As filed with the Securities and Exchange Commission
on July 11, 1997
__________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FONAR CORPORATION
__________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 3845 11-2464137
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Class- Identification No.)
incorporation or ification Code
organization) Number)
110 Marcus Drive
Melville, New York 11747
(516) 694-2929
__________________________________________________________________
(Address, including zip code, and telephone
number of registrant's principal executive offices)
Raymond V. Damadian, M.D.
FONAR CORPORATION
110 Marcus Drive
Melville, New York 11747
(516) 694-2929
__________________________________________________________________
Name, address, including zip code, and telephone
number, including area code, of agent for service)
Please send copies of all communications to:
Henry T. Meyer, Esq.
FONAR Corporation
110 Marcus Drive
Melville, New York 11747
(516) 694-2929
_________________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
CALCULATION OF REGISTRATION FEE
Title of each Amt. to be Proposed Proposed Amount of
class of securities registered maximum maximum registration
to be registered offering aggregate fee
price per offering
unit* price
- ------------------------------------------------------------------
Common Stock,
$.0001 par value 2,340,000 $2.91 $6,809,400 $2,348.07
per share
- ------------------------------------------------------------------
Total . . . . . . . 2,340,000 $2.91 $6,809,400 $2,348.07
- ------------------------------------------------------------------
*Pursuant to Rule 457, subsections (h) and (c)
Specified Date: July 9, 1997
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
2,340,000 Shares
FONAR CORPORATION
Common Stock
This Prospectus relates to the sale of 2,340,000 shares (the
"Offered Shares") of the Common Stock of FONAR Corporation (the "Company" or
"Fonar") by Fanavle Partnership (the "Selling Stockholder"), which acquired the
Offered Shares pursuant to the terms of a merger and certain related agreements
(the "Merger Agreements").
Pursuant to the terms of the Merger Agreements, the maximum number
of the Offered Shares which may be sold on any trading day is limited to the
lesser of 15,000 shares or 15% of the trading volume (as reported on the NASDAQ
System) of the Company's Common Stock on the previous day, except that if on any
trading day the trading volume for the Company's Common Stock reaches 500,000
shares, then for that day the maximum number of Offered Shares which may be sold
will be increased to 60,000 shares. In addition, certain of the Offered Shares
are held as security or were issued on a contingent basis and will not be
immediately available for sale. Within the foregoing limits, the Selling
Stockholder may sell the Offered Shares at market prices at such times and
through such broker-dealers as it may elect. The Company will not receive any
proceeds from the sale of shares by the Selling Stockholder. (See "Plan of
Distribution" and "Material Changes.")
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The price of the shares being sold by the Selling
Stockholder will vary and will depend on the market price of the Company's
Common Stock at the time or times such shares are sold.
The Company expects to pay expenses of this offering of
approximately $17,500.
On July 9, 1997, the closing price for the Common Stock of the
Company (Symbol: FONR) was $2.91 per share, as reported by NASDAQ.
The date of this Prospectus is July 11, 1997.
No person has been authorized by the Company to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer or solicitation to any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither delivery of this
Prospectus nor any sale hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof.
AVAILABLE INFORMATION
FONAR Corporation is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by FONAR Corporation can be inspected and
copies obtained at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and the Regional Offices of
the Commission at 7 World Trade Center, New York, New York 10048 and at the
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
FONAR Corporation has filed with the Commission in Washington,
D.C. a Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, with respect to the securities to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement,
including the exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. Statements contained in this Prospectus
concerning the provisions of documents included as exhibits to the Registration
Statement are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
Where any document or part thereof is incorporated by reference in
this Prospectus, the Company will provide without charge to each person to whom
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the information that has been incorporated by reference
in this Prospectus (not including exhibits unless the exhibits are specifically
incorporated by reference). Requests for copies should be directed to the
Company at 110 Marcus Drive, Melville, New York 11747, Attention Stockholder
Relations Department. The telephone number is (516) 694-2929.
SUMMARY INFORMATION
FONAR Corporation (the "Company" or "FONAR") designs, manufactures
and markets magnetic resonance imaging ("MRI") scanners which utilize
non-superconductive magnet technology for the detection and diagnosis of human
disease. The Company's address is 110 Marcus Drive, Melville, New York 11747
and its telephone number there is (516) 694-2929.
Effective June 30, 1997, the Company's wholly-owned subsidiary,
U.S. Health Management Corporation ("HMC") acquired the business and assets of a
group of interrelated companies (the "Acquired Companies") engaged in the
business of managing three diagnostic imaging and one physical rehabilitation
center in New York. The transaction was effected through a merger between HMCM
Inc., a wholly-owned subsidiary of HMC and Affordable Diagnostics, Inc.
("Affordable"), one of the Acquired Companies which immediately prior to the
merger had acquired the assets and assumed the liabilities of the other Acquired
Companies.
Pursuant to the merger and other related agreements effecting the
merger (the "Merger Agreements"), Fanavle Partnership (the "Selling
Stockholder"), a partnership formed by the shareholders of Affordable, received
2,740,000 shares of the Common Stock of Fonar Corporation. This Prospectus
relates to 2,340,000 of said shares which are being offered for sale by the
Selling Stockholder (the "Offered Shares").
The Merger Agreements restrict the volume of sales which may be
made of Offered Shares to the lesser of 15,000 shares or 15% of the trading
volume (as reported on the NASDAQ system) of Fonar's Common Stock on the
previous trading day, except that the limit is increased to 60,000 shares on any
day on which the trading volume of Fonar Common Stock reaches 500,000 shares.
In addition, 375,000 Offered Shares serve as security under the Merger
Agreements and will not be available to be sold for at least seven months, and
576,000 Offered Shares have been issued on a contingent basis and will not be
available for sale any earlier than June 30, 1998. (See "Material Changes.")
Subject to such restrictions, the Selling Stockholder may sell the
shares from time to time at market prices through a broker-dealer of its
selection.
The offering of the shares on behalf of the Selling Stockholder is
being made on a "best efforts" basis. The offering price of the shares will
vary and will depend on the market price of the Company's Common Stock at the
times the shares are sold.
Commissions and any other fees in connection with the sale of the Offered Shares
will be agreed upon and paid by the Selling Stockholder (See "Plan of
Distribution").
NASDAQ Symbol . . . . . . . FONR
Risk Factors . . . . . . . Certain risk factors concerning the
Company should be considered carefully
before deciding whether to purchase
the shares offered. See "RISK
FACTORS."
This summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
RISK FACTORS
Investment in the Company is highly speculative and subject to
numerous and substantial risks. Therefore, prospective purchasers should
carefully consider the risks associated with the business of the Company and the
purchase of the Shares, including the risk factors discussed below.
1. Financial Risks. For the fiscal years ended June 30, 1996 and
June 30, 1995, the Company experienced net losses of $3.38 million and $1.76
million respectively and net operating losses of $8.9 million and $6.4 million
respectively. For the nine months ended March 31, 1997, the Company
experienced net income of $369,000 but an operating loss of $9.5 million. On
July 2, 1997, however, the Company received $128.7 million from General Electric
Company (net $77.2 million after attorneys' fees and expenses) in payment of the
judgment rendered against General Electric Company for infringement of the
Company's original MRI (Cancer Detection) patent and Multi-Angle Oblique (MAO)
patent (Fonar Corporation et ano. v. General Electric Company et ano.,
92-CV-4196 (LDW), U.S. District Court for the Eastern District of New York).
The payment by General Electric Company of the judgment followed the denial of
its application for a stay by the U.S. Court of Appeals for the Federal Circuit
and Chief Justice Rehnquist of the U.S. Supreme Court. The payment of the
judgment, however, does not preclude General Electric Company from petitioning
the Supreme Court to hear the case. Although the Company regards the
possibility as remote, there is a risk that the Supreme Court may elect to hear
the case and then decide the case adversely to the Company. The Company
believes that it will be able to reverse its operating losses with the cash
infusion from its patent litigation, the introduction into the marketplace of
its new Quad 7000 and Quad 12000 MRI scanners, continuation of its cost
containment programs, restructuring and liquidation of its interest bearing debt
and sales of upgrades and service to its existing customer base.
2. Reliance on New Products. The Company's principal products
are its new "Quad" series of MRI scanners, which were approved for sale by the
United States Food and Drug Administration (the "FDA") in 1995. The Quad 7000
MRI scanner received FDA approval in April, 1995, and the Quad 12000 received
FDA approval in November, 1995. The Quad scanners are unique in that four sides
are open, thus allowing access to the scanning area from four vantage points.
With the Quad 12000, the Company has introduced the first open high field MRI
scanner in the industry. Although the Company believes its new products are
responsive to the demands of the market place, there can be no assurance as to
the future market acceptance of the Quad scanners.
3. Dependence Upon Services of Dr. Damadian. The Company's
success is greatly dependent upon the continued participation of Dr. Raymond V.
Damadian, its founder, Chairman of the Board and President. Loss of the
services of Dr. Damadian would have a material adverse effect upon the
development of the Company's business. The Company does not currently carry
"key man" life insurance on Dr. Damadian.
4. Competition and Obsolescence. The medical equipment industry
is highly competitive and characterized by rapidly changing technology and
extensive research. Numerous companies, many of which have substantially
greater financial resources than those available to the Company, engage in the
marketing of magnetic resonance imaging scanners which compete with the
Company's scanners. Competitors include large, multinational companies or their
affiliates such as General Electric Company, Siemens A.G., Picker International,
Elscint Ltd., Philips N.V., Toshiba Corporation, Hitachi Corporation and
Shimadzu Corporation. In addition, there can be no assurance that the Company's
products will not be rendered obsolete by future products employing technologies
superior to those utilized by the Company.
5. Dilution. The purchasers of the shares of Common Stock being
offered hereby will sustain an immediate and substantial dilution in that the
net tangible book value of the shares will be significantly lower than the
offering price. The pro-forma net tangible book value of the Common Stock
(retroactively adjusted to March 31, 1997 and to take account of the issuance of
the Offered Shares) is approximately $0.84 per share, or approximately $2.07
less than the offering price (market price as of July 9, 1997) of $2.91 per
share. The foregoing assumes that all of the shares are sold at current market
prices by the Selling Stockholder. The pro-forma net tangible book value used
herein, however, does not take into account the value of the assets and business
transferred to the Company in consideration for the issuance of the Offered
Shares to the Selling Stockholder. The actual dilution experienced by the
purchasers of the shares will depend on the actual sales prices and the
Company's actual net tangible assets at the time of sale. (See "Dilution.")
6. Control of the Company. The Company's Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Dr. Raymond V. Damadian, the President, Chairman of the Board and
principal stockholder of the Company, will continue to be in control of the
Company and be in a position to elect all of the directors of the Company.
DILUTION
The net tangible book value of the Company's Common Stock at March
31, 1997 was $0.88 per share. "Net tangible book value per share" represents
the amount of the Company's tangible assets less the amount of its liabilities,
divided by the number of shares outstanding. Taking into account the issuance
of 2,740,000 shares of Fonar Common Stock to the Selling Stockholder under the
Merger Agreements, the pro-forma net tangible book value retroactively adjusted
to March 31, 1997 is $0.84 per share. The foregoing does not take into account,
however, the value of the assets and businesses transferred to the Company and
its subsidiaries in consideration for the Offered Shares. The Company will not
receive any proceeds from sales of the Offered Shares by the Selling
Stockholder.
For the purposes hereof, the pro-forma net tangible book value of
the Company's Common Stock has been retroactively adjusted to March 31, 1997 to
give effect to the issuance of the 2,740,000 shares issued to the Selling
Stockholder under the Merger Agreements. It has not been adjusted to take
account of any other events since March 31, 1997.
Purchasers of the Common Stock pursuant to this offering will
experience an immediate dilution of $2.07 per share. "Dilution per share"
represents the difference between the price per share of Common Stock paid by
the purchasers less the pro-forma net tangible book value of the Common Stock.
The following table illustrates the above described per share
dilution:
Public Net Tangible Net Tangible Dilution Gain For
Offering Book Value Book Value For New Existing
Price Before Offering After Offering Investors Shareholders
- ------------------------------------------------------------------
$2.91 $0.84 $0.84 $2.07 $0.00
- ------------------------------------------------------------------
The shares of Common Stock offered hereby will be sold from time
to time at market prices. For the purpose of illustration, the closing price
for the Company's Common Stock on July 9, 1997, as reported on the NASDAQ
System, is being utilized. The actual dilution experienced by purchasers of the
Common Stock offered hereby will vary depending on the actual sales prices and
the Company's actual net tangible assets at the times of the sales.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Offered Shares by the Selling Stockholder.
DETERMINATION OF OFFERING PRICE
The shares of Common Stock being offered hereby will be sold from
time to time at market prices, and as such, the prices will fluctuate.
DESCRIPTION OF FONAR'S SECURITIES
The following table shows the shares of FONAR's securities
authorized and outstanding as of March 31, 1997:
CLASS AUTHORIZED ISSUED AND OUTSTANDING
Common Stock,
par value $.0001
per share 60,000,000 47,643,871
Class B Common Stock,
par value $.0001
per share 4,000,000 5,411
Class C Common Stock,
par value $.0001
per share 10,000,000 9,562,824
Class A Non-voting
Preferred Stock, par
value $.0001 per share 8,000,000 7,855,627
Preferred Stock, par
value $.001 per share 10,000,000 0
Voting Rights
The Class C Common Stock has 25 votes per share, the Class B Common
Stock has 10 votes per share and the Common Stock has one vote per share in the
election of directors and on all other matters upon which stockholders are en
titled to vote. All three classes will vote together except where otherwise
required by law. The Class A Non-voting Preferred Stock does not have voting
rights except as required under the Delaware General Corporation Law.
Cash Dividends
With respect to any discretionary cash dividends which may be declared
by the Board of Directors on the Company's stock, a share of the Common Stock is
entitled to a cash dividend 20% higher than the cash dividend on a share of the
Class B Common Stock, as and when any cash dividends may be declared. A share
of the Class C Common Stock is entitled to one-third (1/3) of the dividend
declared on a share of the Class B Common Stock. The Class A Non-voting
Preferred is entitled to the same discretionary cash dividends as the Common
Stock.
Special Dividend on Common Stock
The Common Stock, but not the Class B Common Stock, the Class C Common
Stock, or the Class A Non-voting Preferred Stock, is entitled to a dividend
equal to a percentage of the amount of any cash award (in the form of damages,
royalties or otherwise) collected by the Company in connection with enforcement
by the Company of United States Patent No. 3,789,832 as follows: 3 1/4% of the
first $10 million of any such cash award collected by the Company, 4 1/2/% of
the next $20 million of any such cash award collected by the Company and 5 1/2%
of the amount of any such cash award in excess of $30 million collected by the
Company. This patent, which was issued to the President of the Company, Dr.
Raymond V. Damadian, in 1974 and subsequently exclusively licensed by him to the
Company, expired in February 1992. Damages for infringements occurring before
its expiration, however, are still recoverable.
Special Dividends on Class A Non-voting Preferred Stock
The Class A Non-voting Preferred Stock is entitled to a dividend equal
to a percentage of any award or settlement collected by the Company in
connection with the enforcement of five of its patents in certain patent
lawsuits, less the special dividend payable on the Common Stock with respect to
U.S. Patent No. 3,789,832 as follows: 3 1/4% of the first $10 million of any
such cash awards or settlements collected by the Company, 4 1/2% of the next $20
million of any such cash awards or settlements collected by the Company and 5
1/2% of the amount of any such cash awards or settlements in excess of $30
million collected by the Company. The five patents are as follows: Apparatus
and Method for Detecting Cancer in Tissue, 2/5/74 U.S. Patent No. 3,789,832;
Apparatus Including Permanent Magnet Configuration, 6/23/87, U.S. Patent No.
4,675,609; Apparatus and Method for Multiple Angle Oblique MRI, 10/3/89, U.S.
Patent No. 4,871,966; Solenoidal Surface Coils for Magnetic Resonance Imaging,
12/12/89, U.S. Patent No. 4,887,038; and Eddy Current Control in Magnetic
Resonance Imaging, 10/29/91, U.S. Patent No. 5061897. The patent lawsuits
covered include Fonar Corporation et ano v. General Electric Company et ano
(92-CV-4196 (LDW)) in the Federal District Court for the Eastern District of New
York and each patent litigation commenced thereafter up through October 29,
1997.
The Board of Directors has reserved the right (but would not be
obligated) to expand the dividend to which the Class A Non-voting Preferred
Stock is entitled, to cover additional patents, additional lawsuits, or both and
to increase the percentage of any awards or settlements received in any lawsuits
which would be payable as a dividend.
In addition, the Board of Directors is authorized, in its discretion,
to declare cash dividends from time to time solely on the Class A Non-voting
Preferred Stock or to fix such further dividend rights for the Class A
Non-voting Preferred Stock as it may determine, in its sole discretion.
Other Dividends and Distributions
With respect to dividends and distributions other than cash dividends
and all other rights (other than voting rights), shares of the Common Stock, the
Class B Common Stock and Class A Non-voting Preferred Stock rank equally and
have the same rights, including rights in liquidation. A share of the Class C
Common Stock has one-third (1/3) of such rights.
Conversion
Shares of Class B Common Stock are convertible into Common Stock on a
share for share basis. Shares of Class C Common Stock are convertible into
Common Stock on a three for one basis. Shares of Class A Non-voting Preferred
Stock and shares of Common Stock are not convertible.
Preemptive Rights and Cumulative Voting
Under the Company's Certificate of Incorporation, stockholders have no
preemptive rights to subscribe for new shares on a proportionate basis. The
Company's Certificate of Incorporation does not provide for cumulative voting.
Preferred Stock
No shares of the Company's $.001 par value Preferred Stock have
been issued or are presently planned to be issued. Shares of the $.001 par
value Preferred Stock would have such voting powers and other designations,
preferences, rights and qualifications as the Board of Directors would
establish.
Transfer Agent and Registrar
American Securities Transfer & Trust, Inc., 938 Quail Street,
Suite 101, Lakewood, Colorado 80215 is the transfer agent and registrar for the
Company's Common Stock, Class B Common Stock, Class C Common Stock and Class A
Non-voting Preferred Stock.
SELLING STOCKHOLDER
The Selling Stockholder, Fanavle Partnership, presently holds
2,740,000 shares of the issued and outstanding shares of the Common Stock of
Fonar Corporation. Of those shares, 2,340,000 shares ("Offered Shares") are
being offered hereby. Upon completion of this offering, Fanavle Partnership
will own less than 1% of the issued and outstanding shares of the Company's
Common Stock. One of the five partners in Fanavle Partnership is an employee of
the Company.
MATERIAL CHANGES
Acquisition of New Business
Effective June 30, 1997, the Company's wholly-owned subsidiary,
U.S. Health Management Corporation ("HMC") acquired the business and assets of a
group of interrelated companies (the "Acquired Companies") engaged in the
business of managing three diagnostic imaging centers and one physical
rehabilitation center in the Bronx, Westchester and Putnam counties in New York
(the "Centers"). The transaction was effectuated through a merger between HMCM
Inc., a wholly-owned subsidiary of HMC formed for the purpose of engaging in the
transaction, and Affordable Diagnostics, Inc. ("Affordable"), one of the
Acquired Companies, which immediately prior to the merger had acquired the
assets and assumed the liabilities of the other Acquired Companies (Bronx
Diagnostic Imaging, LLC, Yonkers Diagnostic Imaging, LLC, N.E. Medical Billing
Services, Inc. and Magnetic Connections).
The Acquired Companies provide to the Centers management services,
office space, diagnostic imaging equipment and other equipment, repair and
maintenance service for the equipment and clerical and other non-medical
personnel.
The services provided at the Centers include MRI scans, CAT scans,
x-rays, physical rehabilitation and in connection with physical rehabilitation,
ultrasound and SSEP/EMG electromygographic diagnostics. The four centers are
located in Brewster, New York (MRI), Yonkers, New York (MRI and X-Ray), the
Bronx, New York (MRI and CAT scanning) and Riverdale, New York (physical
rehabilitation). The assets acquired through the merger include the three MRI
scanners, one CAT scanner, one X-Ray machine, rehabilitation equipment and
ultrasound and electromygographic machines, which are leased to and used at the
Centers.
Consideration
Pursuant to the terms of the merger and related supplemental and
consulting agreements (the "Merger Agreements") effecting the merger, the former
shareholders of Affordable have received, in the aggregate, 2,740,000 shares of
the Common Stock of Fonar. At the request of the Affordable shareholders, the
shares were issued to their partnership, Fanavle Partnership, which is the
Selling Stockholder hereunder. The shares are being held in escrow for the
principal purpose of implementing the volume limitations on sales agreed to by
the parties in the Merger Agreements. In addition to the sales volume
limitations, however, 375,000 of the shares will be held for seven months as
security for the representations, warranties and indemnifications made to HMC
and HMCM Inc. under the Merger Agreements. Accordingly, said shares will not be
able to be sold for at least the duration of the seven month period.
Furthermore, the issuance of 576,000 of the shares was made contingent upon the
financial performance of the business acquired during the 12-month period from
July 1, 1997 through June 30, 1998.
Contingencies
In the event that either the average monthly cash receipts or
average monthly net revenue generated by the assets and the businesses acquired
over said 12-month period ("Average Monthly Performance") is $375,000 or less,
all of the contingent shares will be returned to HMCM Inc. In the event that
the Average Monthly Performance for both cash receipts and net revenue is
$400,000 or more, none of the contingent shares will be returned. The following
chart shows the number of contingent shares which will be returned to HMCM Inc.
at different levels of Average Monthly Performance between $375,000 and
$400,000. Where the Average Monthly Performance numbers for net revenue and
cash receipts are different, the lesser number will be determinative of the
number of contingent shares to be returned to HMCM Inc.
Average Monthly Performance Number of Shares to be Returned
$375,001 - $377,500 480,000
$377,501 - $380,000 432,000
$380,001 - $382,500 384,000
$382,501 - $385,000 336,000
$385,001 - $387,500 288,000
$387,501 - $390,000 240,000
$390,001 - $392,500 192,000
$392,501 - $395,000 144,000
$395,001 - $399,999 96,000
Limitations on Resale of Shares
All of the shares in escrow are subject to sales volume
limitations. The number of shares which can be sold on any day is limited to
the lesser of 15,000 shares or fifteen percent (15%) of the trading volume (as
reported on the NASDAQ System) of Fonar's Common Stock on the previous trading
day. In the event, however, that the trading volume for Fonar Common Stock
reaches 500,000 shares on any trading day, then for that day the aggregate
number of shares which may be sold will be increased to 60,000 shares. The net
proceeds of any sale (net of commissions and fees) will be released from escrow
to Fanavle Partnership.
U.S. Health Management Corporation's Reasons for Acquisitions
HMC was formed in March 1997 as a subsidiary by the Company in
order to enable the Company to expand into the physician practice management
(PPM) business. The shares of Fonar Common Stock issued in the merger were
provided to HMC and HMCM Inc. by Fonar for the purpose of enabling the companies
to engage in the transaction. The Company views the acquisition of Affordable
and the other Acquired Companies as a decisive first step into this new line of
business.
PLAN OF DISTRIBUTION
As previously discussed, the Merger Agreements contain
restrictions on the sale of the Offered Shares. Subject to these restrictions,
the Selling Stockholder, through a selected broker-dealer, may sell the Offered
Shares from time to time at market prices. Such offering will be made on a
"best efforts" basis. There is no minimum number of shares required to be sold.
Commissions and other fees in connection with the sale of Offered Shares will be
agreed upon and paid by the Selling Stockholder. The Company will receive no
proceeds from any sales of the Common Stock by the Selling Stockholders.
VALIDITY OF ISSUANCE
The validity of the shares being offered hereby will be passed
upon by Henry T. Meyer, Esq., 110 Marcus Drive, Melville, New York 11747. Mr.
Meyer is the Company's General Counsel.
EXPERTS
The financial statements and supplemental schedules contained in
the Company's latest annual report on Form 10-K , incorporated by reference into
this Prospectus, has been examined by Tabb Conigliaro & McGann, to the extent
set forth in their report. Such financial statements and schedules were
included therein in reliance upon their reports, given on their authority as
experts in accounting and auditing.
INDEMNIFICATION
The Delaware General Corporation Law and the Company's by-laws
provide for the indemnification of an officer or director under certain
circumstances against reasonable expenses incurred in connection with the
defense of any action brought against him by reason of his being a director or
officer. In addition, pursuant to such underwriting agreements, if any, which
the Company may enter into with any underwriters, the Company may be required to
agree to indemnify the underwriter against any costs or liabilities, including
liabilities under the Securities Act of 1933, as amended (the "1933 Act"),
incurred by the underwriters and their controlling persons by reason of material
misstatements or omissions in the Registration Statement and Prospectus, except
where made in reliance upon information furnished in writing by the underwriter
for use in connection with the preparation thereof, with respect to which the
underwriter may agree to indemnify the Company. Insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
INCORPORATION BY REFERENCE
The following documents are incorporated by reference into this
Prospectus:
1. The Company's latest annual report on Form 10-K, for the
fiscal year ended June 30, 1996.
2. The Company's latest quarterly report on Form 10-Q, for the
fiscal quarter ended March 31, 1997.
3. The description of the Company's Common Stock contained in its
registration statement on Form 8-a under Section 12 of the Securities Exchange
Act of 1934, as amended.
4. All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the termination of this offering.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following statement sets forth all expenses in connection with
the issuance and distribution of the securities being registered, other than
broker/dealer commissions.
SEC registration filing fee $2,348.07
NASD filing fee $2,340.00
Blue Sky fees and expenses $2,500.00*
Printing and Engraving $7,500.00*
Miscellaneous $2,811.93*
TOTAL $17,500.00
* Estimated
Item 14. Indemnification of Directors and Officers
Article Eighth of the Certificate of Incorporation, as amended, of
FONAR Corporation provides as follows:
The personal liability of directors to the Corporation or its
stockholders for monetary damages for breach of their fiduciary duties as
directors is eliminated, provided however, that this provision shall not
eliminate the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of the law, (iii) under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
Article V of the By-Laws of FONAR Corporation generally provides
for indemnification of its officers and directors to the full extent permitted
by Delaware Corporation Law.
Section 145 of the Delaware General Corporation Law permits
indemnification of officers, directors and employees of the Company under
certain conditions and subject to certain limitations.
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits and Financial Statement Schedules
Exhibits
2.1 Merger Agreement and Supplemental Agreement dated June 17, 1997 and
Letter of Amendment dated June 27, 1997. See Exhibits.
4.1 Specimen Common Stock Certificate incorporated herein by reference to
Exhibit 4.1 to the Registrant's registration statement on Form S-1, Commission
File No. 33-13365.
4.2 Article Fourth of the Certificate of Incorporation, as amended, of the
Company incorporated by reference to Exhibit 4.1 to the Registrant's
registration statement on Form S-8, Commission File No. 33-62099.
5. Opinion of Counsel re: Legality. See Exhibits.
23.1 Consent of Tabb, Conigliaro & McGann, P.C., Certified Public Accounts.
See Exhibits.
23.2 (Consent of Counsel is included in Exhibit 5).
Financial Statement Schedules
None.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
FONAR CORPORATION
Dated: July 11, 1997
By: /s/ Raymond V. Damadian
Raymond V. Damadian,
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Raymond V. Damadian Chairman of the July 11, 1997
Raymond V. Damadian Board of Directors,
President and a
Director (Principal
Executive Officer)
/s/ Claudette J.V. Chan Director July 11, 1997
Claudette J.V. Chan
/s/ Robert J. Janoff Director July 11, 1997
Robert J. Janoff
/s/ Herbert Maisel Director July 11, 1997
Herbert Maisel
EXHIBIT 2.1
MERGER AGREEMENT AND SUPPLEMENTAL AGREEMENT DATED JUNE 17, 1997
AND LETTER OF AMENDMENT DATED JUNE 27, 1997
U.S. Health Management Corporation
110 Marcus Dr., Melville, NY 11747
Tel: 516/694-2816 fax: 526/694-4054
June 27, 1997
Affordable Diagnostics Inc. ("Affordable")
Bronx Diagnostic Imaging, LLC ("Bronx Diagnostic")
Yonkers Diagnostic Imaging, LLC ("Yonkers Diagnostic")
N.E. Medical Billing Services, Inc. ("N.E. Billing")
Magnetic Connections ("Magnetic")
Nicholas Canosa ("N. Canosa")
Rocco Vozza ("R. Vozza")
Anthony R. Evans ("A. Evans")
Franklin S. Canosa ("F. Canosa")
Anthony Tenore ("A. Tenore")
c/o Affordable Diagnostics, Inc.
RD 2, Route 121
Brewster, New York 10509
LETTER OF AMENDMENT
Gentlemen:
This letter, when executed by all appropriate
parties, will serve to confirm their agreement to amend, modify
and supplement, as hereinafter set forth, the Agreement of Merger
dated June 17, 1997 ("Merger Agreement") between Affordable and
HMCM Inc., a Delaware corporation ("HMCM - Delaware") and the
Supplemental Agreement of the same date ("Supplemental Agreement")
among Affordable, Bronx Diagnostic, Yonkers Diagnostic, N.E.
Billing, Magnetic, N. Canosa, R. Vozza, A. Evans, F. Canosa and A.
Tenore (hereinafter together sometimes referred to as the "Selling
Parties") and U.S. Health Management Corporation ("HMC") and HMCM
- - Delaware.
1. The Merger Agreement and the Supplemental
Agreement are amended to substitute for HMCM - Delaware a New York
corporation of the same name, HMCM Inc. ("HMCM - New York") as the
entity into which Affordable will be merged.
2. Notwithstanding the provisions of Section 4 of
the Supplemental Agreement, Affordable will assume the
indebtedness of Bronx Diagnostic, Yonkers Diagnostic, N.E. Billing
and Magnetic to N. Canosa, A. Evans, R. Vozza and A. Tenore, to
the extent such indebtedness is reflected on Exhibit A to the
Supplemental Agreement. All of such indebtedness shall be deemed
fully satisfied upon the effective date, June 30, 1997 ("Effective
Date") of the merger between HMCM - New York and Affordable, and
N. Canosa, A. Evans, R. Vozza and A. Tenore expressly release HMCM
- - New York and Affordable from all of said indebtedness effective
on the Effective Date.
3. In lieu of the escrow agreement with Smith
Barney Inc. as escrow agent as contemplated in Section 5 of the
Supplemental Agreement, the parties will enter into a mutually
agreeable alternative arrangement to effectuate as nearly as
possible the intent of the parties reflected in said Section 5 of
the Supplemental Agreement.
4. Supplementing the provision of Section 2,
Section 6(d) and Exhibit K of the Supplemental Agreement,
Affordable, Bronx Diagnostic, Yonkers Diagnostic, N.E. Billing and
Magnetic represent that the shares of Common Stock of Affordable
issued and outstanding immediately prior to the sale of the assets
of Bronx Diagnostic, Yonkers Diagnostic, N.E. Billing and Magnetic
to Affordable were owned by N. Canosa, A. Evans, R. Vozza, F.
Canosa and A. Tenore and that the shares of Common Stock of
Affordable issued and outstanding immediately prior to the merger
with HMCM - New York were owned by N. Canosa, A. Evans, R. Vozza,
F. Canosa and A. Tenore.
5. Any allocation of the purchase price to the
assets of Affordable which may be required in connection with the
merger of Affordable and HMCM - New York will be determined by
HMCM - New York and HMC in accordance with generally accepted
accounting principles. Any allocation required in connection with
the acquisition by Affordable of the assets of Bronx Diagnostic,
Yonkers Diagnostic, N.E. Billing and Magnetic shall be in
accordance with generally accepted accounting principles and be
mutually agreed upon by the Selling Parties and HMC and HMCM - New
York.
6. The Selling Parties agree they will use their
best efforts to obtain within 30 days of the date hereof any
consents to assignments of leases, contracts and other agreements
which are required, as or may be requested by HMCM, but have not
as of the date hereof been obtained in connection with the
transactions contemplated by the Merger Agreement and Supplemental
Agreement, as amended by the Letter Amendment.
Very truly yours,
U.S. HEALTH MANAGEMENT CORPORATION
By: /s/ Timothy Damadian, President
Timothy Damadian, President
HMCM INC. (Delaware)
By: /s/ Timothy Damadian, President
Timothy Damadian, President
HMCM INC. (New York)
By: /s/ Timothy Damadian, President
Timothy Damadian, President
AGREED:
AFFORDABLE DIAGNOSTICS, INC.
By: /s/ Nicholas Canosa
Nicholas Canosa
BRONX DIAGNOSTIC IMAGING, LLC
By: /s/ Nicholas Canosa
Nicholas Canosa
YONKERS DIAGNOSTIC IMAGING, LLC
By: /s/ Nicholas Canosa
Nicholas Canosa
N.E. MEDICAL BILLING SERVICES, INC.
By: /s/ Nicholas Canosa
Nicholas Canosa
MAGNETIC CONNECTIONS
By: /s/ Nicholas Canosa
Nicholas Canosa
/s/ Nicholas Canosa
NICHOLAS CANOSA
/s/ Rocco Vozza
ROCCO VOZZA
/s/ Anthony R. Evans
ANTHONY R. EVANS
/s/ Franklin S. Canosa
FRANKLIN S. CANOSA
/s/ Anthony Tenore
ANTHONY TENORE
AGREEMENT OF MERGER BETWEEN
AFFORDABLE DIAGNOSTICS INC. AND HMCM INC.
AGREEMENT OF MERGER dated as of June 17, 1997, by
and between Affordable Diagnostics Inc., a New York corporation
("ADI"), and HMCM Inc., a Delaware corporation ("Subsidiary"),
said two corporations being herein collectively referred to as the
"Constituent Corporations."
The authorized capital stock of ADI consists of 200
shares of common stock, no par value per share (the "ADI Common
Stock"). As of June 17, 1997, an aggregate of 200 shares of ADI
Common Stock (and no other capital stock, options or other equity
interests in ADI) were issued and outstanding and no shares of ADI
Common Stock were held in the treasury of ADI.
The authorized capital stock of Subsidiary consists
of 1,500 shares of common stock, par value $.01 per share (the
"Subsidiary Common Stock"), all of which shares are issued and
outstanding and are owned by U.S. Health Management Corporation, a
Delaware corporation ("HMC"). HMC is a wholly owned subsidiary of
Fonar Corporation, a Delaware corporation ("Fonar").
The respective Boards of Directors of ADI,
Subsidiary, HMC and Fonar deem the merger of ADI with and into
Subsidiary (the "Merger") pursuant to the terms and conditions of
this Agreement of Merger to be desirable and in the best interests
of their respective shareholders. The Boards of Directors and
shareholders of ADI and Subsidiary have approved this Agreement of
Merger.
Concurrently with the execution and delivery of this
Agreement of Merger ADI, Subsidiary, HMC and other interested
parties are entering into a Supplemental Agreement dated as of the
date hereof (the "Supplemental Agreement") setting forth certain
representations, warranties, covenants and agreements relating to
the Merger provided for herein.
In consideration of the premises and of the mutual
covenants and agreements herein contained, and for the purpose of
prescribing the terms and conditions of the Merger, the mode of
carrying the same into effect, the manner and the basis for
converting the shares of ADI Common Stock into the right to
receive shares of Fonar Common Stock and such other details and
provisions as are deemed necessary or desirable, ADI and
Subsidiary have agreed and do hereby agree, subject to the terms
and conditions hereinafter set forth, as follows:
ARTICLE I
In accordance with the provisions of this Agreement
of Merger , the Delaware General Corporation Law and the New York
Business Corporation Law, ADI shall be merged with and into
Subsidiary, which shall be and is herein sometimes referred to as
the "Surviving Corporation." The Surviving Corporation shall
continue its corporate existence as a Delaware corporation and its
name shall continue to be HMCM Inc.
ARTICLE II
(a) Except as herein specifically set forth or as
otherwise provided by law, the identity, existence, rights,
privileges, powers, immunities, purposes and franchises, both
public and private, of Subsidiary shall continue in effect and be
unimpaired by the Merger and the rights, privileges, powers,
immunities, purposes and franchises, both public and private, of
ADI shall be merged into Subsidiary and Subsidiary shall, as the
Surviving Corporation, be fully vested therewith. The separate
existence and the corporate organization of ADI shall cease when
the Merger shall become effective.
(b) This Agreement of Merger and the Merger shall
become effective when the following actions shall have been
completed: (i) all conditions to the effectiveness of the Merger
contained in this Agreement of Merger, the Supplemental Agreement
or any subsequent agreement between the parties shall have been
satisfied or waived and (ii) Certificates of Merger of ADI and
Subsidiary (the "Certificates of Merger") and any other documents
required by the Delaware General Corporation Law and New York
Business Corporation Law shall have been executed and verified, to
the extent required under applicable law, and filed in the offices
of the Departments of State of the States of Delaware and New York
in accordance with, the Delaware General Corporation Law and New
York Business Corporation Law. Said Certificates of Merger shall
specify that June 30, 1997 (or such other mutually agreeable date)
will be the effective time of the merger. The date and time when
the Merger shall become effective as aforesaid is herein referred
to as the "Effective Time of the Merger."
ARTICLE III
(a) The manner and basis of converting the shares
of ADI Common Stock into the right to receive shares of Fonar
Common Stock shall be as follows:
(i) Each share of Subsidiary Common Stock
which shall be outstanding immediately prior to the Effective Time
of the Merger shall, by virtue of the Merger and without any
action on the part of HMC, the sole shareholder of Subsidiary, be
converted into, and shall become outstanding as, one share of
common stock, par value $0.01 per share, of the Surviving
Corporation.
(ii) The shares of ADI Common Stock which
shall be issued outstanding immediately prior to the Effective
Time of the Merger, shall, by virtue of the Merger and without any
action on the part of the holders thereof, be deemed canceled and
the holders thereof shall cease to have any rights with respect
thereto except the right to receive in the aggregate 2,740,000
shares of Common Stock of Fonar Corporation from the Surviving
Corporation in lieu of the issued and outstanding shares of ADI
Common Stock in the manner hereinafter provided.
(b) After the Effective Time of the Merger, the
holders of the certificates theretofore representing shares of
issued and outstanding ADI Common Stock shall surrender such
certificates to the Surviving Corporation or such disbursing agent
as may be appointed by HMCM or HMC and receive in exchange the
shares of Fonar Common Stock. It shall be a condition of such
exchange that the certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that all
applicable transfer and other taxes shall have been paid. The
shares of Fonar Common Stock shall be issued in accordance with
the terms of the Supplemental Agreement and be subject to the
escrow, contingency and other applicable restrictions, terms and
conditions contained in the Supplemental Agreement.
ARTICLE IV
At the Effective Time of the Merger the separate
existence of ADI shall cease and the Surviving Corporation shall
possess all the rights, privileges, powers, immunities, purposes
and franchises, both public and private, of each of the
Constituent Corporations; all real property and personal property,
tangible and intangible, of every kind and description, belonging
to each of the Constituent Corporations shall be vested in the
Surviving Corporation without further act or deed, and the title
to any real estate, or any interest therein, vested in either
Constituent Corporation shall not revert or be in any way impaired
by reason of such Merger; the Surviving Corporation shall be
liable for all the obligations and liabilities of each of the
Constituent Corporations, and any claim existing or action or
proceeding pending by or against either Constituent Corporation
may be enforced against the Surviving Corporation; and neither the
rights of creditors nor any liens upon or security interests in
the property of either Constituent Corporation shall be impaired
by the Merger.
ARTICLE V
If, at any time after the Effective Time of the
Merger, the Surviving Corporation shall consider or be advised
that any further assignments or assurances in law or any other
things are necessary or desirable to vest, perfect or confirm, on
record or otherwise, in the Surviving Corporation title to or
possession of any property or right of ADI acquired or to be
acquired by reason of, or as a result of, the Merger, or otherwise
to carry out the purpose of this Agreement of Merger, ADI and its
proper officers and directors shall be deemed to have granted to
the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary or proper to vest,
perfect or confirm title to and possession of such property or
rights in the Surviving Corporation, or otherwise to carry out the
purpose of this Agreement of Merger, and the proper officers and
directors of the Surviving Corporation shall be fully authorized
in the name of ADI or otherwise to take any and all such action.
ARTICLE VI
For the convenience of ADI and Subsidiary and to
facilitate the execution, acknowledgment and filing of this
Agreement of Merger and of the Certificates of Merger, any number
of counterparts hereof and of the Certificates of Merger may be
executed and each such counterpart shall be deemed to be an
original instrument.
At any time prior to the Effective Time of the
Merger the Constituent Corporations may, by written agreement (a)
extend the time for the performance of any of the obligations or
other acts contained in this Agreement of Merger or in the
Supplemental Agreement, (b) waive any inaccuracies in the
representations or warranties contained in this Agreement of
Merger or in the Supplemental Agreement or in any document
delivered pursuant thereto and (c) waive compliance with any of
the covenants or agreements contained in this Agreement of Merger
or in the Supplemental Agreement. At any time prior to the
Effective Time of the Merger, if authorized by their respective
Boards of Directors and Shareholders, to the extent required by
the Delaware General Corporation Law and New York Business
Corporation Law, the Constituent Corporations may, by written
agreement, amend or supplement any of the provisions of this
Agreement of Merger. Any written instrument or agreement referred
to in this paragraph shall be validly and sufficiently authorized
for the purposes of this Agreement of Merger if signed on behalf
of each of the Constituent Corporations by a person authorized to
sign this Agreement of Merger.
IN WITNESS WHEREOF, each of the Constituent
Corporations has caused this Agreement of Merger to be signed in
its corporate name by its Chairman of the Board or President and
its corporate seal to be affixed hereto all as of the date first
above written.
AFFORDABLE DIAGNOSTICS INC.
By: /s/ Nicholas Canosa
Nicholas Canosa, President
(Corporate Seal)
Attest:
/s/ Rocco Vozza
Rocco Vozza
HMCM INC.
By: /s/ Timothy R. Damadian
Timothy R. Damadian, President
(Corporate Seal)
Attest:
/s/ Henry Meyer
Henry Meyer
SUPPLEMENTAL AGREEMENT
AGREEMENT, dated June 17, 1997, between U.S. HEALTH MANAGEMENT
CORPORATION ("HMC"), a Delaware corporation having its principal
place of business in Melville, New York, HMCM INC., a Delaware
corporation wholly owned by HMC ("Subsidiary"), AFFORDABLE
DIAGNOSTIC INC., a New York corporation having its principal place
of business in Brewster, New York ("Affordable"), BRONX DIAGNOSTIC
IMAGING, LLC, a limited liability company having its principal
place of business in the Bronx, New York ("Bronx Diagnostic"),
MAGNETIC CONNECTIONS, a New York General Partnership having its
principal place of business in Brewster, New York ("Magnetic"),
YONKERS DIAGNOSTIC LLC, a New York limited liability company
having its principal place of business in Yonkers, New York
("Yonkers Diagnostic"), N.E. MEDICAL BILLING SERVICE, a New York
corporation having its principal place of business in Riverdale,
New York ("N.E. Billing") and Nicholas Canosa, Rocco Vozza,
Anthony R. Evans, Franklin S. Canosa and Anthony Tenore,
comprising all of the shareholders, members and partners in
Affordable, Bronx Diagnostic, Magnetic Connections, Yonkers
Diagnostic and N.E. Billing (hereinafter sometimes referred to as
the "Affordable Shareholders").
1. Merger and Related Transactions. Affordable Diagnostics
will merge into Subsidiary (the "Merger") pursuant to the terms of
the Agreement of Merger being executed and delivered concurrently
herewith ("Merger Agreement"). On the effective date of the
Merger (the "Effective Date"), the shares of the Common Stock, par
value $.0001 per share ("Fonar Common Stock") of Fonar Corporation
("Fonar") to which the shareholders of Affordable Diagnostic are
entitled pursuant to the terms of the Merger will be delivered to
Smith Barney Inc., or other mutually agreeable escrow agent, to be
held in escrow pursuant to the terms of this Agreement and the
Escrow Agreement. Prior to the Effective Date, with the exception
only of those assets described in Exhibit A hereto, Bronx
Diagnostic, Yonkers Diagnostic, Magnetic Connections and N.E.
Billing Service (the "Selling Management Companies") will sell,
convey, transfer, assign and deliver to Affordable, and Affordable
will purchase from the Selling Management Companies, all of the
assets and properties of the Selling Management Companies of every
kind and description, real, personal or mixed, tangible or
intangible, wherever situated and the Selling Management
Companies' respective businesses as going concerns, including,
without limitation, the following:
(a) Real Property. The real property of the
Selling Management Companies, wherever located, including, without
limitation, that described in Exhibit B attached hereto, together
with all buildings and improvements thereon.
(b) Machinery, Equipment, Et Cetera. All
machinery, equipment, vehicles, furniture, fixtures, medical
devices, instruments and other tangible personal property owned by
the Selling Management Companies on the closing of the sale to
Affordable ("Affordable Closing") including, without limitation,
all such personal property listed in the schedule attached hereto
as Exhibit C.
(c) Inventories. All inventories and supplies
owned by the Selling Management Companies, wherever located and
whether or not consigned, and not sold, used or otherwise disposed
of by the Selling Management Companies in the ordinary course of
business between the date hereof and the Affordable Closing.
(d) Cash; Accounts Receivable. All cash on hand
and bank deposits owned by the Selling Management Companies and
all accounts receivable owing to the Selling Management Companies
as of the Affordable Closing.
(e) Contracts. All right, title and interest of
the Selling Management Companies in, to and under all executory
contracts and other agreements of the Selling Management
Companies, all leases of real or personal property, including,
without limitation, all those listed in Exhibits E, F-1 and F-2
hereto.
(f) Intangible Assets, Names, Trademarks, Etc. All
intangible assets of the Selling Management Companies, including,
without limitation, the corporate names or designations, all
trademarks, trade names, copyrights and other statutory rights of
the Selling Management Companies and all referring physician
lists, customer lists, patient lists and other business
information and know-how possessed by the Selling Management
Companies.
(g) Claims. All claims of every kind and
description which the Selling Management Companies have, may have,
or be entitled to the benefit of, against any other person or
entity.
(h) Books and Records. All files, books, records
and other documents maintained by the Selling Management Companies
relating to their respective businesses and affairs, including all
financial books and records, referring physician lists, customer
lists and patient files and information.
The Selling Management Companies will deliver to
Affordable such bargain and sale deeds with covenants against
grantor's acts, bills of sale with covenants of warranty,
endorsements, assignments and other instruments as, in the opinion
of HMC's and Affordable's counsel, shall be effective to vest in
Affordable good and marketable title (subject to the mortgages,
assignments, liens and encumbrances, restrictions and defects
disclosed in this Agreement and the Exhibits hereto) to the assets
to be sold to Affordable hereunder. Alternatively, the parties to
this Agreement may effectuate the foregoing acquisition through
another mutually agreeable transaction such as a merger or
exchange of stock.
2. Consideration to Selling Management Companies; Allocation.
The purchase price of the assets to be sold by the Selling
Management Companies to Affordable shall be ___________ shares of
the Common Stock of Affordable to be divided among the Selling
Management Companies as follows: Bronx Diagnostic, ____________
shares; Yonkers Diagnostic, ___________ shares; Magnetic
Connections, ______________ shares; N.E. Billing Service,
____________ shares. [The Selling Management Companies shall
provide these numbers by June 24, 1997.] In addition, Affordable
Diagnostics shall assume certain liabilities as described in
Section 3 below. Any allocation of the purchase price to be made
shall require the agreement of HMC, Subsidiary, Affordable and the
Selling Management Companies to be reached on or before the
Affordable Closing. As soon as possible after the Affordable
Closing, the parties shall each review the allocation made by such
agreement and, if any change in such allocation is deemed by the
parties to be required by reason of events not known at the time
thereof, then the parties shall make any such further adjustment
in such allocation as may be mutually agreed.
3. Assumption of Certain Liabilities and Obligations by
Affordable. Affordable hereby agrees, effective upon the
Affordable Closing, to assume and pay or discharge, to the extent
that they have not been satisfied prior to the Affordable Closing,
the following:
(a) those liabilities and obligations of the
Selling Management Companies which are specified in the list of
liabilities of the Selling Management Companies included on
Schedule A to Exhibit L attached hereto;
(b) those liabilities and obligations of Selling
Management Companies arising in the ordinary conduct of the
business of the Selling Management Companies after the date hereof
and prior to the Affordable Closing which are identified and added
as Schedule B to Exhibit L in accordance with an agreement of the
parties to be reached on or before the Affordable Closing, it
being understood that any such liabilities and obligations to be
added as Schedule B shall have been incurred in compliance with
any restrictions hereinafter provided on the conduct of the
Selling Management Companies' businesses after the date hereof.
4. No General Assumption; Excluded Liabilities. Affordable
will not assume, be bound by or agree to pay, perform or discharge
any liabilities or obligations, fixed or contingent, of the
Selling Management Companies of any kind or nature whatsoever, and
whether incurred, accrued or arising prior to or after the
Affordable Closing, except for those which are expressly assumed
by the Buyer pursuant to the provisions of Section 3 above. All
such liabilities or obligations of the Selling Management
Companies not assumed by Affordable hereunder shall remain the
sole responsibility of the Selling Management Companies.
Furthermore, and notwithstanding any provision of Section 3 to the
contrary, Affordable will assume no liability or obligation in
respect of without limitation:
(a) any contract, lease or agreement as to which
Seller is unable to obtain necessary consents to assignment or
sublease except for those, if any, which Affordable and HMC agree
in writing should be assumed by Affordable the Affordable Closing;
(b) debts, liabilities, contracts, or obligations
of the Selling Management Companies not disclosed to HMC in
writing prior to the Affordable Closing which are required to be
so disclosed by the terms of this Agreement; or
(c) the indebtedness of the Selling Management
Companies to their equity owners, which debt is disclosed on
Exhibit A hereto.
5. Effective Date of Merger. The Effective Date of the
Merger shall be June 30, 1997, or at such other time as HMC and
Affordable may mutually agree in writing.
On the Effective Date:
(a) Surrender of Affordable Stock Certificates.
Each holder of a certificate or certificates representing issued
and outstanding shares of Affordable Common Stock shall surrender
such certificate or certificates to Subsidiary or other disbursing
agent as provided in the Merger Agreement.
(b) Delivery of Fonar Common Stock. Upon receipt
of certificates representing all of the outstanding Affordable
Common Stock, Subsidiary shall deliver certificates representing
the Fonar Common Stock as provided in the Merger to the
shareholders of Affordable in escrow as follows:
(i) Restricted Escrowed Shares. One Million
Seven Hundred Sixty-Four Thousand (1,764,000) shares (the
"Restricted Escrowed Shares"), registered in the names of the
Affordable Shareholders or their assigns as reflected in Exhibit
I-1, will be delivered to Smith Barney Inc., as escrow agent, or
other mutually agreed upon party (the "Escrow Agent"), and held in
escrow in accordance with the terms hereof and the escrow
agreement to be entered into with the Escrow Agent giving effect
to the applicable provisions of this Agreement (the "Escrow
Agreement"). The Escrow Agreement shall be prepared by counsel to
HMC and be in form satisfactory to the parties thereto. HMC and
Subsidiary shall take all steps required at their sole cost and
expense to register the Restricted Escrowed Shares under the
Securities Act of 1933, as amended ("Securities Act"), as soon as
practicable following the Closing. The Affordable Stockholders
shall cooperate with HMC and Subsidiary and provide them with any
information required from them to so register the Restricted
Escrowed Shares, at HMC's and Subsidiary's expense if any expense
is entailed. Except to the extent that certain shares are to be
held in escrow and subject to offset as provided in Paragraph 15,
after the Restricted Escrowed Shares have been so registered they
may be sold by the Escrow Agent in accordance with the
instructions of the registered owners of the shares at any time,
provided, however, that the aggregate number of Restricted
Escrowed Shares which may be sold on any day shall be limited to
the lesser of 15,000 shares or fifteen percent (15%) of the
trading volume of Fonar's Common Stock (as reported on the NASDAQ
System) on the previous trading day. Upon the sale of any
Restricted Escrowed Shares, the net proceeds of the sale (net of
commissions and fees) shall be distributed to the registered owner
of the shares sold.
(ii) Registered Shares. Four Hundred Thousand
(400,000) shares will be delivered to the Affordable Shareholders
or their assigns as designated on Exhibit I-2 (the "Registered
Shares"). Such shares will be registered under the Securities Act
and may be sold by the registered owners thereof at any time,
provided, however, that the aggregate number of the Registered
Shares and Restricted Escrowed Shares which may be sold on any day
shall be limited to the lesser of 15,000 shares or fifteen percent
(15%) of the trading volume of Fonar's Common Stock (as reported
on the NASDAQ System) on the previous trading day. Each
Affordable Shareholder and his assigns listed on Exhibit I-2 shall
agree prior to Closing to observe such restrictions on the sale of
Fonar Common Stock delivered under this Agreement.
(c) Payment of Contingent Portion of Purchase Price
by Buyer. Upon receipt of certificates representing all of the
outstanding Affordable Common Stock, Subsidiary shall deliver to
the Escrow Agent 576,000 shares of Fonar Common Stock registered
in the name of the Affordable Shareholders or their assigns as set
forth in Exhibit I-3, to be held in accordance with the terms
hereof and the Escrow Agreement (the "Contingent Escrowed
Shares"). Neither the Affordable Shareholders nor their assigns,
however, shall have any rights or interests in the Contingent
Escrowed Shares unless and until certain financial goals are
reached as hereinafter provided. In the event that either the
average monthly cash receipts or average monthly net revenue
(revenue less reserves for bad debt and other adjustments to
revenue made in accordance with generally accepted accounting
principles) generated by the assets and the businesses transferred
by Affordable to the Subsidiary through the Merger hereunder (said
assets shall include the Picker 1.0 mobile unit for defined mobile
routes or fixed sites in which the mobile unit scans) over the
12-month period from July 1, 1997 through June 30, 1998 ("Average
Monthly Performance") is $375,000 or less, all of the Contingent
Escrowed Shares will be returned to the Subsidiary. In the event
that the Average Monthly Performance for both cash receipts and
net revenue is $400,000 or more, none of the Contingent Escrowed
Shares will be returned to Subsidiary. HMC and Subsidiary shall
endeavor to cooperate with and consult with the former management
of the Acquired Companies with respect to issues of billing and
services to patients as they relate specifically to the areas of
Workers Compensation and no fault insurance law. The following
chart shows the number of Contingent Escrowed Shares which will be
returned to Subsidiary at different levels of Average Monthly
Performance between $375,000 and $400,000. Where the Average
Monthly Performance numbers for net revenue and cash receipts are
different, the lesser number shall be determinative of the number
of Contingent Escrowed Shares to be returned to Subsidiary in
accordance with the chart below. Notwithstanding the foregoing
any reduction in the Average Monthly Performance amounts
attributable to the negligence of Subsidiary and HMC in the
billing and collection of accounts shall not be taken into account
in determining the number of Contingent Escrowed Shares to be
returned to Subsidiary.
Average Monthly Performance Number of Shares to be Returned
$375,001 - $377,500 480,000
$377,501 - $380,000 432,000
$380,001 - $382,500 384,000
$382,501 - $385,000 336,000
$385,001 - $387,500 288,000
$387,501 - $390,000 240,000
$390,001 - $392,500 192,000
$392,501 - $395,000 144,000
$395,001 - $399,999 96,000
Except to the extent that certain shares are to be
held in escrow and subject to offset as provided in Paragraph 15,
the Contingent Escrowed Shares remaining in escrow following June
30, 1998 may be sold by the Escrow Agent in accordance with the
instructions of the registered owners of the shares at any time,
provided, however, that the aggregate number of Contingent
Escrowed Shares, Registered Shares and Restricted Escrowed Shares
which may be sold on any day shall be limited to the lesser of
15,000 shares or fifteen percent (15%) of the trading volume (as
reported on the NASDAQ System) of Fonar's Common Stock on the
previous trading day. Upon the sale of any Contingent Escrowed
Shares, the net proceeds of the sale (net of commissions and fees)
shall be distributed to the registered owners of the shares sold.
HMC and Subsidiary shall take all steps required at their sole
cost and expense to register the Contingent Escrowed Shares under
the Securities Act prior to June 30, 1998. The Affordable
Shareholders and their assigns shall cooperate with HMC and
Subsidiary and provide them with any information required from
them to so register the Contingent Escrowed Shares, at HMC and
Subsidiary's expense, if any expense is entailed. HMC and
Subsidiary shall file a registration statement on Form S-3 with
the Securities and Exchange Commission no later than July 15, 1997
covering the Restricted Escrow Shares and Contingent Escrowed
Shares. HMC and Subsidiary shall diligently pursue the
registration and use their best efforts to cause said registration
statement to become effective within three months. HMC and
Subsidiary represent that Fonar Corporation is eligible to utilize
Form S-3.
(d) Increased Maximum. In the event that on any
trading day the trading volume for Fonar Common Stock (as reported
on the NASDAQ System) reaches 500,000 shares, then for that day
the aggregate number of Contingent Escrowed Shares, Registered
Shares and Restricted Escrowed Shares which may be sold shall be
increased to 60,000 shares.
(e) Agreements with Key Persons. Prior to the
Effective Date, the parties listed in Exhibit I-2 and their
assignors shall enter into Consulting Agreements with HMC and
Subsidiary in the form of Exhibit S hereto.
6. Representations and Warranties by Acquired Companies.
Affordable and the Selling Management Companies (hereinafter
sometimes referred to as the "Acquired Companies") jointly and
severally represent and warrant to HMC and Subsidiary as follows:
(a) Organization and Standing of Affordable and the
Selling Management Companies, Etc. Each of Affordable and N.E.
Billing is a corporation duly organized validly existing and in
good standing under the laws of the State of New York and has all
requisite corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby.
Each of Bronx Diagnostic and Yonkers Diagnostic is a limited
liability company duly organized, validly existing and in good
standing under the laws of the State of New York, and has all
requisite power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. Magnetic is a New
York general partnership duly formed, validly existing and in good
standing under the laws of the State of New York and has all
requisite power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. Complete and
correct copies of each of Affordable's and N.E. Billing's
certificate of incorporation, by-laws, stock books and minute
books have been delivered to HMC and Subsidiary. Complete and
correct copies of each of Bronx Diagnostic's and Yonkers
Diagnostic's articles of organization, operating agreements,
member lists and minute books have been delivered to HMC and
Subsidiary. Complete and correct copies of Magnetic's partnership
agreement have been delivered to HMC and Subsidiary. All
amendments or restatements of the foregoing certificates of
incorporation, articles of organization, partnership agreements,
by-laws, operating agreements and other organizational and
governing instruments as presently in effect have been delivered
to HMC and Subsidiary.
(b) Authorization, Et Cetera. The execution and
delivery of this Agreement and the Merger, sale of assets and all
other transactions contemplated hereby have been duly authorized
by each of the Acquired Companies. Each of the Acquired Companies
will obtain all consents necessary to authorize the transactions
contemplated hereby under any contract, indenture or other
agreement to which such party is a party or by which it is bound.
Each of the Acquired Companies shall also obtain any consents
necessary to the transactions contemplated hereby under any of the
contracts, leases and agreements to be continued by Subsidiary
following the Merger by Subsidiary and make all necessary
governmental and non-governmental registrations, filings and
notifications.
(c) Qualification. Each of the Acquired Companies
is licensed or domesticated and in good standing as a foreign
entity authorized to do business in each State wherein the
character of the properties of the Acquired Company or the nature
of the business transacted by the Acquired Company therein makes
such qualification, licensing or domestication necessary.
(d) Capitalization. Exhibit K sets forth the
authorized shares, issued and outstanding shares and each
shareholder of Affordable and N.E. Billing. In addition, Exhibit
K sets forth all of the members of Bronx Diagnostic and Yonkers
Diagnostic and all of the partners in Magnetic. There are no
securities, notes, bonds, indentures or other instruments
convertible into an equity interest and no options, warrants,
contracts or other obligations to issue an equity interest in any
of the Acquired Companies.
(e) Subsidiaries. No Acquired Company owns any
stock or other equity interest in any corporation, limited
liability company, partnership or other entity.
(f) Financial Statements. The Acquired Companies
have delivered to HMC:
(i) a schedule of liabilities for each of the
Acquired Companies as at May 31, 1997, included as part of Exhibit
M attached hereto.
(ii) a schedule of liabilities for each of
Jenissal, P.C., Intercounty Radiology, P.C., Eugene S. Barash,
M.D., P.C., Flatbush Radiology, P.C., Balasic Medical, P.C. and
Alan M. Balasic, M.D., P.C. (hereinafter sometimes referred to
collectively as "Managed Companies and individually as a "Managed
Company") as at May 31, 1997, included as part of Exhibit O
attached hereto.
(iii) copies (on computer disk delivered to HMC's
accountants, Tabb, Conigliaro & McGann) of the general ledger
files and all other accounting books and records for each of the
Acquired Companies and Managed Companies for the years ended
December 31, 1995 and December 31, 1996 and for the three-month
period ended April 30, 1997; and
(iv) schedules of accounts receivable as at April
30, 1997 for each of the Managed Companies, together with aged
trial balances and analysis of aged trial balances, included as
Exhibit D.
As soon as practicable, but in no event later than five days prior
to the Effective Date, the Acquired Companies will deliver to HMC
and Subsidiary updated schedules of liabilities of the Acquired
Companies, copies of updated general ledger files and all other
accounting books and records of the Acquired Companies and Managed
Companies and updated schedules of accounts receivable, aged trial
balances and analysis of aged trial balances for the Managed
Companies, in all cases, updated to a date no more than ten (10)
days prior to the Effective Date.
All financial statements, schedules, and accounting records
referred to above are, or will be when delivered, complete and
correct in all material respects, prepared in accordance with
proper accounting principles consistently followed throughout the
periods indicated. The schedules of liabilities disclose or when
delivered, will disclose, all liabilities, contingent or
otherwise, of the Acquired Companies as at the dates thereof.
(g) Absence of Certain Changes. Since April 30,
1997, there has not been:
(i) any change in the business, condition
(financial or otherwise), assets or liabilities of any Acquired
Company or Managed Company, whether or not covered by insurance
and whether or not arising from transactions in the ordinary
course of business, which, individually or in the aggregate, has
been materially adverse;
(ii) any damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting the
business or prospects of any Acquired Company or Managed Company
or any of the assets and properties of any Acquired Company or
Managed Company;
(iii) any increase in the compensation, pensions or
other benefits payable or to become payable by any Acquired
Company or Managed Company to any of its officers or employees or
any bonus payment or arrangement made to or with any thereof;
(iv) any payment to any stockholder, member,
partner, owner, director, officer or employee of any Acquired
Company or Managed Company or member of his or her immediate
family other than payments of salary pursuant to employment
relationships existing prior to April 1, 1997;
(v) any dividend, or distribution of any kind by or
with respect to any Acquired Company or Managed Company,
authorized, declared, paid or effected, or any direct or indirect
redemption, purchase or other acquisition of the outstanding
capital stock or other equity interests of any Acquired Company or
Managed Company;
(vi) any event or condition of any character
materially and adversely affecting the business of any Acquired
Company or Managed Company; and
(vii) the operations and business of the Acquired
Companies and Managed Companies have been conducted in all
respects only in the ordinary course and substantially in the
manner in which they have been conducted since their respective
formation and organization.
(h) Accounts Receivable. All accounts receivable
of the Managed Companies as shown on Schedule D and any schedule
required to be delivered to HMC and Subsidiary prior to the
Effective Date and all accounts receivable of the Acquired
Companies and the Managed Companies as existing immediately prior
to the effectiveness of the Merger constitute or will constitute
bona fide receivables due and payable in the ordinary course of
business, free of any and all defenses, counterclaims or offsets.
(i) Tax Returns and Payments. All tax returns and
reports of the Acquired Companies and Managed Companies required
by law to be filed have been duly filed, and all taxes,
assessments, fees and other governmental charges heretofore levied
upon any properties, assets, income or franchises of the Acquired
Companies and Managed Companies which are due and payable have
been paid, other than those presently payable without penalty or
interest as to which adequate reserves are currently maintained
and reflected on the Acquired Companies' and Managed Companies'
books and records and which have been disclosed to HMC and
Subsidiary. An extension for the filing of the income tax returns
for the Acquired Companies and Managed Companies for calendar year
1996 has been filed, but no income taxes for the Acquired
Companies and the Managed Companies will be due for the 1996
calendar year. The charges, accruals and reserves on the books of
the Acquired Companies and Managed Companies with respect to taxes
for all fiscal periods are adequate and there is no actual or
proposed tax assessment for any fiscal period or of any basis
therefor. No extension of time for the assessment of deficiencies
in any federal or state tax has been requested of or granted by
any of the Acquired Companies or Managed Companies.
(j) Real Property. The Acquired Companies own no
real property. Exhibit F-1 attached hereto contains a summary
description of all leases of any real property held by the
Acquired Companies. All real property used by the Acquired
Companies and the Managed Companies or any one of them in the
conduct of their respective businesses is leased by one or more of
the Acquired Companies. The Acquired Companies have delivered to
HMC and Subsidiary copies of leases for all real property leased
by the Acquired Companies. The Acquired Companies and Managed
Companies enjoy peaceful and undisturbed possession under all of
said leases. None of said leases contains any unusual or
burdensome provision which might materially and adversely affect
the operation or use of the property so leased. All of such
leases are valid and subsisting and none of them is in default.
All real property leased and referred to in Exhibit F-1 and the
operation thereof conform in all material respects with all
applicable ordinances, regulations and building, zoning and other
laws which may affect the use of the property. No toxic,
medically hazardous or radioactive materials are used in or
produced by any operations of the Acquired Companies and Managed
Companies and no such materials are disposed of or stored on any
properties owned or leased by the Acquired Companies or the
Managed Companies.
(k) Personal Property. All personal properties
and assets used, or held for use, in the Acquired Companies' and
Managed Companies' respective businesses are reflected in Exhibit
C and are included among the assets and properties to be
transferred to Subsidiary pursuant to the Merger except for those
assets specifically excluded and set forth in Exhibit A hereto.
One or more of the Acquired Companies has good and marketable
title to each of said items of personal property and assets, in
each case subject to no mortgage, pledge, lien, conditional sale
agreement, encumbrance or charge, except as set forth in Exhibit C
attached hereto. None of said personal properties or assets is
held by an Acquired Company as lessee under or subject to any
lease or as conditional vendee under any conditional sale or other
title retention agreement, except as set forth in Exhibit F-2.
All accounts and notes receivable (after provision for bad debts
reflected thereon) have been collected or are and will be good and
collectible at the aggregate recorded amounts thereof, subject to
no counterclaims or set-offs, and can reasonably be anticipated to
be paid within ninety (90) days of the date incurred except where
otherwise indicated on the schedule of accounts receivable
attached hereto as Exhibit D. All inventory and supplies are
usable on a normal basis in the existing businesses of the
Acquired Companies and the Managed Companies. There have been no
acquisitions or dispositions of any inventory or supplies since
April 30, 1997 except in the ordinary course of business.
(l) Energy and Materials. No Acquired Company or
Managed Company has received any notice or other communication,
whether formal or informal, from any supplier of gas, oil or
electric power or of supplies or other materials used in its
business or operations to the effect that any such energy source,
supplies or material will become unavailable to an extent which
might impair the continued conduct of its business or operations
at the greater of their current or historic levels.
(m) Insurance. All property and operations of the
Acquired Companies and Managed Companies are adequately insured
with responsible insurers against all risks normally insured
against by companies in similar lines of business. The insurance
policies currently maintained by the Acquired Companies and
Managed Companies are listed on Exhibit N hereto and each is fully
paid for periods extending in all cases beyond the Effective Date.
(n) Disclosure. Neither this Agreement nor any
certificate, list or other instrument purporting to disclose facts
germane to the businesses of the Acquired Companies and Managed
Companies delivered or to be delivered to HMC or Subsidiary by or
on behalf of the Acquired Companies and Managed Companies pursuant
hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact.
There is no fact directly related to the Acquired Companies' and
Managed Companies' businesses known to them which materially and
adversely affects the business, properties, operations, condition
or prospects, financial or otherwise, of any one or more of them,
which has not been set forth in this Agreement or in the other
documents, certificates and statements already furnished to HMC
and Subsidiary by or on behalf of the Acquired Companies and
Managed Companies in connection with the transactions contemplated
hereby.
(o) Contracts. With the exception of those
contracts and commitments listed in Exhibits E, F-1, F-2 and N, no
Acquired Company or Managed Company is a party to any contract or
commitment, whether written or oral, other than:
(i) Turnkey License Agreements between
Yonkers Diagnostic and Balasic Medical, P.C., Affordable and
Eugene S. Barasch, M.D., P.C., Bronx Diagnostic and Balasic
Medical, P.C., Affordable and Intercounty Radiology, P.C., Bronx
Diagnostic and Alan M. Balasic, M.D., P.C. and Yonkers Diagnostic
and Flatbush Radiology, P.C., complete and correct copies of which
have been delivered or will be delivered to HMC and Subsidiary;
(ii) orders for the purchase of supplies
entered into in the ordinary course of business not involving
commitments to suppliers in the aggregate of more than One
Thousand United States Dollars (U.S. $1,000); and
(iii) requests for scans, x-rays, other diagnostic
procedures or other services requested and scheduled by patients
or referring physicians, independently of any other agreement or
contract.
The Acquired Companies and Managed Companies have delivered to HMC
and Subsidiaries complete and correct copies of all written
contracts or commitments listed in Exhibits E, F-1, F-2 and N.
Each of the Acquired Companies and Managed Companies has complied
fully with all the provisions of its outstanding agreements,
contracts and commitments and is not in default under any of the
terms thereof.
(p) Patents, Trademarks, Et Cetera. The names or
designations, all patents, trademarks, trade names, copyrights and
other statutory rights of the Acquired Companies and Managed
Companies are listed in Exhibit G. The Acquired Companies and the
Managed Companies have all franchises, permits, licenses and other
authority as are necessary to enable them to conduct their
respective businesses as now being conducted and as proposed to be
conducted, and none of them is in default under any of such
franchises, permits, licenses or other authority. No Acquired
Company or Managed Company has licensed any other person to use,
or to have access to for any reason, any such rights.
(q) Compliance with Law and Government Regulations.
The Acquired Companies and Managed Companies are in compliance
with all applicable statutes, regulations, decrees, orders,
restrictions, guidelines and standards, imposed by the United
States of America, and state, county, municipality or agency of
any thereof, and any foreign country or government to which they
or any of their respective operations may be subject, in respect
of the conduct by them of their respective businesses as currently
conducted and the ownership and operation of their respective
properties.
(r) Compensation. Attached hereto as Exhibit O is
a true and complete list of all officers, and of all salaried
persons employed by or for the account of the Acquired Companies
and Managed Companies specifying the rate of compensation
(including bonuses and commissions, if any) and position held by
each such person.
(s) Employee Stock Ownership Plan, Pension and
Profit-Sharing Obligations. No Acquired Company or Managed
Company has any pension, retirement pay, profit-sharing plan,
incentive plan or other obligation for deferred compensation
applicable to persons employed by it, whether or not such
obligations are of a legally binding nature or in the nature of
informal understandings, including, without limitation, any
Employee Stock Ownership Plan and Trust.
(t) Employee Benefit Plans. No Acquired Company or
Managed Company has any employee benefit plans, except for health
insurance for some individuals which will be prior to the
Effective Date of the Merger without liability.
(u) Labor Contracts, Et Cetera. No Acquired
Company or Managed Company is a party to any collective bargaining
or other labor union contract applicable to any persons employed
by it. The Acquired Companies and Managed Companies know of no
activities or proceedings of any labor union (or representatives
thereof) to organize any of their employees, or of any threats of
strikes or work stoppages by any of their employees.
(v) Litigation. There is no litigation,
arbitration, proceeding or investigation pending or threatened
which might, either individually or collectively, result in any
material adverse change in the business or condition (financial or
otherwise) of any of the Acquired Companies or the Managed
Companies or in any of their respective properties or assets, or
in any material liability on the part of any of them, or in any
material change in any of their methods of doing business, or
which questions the validity of this Agreement or of any action
taken or to be taken pursuant to or in connection with the
provisions of this Agreement and, to the best of their knowledge,
there is no basis for any such litigation, arbitration,
condemnation, proceeding or investigation. Each litigation,
arbitration, proceeding or investigation which is pending or
threatened with respect to any Seller is referred to in Exhibit P
hereto.
(w) Compliance with Other Instruments, Et Cetera.
No Acquired Company or Managed Company is bound by any agreement
or instrument or subject to any charter or other restriction which
materially and adversely affects its business, properties,
operations or condition, financial or otherwise. Neither the
execution and delivery of this Agreement nor the carrying out of
the transactions contemplated hereby will result in any violation,
or be in conflict with any term, of the certificate of
incorporation, articles of organization, partnership agreement or
other organizational instrument or the By-Laws, operating
agreements or other governing documents of any Acquired Company or
Managed Company. The Acquired Companies and the Managed Companies
warrant that the consummation of the transactions contemplated
hereby will not result in any violation of or be in conflict with
any contract or other instrument to which any of them is a party,
or by which it is otherwise bound.
(x) Governmental Consent, Et Cetera. No consent,
approval, authorization or order of, or registration,
qualification, designation, declaration or filing with, any
governmental authority on the part of any Acquired Company or
Managed Company is required in connection with the execution and
delivery of this Agreement or the carrying out of any transactions
contemplated hereby.
(y) Banks, Et Cetera. Attached hereto as Exhibit Q
is a true and complete list of each bank in which funds of any
Acquired Company or Managed Company are on deposit or in which any
of them has a safety deposit box.
(z) No Broker. No Acquired Company or Managed
Company has employed any finder, broker, agent or other
intermediary in connection with the negotiation or consummation of
this Agreement or any of the transactions contemplated hereby, and
the Acquired Companies will indemnify HMC and Subsidiary and hold
them harmless against all liabilities, expenses, costs, losses and
claims, if any, arising from the employment by, or services
rendered to, any Acquired Company or Managed Company (or any
allegation of any such employment by, or services rendered to any
of them) of any finder, broker, agent or other intermediary in
such connection.
(aa) Conveyance of Entire Business. Upon the
consummation of the Merger on the Effective Date, all of the
assets and properties owned by or utilized in the conduct of the
respective businesses of the Acquired Companies and the Managed
Companies will be owned by Subsidiary, except for (i) the accounts
receivable of the Managed Companies, which are subject to a first
lien and security interest in favor of one or more of the Acquired
Companies and (ii) any assets or properties specifically excluded
as set forth on Schedule A. All such assets and properties will
be free and clear of any mortgage, pledge, lien, conditional sale
agreement, encumbrance or charge except as set forth in Exhibit C
and none will be held by Subsidiary as lessee under or subject to
any lease or as conditional vendee under any conditional sale or
other title retention agreement, except as set forth in Exhibit
F-2.
7. Representations and Warranties of HMC and Subsidiary. HMC
and Subsidiary represent and warrant as follows:
(a) Organization and Standing. Each of HMC and
Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby.
(b) Litigation, Et Cetera. There is no litigation,
proceeding or investigation pending or threatened against HMC or
Subsidiary which questions the validity of this Agreement or of
any action taken or to be taken pursuant to or in connection with
the provisions of this Agreement.
(c) Compliance with Other Instruments. Neither the
execution and delivery of this Agreement nor the carrying out of
the transactions contemplated hereby will result in any violation
of or be in conflict with any term of the Certificate of
Incorporation or By-Laws of HMC or Subsidiary or of any contract
or other instrument to which either of them is a party, or of any
judgment, decree, order, statute, rule or regulation applicable to
either HMC or Subsidiary.
(d) Broker. Neither HMC nor Subsidiary has
employed any finder, broker, agent or other intermediary in
connection with the negotiation or consummation of this Agreement
or any of the transactions contemplated hereby, and HMC and
Subsidiary will indemnify the Acquired Companies and hold them
harmless against all liabilities, expenses, costs, losses and
claims, if any, arising from the employment by, or services
rendered to, HMC or Subsidiary (or any allegation of any such
employment by, or services rendered to, HMC or Subsidiary) of any
finder, broker, agent or other intermediary in such connection.
8. Covenants of the Acquired Companies. The Acquired
Companies and the Managed Companies covenant and agree with HMC
and Subsidiary as follows:
(a) Access, Information and Documents. The
Acquired Companies and Managed Companies will give to HMC and
Subsidiary and their counsel, accountants and other authorized
representatives, full access during normal business hours to all
of the assets and properties of the Acquired Companies and Managed
Companies hereunder, to each of their key personnel and persons
with whom any of them does business and to all books, contracts,
commitments and records of the Acquired Companies and the Managed
Companies and will deliver to HMC and Subsidiary all such
documents and copies of documents (certified, if requested) and
information with respect to such properties and such businesses as
HMC or Subsidiary from time to time may reasonably request.
Without limiting the generality of the foregoing, each Acquired
Company and Managed Company shall afford the representatives of
(i) Messrs. Tabb, Conigliaro & McGann, P.C., or other accountants
appointed by HMC or Subsidiary such access and assistance as such
accountants may reasonably request. The parties and their
respective representatives mutually shall endeavor to conduct such
examinations and appraisals in a manner designed to be at once the
most efficient and the least disruptive of the Acquired Companies'
and Managed Companies' conduct of business as is possible
consistent with the due accomplishment of such examinations.
(b) Transition of Business Pending Effective Date.
It is the intention of the parties that the following principles
shall govern the conduct of the businesses of the Acquired
Companies and Managed Companies.
(i) Conduct of Business Pending Closing.
Between the date hereof and the Closing:
(A) The Acquired Companies will keep HMC and
Subsidiary informed as to their and the Managed Companies' affairs
and will consult with HMC and Subsidiary on all important matters
pertaining to the businesses of the Acquired Companies and Managed
Companies;
(B) Each of the Acquired Companies and Managed
Companies will continue to conduct its business diligently and
only in the ordinary course and, except as otherwise requested by
HMC or Subsidiary, will not take any action which will cause any
change in the business or in the assets and properties any of the
Acquired Companies and Managed Companies other than changes in the
ordinary course of business;
(C) The Acquired Companies and the Managed
Companies will not enter into any contract or commitment relating
to their respective businesses without the prior approval of HMC
and Subsidiary, except for normal short-term commitments and
purchases in the ordinary course of business not involving payment
by or other liability or obligation on the part of any of them
exceeding One Thousand United States Dollars (U.S. $1,000) in the
aggregate; and
(D) The Acquired Companies and Managed Companies
will not increase the rates of pay or the size of normal bonuses
of any personnel employed by any of them without the consent of
HMC and Subsidiary, except for increases required under existing
employment agreements, copies of which have been provided to HMC
and Subsidiary prior to the date hereof.
(ii) Business Organization, Et Cetera. Except
as otherwise requested by HMC and Subsidiary, each Acquired
Company and Managed Company will use its best efforts to (without
making any commitment on behalf of HMC or Subsidiary) to preserve
intact its business organization, including all of its personnel
described in subparagraph (iii) below, and the goodwill of its
customers, referring physicians, suppliers and others having
relations with the Acquired Company or Managed Company.
(iii) Transfer of Personnel. The Acquired
Companies shall use their best efforts to ensure that all
supervisory personnel, technicians, accounting and marketing
personnel, and, all executive personnel employed by the Acquired
Companies shall become employees of Subsidiary as of the Effective
Date, and Subsidiary will assume full responsibility for the
payment of all salaries and wages accruing to such personnel
during such periods after the Effective Date as such personnel
shall be employed by Subsidiary, it being understood that
Subsidiary shall not be under any obligation to continue any of
such personnel in its employment.
(iv) Sellers' Names. From and after the Effective
Date, Subsidiary shall become entitled to the use of the
corporate, partnership and other company names of the Acquired
Companies. The Acquired Companies shall immediately after the
Effective Date cease to use such names and shall execute all
consents, assignments or other documents as may be required by
Subsidiary in order to register its entitlement to such names in
all jurisdictions in which Subsidiary may seek such registration.
(c) Books and Records. At or immediately after the
Effective Date, the Acquired Companies will turn over to
Subsidiary, all customers' lists, physician lists, books of
account, patient files and records, inventory records, personnel
records and other books and records, including without limitation
tax records and returns. The personnel of the Acquired Companies
will cooperate in Subsidiary's obtaining necessary data in any
manner which HMC and Subsidiary may reasonably request.
(d) Non-Competition. For a period of five (5)
years from and after the Effective Date, no Affordable Shareholder
or Selling Management Company will directly or indirectly own,
manage, operate, join, control or participate in the ownership,
management, operation or control of, or be connected in any manner
with, any business anywhere in New York, Florida or New Jersey, or
within a ten (10) mile radius of any MRI facility owned, operated
or managed by HMC, Subsidiary, Raymond V. Damadian, M.D. MR
Scanning Centers Management Company or any affiliate of any of
them in any other jurisdiction (i) involving the performance of
any MRI scans, CAT scans, x-rays, other diagnostic tests, physical
therapy or any other services of the type currently performed and
sold by any Acquired Company or Managed Company, (ii) involving
the operation or management of any center or other facility
providing any such scans, tests, therapy, procedures or services,
or (iii) otherwise directly competitive with the business of HMC
or Subsidiary as the same may from time to time be conducted. The
Affordable Shareholders and Selling Management Companies agree
that the remedy at law for any breach by any of them of the
foregoing covenant would be inadequate and that HMC and Subsidiary
would be entitled to injunctive relief in the case of any such
breach. Should it be held at any time that the restriction placed
upon Sellers by this Section 8(d) is too onerous and is not
necessary for the protection of HMC and Subsidiary, the Affordable
Shareholders and Selling Management Companies agree that any court
of competent jurisdiction may impose any lesser restriction which
such court may consider to be necessary or appropriate properly to
protect HMC and Subsidiary. Each of the owners, directors,
officers and employees of the Acquired Companies listed in Exhibit
R hereto and shall enter into agreements with Buyer, which shall
include individual non-competition covenants, in the form of
Exhibit S hereto.
(e) Collection of Accounts Receivable. After the
Closing, the Selling Management Companies shall assist Subsidiary
and HMC in the collection of the accounts receivable of the
Acquired Companies and Managed Companies as existing on the
Effective Date in such manner as Subsidiary and HMC may from time
to time request, at Subsidiary's and HMC's expense if any expense
is entailed. Without limiting the generality of the foregoing,
the Selling Management Companies shall permit Subsidiary and HMC
to exercise the same rights as the Selling Management Companies
could have if they had retained ownership of such accounts
receivable and Subsidiary may endorse, deposit and collect any and
all checks, drafts, money orders and instruments for the payment
of money payable to any Acquired Company or Managed Company which
is tendered in payment of any such accounts receivable. On or
before the Effective Date, the Selling Management Companies will
execute and deliver to Subsidiary such powers of attorney as
Subsidiary may request to enable Subsidiary to effectuate the foregoing.
(f) Audited Financial Statements. Following the
Effective Date, the Affordable Shareholders and Selling Management
Companies will provide Subsidiary and its accountants with all
information in their possession as may be requested by Subsidiary
and such accountants and provide all assistance as may be
reasonably requested by Subsidiary and such accountants in
connection with the preparation by Subsidiary, HMC and Fonar
Corporation of such certified and other financial statements as
they may be required to prepare and file with the Securities and
Exchange Commission, NASDAQ and other governmental,
quasi-governmental or regulatory agencies.
(g) Liability of Affordable and Other Acquired
Companies to Equity Owners. In consideration of the Merger and
other transactions contemplated by this Agreement the Affordable
Shareholders expressly release Affordable from any and all
indebtedness and other liabilities and obligations owing to them
effective on the Effective Date. From the date hereof until the
Effective Date no Acquired Company shall pay any cash or
distribute any of its assets or properties to satisfy any
indebtedness, liability or obligation owing to any of its
shareholders, members, partners or other equity owners. Under no
circumstances will Subsidiary, through the Merger or otherwise,
assume any liability or obligation of any of the Acquired
Companies' to shareholders, members, partners or other equity
owners.
(h) Further Assurances. From time to time, at
Subsidiary's or HMC's request (whether on or after the Effective
Date) and without further consideration, the Affordable
Shareholders and Selling Management Companies, at Subsidiary's and
HMC's expense, will execute and transfer and will take such other
action as Subsidiary and HMC may reasonably request in order more
effectively to give effect to the transactions contemplated
hereby.
9. Covenant of HMC and Subsidiary. HMC and Subsidiary
covenant and agree with the Acquired Companies and Affordable
Shareholders as follows:
(a) Books and Records; Access to Facilities. After
the Effective Date, Subsidiary and HMC will permit the Selling
Management Companies and Affordable Shareholders and their
respective representatives, at such reasonable times as they may
request, to inspect and make extracts from any books and records
turned over by the Acquired Companies to Subsidiary and HMC on the
Effective Date for the purpose of preparing any tax returns,
liquidating or complying with other governmental requirements.
(b) HMC or Subsidiary shall make available on a
bi-weekly or more frequent basis to the Affordable Shareholder or
their respective representatives records of billing, accounts
receivable and cash receipts for the purposes of determining
Average Monthly Performance.
10. Conditions of HMC's and Subsidiary's Obligations. The
obligations of HMC and Subsidiary under this Agreement are subject
to the fulfillment to their reasonable satisfaction, prior to or
at the Effective Date, of each of the following conditions:
(a) Representations and Warranties True at Closing.
The representations and warranties made by the Affordable
Shareholders and the Acquired Companies in this Agreement and in
any certificate or document delivered pursuant to the provisions
hereof shall be true as of the Effective Date as though such
representations and warranties were made at and as of such time.
(b) Performance. The Affordable Shareholders,
Acquired Companies and Management Companies shall have performed
and complied with all agreements and conditions required by this
Agreement to be performed or complied with by them prior to or on
the Effective Date or such other time as may be specifically
required by this Agreement.
(c) No Government Opposition. No governmental
entity shall have made known, formally or informally, any
opposition to, or questioning of, the consummation of the
transactions contemplated hereby.
(d) No Private Opposition. No private party shall
have commenced an action or filed suit against any of the parties
hereto questioning in any way the validity of this Agreement or
the transactions contemplated hereby.
(e) Compliance Certificate. The Acquired Companies
shall have delivered to HMC and Subsidiary a certificate or
certificates dated the Effective Date, of the appropriate
executive officers of each of the Acquired Companies, certifying,
in form satisfactory to HMC's and Subsidiary's counsel, to the
fulfillment of the conditions specified in Sections 10(a) and
10(b).
(f) Consents. The Acquired Companies shall have
obtained all consents and approvals for the transactions
contemplated hereby under the terms of any agreements of any
Acquiring Company including the leases referred to in Exhibits F-1
and F-2 and all consents and approvals otherwise necessary to the
operation by Subsidiaries of the businesses of the Acquired
Companies after the Effective Date substantially as such
businesses are presently operated, and the Acquired Companies
shall have duly complied with all applicable provisions of law
relating to such transfer.
(g) Opinion of Seller's Counsel. HMC and
Subsidiary shall have received a favorable opinion of the Acquired
Company's counsel dated the Effective Date, and satisfactory to
HMC and Subsidiary, covering the following matters:
(i) Representations and Warranties. The matters
referred to in Sections 6(a), 6(b), 6(c), 6(d), 6(e), 6(i), 6(j)
(with respect to title), 6(k) (with respect to title), 6(o) (with
respect to compliance and defaults), 6(q) (to counsel's best
knowledge), 6(v) (to counsel's best knowledge), 6(w) (with respect
to conflicts) and 6(x).
(ii) Proceedings. All corporate and other proceedings required
by law or by the provisions of this Agreement to be taken by Seller in
connection with the due consummation of the Merger and other transactions
contemplated hereby have been duly and validly taken.
(h) Agreements with Certain Officers of Acquired
Companies. The individuals named in Exhibit I-2 and Exhibit R
shall have entered into the agreements required.
(i) Condition of Assets. The tangible assets of
the Acquired Companies shall be in good operating condition and in
a state of good maintenance and repair and shall have suffered no
loss or damage, whether by reason of causes within or without the
control of the parties and whether covered by insurance or not.
(j) Proceedings and Documents. All proceedings in
connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be
satisfactory in legal substance and form to HMC's and Subsidiary's
counsel, and HMC and Subsidiary shall have received all such
counterpart originals or certified or other copies of such
documents as HMC and Subsidiary may reasonably request.
(k) Signatories on Managed Companies Accounts;
Ownership and Control of Managed Companies. The signatories on all
bank accounts of the Managed Companies shall be changed as
requested by HMC and Subsidiary, and the ownership and control of
the Managed Companies shall be changed as requested by HMC and
Subsidiary.
11. Conditions of Acquired Companies' Obligations. The
obligations of the Affordable Shareholders and Acquired Companies
under this Agreement are subject to the fulfillment to their
reasonable satisfaction, prior to or at the Effective Date, of
each of the following conditions:
(a) Representations and Warranties True at Closing.
The representations and warranties made by HMC and Subsidiary in
this Agreement and in any certificate or document delivered
pursuant to the provisions hereof shall be true at and as of the
time of the Effective Date as though such representations and
warranties are made at and as of such time.
(b) Performance. HMC and Subsidiary shall have
performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by it prior to
or at the Effective Date.
(c) Compliance Certificate. HMC and Subsidiary
shall have delivered to the Affordable Shareholders and the
Acquired Companies a certificate of appropriate executive officers
of HMC and the Subsidiary, dated the Effective Date, certifying as
to the fulfillment of the conditions specified in Sections 11(a)
and 11(b).
(d) Proceedings and Documents. All proceedings in
connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be
satisfactory in legal substance and form to the Acquired
Companies' counsel, and the Acquired Companies shall have received
all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
12. Expenses. Except as otherwise provided herein, each
party will pay all costs and expenses attributable to its
performance of and compliance with all agreements and conditions
contained in this Agreement to be performed or complied with by it
(including, without limitation, all fees and expenses of counsel).
13. Survival of Representations and Warranties. All
statements, representations and agreements contained in any
certificate or other instrument delivered by officers, employees,
representatives or agents of the Acquired Companies or the
Affordable Shareholders or any of them pursuant to this Agreement,
or otherwise made by them or any of them in writing as a condition
of, or otherwise in connection with, the transactions contemplated
hereby, shall be deemed also to be representations and warranties
by Acquired Companies and the Affordable Shareholders hereunder.
Such statements, representations and agreements and the
representations and warranties made by the Acquired Companies and
Affordable Shareholders in this Agreement shall survive the
Effective Date.
14. Indemnification. The Acquired Companies and the
Affordable Shareholders jointly and severally shall indemnify and
hold harmless HMC and Subsidiary from and against all losses,
liabilities, obligations, claims, lawsuits, judgments, costs and
expenses (including reasonable attorneys' fees) arising from any
misrepresentation, breach of warranty or breach of covenant by any
Affordable Shareholder, Acquired Company or Managed Company under
this Agreement or the failure of any Affordable Shareholder or
Acquired Company or Affordable Shareholder to perform any
obligation required to be performed by any of them hereunder.
15. Offset Against Escrowed Shares. For a period of seven
(7) months following the Effective Date of the Merger, 375,000
shares of the shares of Common Stock of Fonar being held in escrow
pursuant to Paragraph 5(b)(i) of this Agreement shall not be sold
or released from escrow, but shall remain in escrow as security
for the indemnification provided in Paragraph 14 hereof. In the
event that any representations and warranties made by the
Affordable Shareholders, Acquired Companies or Managed Companies
in this Agreement shall be untrue in any material respect and have
an adverse effect on the business or financial condition of
Subsidiary, then HMC and Subsidiary may give notice to the Escrow
Agent to return to Subsidiary such number of shares of Fonar
Common Stock being held in escrow pursuant to Section 5(b)(i)
having a market value equal to the amount of any loss or damage
suffered or incurred by HMC or Subsidiary as a result thereof.
The market value of such shares of Fonar Common Stock to be
returned shall be determined based on the closing price of
$2.34375 ($2 11/16) per share for Fonar Common Stock on May 21,
1997 as reported on the NASDAQ systems. Upon receipt of such
notice the Escrow Agent shall give written notice to the
Affordable Shareholders or their assigns of HMC's and Subsidiary's
demand. If the Affordable Shareholders or their assigns do not
object in writing to HMC's and Subsidiary's demand within 30 days
of the giving of such notice, the Escrow Agent shall return such
number of shares to Subsidiary. If the Affordable Shareholders or
their assigns do object, then the Escrow Agent shall continue to
hold such number of shares in escrow pending resolution of the
dispute by agreement of the parties or appropriate legal
proceedings. The remedy and procedure provided herein shall not
be exclusive, and HMC and Subsidiary may elect to pursue other
remedies available at law, in equity or as provided by this
Agreement in lieu of such remedy or concurrently with such remedy.
16. Assignment. No assignment of rights or obligations
hereunder shall be made by any party without the express written
prior approval of the other parties.
17. Notices, Et Cetera. All notices, consents and other
communications hereunder shall be in writing (except for those
relating to day-to-day transactions in the ordinary course of
business where representatives of the parties may reach a
decision, subsequently to be confirmed in writing) and shall be
deemed to have been given when delivered or mailed by first-class,
registered or certified mail, postage prepaid, addressed (a) if to
any Acquired Company, Managed Company or Affordable Shareholder,
at RD 2, Route 121, Brewster, New York 10509; or at such other
address as shall have been furnished by the giving of notice
thereof, or (b) if to HMC or Subsidiary, at 110 Marcus Drive,
Melville, New York 11747; Attention: President, or at such other
address as HMC and Subsidiary shall have furnished by the giving
of notice thereof.
18. Publicity; Confidentiality. No party to this Agreement
shall directly or indirectly make or cause to be made any public
announcements or issue any notices in any form (other than as may
be required by law) with respect to this Agreement or the
transactions contemplated hereby without the consent in writing of
the other parties, provided, however, that following the Effective
Date HMC or Subsidiary may issue any such public announcements or
notices. Following the issuance of a public announcement by HMC
or Subsidiary, the other parties hereto may do so as well. In the
event that the transactions contemplated by this Agreement shall
not be consummated, each party shall return all such written
information as it shall have received from the other parties in
connection with this Agreement. Thereafter each party shall
continue to hold the others' information in confidence, according
to such information the same degree of security generally accorded
its own proprietary information.
19. Approval of Shareholders. The Affordable Shareholders
represent and warrant that they are also the shareholders, members
and partners, as the case may be, of the other Acquired Companies
and agree that by their execution of this Agreement they are
approving the Merger and other transactions contemplated hereby in
their capacities as shareholders, members and partners of all of
the Acquired Companies. HMC represents and warrants that it is
the sole stockholder of Subsidiary and that by the execution of
this Agreement it is approving the Merger in its capacity as the
sole stockholder of Subsidiary.
20. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto with
respect to the subject matter hereof, and shall be binding upon
and inure to the benefit of and be enforceable by the successors
and assigns of such parties. This Agreement may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against whom enforcement of such change,
waiver, discharge or termination is sought. The remedies herein
provided are cumulative and not exclusive of any remedies provided
by law. The headings of this Agreement are for reference only,
and shall not limit or otherwise affect any of the terms or
provisions hereof. This Agreement may be executed in several
counterparts and may be executed by the respective parties hereto
on separate counterparts, each of which shall be an original but
all of which together shall constitute one and the same
instrument. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in the manner legally
binding upon them as of the date first above written.
U.S. HEALTH MANAGEMENT CORPORATION
By: /s/ Timothy R. Damadian
Timothy R. Damadian,
President
[Seal]
ATTEST:
/s/ Henry Meyer
Henry Meyer
HMCM INC.
By: /s/ Timothy R. Damadian
Timothy R. Damadian,
President
[Seal]
ATTEST:
/s/ Henry Meyer
Henry Meyer
BRONX DIAGNOSTIC IMAGING, LLC
[Seal] By: /s/ Nicholas Canosa
Nicholas Canosa
President
Member/Manager
ATTEST:
/s/ Rocco Vozza
Rocco Vozza
Secretary
Member/Manager
AFFORDABLE DIAGNOSTICS, INC.
By: /s/ Nicholas Canosa
Nicholas Canosa
[Seal] President
ATTEST:
/s/ Rocco Vozza
Rocco Vozza
Secretary
MAGNETIC CONNECTIONS
By: /s/ Nicholas Canosa
Nicholas Canosa
[Seal] President
ATTEST:
/s/ Rocco Vozza
Rocco Vozza
Secretary
YONKERS DIAGNOSTIC, LLC
By: /s/ Nicholas Canosa
Nicholas Canosa
[Seal] President
ATTEST:
/s/ Rocco Vozza
Rocco Vozza
Secretary
Member/Manager
N.E. MEDICAL BILLING SERVICE
By: /s/ Nicholas Canosa
Nicholas Canosa
[Seal] President
ATTEST:
/s/ Rocco Vozza
Rocco Vozza
Secretary
/s/ Nicholas Canosa
NICHOLAS CANOSA
/s/ Rocco Vozza
ROCCO VOZZA
/s/ Anthony R. Evans
ANTHONY R. EVANS
/s/ Franklin S. Canosa
FRANKLIN S. CANOSA
/s/ Anthony Tenore
ANTHONY TENORE
EXHIBIT NO. 5
OPINION OF COUNSEL RE LEGALITY
July 11, 1997
Fonar Corporation
110 Marcus Drive
Melville, NY 11747
Dear Sirs:
I refer to the Registration Statement on Form S-3 to
which this opinion is an Exhibit being filed by Fonar Corporation,
a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended,
relating to 2,340,000 shares (the "Shares") of the Company's
Common Stock held by Fanavle Partnership.
As counsel for the Company, I have examined the originals
or photostatic or certified copies of such records, certificates
and instruments of the Company, certificates of officers of the
Company and of public officials and such other instruments and
documents as I have deemed relevant and necessary for the purposes
of rendering the opinions set forth below. In such examination, I
have assumed the genuineness of all signatures, the authenticity
of all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified
or photostatic copies and the authenticity of the originals of
such copies and the correctness of all statements of fact
contained therein.
Based upon the foregoing, I am of the opinion that the
Shares have been duly and validly authorized and legally issued,
and are fully paid and non-assessable.
I consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to me in Item 5 of
the Registration Statement.
Very truly yours,
/s/ Henry T. Meyer, Esq.
Henry T. Meyer, Esq.
General Counsel
EXHIBIT NO. 23.1
CONSENT OF TABB, CONIGLIARO & MCGANN, P.C.,
CERTIFIED PUBLIC ACCOUNTANTS
Consent of Certified Public Accountants
We consent to the use in this registration statement on Form S-3
of our reports dated October 7, 1996 on the Consolidated Financial
Statements of Fonar Corporation and Subsidiaries for the fiscal
year ended June 30, 1996 and the Supplemental Schedules included
in FONAR Corporation's Form 10-K for the fiscal year ended June
30, 1996, which reports are incorporated in this registration
statement by reference.
The Consolidated Financial Statements consist of the Consolidated
Balance Sheets as at June 30, 1996 and June 30, 1995 and the
related Consolidated Statements of Operations, Stockholders'
Equity and Cash Flows for the years ended June 30, 1996, 1995 and
1994 with related notes.
The Supplemental Schedules consist of Schedule II - Accounts
Receivable From Related Parties and Underwriters and Schedule VIII
- - Valuation and Qualifying Accounts.
/s/Tabb, Conigliaro & McGann, P.C.
Tabb, Conigliaro & McGann, P.C.
New York, New York
July 11, 1997
EXHIBIT 23.2
(CONSENT OF COUNSEL IS INCLUDED IN EXHIBIT 5)
Consent of Counsel
The consent of Henry T. Meyer, Esq. is included in his
opinion filed as Exhibit 5 to this Registration Statement.
