i) the United States of
America acting under the Medicaid/Medicare program established pursuant to the
Social Security Act, (ii) any state or the District of Columbia acting pursuant
to a health plan adopted pursuant to Title XIX of the Social Security Act or
(iii) any agent, carrier, administrator or intermediary for any of the
foregoing.
SECTION 1.32. MEDICAL SERVICES. Full service outpatient diagnostic
imaging services provided to a Patient, including, but not limited to, magnetic
resonance imaging ("MRI"), computer tomography, ultra sound, nuclear medicine,
general radiology and Fluoroscopy, mammography, neurodiagnostic testing, special
procedures, myelograms, organ biopsies, and clinical laboratory services.
SECTION 1.33. NOTE. "Note" has the meaning set forth in Section 2.1(c).
SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth in
Section 3.1.
SECTION 1.35. PATIENT. "Patient" means any Person receiving Medical
Services from Borrower and all Persons legally liable to pay Borrower for such
Medical Services other than Insurers.
SECTION 1.36. PERMITTED LIENS. "Permitted Liens" means: (a) liens for
taxes not delinquent, or which are being contested in good faith and by
appropriate proceedings which suspend the collection thereof and in respect of
which adequate reserves have been made (provided that such proceedings do not,
in Lender's sole discretion, involve any substantial danger of the sale, loss or
forfeiture of such property or assets or any interest therein); (b) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance; (c) deposits or pledges to secure
bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of business; (d) mechanic's,
workmen's, materialmen's or other like liens arising in the ordinary course of
business with respect to obligations which are not due, or which are being
contested in good faith by appropriate proceedings which suspend the collection
thereof and in respect of which adequate reserves have been made (provided that
such proceedings do not, in Lender's sole discretion, involve any substantial
danger of the sale, loss or forfeiture of such property or assets or any
interest therein); (e) liens and encumbrances in favor of Lender; (f) liens
granted in connection with the lease or purchase of property or assets financed
by borrowings permitted by Section 7.1 (provided, however, that no such
borrowings permitted by Section 7.1 may be secured by liens on any of the
Collateral); and (g) liens set forth on Schedule 1.36.
SECTION 1.37. PERSON. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.
4
<PAGE> 6
SECTION 1.38. PLAN. "Plan" has the meaning set forth in Section 4.12.
SECTION 1.39. PREMISES. "Premises" has the meaning set forth in Section
4.15.
SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest" means
that rate of interest designated as such by Fleet National Bank of Connecticut,
N.A., or any successor thereto, as the same may from time to time fluctuate.
SECTION 1.41. PROHIBITED TRANSACTION. "Prohibited Transaction" means a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Internal Revenue Code.
SECTION 1.42. QUALIFIED ACCOUNT. "Qualified Account" means an Account
of Borrower generated in the ordinary course of Borrower's business from the
sale of goods or rendition of medical services which Lender, in its sole credit
judgment, deems to be a Qualified Account. Without limiting the generality of
the foregoing, no Account shall be a Qualified Account if: (a) the Account or
any portion thereof is payable by an individual beneficiary, recipient or
subscriber individually and not directly to Borrower by a Medicaid/Medicare
Account Debtor or commercial medical insurance carrier acceptable to Lender in
its sole discretion; (b) the Account remains unpaid more than one hundred twenty
(120) days past the claim or invoice date, provided, however, that no more than
fifteen percent (15%) of Qualified Accounts at any time shall be between
ninety-one (91) and one hundred twenty (120) days past the claim or invoice
date); (c) the Account is subject to any defense, set-off, counterclaim,
deduction, discount, credit, chargeback, freight claim, allowance, or adjustment
of any kind; (d) any part of any goods the sale of which has given rise to the
Account has been returned, rejected, lost, or damaged; (e) if the Account arises
from the sale of goods by Borrower, such sale was not an absolute sale or on
consignment or on approval or on a sale-or-return basis or subject to any other
repurchase or return agreement, or such goods have not been shipped to the
Account Debtor or its designee; (f) if the Account arises from the performance
of services, such services have not been actually been performed or were
undertaken in violation of any law; (g) the Account is subject to a lien other
than a Permitted Lien; (h) Borrower knows or should have known of the
bankruptcy, receivership, reorganization, or insolvency of the Account Debtor;
(i) the Account is evidenced by chattel paper or an instrument of any kind, or
has been reduced to judgment; (j) the Account is an Account of an Account Debtor
having its principal place of business or executive office outside the United
States; (k) the Account Debtor is an Affiliate or Subsidiary of Borrower; (l)
more than ten percent (10%) of the aggregate balance of all Accounts owing from
the Account Debtor obligated on the Account are outstanding more than ninety
(90) days past their invoice date; (m) fifty percent (50%) or more of the
aggregate unpaid Accounts from any individual Account Debtor are not deemed
Qualified Accounts hereunder; (n) the total unpaid Accounts of the Account
Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent
(20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare
Account Debtors); (o) any covenant, representation or warranty contained in the
Loan Documents with respect to such Account has been breached; or (p) the
Account fails to meet such other
5
<PAGE> 7
specifications and requirements that may from time to time be established by
Lender, and that, upon request of Borrower, may be communicated by Lender in
writing to Borrower.
SECTION 1.43. REPORTABLE EVENT. "Reportable Event" means a "reportable
event" as defined in Section 4043(b) of ERISA.
SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the
meaning set forth in Section 2.1(b).
SECTION 1.45. TERM. "Term" has the meaning set forth in Section 2.8.
ARTICLE II
LOAN
SECTION 2.1. TERMS.
(a) The maximum aggregate principal amount of credit extended
by Lender to Borrower hereunder (the "Loan") that will be outstanding at any
time is Two Million and No/100 Dollars ($2,000,000.00) (the "Maximum Loan
Amount").
(b) The Loan shall be in the nature of a revolving line of
credit, and shall include sums advanced and other credit extended by Lender to
or for the benefit of Borrower from time to time under this Article II (each a
"Revolving Credit Loan") up to the Maximum Loan Amount depending upon the
availability in the Borrowing Base, the requests of Borrower pursuant to the
terms and conditions of Section 2.2 below, and on such other basis as Lender may
reasonably determine. The outstanding principal balance of the Loan may
fluctuate from time to time, to be reduced by repayments made by Borrower (which
may be made without penalty or premium), and to be increased by future Revolving
Credit Loans, advances and other extensions of credit to or for the benefit of
Borrower, and shall be due and payable in full upon the expiration of the Term.
For purposes of this Agreement, any determination as to whether there is ability
within the Borrowing Base for advances or extensions of credit shall be made by
Lender in its sole discretion and is final and binding upon Borrower.
(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing Borrower's unconditional obligation to repay Lender
for Revolving Credit Loans, advances, and other extensions of credit made under
the Loan, in the form of Exhibit A to this Agreement (the "Note"), dated the
date hereof, payable to the order of Lender in accordance with the terms
thereof. The Note shall bear interest from the date thereof until repaid, with
interest payable monthly in arrears on the first Business Day of each month, at
a rate per annum (on the basis of the actual number of days elapsed over a year
of 360 days) equal to the Base Rate, provided that after an Event of Default
such rate shall be equal to the Default Rate. Each
6
<PAGE> 8
Revolving Credit Loan, advance and other extension of credit shall be deemed
evidenced by the Note, which is deemed incorporated by reference herein and made
a part hereof.
(d) Subject to the terms and conditions of this Agreement,
advances under the Loan shall be made against a borrowing base equal to eighty
five percent (85%) of Qualified Accounts due and owing from any
Medicaid/Medicare, Insurer or other Account Debtor (the "Borrowing Base").
SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as
follows:
(a) A request for a Revolving Credit Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower may give
Lender notice of its intention to borrow, in which notice Borrower shall specify
the amount of the proposed borrowing and the proposed borrowing date, not later
than 2:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing
date; provided, however, that no such request may be made at a time when there
exists an Event of Default; and (ii) the becoming due of any amount required to
be paid under this Agreement, whether as interest or for any other Obligation,
shall be deemed irrevocably to be a request for a Revolving Credit Loan on the
due date in the amount required to pay such interest or other Obligation.
(b) Borrower hereby irrevocably authorizes Lender to disburse
the proceeds of each Revolving Credit Loan requested, or deemed to be requested,
as follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank
account as may be agreed upon by Borrower or Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds
of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be
disbursed by Lender by way of direct payment of the relevant interest or other
Obligation.
(c) All Revolving Credit Loans, advances and other extensions
of credit to or for the benefit of Borrower shall constitute one general
Obligation of Borrower, and shall be secured by Lender's lien upon all of the
Collateral.
(d) Lender shall enter all Revolving Credit Loans as debits to
a loan account in the name of Borrower and shall also record in said loan
account all payments made by Borrower on any Obligations and all proceeds of
Collateral which are indefeasibly paid to Lender, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to Borrower.
(e) Lender will account to Borrower monthly with a statement
of Revolving Credit Loans, charges and payments made pursuant to this Agreement,
and such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days of the date each accounting is mailed to
Borrower. Such notice shall be deemed an objection to those items specifically
objected to therein.
7
<PAGE> 9
SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND
LOCKBOX ACCOUNT. Borrower shall maintain a lockbox account (the "Lockbox") with
Core State Bank (the "Lockbox Bank"), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the
form attached as Exhibit B, and such other agreements related thereto as Lender
may require. Borrower shall ensure that all collections of Accounts are paid
directly from Account Debtors into the Lockbox, and that all funds paid into the
Lockbox are immediately transferred into a depository account maintained by
Lender at Bank One Arizona, N.A. or First Bank, N.A., as determined by Lender in
its sole discretion and communicated to Borrower (the "Concentration Account").
Lender shall apply, on a daily basis, all funds transferred into the
Concentration Account pursuant to this Section 2.3 to reduce the outstanding
indebtedness under the Loan with future Revolving Credit Loans, advances and
other extensions of credit to be made by Lender under the conditions set forth
in this Article II. To the extent that any collections of Accounts or proceeds
of other Collateral are not sent directly to the Lockbox but are received by
Borrower, such collections shall be held in trust for the benefit of Lender and
immediately remitted, in the form received, to the Lockbox Bank for transfer to
the Concentration Account immediately upon receipt by Borrower. Borrower
acknowledges and agrees that its compliance with the terms of this Section 2.3
is essential, and that upon its failure to comply with any such terms Lender
shall be entitled to assess a non-compliance fee which shall operate to increase
the Base Rate by two percent (2%) per annum during any period of non-compliance.
Lender shall be entitled to assess such fee whether or not an Event of Default
is declared or otherwise occurs. All funds transferred from the Concentration
Account for application to Borrower's indebtedness to Lender shall be applied to
reduce the Loan balance, but for purposes of calculating interest shall be
subject to a three (3) Business Day clearance period. If as the result of
collections of Accounts pursuant to the terms and conditions of this Section 2.3
a credit balance exists with respect to the Concentration Account, such credit
balance shall not accrue interest in favor of Borrower, but shall be available
to Borrower at any time or times for so long as no Event of Default exists.
SECTION 2.4. FEES.
(a) At Closing, Borrower shall unconditionally pay to Lender a
commitment fee equal to one percent (1%) of the Maximum Loan Amount (the
"Commitment Fee").
(b) Borrower shall pay to Lender all out-of-pocket audit and
appraisal fees in connection with audits and appraisals of Borrower's books and
records and such other matters as Lender shall deem appropriate, which amounts
shall be limited to $8,000 in any calendar year so long as no Event of Default
has occurred, and shall include amounts under Section 2.4(b) of the Loan and
Security Agreement between Lender and Affiliated Borrower (as defined in Section
7.1 below), and which amounts shall be due and payable on the first Business Day
of the month following the date of issuance by Lender of a request for payment
thereof to Borrower.
(c) Borrower shall pay to Lender, on demand, any and all fees,
costs or expenses which Lender or any participant pays to a bank or other
similar institution (including, without limitation, any fees paid by Lender to
any participant) arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender, of
8
<PAGE> 10
proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this
Agreement, and (ii) the depositing for collection, by Lender or any participant,
of any check or item of payment received or delivered to Lender or any
participant on account of Obligations.
SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Borrower of any proceeds of any of the Collateral, to the
extent of such proceeds, (ii) the occurrence of an Event of Default in
consequence of which the Loan and the maturity of the payment of the Obligations
are accelerated, or (iii) the termination of this Agreement pursuant to Section
2.8 hereof; provided, however, that if any advance made by Lender in excess of
the Borrowing Base shall exist at any time, Borrower shall, immediately upon
demand, repay such overadvance. Notwithstanding the foregoing, overadvances
aggregating less than $235,000.00 in any calendar year, may be converted to a
term loan (at an interest rate equal to the Base Rate), payable in twenty-four
(24) equal monthly payments of principal and interest. Interest accrued on the
Revolving Credit Loans shall be due on the earliest of (i) the first Business
Day of each month (for the immediately preceding month), computed on the last
calendar day of the preceding month, (ii) the occurrence of an Event of Default
in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement pursuant
to Section 2.8 hereof. Except to the extent otherwise set forth in this
Agreement, all payments of principal and of interest on the Loan, all other
charges and any other obligations of Borrower hereunder, shall be made to Lender
to the Concentration Account, in immediately available funds.
SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under
the Loan shall be used solely for working capital and for other costs of
Borrower arising in the ordinary course of Borrower's business.
SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform
strictly to the applicable usury laws in effect from time to time during the
term of the Loan. Accordingly, if any transaction contemplated hereby would be
usurious under such laws, then notwithstanding any other provision hereof: (i)
the aggregate of all interest that is contracted for, charged, or received under
this Agreement or under any other Loan Document shall not exceed the maximum
amount of interest allowed by applicable law (the "Highest Lawful Rate"), and
any excess shall be promptly credited to Borrower by Lender (or, to the extent
that such consideration shall have been paid, such excess shall be promptly
refunded to Borrower by Lender); (ii) neither Borrower nor any other Person now
or hereafter liable hereunder shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Highest Lawful Rate; and
(iii) the effective rate of interest shall be reduced to the Highest Lawful
Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance,
and detention of the debt of Borrower to Lender shall, to the extent permitted
by applicable law, be allocated throughout the full term of the Note until
payment is made in full so that the actual rate of interest does not exceed the
Highest Lawful Rate in effect at any particular time during the full term
thereof. If at any time the rate of interest under the Note exceeds the Highest
Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be
limited, notwithstanding anything to the contrary herein, to the Highest
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<PAGE> 11
Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the
interest to accrue pursuant to this Agreement below the Highest Lawful Rate
until the total amount of interest accrued equals the amount of interest that
would have accrued if a varying rate per annum equal to the interest rate under
the Note had at all times been in effect. If the total amount of interest paid
or accrued pursuant to this Agreement under the foregoing provisions is less
than the total amount of interest that would have accrued if a varying rate per
annum equal to the interest rate under the Note had been in effect, then
Borrower agrees to pay to Lender an amount equal to the difference between (i)
the lesser of (x) the amount of interest that would have accrued if the Highest
Lawful Rate had at all times been in effect, or (y) the amount of interest that
would have accrued if a varying rate per annum equal to the interest rate under
the Note had at all times been in effect, and (ii) the amount of interest
accrued in accordance with the other provisions of this Agreement.
SECTION 2.8. TERM.
(a) Subject to Lender's right to cease making Revolving Credit
Loans to Borrower upon or after any Event of Default, this Agreement shall be in
effect for a period of two (2) years from the Closing Date, unless terminated as
provided in this Section 2.8 (the "Term"), and this Agreement shall be renewed
for one-year periods thereafter upon the mutual written agreement of the
parties.
(b) Notwithstanding anything herein to the contrary, Lender
may terminate this Agreement without notice upon or after the occurrence of an
Event of Default.
(c) Upon at least thirty (30) days prior written notice to
Lender, Borrower may terminate this Agreement prior to the second annual
anniversary of the Closing Date, provided that, at the effective date of such
termination, Borrower shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other Obligations owing under the terms of this
Agreement and any other Loan Documents) as liquidated damages for the loss of
bargain and not as a penalty, an amount equal to (i) eight-tenths of one percent
(0.8%) of the Maximum Loan Amount if the effective date of such termination by
Borrower is on or prior to the first annual anniversary of the Closing Date, and
(ii) four-tenths of one percent (0.4%) of the Maximum Loan Amount if the
effective date of such termination by Borrower is after the first annual
anniversary of the Closing Date and prior to the second annual anniversary of
the Closing Date.
(d) All of the Obligations shall be immediately due and
payable upon the termination date stated in any notice of termination of this
Agreement. All undertakings, agreements, covenants, warranties, and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds.
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SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each
entity comprising Borrower and executing this Agreement on behalf of Borrower
shall be jointly and severally liable for all of the Obligations. In addition,
each entity comprising Borrower hereby acknowledges and agrees that all of the
representations, warranties, covenants, obligations, conditions, agreements and
other terms contained in this Agreement shall be applicable to and shall be
binding upon each individual entity comprising Borrower, and shall be binding
upon all such entities when taken together.
ARTICLE III
COLLATERAL
SECTION 3.1. GENERALLY. As security for the payment of all liabilities
of Borrower to Lender, including without limitation: (i) indebtedness evidenced
under the Note, repayment of Revolving Credit Loans, advances and other
extensions of credit, all fees and charges owing by Borrower, and all other
liabilities and obligations of every kind or nature whatsoever of Borrower to
Lender, whether now existing or hereafter incurred, joint or several, matured or
unmatured, direct or indirect, primary or secondary, related or unrelated, due
or to become due, including but not limited to any extensions, modifications,
substitutions, increases and renewals thereof, (ii) the payment of all amounts
advanced by Lender to preserve, protect, defend, and enforce its rights
hereunder and in the following property in accordance with the terms of this
Agreement, and (iii) the payment of all expenses incurred by Lender in
connection therewith (collectively, the "Obligations"). Borrower hereby assigns
and grants to Lender a continuing first priority lien on and security interest
in, upon, and to the following property (the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or
arising Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and instruments
with respect thereto;
(b) All of Borrower's now owned and hereafter acquired or
arising general intangibles of every kind and description pertaining to its
Accounts, accounts receivable and other rights to payment, including, but not
limited to, all existing and future customer lists, choses in action, claims,
books, records, contracts, licenses, formulae, tax and other types of refunds,
returned and unearned insurance premiums, rights and claims under insurance
policies, and computer information, software, records, and data;
(c) All of Borrower's now or hereafter acquired deposit
accounts into which Accounts are deposited, including the Concentration Account;
(d) All of Borrower's monies and other property of every kind
and nature now or at any time or times hereafter in the possession of or under
the control of Lender or a bailee or Affiliate of Lender;
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(e) All of Borrower's furniture, equipment and fixtures,
whether now owned or hereafter acquired, together with (1) all additions, parts,
fittings, accessories, special tools, attachments, and accessions now and
hereafter affixed thereto and/or used in connection therewith, (2) all
replacements thereof and substitutes therefor, and (3) cash and non-cash
proceeds and products thereof;
(f) All of Borrower's inventory of every description which is
held by Borrower for sale or lease or is furnished by Borrower under any
contract of service or is held by the Borrower as raw materials, work in process
or materials used or consumed in a business, whether now owned or hereafter
acquired, wherever located, and as the same may now and hereafter from time to
time be constituted, together with all cash and non-cash proceeds and products
thereafter; and
(g) The proceeds (including, without limitation, insurance
proceeds) of all of the foregoing.
SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems
necessary in its sole discretion, Borrower shall execute and deliver to Lender,
or have executed and delivered (all in form and substance satisfactory to Lender
in its sole discretion):
(a) UCC-1 Financing statements pursuant to the Uniform
Commercial Code in effect in the jurisdiction(s) in which Borrower operates,
which Lender may file in any jurisdiction where any Collateral is or may be
located and in any other jurisdiction that Lender deems appropriate; provided
that a carbon, photographic, or other reproduction or other copy of this
Agreement or of a financing statement is sufficient as and may be filed in lieu
of a financing statement; and
(b) Any other agreements, documents, instruments, and writings
deemed necessary by Lender or as Lender may otherwise request from time to time
in its sole discretion to evidence, perfect, or protect Lender's lien and
security interest in the Collateral required hereunder.
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SECTION 3.3. COLLATERAL ADMINISTRATION.
(a) All Collateral (except deposit accounts) will at all times
be kept by Borrower at its principal office(s) as set forth on Exhibit C hereto
and shall not, without the prior written approval of Lender, be moved therefrom.
(b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
such periodic basis as Lender shall request a sales and collections report for
the preceding period, in form satisfactory to Lender. In addition, if Accounts
in an aggregate face amount in excess of $50,000.00 that were previously
included in the Borrowing Base become ineligible because they fall within one of
the specified categories of ineligibility set forth in the definition of
Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence
on the first Business Day following such occurrence (provided, however, that for
Accounts that are categorized under Section 1.42(b), Borrower shall notify
Lender of such occurrence within fourteen (14) days) and the Borrowing Base
shall thereupon be adjusted to reflect such occurrence. If requested by Lender,
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts weekly or daily, which shall include all Accounts that have been
created since the date of the last assignment, together with copies of claims,
invoices or other information related thereto.
(c) Whether or not an Event of Default has occurred, any of
Lender's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of Lender, any designee of Lender or Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude such verification
process.
(d) To expedite collection, Borrower shall endeavor in the
first instance to make collection of its Accounts for Lender. Lender retains the
right at all times after the occurrence of an Event of Default, subject to
applicable law regarding Medicaid/Medicare Account Debtors, to notify Account
Debtors that Accounts have been assigned to Lender and to collect Accounts
directly in its own name and to charge the collection costs and expenses,
including reasonable attorneys' fees, to Borrower.
SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i)
shall provide upon request of Lender prompt written notice to each private
indemnity, managed care or other Insurer who either is currently an Account
Debtor or becomes an Account Debtor at any time following the date hereof that
Lender has been granted a first priority lien and security interest in, upon and
to all Accounts applicable to such Insurer, and hereby authorizes Lender to send
any and all similar notices to such Insurers by Lender, and (ii) shall do
anything further that may be lawfully required by Lender to secure Lender and
effectuate the intentions and objects of this Agreement, including but not
limited to the execution and delivery of lockbox agreements, continuation
statements, amendments to financing statements, and any other documents required
hereunder. At Lender's request, Borrower shall also immediately deliver to
Lender all items for which Lender must receive possession to obtain a perfected
security interest. Borrower shall, on
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Lender's demand, deliver to Lender all notes, certificates, and documents of
title, chattel paper, warehouse receipts, instruments, and any other similar
instruments constituting Collateral.
SECTION 3.5. SEARCHES. Prior to Closing, and thereafter (as and when
requested by Lender in its sole discretion), Borrower shall obtain and deliver
to Lender the following searches against Borrower (the results of which are to
be consistent with Borrower's representations and warranties under this
Agreement), all at its own expense:
(a) Uniform Commercial Code searches with the Secretary of
State and local filing offices of each jurisdiction where Borrower maintains its
executive offices, a place of business, or assets;
(b) Judgment, federal tax lien and corporate and partnership
tax lien searches, in each jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good
standing in its state of formation and in each other state in which it is doing
and presently intends to do business for which qualification is required.
SECTION 3.6. POWER OF ATTORNEY. Each of the officers of Lender is
hereby irrevocably made, constituted and appointed the true and lawful attorney
for Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (i) endorse the name of Borrower upon any and
all checks, drafts, money orders, and other instruments for the payment of money
that are payable to Borrower and constitute collections on Borrower's Accounts;
(ii) execute in the name of Borrower any financing statements, schedules,
assignments, instruments, documents, and statements that Borrower is obligated
to give Lender hereunder; and (iii) do such other and further acts and deeds in
the name of Borrower that Lender may deem necessary or desirable to enforce any
Account or other Collateral or perfect Lender's security interest or lien in any
Collateral.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each entity comprising Borrower represents and warrants to
Lender, and shall be deemed to represent and warrant on each day on which any
Obligations shall be outstanding hereunder, that:
SECTION 4.1. SUBSIDIARIES. Each entity (other than National
Diagnostics, Inc.) comprising Borrower is a direct or indirect subsidiary of
National Diagnostics, Inc. The organizational structure is as set forth on
Schedule 4.1.
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SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of formation, is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or leased by it
therein or the nature of its business makes such qualification necessary, has
the corporate power and authority to own its assets and transact the business in
which it is engaged, and has obtained all certificates, licenses and
qualifications required under all laws, regulations, ordinances, or orders of
public authorities necessary for the ownership and operation of all of its
properties and transaction of all of its business.
SECTION 4.3. AUTHORITY. Borrower has full corporate power and authority
to enter into, execute, and deliver this Agreement and to perform its
obligations hereunder, to borrow the Loan, to execute and deliver the Note, and
to incur and perform the obligations provided for in the Loan Documents, all of
which have been duly authorized by all necessary corporate action.
No consent or approval of shareholders of, or lenders to, Borrower and no
consent, approval, filing or registration with any Governmental Authority is
required as a condition to the validity of the Loan Documents or the performance
by Borrower of its obligations thereunder.
SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan
Documents constitute, and the Note, when issued and delivered pursuant hereto
for value received, will constitute, the valid and legally binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms.
SECTION 4.5. LITIGATION. Except as disclosed in Schedule 4.5, there are
no actions, suits, proceedings or investigations pending or threatened against
Borrower before any court or arbitrator or before or by any Governmental
Authority which, in any one case or in the aggregate, if determined adversely to
the interests of Borrower, could have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations, present or
prospective, of Borrower, or upon its ability to perform its obligations under
the Loan Documents. Borrower is not in default with respect to any order of any
court, arbitrator, or Governmental Authority applicable to Borrower or its
properties.
SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of
this Agreement and the other Loan Documents do not, and the performance of its
obligations thereunder will not, violate, conflict with, constitute a default
under, or result in the creation of a lien or encumbrance upon the property of
Borrower under: (i) any provision of Borrower's articles of incorporation or
bylaws, (ii) any provision of any law, rule, or regulation applicable to
Borrower, or (iii) any of the following: (A) any indenture or other agreement or
instrument to which Borrower is a party or by which Borrower or its property is
bound; or (B) any judgment, order or decree of any court, arbitration tribunal,
or Governmental Authority having jurisdiction over Borrower which is applicable
to Borrower.
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SECTION 4.7. FINANCIAL CONDITION. The annual financial statements of
Borrower as of December 31, 1966 audited by Grant Thornton, LLP and the
unaudited financial statements of Borrower as of June 30, 1997, certified by the
chief financial officer of Borrower, which have been delivered to Lender, fairly
present the financial condition of Borrower and the results of its operations
and changes in financial condition as of the dates and for the periods referred
to, and have been prepared in accordance with GAAP. There are no material
unrealized or anticipated liabilities, direct or indirect, fixed or contingent,
of Borrower as of the dates of such financial statements which are not reflected
therein or in the notes thereto. There has been no adverse change in the
business, properties, condition (financial or otherwise) or operations (present
or prospective) of Borrower since June 30, 1997, except for the rescinding of
the $1.8 million stock exchange on September 10, 1997. Borrower's fiscal year
ends on December 31. The federal tax identification number of each entity
comprising Borrower is as shown on Schedule 4.7.
SECTION 4.8. NO DEFAULT. Borrower is not in default under or with
respect to any obligation in any respect which could be adverse to its business,
operations, property or financial condition, or which could adversely affect the
ability of Borrower to perform its obligations under the Loan Documents, except
as set forth below. No Event of Default or event which, with the giving of
notice or lapse of time, or both, could become an Event of Default, has occurred
and is continuing. Lender acknowledges certain defaults and the current work out
schedule, as set forth on Schedule 4.8. Borrower agrees that it shall bring such
defaults to satisfactory condition using the proceeds from the Loan.
SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable
title to its properties and assets, including the Collateral and the properties
and assets reflected in the financial statements described in Section 4.7,
subject to no lien, mortgage, pledge, encumbrance or charge of any kind, other
than Permitted Liens. Borrower has not agreed or consented to cause any of its
properties or assets whether owned now or hereafter acquired to be subject in
the future (upon the happening of a contingency or otherwise) to any lien,
mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens.
SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for
the filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all assessments,
fees and other amounts due as of the date hereof. All tax liabilities of
Borrower were, as of June 30, 1997 and are now, adequately provided for on
Borrower's books. No tax liability has been asserted by the Internal Revenue
Service or other taxing authority against Borrower for taxes in excess of those
already paid.
SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.
(a) The use of the proceeds of the Loan and Borrower's
issuance of the Note will not directly or indirectly violate or result in a
violation of the Securities Act of 1933 or the Securities Exchange Act of 1934,
as amended, or any regulations issued pursuant thereto, including without
limitation Regulations U, T, G, or X of the Board of Governors of the Federal
Reserve System. Borrower is not engaged in the business of extending credit for
the purpose of
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the purchasing or carrying "margin stock" within the meaning of those
regulations. No part of the proceeds of the Loan hereunder will be used to
purchase or carry any margin stock or to extend credit to others for such
purpose.
(b) Borrower is not an investment company within the meaning
of the Investment Company Act of 1940, as amended, nor is it, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company within the meaning of that Act.
SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued
pursuant thereto that is maintained by Borrower or under which Borrower could
have any liability under ERISA (a) has failed to meet minimum funding standards
established in Section 302 of ERISA, (b) has failed to comply with all
applicable requirements of ERISA and of the Internal Revenue Code, including all
applicable rulings and regulations thereunder, (c) has engaged in or been
involved in a prohibited transaction (as defined in ERISA) under ERISA or under
the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed,
or received notice of a claim asserted against Borrower for, withdrawal
liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980,
as amended) with respect to any multi-employer pension plan and is not a member
of any Controlled Group (as defined in ERISA). Borrower has timely made when due
all contributions with respect to any multi-employer pension plan in which it
participates and no event has occurred triggering a claim against Borrower for
withdrawal liability with respect to any multi-employer pension plan in which
Borrower participates.
SECTION 4.13. COMPLIANCE WITH LAW. Except as described in Schedule
4.13, Borrower is not in violation of any statute, rule or regulation of any
Governmental Authority (including, without limitation, any statute, rule or
regulation relating to employment practices or to environmental, occupational
and health standards and controls). Borrower has obtained all licenses, permits,
franchises, and other governmental authorizations necessary for the ownership of
its properties and the conduct of its business. Borrower is current with all
reports and documents required to be filed with any state or federal securities
commission or similar Governmental Authority and is in full compliance with all
applicable rules and regulations of such commissions.
SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release,
generation, manufacture, storage, treatment, transportation or disposal of
Hazardous Material has occurred or is occurring on or from any real property on
which the Collateral is located or which is owned, leased or otherwise occupied
by Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in Schedule 4.14. All Hazardous Material used,
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by
Borrower, has been disposed of on or off the Premises by or on behalf of
Borrower in a lawful manner. There are no underground storage tanks present on
or under the Premises owned or leased by Borrower. No other environmental,
public health or safety hazards exist with respect to the Premises.
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SECTION 4.15. PLACES OF BUSINESS. The only places of business of
Borrower, and the places where it keeps and intends to keep the Collateral and
records concerning the Collateral, are at the addresses set forth in Schedule
4.15. Schedule 4.15 also lists the owner of record of each such property.
SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or
possesses all the patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, franchises, licenses, and
rights with respect to the foregoing necessary for the present and planned
future conduct of its business, without any conflict with the rights of others.
A list of all such intellectual property (indicating the nature of Borrower's
interest), as well as all outstanding franchises and licenses given by or held
by Borrower, is attached as Schedule 4.16. Borrower is not in default of any
obligation or undertaking with respect to such intellectual property or rights.
SECTION 4.17. STOCK OWNERSHIP. National Diagnostics, Inc., is a public
company. Each other entity constituting Borrower is a direct or indirect
subsidiary, as shown on Schedule 4.1.
SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan
Document nor any other agreement, document, certificate, or statement furnished
to Lender by or on behalf of Borrower in connection with the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. There is no fact known to Borrower that adversely
affects or in the future may adversely affect the business, operations, affairs
or financial condition of Borrower, or any of its properties or assets.
SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower
does not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations of,
or have any outstanding borrowings from, any Person, except as described on
Schedule 4.19. Borrower is not a party to any contract or agreement, or subject
to any corporate restriction, which adversely affects its business.
SECTION 4.20. BUSINESS INTERRUPTIONS. Within five years prior to the
date hereof, neither the business, property or assets, or operations of Borrower
has been adversely affected in any way by any casualty, strike, lockout,
combination of workers, or order of the United States of America or other
Governmental Authority, directed against Borrower. There are no pending or
threatened labor disputes, strikes, lockouts, or similar occurrences or
grievances against Borrower or its business.
SECTION 4.21. NAMES. Within five years prior to the date hereof,
Borrower has not conducted business under or used any other name (whether
corporate, partnership or assumed) other than as shown on Schedule 4.21.
Borrower is the sole owner of all names listed on that Schedule and any and all
business done and invoices issued in such names are Borrower's sales,
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business, and invoices. Each trade name of Borrower represents a division or
trading style of Borrower and not a separate Person or independent Affiliate.
SECTION 4.22 JOINT VENTURES. Borrower is not engaged in any joint
venture or partnership with any other Person, except as set forth on Schedule
4.22.
SECTION 4.23 ACCOUNTS. Lender may rely, in determining which Accounts
are Qualified Accounts, on all statements and representations made by Borrower
with respect to any Account or Accounts. Unless otherwise indicated in writing
to Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be,
and is not evidenced by a judgment;
(b) It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts, certification, participation, certificate of need, or other documents
relating thereto and forming a part of the contract between Borrower and the
Account Debtor;
(c) It is for a liquidated amount maturing as stated in a
duplicate claim or invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Lender;
(d) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission by Borrower), be in the future,
subject to any offset, lien, deduction, defense, dispute, counterclaim or any
other adverse condition, and each such Account is absolutely owing to Borrower
and is not contingent in any respect or for any reason;
(e) There are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or tend to reduce the
amount payable thereunder from the face amount of the claim or invoice and
statements delivered to Lender with respect thereto;
(f) To the best of Borrower's knowledge, (i) the Account
Debtor thereunder had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
solvent;
(g) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Account
Debtor thereunder which might result in any material adverse change in such
Account Debtor's financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and compliance and conformance with
any and requisite procedures, requirements and regulations governing payment by
such Account Debtor with
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respect to such Account, and such Account if due from a Medicaid/Medicare
Account Debtor is properly payable directly to Borrower; and
(i) Borrower has obtained and currently has all certificates
of need, Medicaid and Medicare provider numbers, licenses, permits and
authorizations as necessary in the generation of such Accounts.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of
Lender to enter into and perform this Agreement and to make Revolving Credit
Loans is subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this
Agreement and all other Loan Documents required to be executed and delivered at
or prior to Closing (other than the Note, as to which Lender shall receive only
one original), executed by Borrower and any other required Persons, as
applicable.
(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.
(c) Borrower shall have complied and shall then be in
compliance with all the terms, covenants and conditions of the Loan Documents.
(d) There shall have occurred no Event of Default and no event
which, with the giving of notice or the lapse of time, or both, could constitute
such an Event of Default.
(e) The representations and warranties contained in Article IV
shall be true and correct.
(f) Lender shall have received copies of all board of
directors resolutions of Borrower, and other corporate action taken by Borrower
to authorize the execution, delivery and performance of the Loan Documents and
the borrowing of the Loan thereunder, as well as the names and signatures of the
officers of Borrower authorized to execute documents on its behalf in connection
herewith, all as also certified as of the date hereof by Borrower's chief
financial officer, and such other papers as Lender may require.
(g) Lender shall have received copies, certified as true,
correct and complete by a corporate officer of each Borrower, of the articles of
incorporation of each Borrower, with
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any amendments to any of the foregoing, and all other documents necessary for
performance of the obligations of Borrower under this Agreement and the other
Loan Documents.
(h) Lender shall have received a written opinion of counsel
for Borrower, dated the date hereof, in the form of Exhibit D.
(i) Lender shall have received such financial statements,
reports, certifications, and other operational information required to be
delivered hereunder, including without limitation an initial borrowing base
certificate calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox and the Concentration Account shall have been
established.
(l) Lender shall have received a certificate of Borrower's
chief financial officer, dated the Closing Date, certifying that all of the
conditions specified in this Section have been fulfilled.
SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any
other provision of this Agreement, no Loan proceeds, Revolving Credit Loans,
advances or other extensions of credit under the Loan shall be disbursed
hereunder unless the following conditions have been satisfied or waived
immediately prior to such disbursement:
(a) The representations and warranties on the part of Borrower
contained in Article IV of this Agreement shall be true and correct in all
respects at and as of the date of disbursement or advance, as though made on and
as of such date (except to the extent that such representations and warranties
expressly relate solely to an earlier date and except that the references in
Section 4.7 to financial statements shall be deemed to be a reference to the
then most recent annual and interim financial statements of Borrower furnished
to Lender pursuant to Section 6.1 hereof).
(b) No Event of Default or event which, with the giving of
notice of the lapse of time, or both, could become an Event of Default shall
have occurred and be continuing or would result from the making of the
disbursement or advance.
(c) No adverse change in the condition (financial or
otherwise), properties, business, or operations of Borrower shall have occurred
and be continuing with respect to Borrower since the date hereof.
SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the
Loan shall be made available on the date as is mutually agreed by the parties
(the "Closing Date") at such time as may be mutually agreeable to the parties
upon the execution hereof (the "Closing") at such place as may be requested by
Lender.
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SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder, or
by making advances under the Loan, Lender does not waive a breach of any
representation or warranty of Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that for so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will
furnish to Lender (i) a sales and collections report and accounts receivable
aging schedule on a form acceptable to Lender within fifteen (15) days after the
end of each calendar month, which shall include, but not be limited to, a report
of sales, credits issued, and collections received; (ii) payable aging schedules
within fifteen (15) days after the end of each calendar month; (iii) internally
prepared monthly financial statements for Borrower, certified by the chief
financial officer of Borrower, within forty-five (45) days of the end of each
calendar month, accompanied by management analysis and actual vs. budget
variance reports; (iv) to the extent prepared by Borrower, annual projections,
profit and loss statements, balance sheets, and cash flow reports (prepared on a
monthly basis) for the succeeding fiscal year within thirty (30) days before the
end of each of Borrower's fiscal years; (v) internally prepared annual financial
statements for Borrower within sixty (60) days after the end of each of
Borrower's fiscal years; (vi) annual audited financial statements for Borrower
prepared by Grant Thornton, LLP, or a firm of independent public accountants
satisfactory to Lender, within one hundred thirty-five (135) days after the end
of each of Borrower's fiscal years; (vii) promptly upon receipt thereof, copies
of any reports submitted to Borrower by the independent accountants in
connection with any interim audit of the books of Borrower and copies of each
management control letter provided to Borrower by independent accountants;
(viii) as soon as available, copies of all financial statements and notices
provided by Borrower to all of its stockholders; and (ix) such additional
information, reports or statements as Lender may from time to time request.
Annual financial statements shall set forth in comparative form figures for the
corresponding periods in the prior fiscal year. All financial statements shall
include a balance sheet and statement of earnings and shall be prepared in
accordance with GAAP.
SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of
principal, interest, fees, and all other payments required hereunder, under the
Loan, and under any other agreements with Lender to which Borrower is a party,
as and when due.
SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS.
Borrower will do or cause to be done all things necessary (a) to obtain and keep
in full force and effect all
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corporate existence, rights, licenses, privileges, and franchises of
Borrower necessary to the ownership of its property or the conduct of its
business, and comply with all applicable present and future laws, ordinances,
rules, regulations, orders and decrees of any Governmental Authority having or
claiming jurisdiction over Borrower; and (b) to maintain and protect the
properties used or useful in the conduct of the operations of Borrower, in a
prudent manner, including without limitation the maintenance at all times of
such insurance upon its insurable property and operations as required by law or
by Section 6.7 hereof.
SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or
advance under the Loan shall not be subject to any penalty or special tax, shall
not be prohibited by any governmental order or regulation applicable to
Borrower, and shall not violate any rule or regulation of any Governmental
Authority, and necessary consents, approvals and authorizations of any
Governmental Authority to or of any such disbursement or advance shall have been
obtained.
SECTION 6.5. LENDER'S SATISFACTION. All instruments and legal documents
and proceedings in connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to Lender and its counsel,
and Lender shall have received all documents, including records of corporate
proceedings and opinions of counsel, which Lender may have requested in
connection therewith.
SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax
reports and pay and discharge all taxes, assessments and governmental charges or
levies imposed upon Borrower, or its income or profits or upon its properties or
any part thereof, before the same shall be in default and prior to the date on
which penalties attach thereto, as well as all lawful claims for labor,
material, supplies or otherwise which, if unpaid, might become a lien or charge
upon the properties or any part thereof of Borrower; provided, however, that
Borrower shall not be required to pay and discharge or cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith and by appropriate
proceedings by Borrower, and Borrower shall have set aside on their books
adequate reserve therefor; and provided further, that such deferment of payment
is permissible only so long as Borrower's title to, and its right to use, the
Collateral is not adversely affected thereby and Lender's lien and priority on
the Collateral are not adversely affected, altered or impaired thereby.
SECTION 6.7. INSURANCE. Borrower will carry adequate public liability
insurance with responsible companies satisfactory to Lender in such amounts and
against such risks as is customarily maintained by similar businesses and by
owners of similar property in the same general area.
SECTION 6.8. GENERAL INFORMATION. Borrower will furnish to Lender such
information as Lender may, from time to time, request with respect to the
business or financial affairs of Borrower, and permit any officer, employee or
agent of Lender to visit and inspect any of the
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properties, to examine the minute books, books of account and other records,
including management letters prepared by Borrower's auditors, of Borrower, and
make copies thereof or extracts therefrom, and to discuss its and their business
affairs, finances and accounts with, and be advised as to the same by, the
accountants and officers of Borrower, all at such times and as often as Lender
may require. Lender shall maintain in confidence all financial and related
information of Borrower. In particular, and not in limitation of the foregoing,
Lender acknowledges that financial reports of Borrower that have not been filed
with the SEC or otherwise publicly disclosed may constitute material, nonpublic
information.
SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and
preserve all of its properties in good repair, working order and condition and
from time to time make all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE
DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (i)
any Event of Default; (ii) any event which, with the giving of notice or lapse
of time, or both, could constitute an Event of Default; (iii) any event,
development or circumstance whereby the financial statements previously
furnished to Lender fail in any material respect to present fairly, in
accordance with GAAP, the financial condition and operational results of
Borrower; (iv) any judicial, administrative or arbitration proceeding pending
against Borrower, and any judicial or administrative proceeding known by
Borrower to be threatened against it which, if adversely decided, could
adversely affect its condition (financial or otherwise) or operations (present
or prospective) or which may expose Borrower to uninsured liability of
$25,000.00 or more; (v) any default claimed by any creditor of Borrower, other
than Lender, for Borrowed Money in a total principal in excess of $10,000.00;
and (vi) any other development in the business or affairs of Borrower which may
be adverse; in each case describing the nature thereof and (in the case of
notification under clauses (i) and (ii)) the action Borrower proposes to take
with respect thereto.
SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (i) comply with the
funding requirements of ERISA with respect to the Plans for its employees, or
will promptly satisfy any accumulated funding deficiency that arises under
Section 302 of ERISA; (ii) furnish Lender, promptly after filing the same, with
copies of all reports or other statements filed with the United States
Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal
Revenue Service with respect to all Plans, or which Borrower, or any member of
a Controlled Group, may receive from such Governmental Authority with respect
to any such Plans, and (iii) promptly advise Lender of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such Plan and
the action which Borrower proposes to take with respect thereto. Borrower will
make all contributions when due with respect to any multi-employer pension plan
in which it participates and will promptly advise Lender: (i) upon its receipt
of notice of the assertion against Borrower of a claim for withdrawal
liability; (ii) upon the occurrence of any event which could trigger the
assertion of a claim for withdrawal liability against Borrower; and (iii) upon
the occurrence of any event which would place Borrower in a Controlled Group as
a result of which
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any member (including Borrower) thereof may be subject to a claim for
withdrawal liability, whether liquidated or contingent.
SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form UCC-1, duly executed by Borrower and
Lender, in all places necessary to release all existing security interests and
other liens in the Collateral (other than as permitted hereby) and to perfect
and protect Lender's first priority lien and security interest in the
Collateral, as Lender may request.
SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and
accurate books of records and accounts in which full and correct entries will be
made of all of its business transactions, and will reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with GAAP.
SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to
collect its Accounts in the ordinary course of business.
SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days'
prior written notice to Lender of any change in the location of any of its
places of business, of the places where its records concerning its Accounts are
kept, of the places where the Collateral is kept, or of the establishment of any
new, or the discontinuance of any existing, places of business.
SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the
business presently conducted by it using its best efforts to maintain its
customers and goodwill. Borrower shall not engage, directly or indirectly, in
any line of business substantially different from the business conducted by it
immediately prior to the Closing Date, or engage in business or lines of
business which are not reasonably related thereto.
SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give
prompt notice to Lender of any litigation, arbitration, or other proceeding
before any Governmental Authority against or affecting Borrower if the amount
claimed is more than $25,000.00.
SECTION 6.18. BANK ACCOUNTS. Borrower shall assign all of its
depository and disbursement accounts to Lender.
SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. Subject to applicable
federal and state laws and regulation concerning the confidentiality of patient
and medical records, Borrower will, on demand of Lender, make available to
Lender copies of shipping and delivery receipts evidencing the shipment of goods
that gave rise to an Account, medical records, insurance rification forms,
assignment of benefits, in-take forms or other proof of the satisfactory
performance of services that gave rise to an Account, a copy of the claim or
invoice for each Account and copies of any written contract or order from which
the Account arose. Borrower
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shall promptly notify Lender if an Account becomes evidenced or secured by an
instrument or chattel paper and upon request of Lender, will promptly deliver
any such instrument or chattel paper to Lender.
SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will
maintain all certificates of need, provider numbers and licenses necessary to
conduct its business as presently conducted, and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. If required, all Medicaid/Medicare
cost reports will be properly filed.
SECTION 6.21. OFFICER'S CERTIFICATES. Together with the monthly
financial statements delivered pursuant to clause (iii) of Section 6.1, and
together with the audited annual financial statements delivered pursuant to
clause (vi) of that Section, Borrower shall deliver to Lender a certificate of
its chief financial officer, in form and substance satisfactory to Lender:
(a) Setting forth the information (including detailed
calculations) required to establish whether Borrower is in compliance with the
requirements of Articles VI and VII as of the end of the period covered by the
financial statements then being furnished; and
(b) Stating that the signer has reviewed the relevant terms
of this Agreement, and has made (or caused to be made under his supervision) a
review of the transactions and conditions of Borrower from the beginning of the
accounting period covered by the income statements being delivered to the date
of the certificate, and that such review has not disclosed the existence during
such period of any condition or event which constitutes an Event of Default or
which is then, or with the passage of time or giving of notice or both, could
become an Event of Default, and if any such condition or event existed during
such period or now exists, specifying the nature and period of existence
thereof and what action Borrower has taken or proposes to take with respect
thereto.
SECTION 6.22. VISITS AND INSPECTIONS. Borrower agrees to permit
representatives of Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and inspect the
properties of Borrower, and to inspect, audit and make extracts from its books
and records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.
SECTION 6.23. NET WORTH. Borrower will not at any time allow its net
worth, as computed in accordance with GAAP, to fall below negative $500,000.00.
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ARTICLE VII
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
SECTION 7.1. BORROWING. Borrower will not create, incur, assume or
suffer to exist any liability for Borrowed Money except: (i) indebtedness to
Lender; (ii) indebtedness of Borrower secured by mortgages, encumbrances or
liens expressly permitted by Section 7.3 hereof; (iii) accounts payable to trade
creditors and current operating expenses (other than for borrowed money) which
are not aged more than one hundred twenty (120) days from the billing date or
more than sixty (60) days from the due date, in each case incurred in the
ordinary course of business and paid within such time period, unless the same
are being contested in good faith and by appropriate and lawful proceedings, and
Borrower shall have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower and its independent
accountants; and (iv) borrowings incurred in the ordinary course of its business
and not exceeding $250,000.00 in the aggregate outstanding at any one time.
Borrower will not make prepayments on any existing or future indebtedness for
Borrowed Money to any Person (other than Lender, to the extent permitted by this
Agreement or any subsequent agreement between Borrower and Lender).
SECTION 7.2. JOINT VENTURES. Borrower will not invest directly or
indirectly in any joint venture for any purpose without the prior written notice
to, and the express written consent of, Lender, which consent may be withheld in
Lender's sole discretion.
SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur,
assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any
kind (including the charge upon property purchased under a conditional sale or
other title retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except for Permitted Liens.
SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not
enter into any merger or consolidation with or acquire all or substantially all
of the assets of any Person, and will not sell, lease, or otherwise dispose of
any of its assets except in the ordinary course of its business, without the
prior written consent of Lender, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, Borrower shall not be required to
obtain Lender's consent to any sale, lease or other disposition where the cost
of the transaction to Borrower is less than $250,000.00.
SECTION 7.5. SALE AND LEASEBACK. Borrower will not, directly or
indirectly, enter into any arrangement whereby Borrower sells or transfers all
or any part of its assets and thereupon and within one year thereafter rents or
leases the assets so sold or transferred without the prior written consent of
Lender, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, Borrower shall not be required to obtain Lender's consent to any such
arrangement where the cost of the arrangement to Borrower is less than
$250,000.00.
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SECTION 7.6. DIVIDENDS, DISTRIBUTIONS AND MANAGEMENT FEES. Upon notice
from Lender to Borrower of the existence of an Event of Default hereunder,
Borrower will not declare or pay any dividends or other distributions with
respect to, purchase, redeem or otherwise acquire for value any of its
outstanding stock now or hereafter outstanding, or return any capital of its
stockholders, nor shall Borrower pay management fees or fees of a similar nature
to any Person.
SECTION 7.7. LOANS. Borrower will not make loans or advances to any
Person, other than (i) trade credit extended in the ordinary course of its
business, and (ii) advances for business travel and similar temporary advances
in the ordinary course of business to officers, stockholders, directors, and
employees.
SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume,
guarantee, endorse, contingently agree to purchase or otherwise become liable
upon the obligation of any Person, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
SECTION 7.9. SUBSIDIARIES. Borrower will not form any subsidiary, or
make any investment in or any loan in the nature of an investment to, any other
Person.
SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with
respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or
any Reportable Event.
SECTION 7.11. CERTIFICATES OF NEED. Borrower will not amend, alter or
suspend or terminate or make provisional in any material way, any certificate of
need or provider number without the prior written consent of Lender, which
consent shall not be unreasonably withheld.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter
into any transaction, including without limitation the purchase, sale, or
exchange of property, or the loaning or giving of funds to any Affiliate or
subsidiary, except in the ordinary course of business and pursuant to the
reasonable requirements of Borrower's business and upon terms substantially the
same and no less favorable to Borrower as it would obtain in a comparable arm's
length transaction with any Person not an Affiliate or subsidiary, and so long
as the transaction is not otherwise prohibited hereunder. For purposes of the
foregoing, Lender consents to the transactions described on Schedule 7.12 and
transactions solely between or among parties to this Agreement and/or Affiliated
Borrower.
SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's name
(or the name of any of Lender's affiliates) in connection with any of its
business operations. Borrower may disclose to third parties that Borrower has a
borrowing relationship with Lender. Nothing herein contained is intended to
permit or authorize Borrower to make any contract on behalf of Lender.
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SECTION 7.14. CHANGE IN STATUS. National Diagnostics, Inc. shall not
cease filing required reports under the Securities Exchange Act of 1934 (the
"Exchange Act").
SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be
a party to any contract or agreement which would breach this Agreement, or
breach any other instrument, agreement, or document to which Borrower is a party
or by which it is or may be bound.
SECTION 7.16. MARGIN STOCK. Borrower will not carry or purchase any
"margin security" within the meaning of Regulations U, G, T or X of the Board of
Governors of the Federal Reserve System.
SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not
furnish to Lender any certificate or other document that contains any untrue
statement of a material fact or that omits to state a material fact necessary to
make it not misleading in light of the circumstances under which it was
furnished.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an
"Event of Default" and collectively, the "Events of Default") shall constitute
an event of default hereunder:
(a) A default in the payment of any installment of principal
of, or interest upon, the Note when due and payable, whether at maturity or
otherwise, or any breach of Section 2.3 of this Agreement, which default or
breach, as applicable, shall have continued unremedied for a period of ten (10)
days after written notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or
other monetary obligations owing to Lender arising out of or incurred in
connection with this Agreement when such payment is due and payable, which
default shall have continued unremedied for a period of ten (10) days after
written notice from Lender;
(c) A default in the due observance or performance by Borrower
of any other term, covenant or agreement contained in any of the Loan Documents,
which default shall have continued unremedied for a period of fifteen (15) days
after written notice from Lender;
(d) If any representation or warranty made by Borrower herein
or in any of the other Loan Documents, any financial statement, or any statement
or representation made in any other certificate, report or opinion delivered in
connection herewith or therewith proves to have been incorrect or misleading in
any material respect when made, which default shall have continued unremedied
for a period of fifteen (15) days after written notice from Lender;
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(e) If any obligation of Borrower (other than its Obligations
hereunder) for the payment of Borrowed Money is not paid when due or within any
applicable grace period, or such obligation becomes or is declared to be due and
payable prior to the expressed maturity thereof, or there shall have occurred an
event which, with the giving of notice or lapse of time, or both, would cause
any such obligation to become, or allow any such obligation to be declared to
be, due and payable;
(f) If Borrower makes an assignment for the benefit of
creditors, offers a composition or extension to creditors, or makes or sends
notice of an intended bulk sale of any business or assets now or hereafter
conducted by Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;
(h) If one or more final judgments against Borrower or
attachments against its property not fully and unconditionally covered by
insurance shall be rendered by a court of record and shall remain unpaid,
unstayed on appeal, undischarged, unbonded and undismissed for a period of ten
(10) days;
(i) A Reportable Event which might constitute grounds for
termination of any Plan covered by Title IV of ERISA or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan or for the entry of a lien or encumbrance to secure any deficiency, has
occurred and is continuing thirty (30) days after its occurrence, or any such
Plan is terminated, or a trustee is appointed by an appropriate United States
District Court to administer any such Plan, or the Pension Benefit Guaranty
Corporation institutes proceedings to terminate any such Plan or to appoint a
trustee to administer any such Plan, or a lien or encumbrance is entered to
secure any deficiency or claim;
(j) If there should occur a change in control of National
Diagnostics, Inc.;
(k) If there shall occur any uninsured damage to or loss,
theft or destruction of any portion of the Collateral;
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(l) If Borrower breaches of violates the terms of, or if a
default or an event which could, whether with notice or the passage of time, or
both, constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender;
(m) Upon the issuance of any execution or distraint process
against Borrower or any of its property or assets;
(n) If Borrower ceases any material portion of its business
operations as presently conducted without the prior written consent of Lender;
(o) If any indication or evidence is received by Lender that
Borrower may have directly or indirectly been engaged in any type of activity
which, in Lender's discretion, might result in the forfeiture of any property of
Borrower to any Governmental Authority, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender;
(p) Borrower or any Affiliate of Borrower, shall challenge or
contest, in any action, suit or proceeding, the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under
any law that could lead to a forfeiture of any Collateral; and
(r) There shall occur a material adverse change in the
financial condition or business prospects of Borrower, or if Lender in good
faith deems itself insecure as a result of acts or events bearing upon the
financial condition of Borrower or the repayment of the Note, which default
shall have continued unremedied for a period of ten (10) days after written
notice from Lender.
SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing
Events of Default, the Note shall become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower; provided that, upon
the happening of any event specified in Section 8.1(g) hereof, the Note shall be
immediately due and payable without declaration or other notice to Borrower.
SECTION 8.3. REMEDIES.
(a) In addition to all other rights, options, and remedies
granted to Lender under this Agreement, upon the occurrence of an Event of
Default Lender may (i) terminate the Loan, whereupon all outstanding Obligations
shall be immediately due and payable, (ii) exercise all other rights granted to
it hereunder and all rights under the Uniform Commercial Code in effect in the
applicable jurisdiction(s) and under any other applicable law, and (iii)
exercise all
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rights and remedies under all Loan Documents now or hereafter in effect,
including the following rights and remedies (which list is given by way of
example and is not intended to be an exhaustive list of all such rights and
remedies):
(i) The right to take possession of, send notices
regarding, and collect directly the Collateral, with or without judicial
process, and to exercise all rights and remedies available to Lender with
respect to the Collateral under the Uniform Commercial Code in effect in the
jurisdiction(s) in which such Collateral is located;
(ii) The right to (by its own means or with judicial
assistance) enter any of Borrower's premises and take possession of the
Collateral, or render it unusable, or dispose of the Collateral on such
premises in compliance with subsection (b), without any liability for rent,
storage, utilities, or other sums, and Borrower shall not resist or interfere
with such action;
(iii) The right to require Borrower at Borrower's
expense to assemble all or any part of the Collateral and make it available to
Lender at any place designated by Lender;
(iv) The right to reduce the Maximum Loan Amount or to
use the Collateral and/or funds in the Concentration Account in amounts up to
the Maximum Loan Amount for any reason; and
(v) The right to relinquish or abandon any Collateral
or any security interest therein.
(b) Borrower agrees that a notice received by it at least five
(5) days before the time of any intended public sale, or the time after which
any private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily
decline in value or which is sold on a recognized marked may be sold
immediately by Lender without prior notice to Borrower. At any sale or
disposition of Collateral, Lender may (to the extent permitted by applicable
law) purchase all or any part of the Collateral, free from any right of
redemption by Borrower, which right is hereby waived and released. Borrower
covenants and agrees not to interfere with or impose any obstacle to Lender's
exercise of its rights and remedies with respect to the Collateral.
SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed
against all or any portion of the Collateral to satisfy the liabilities and
Obligations of Borrower to Lender in any order. All rights and remedies granted
Lender hereunder and under any agreement referred to herein, or otherwise
available at law or in equity, shall be deemed concurrent and cumulative, and
not alternative remedies, and Lender may proceed with any number of remedies at
the same time until the Loans, and all other existing and future liabilities and
obligations of Borrower to
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Lender, are satisfied in full. The exercise of any one right or remedy shall not
be deemed a waiver or release of any other right or remedy, and Lender, upon the
occurrence of an Event of Default, may proceed against Borrower, and/or the
Collateral, at any time, under any agreement, with any available remedy and in
any order.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. EXPENSES AND TAXES.
(a) Borrower agrees to pay, whether or not the Closing occurs,
a reasonable documentation preparation fee, together with actual audit and
appraisal fees and all other out-of-pocket charges and expenses incurred by
Lender in connection with the negotiation, preparation and execution of each of
the Loan Documents, any amendments to the Loan Documents following Closing, and
preparation for Closing, reimbursement for which fees and expenses shall not
exceed $10,000.00. Borrower also agrees to pay all out-of-pocket charges and
expenses incurred by Lender (including the fees and expenses of Lender's
counsel) in connection with the enforcement, protection or preservation of any
right or claim of Lender and the collection of any amounts due under the Loan
Documents.
(b) Borrower shall pay all taxes (other than taxes based upon
or measured by Lender's income or revenues or any personal property tax), if
any, in connection with the issuance of the Note and the recording of the
security documents therefor. The obligations of Borrower under this clause (b)
shall survive the payment of Borrower's indebtedness hereunder and the
termination of this Agreement.
SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Loan Documents constitute the full and entire understanding and agreement among
the parties with regard to their subject matter and supersede all prior written
or oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement nor
any waiver of any provision thereof shall be made except in writing executed by
the party against whom enforcement is sought.
SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party
hereto of any one or more defaults by the other party in the performance of any
of the provisions of this Agreement shall operate or be construed as a waiver of
any future default or defaults, whether of a like or different nature. No
failure or delay on the part of any party in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law, in equity or
otherwise.
33
<PAGE> 35
SECTION 9.4. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by regular mail), or sent by
prepaid overnight courier service, and addressed to the relevant party at its
address set forth below, or at such other address as such party may, by written
notice, designate as its address for purposes of notice hereunder:
(a) If to Lender, at:
HCFP Funding, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attention: Ethan D. Leder, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
(b) If to Borrower, at:
National Diagnostics, Inc.
755 West Brandon Boulevard
Brandon, Florida 33511
Attention: Dennis Hult, Controller
Telephone: (813) 661-9501
Telecopier:(813) 661-9601
If mailed, notice shall be deemed to be given five (5) days after being sent, if
sent by personal delivery or telecopier, notice shall be deemed to be given when
delivered, and if sent by prepaid courier, notice shall be deemed to be given on
the next Business Day following deposit with the courier.
SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this
Agreement, or the application of such term, covenant or condition to any party
or circumstance shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, the parties hereto shall amend
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner.
SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the
other Loan Documents shall be binding upon and inure to the benefit of Borrower
and Lender and their respective successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations hereunder without the prior written consent of Lender, which may be
withheld in its sole discretion. Lender may sell, assign, transfer, or
34
<PAGE> 36
participate any or all of its rights or obligations hereunder without notice to
or consent of Borrower.
SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
SECTION 9.8. INTERPRETATION. No provision of this Agreement or any
other Loan Document shall be interpreted or construed against any party because
that party or its legal representative drafted that provision. The titles of the
paragraphs of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement. Any pronoun used in this
Agreement shall be deemed to include singular and plural and masculine, feminine
and neuter gender as the case may be. The words "herein," "hereof," and
"hereunder" shall be deemed to refer to this entire Agreement, except as the
context otherwise requires.
SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements,
representations and warranties made in this Agreement, any other Loan Document,
and in any certificates and other instruments delivered in connection therewith
shall be considered to have been relied upon by Lender and shall survive the
making by Lender of the Loans herein contemplated and the execution and delivery
to Lender of the Note, and shall continue in full force and effect until all
liabilities and obligations of Borrower to Lender are satisfied in full.
SECTION 9.10. RELEASE OF LENDER. Borrower releases Lender, its
officers, employees, and agents, of and from any claims for loss or damage
resulting from acts or conduct of any or all of them, unless caused by Lender's
recklessness, gross negligence, or willful misconduct.
SECTION 9.11. TIME. Whenever Borrower is required to make any payment
or perform any act on a Saturday, Sunday, or a legal holiday under the laws of
the State of Maryland (or other jurisdiction where Borrower is required to make
the payment or perform the act), the payment may be made or the act performed on
the next Business Day. Time is of the essence in Borrower's performance under
this Agreement and all other Loan Documents.
SECTION 9.12. COMMISSIONS. The transaction contemplated by this
Agreement was brought about by Lender and Borrower acting as principals and
without any brokers, agents, or finders being the effective procuring cause.
Borrower represents that it has not committed Lender to the payment of any
brokerage fee, commission, or charge in connection with this transaction. If any
such claim is made on Lender by any broker, finder, or agent or other person,
Borrower will indemnify, defend, and hold Lender harmless from and against the
claim and will defend any action to recover on that claim, at Borrower's cost
and expense, including Lender's counsel fees. Borrower further agrees that until
any such claim or demand is adjudicated in Lender's favor, the amount demanded
will be deemed a liability of Borrower under this Agreement, secured by the
Collateral.
35
<PAGE> 37
SECTION 9.13. THIRD PARTIES. No rights are intended to be created
hereunder or under any other Loan Document for the benefit of any third party
donee, creditor, or incidental beneficiary of Borrower. Nothing contained in
this Agreement shall be construed as a delegation to Lender of Borrower's duty
of performance, including without limitation Borrower's duties under any account
or contract in which Lender has a security interest.
SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole
discretion, shall have the right at any time, and from time to time, without
prior notice to Borrower if Borrower fails to do so, to: (i) obtain insurance
covering any of the Collateral as required hereunder; (ii) pay for the
performance of any of Borrower's obligations hereunder; (iii) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed on
any of the Collateral in violation of this Agreement unless Borrower is in good
faith with due diligence by appropriate
proceedings contesting those items; and (iv) pay for the maintenance and
preservation of any of the Collateral. Expenses and advances shall be added to
the Loan, until reimbursed to Lender and shall be secured by the Collateral. Any
such payments and advances by Lender shall not be construed as a waiver by
Lender of an Event of Default.
SECTION 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any
participant it may obtain in the Loan, or any portion thereof, all information,
and furnish to such participant copies of reports, financial statements,
certificates, and documents obtained under any provision of this Agreement or
any other Loan Document. Notwithstanding the foregoing, any such participant
shall be bound by the restrictions on dissemination of confidential information
contained in Section 6.8 above.
SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold
harmless Lender, its partners, officers, agents and employees (collectively,
"Indemnitee") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties hereunder, or from the breach of any of the representations
or warranties contained in Article IV hereof. In addition, Borrower shall defend
Indemnitee against and save it harmless from all claims of any Person with
respect to the Collateral. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 9.16 shall survive the
payment in full of the Obligations and the termination of this Agreement.
SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT
AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS
COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND, BORROWER
36
<PAGE> 38
HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO
THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION
SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER
AT ITS ADDRESS DESCRIBED IN SECTION 9.4 HEREOF.
SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY,
AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO
ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
SECTION 9.19. CONFESSION OF JUDGMENT. BORROWER AUTHORIZES ANY ATTORNEY
ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE
CLERK OF SUCH COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT IN ONE OR MORE
PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT
OFFICIAL, AND TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE
FULL AMOUNT DUE ON THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY
AND ALL CHARGES, FEES AND COSTS) PLUS REASONABLE ATTORNEYS' FEES, PLUS COURT
COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING.
BORROWER AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY,
MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
BORROWER WAIVES THE ENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT
WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF
EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR
OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR
RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND
ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE
37
<PAGE> 39
EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE
THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;
SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO
TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM
NECESSARY, CONVENIENT, OR PROPER.
38
<PAGE> 40
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first written above.
LENDER:
HCFP FUNDING, INC.
a Delaware corporation
By:/s/Howard Widra
-------------------------
Name: Howard Widra
Title: Vice President
BORROWER:
NATIONAL DIAGNOSTICS, INC.
a Florida corporation
By:/s/C. L. Alliston
-------------------------
Name: C. L. Alliston
Title: President
SUNPOINT DIAGNOSTIC CENTER, INC.
a Florida corporation
By:/s/C. L. Alliston
--------------------------
Name: C. L. Alliston
Title: President
[SIGNATURES CONTINUED]
39
<PAGE> 41
NATIONAL DIAGNOSTICS/
ORANGE PARK, INC.
a Florida corporation
By:/s/Curtis Alliston
------------------------------
Name: Curtis Alliston
Title: President
NATIONAL DIAGNOSTICS/
RIVERSIDE, INC.
a Florida corporation
By:/s/Curtis Alliston
------------------------------
Name: Curtis Alliston
Title: President
ALPHA ASSOCIATES, INC.
an Florida corporation
By:/s/Curtis Alliston
------------------------------
Name: Curtis Alliston
Title: President
ALPHA ACQUISITION, INC.
a Florida corporation
By:/s/Curtis Alliston
------------------------------
Name: Curtis Alliston
Title: President
BRANDON DIAGNOSTIC CENTER, LTD.
a Florida limited partnership
By:/s/Curtis Alliston
------------------------------
Name: Curtis Alliston
Title: President
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
DIAGNOSTICS, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,325
<SECURITIES> 0
<RECEIVABLES> 3,099,368
<ALLOWANCES> 739,106
<INVENTORY> 0
<CURRENT-ASSETS> 2,578,481
<PP&E> 9,989,183
<DEPRECIATION> 4,258,732
<TOTAL-ASSETS> 8,809,763
<CURRENT-LIABILITIES> 5,597,463
<BONDS> 0
0
0
<COMMON> 779
<OTHER-SE> (331,720)
<TOTAL-LIABILITY-AND-EQUITY> 8,809,763
<SALES> 0
<TOTAL-REVENUES> 7,737,500
<CGS> 0
<TOTAL-COSTS> 4,152,251
<OTHER-EXPENSES> 4,255,536
<LOSS-PROVISION> 74,704
<INTEREST-EXPENSE> 512,236
<INCOME-PRETAX> (1,182,523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,182,523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,182,523)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
