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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996____________________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-11914
ADVANCED NMR SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-2457487
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-
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 657-
8876
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value per share
Warrants for purchase of Common Stock
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the Registrant's Common Stock,
$.01 par value, held by non-affiliates computed by reference to
the average of the closing bid and asked prices as reported by
NASDAQ on December 31, 1996 (based upon the assumption that each
officer, director and person who is known by the Registrant to
own more than five percent of the outstanding common Stock of the
Registrant is an affiliate of the Registrant for purposes of this
computation): $9,531,551.
Number of shares of the Registrant's Common Stock, $.01 par
value, outstanding as of December 31, 1996: 38,126,204
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[page break]
INDEX
Page No.
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a vote of Securities
Holders . . . . . . . . . . . . . . . . . . . 16
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
21
Item 8. Financial Statements and Supplementary Data . 24
Item 9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . 24
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . 25
Item 11. Executive Compensation . . . . . . . . . . . . 27
Item 12. Security Ownership of Certain Beneficial Owners
and
Management . . . . . . . . . . . . . . . . . 34
Item 13. Certain Relationships and Related Transactions 36
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . 38
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 47
[page break]
PART I
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ITEM I. BUSINESS
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GENERAL
Advanced NMR Systems, Inc. ("ANMR" or the "Company") was
founded in 1983 to develop echo planar imaging ("EPI"), an
ultrafast magnetic resonance imaging ("MRI") technology. From
its inception through November 1992, the Company engaged
exclusively in research and development activities. In 1992,
ANMR received U.S. Food and Drug Administration ("FDA") clearance
for its InstaScan system and commenced commercial marketing
activities to clinical institutions. The Company, through its
Imaging Systems business, provides very high field MRI systems
for clinical applications and advanced research.
In July 1992, the Company formed Advanced Mammography
Systems, Inc. ("AMS") as a subsidiary for the purpose of
financing the development of its Aurora dedicated MR Breast
Imaging System. In early 1993, AMS completed its initial public
offering. Prior to August 1996, the Company held a 61% ownership
interest in AMS (including shares under an escrow arrangement
which will terminate in May 1997) which has since been reduced to
48% as the result of the conversion into AMS Common Stock of
certain AMS debentures which had been issued in a Regulation S
private placement. In February 1996, AMS was granted FDA
clearance for commercial use of its Aurora System.
In August 1995, ANMR acquired Medical Diagnostics, Inc.
("MDI"), a provider of diagnostic imaging and rehabilitation
services. This unit is referred to as the Imaging and
Rehabilitation Services business.
In May 1996, ANMR closed a private placement (the
"Placement") of $3.7 million face amount of newly issued Series A
Convertible Preferred Stock, $.01 par value, (the "Preferred
Stock") at a purchase price of $1,000 per share. Preferred Stock
stockholders are entitled to receive dividends at a rate of
$40.00 per share per annum, when and as declared by the Board of
Directors of the Company. At December 31, 1996, approximately
2,200 shares of Preferred Stock were still outstanding after
certain conversions. The net proceeds from the Placement of
approximately $3,320,000, after payment of fees and related
expenses, is being used for working capital. See "Note F" of
Notes to Financial Statements as to conversion features.
In May 1996, AMS closed a Regulation S private placement
(the "AMS Placement") of $3 million principal amount 4%
Convertible Debentures of AMS due December 1, 1998. At December
31, 1996, approximately $1,472,000 in debt was still outstanding
after certain conversions. The net proceeds from the AMS
Placement of approximately $2,752,000, after payment of fees and
related expenses is being used for completion of product
development of the Aurora system, the commercialization and
marketing of the Aurora system and working capital.
Upon the closing of the AMS Placement, the Company and AMS
terminated a previously announced Agreement and Plan of Merger,
dated as of February 4, 1996, which had provided for the merger
of AMS Merger Corporation, a wholly owned subsidiary of the
Company, with and into AMS.
In August 1996, ANMR announced a new strategic direction
which it expects will leverage the Company's strength in
healthcare services and capitalize on the ongoing outsourcing
trend among healthcare providers seeking to increase operating
efficiencies while providing the highest quality patient care.
The Company intends to focus on its breast imaging centers and
fixed and mobile MRI services and to develop its rehabilitation
services business. As part of the Company's new mission, ANMR
will eliminate research, development and production of its
Instascan technology. In conjunction with this effort, ANMR had
reduced its work force to realign with the refocused research &
development effort. The Company expects to continue its contract
with General Electric Medical Systems ("GEMS") to serve as the
exclusive integrator of 3T and 4T MRI systems through June 1999.
MAGNETIC RESONANCE IMAGING TECHNOLOGY
A majority of the Company's business is based on magnetic
resonance imaging technology. MRI provides very high resolution
medical images of soft tissue. When interpreted by a trained
physician, the images can be used in many applications, including
determining the extent and contour of tumors, assessing damage
from brain hemorrhage, and detecting a wide variety of
neurological and joint disorders. A technique called MR
angiography is used as a means of non invasive imaging of blood
flow through blood vessels.
MRI systems use large magnets, digital computers and
controlled radio waves to derive cross-sectional (two
dimensional) and volume (three-dimensional) high resolution
images of the body's internal organs, tissues and function.
Information can be displayed either on film or video monitor
about the concentration and the physical and chemical environment
of atomic nuclei without the need for invasive surgery. MRI
systems present no known risks to patients in contrast to other
diagnostic techniques that subject the patient to potentially
harmful ionizing radiation (including Positron Emission
Tomography ("PET"), Computerized Axial Tomography ("CT") and
conventional x-ray).
MARKETING AND PRODUCT DEVELOPMENT
In July 1994, the Company concluded an agreement with GEMS
for the sale of 3T and 4T research MR systems to GEMS through
June 1999. These systems, which were not submitted to the FDA
for clearance for commercial use, were sold to research
institutions throughout the world. Very high field systems
utilizing InstaScan have been installed at University of Florida
at Gainsville, the University of California at Los Angeles
("UCLA") and Massachusetts General Hospital. In addition, two
systems were shipped to universities in Japan during fiscal 1996.
In addition, a 3T system installed at the University of
Pittsburgh and a 4T system at the National Institutes of Health
were upgraded with the InstaScan product. In June 1995, the 1993
Agreement was modified to commit revenues realized from the sale
of 3T and 4T systems through December 31, 1995 towards GEMS'
obligation under the 1993 Agreement. At December 31, 1996, there
are twenty-four (24) InstaScan systems and seven (7) 3T/4T
systems in the field. The Company will continue its exclusive
contract with GEMS to provide engineering integration of very
high field 3T and 4T MRI systems through June 1999.
MANUFACTURING
Although the Company has reduced its involvment in
manufacturing activities, the Company's facility in Wilmington,
Massachusetts has sufficient capacity to satisfy its commitments
under existing contracts.
RESEARCH AND DEVELOPMENT
The Company has ceased all new R&D activity in InstaScan
technology. The Company continues to offer maintenance and
service contracts to customers for all installed systems.
Under the ANMR License Agreement, AMS holds an exclusive
license to proprietary rights and know-how, including the rights
to any patents owned by the Company which relate to, or are
useful in connection with, the development of an MRI scanner for
use in the field of breast imaging.
UNCONSOLIDATED SUBSIDIARY
Through its subsidiary, AMS, the Company has developed a
dedicated MR Breast Imaging system known as Aurora. In February
1996, the FDA cleared the commercial use of AMS' Aurora dedicated
MR Breast Imaging System. In order to fully commercialize the
Aurora System and to demonstrate diagnostic effectiveness as an
accepted tool for the diagnosis and management of breast disease
and permit reimbursement for dedicated breast MRI by third
parties such as Medicare, private insurance and managed care
consortiums, AMS must develop maximum clinical utility. AMS has
launched a clinical study which includes a scientific
investigation of the improved breast imaging device in a large
patient population to provide objective evidence of its clinical
utility. The System has been placed at the University of Texas
Medical Branch at Galveston and AMS expects to install a second
System at the Faulkner-Sagoff Centre for Breast Health Care in
Boston, Massachusetts for the establishment of clinical trials.
It is anticipated that the breast imaging technology should gain
clinical acceptance over the next two years and continue to
evolve as further information is obtained from the clinical
studies concerning additional applications.
In July 1992, the Company licensed (the "ANMR License
Agreement") to AMS the right to use ANMR's technology in the
development of a dedicated breast imaging system (the "Field of
Use").
The Company and AMS may develop other dedicated MRI scanners
in addition to the breast imaging system. With respect to future
product development, AMS has not been granted the right to use
any technology now or hereafter obtained by the Company in
connection with any other dedicated use MRI scanners. However,
AMS has been granted a 50% interest in any net profits, as
defined in the ANMR License Agreement (after allocation of
development expenses), derived by the Company from the sale or
license of dedicated use MRI scanners utilizing or based upon the
Licensed Technology outside of the Field of Use. The ANMR
License Agreement provides that (i) any inventions outside the
Field of Use developed solely by the Company or an ANMR entity
shall be owned by the Company or such ANMR entity and
automatically licensed to AMS on an exclusive, worldwide basis,
within the Field of Use, (ii) any inventions developed solely by
AMS shall be automatically licensed to the Company on an
exclusive, worldwide basis for use solely outside the Field of
Use, and (iii) any inventions outside the Field of Use jointly
developed by the Company and AMS or an ANMR entity shall be
jointly owned in equal shares by the Company, on the one hand,
and AMS or an ANMR entity, on the other hand, and AMS or an ANMR
entity shall automatically license its interest to the Company on
an exclusive, worldwide basis. Accordingly, the Company would
obtain the right to future technology developed by AMS for use in
connection with mammography, and AMS shall obtain the right to
future technology developed by the Company for use outside the
Field of Use.
To optimize the Company's and AMS' operating efficiency, the
Company and AMS entered into a Shared Services Agreement as of
January 25, 1993 whereby the companies share common expenses and
functions, for example, executive officers, marketing, field
service, administration, regulatory approvals and outside
services. On August 29, 1996, the original Agreement was
terminated and the Company and AMS entered into a new agreement
which outlines a more accurate method of allocating the services
that are shared by the companies. The new agreement has
developed as a result of two significant factors: (a) the
changes in the company profile of ANMR which is modifying its
technology operations related to the manufacture of its InstaScan
retrofit system and is attending to its service division, and (b)
the growing independence of both companies as each company
pursues divergent objectives. Vendors for parts and services
have been instructed to provide separate invoices directly to the
Company or AMS, as the case may be. The Company's expenses
related to the use of the facilities, such as rent, utilities and
insurance, will be apportioned based on the number of square feet
occupied by the Company or AMS, respectively. The remaining
expenses, including senior management, administration and
miscellaneous supplies and resources, will be allocated equitably
between the companies but will be modified as circumstances
dictate.
IMAGING AND REHABILITATION SERVICES
Through its 100% owned subsidiary, MDI, the Company provides
advanced radiology services such as MRI, Single Photon Emission
Computed Tomography ("SPECT") and Computerized Axial Tomography
("CT") to patients in Massachusetts, New York, Virginia, West
Virginia and Tennessee through a network of hospital and clinic-
affiliated and freestanding facilities. MDI believes its
operations are unique as to utilization rates achieved and,
further, believes it is the only operator of mobile radiology
services in the United States that operates as a full-service
medical provider under its own clinic licenses where that
operation is allowed under state regulation.
MDI often acts as a full-service medical provider in its
radiology services business, particularly MRI services. As a
full-service medical provider, MDI provides MRI and SPECT
equipment and technologists and typically provides for the
necessary physician and support personnel, scheduling and
screening of patients, maintaining medical and administrative
records, establishing charges and billing and collecting revenues
from patients and third-party payers. In these instances, host
hospitals generally function as a landlord for the MDI subsidiary
or affiliate operating the MRI or SPECT service. By operating in
this manner, MDI is able to control the hours of operation for
its units and manage patient scheduling, permitting MDI to more
fully utilize its equipment. MDI is also able to expand demand
for its services by marketing directly to referring physicians
and third-party payers, the primary sources of MRI patient
business, including physicians who are not affiliated with the
host hospitals. MDI believes that controlling all or most of the
radiology services, including holding the required clinic
licenses when possible, enhances its ability to negotiate
renewals or extensions of its arrangements with the host
hospitals.
A majority of MDI's MRI services are provided under the
"full-service" model. SPECT services are provided under both
vendor and provider models. In circumstances where MDI does not
operate as a provider, it endeavors to achieve an equivalent
level of operating control through contracted services offered to
hospital and clinic customers.
"FULL-SERVICE PROVIDER"
MDI's MRI facilities are generally open from 10 to 16 hours
per day up to seven days per week to enhance patient convenience
and increase the utilization of MDI's medical equipment. On the
scheduled examination date, the patient goes to the area in the
hospital where the MRI unit is located. MDI's MRI technologists,
or other professionals, interview patients to screen them for
claustrophobia, obesity, electronic implants or other potential
problems and complete the necessary paper work. Patients are
encouraged to view an educational video about the procedure prior
to the exam and are offered audio and video entertainment options
to relieve possible anxiety.
MRI examinations typically last 30 to 60 minutes. Once the
patient is inside the scanner, the technologist communicates with
him or her using an intercom system. The patient experiences no
physical sensations during the procedure and hears only a
knocking sound as the gradients within the magnetic field are
altered to generate the image. Once the MRI scans are generated,
they are reviewed and interpreted by trained radiologists.
Written reports are forwarded to the referring physicians,
usually within 48 to 78 hours of the examination.
Upon receipt of the written report, MDI generates an invoice
that is sent to the patient's insurance company or other third-
party payer and/or to the patient, completes any necessary
insurance forms and follows up on and collects the payment for
the services rendered. Generally, MDI renders a bill that covers
the charges for its technical services. Total charges billed
vary depending on the type and duration of examination.
Insurance reimbursements are normally less than rates charged by
MDI. In addition, MDI enters into contractual arrangements with
third-party payers that provide for volume or group discounts.
Professional service charges due to the radiologists who read and
interpret the examination results are generally billed separately
by the radiologists.
VENDOR-OPERATOR SERVICES
When necessary or advantageous for competitive reasons, MDI
functions as a vendor-operator in dealing with medical service
providers that desire to offer mobile radiology services. When
competing on this basis, MDI offers its full range of additional
services. The medical service providers can select those
services that they find most troublesome or expensive to handle
internally, including patient scheduling, marketing,
transcription and/or billing. Because MDI already provides these
services in connection with its full-service provider operations,
it can offer these additional services as an adjunct to vendor-
operator arrangements on a profitable basis at attractive rates
to the medical service providers.
OPERATIONS AND EQUIPMENT
MDI's mobile MRI and SPECT units are located in custom-
designed trailers that are driven to specially prepared sites at
hospitals, clinics and other appropriate sites according to a
planned schedule. MDI currently operates or manages two fixed-
site MRI facilities and 10 mobile MRI units serving 43 hospital
customers and two free-standing facilities, three mobile SPECT
units that serve 10 hospitals and clinics, generally under three
to five-year agreements with each facility, and one fixed CT
unit. Two hospitals are contracted for both MRI and SPECT
services with MDI and one clinic is contracted for both SPECT and
CT services with MDI. Of these units, MDI owns six, leases eight
and manages two others for a non-affiliated hospital consortium.
CUSTOMERS
Many medical service providers do not own MRI or SPECT
equipment because of insufficient patient volume to justify costs
associated with acquiring and operating such equipment.
Depending upon features and options selected, a MRI unit similar
to the units operated by MDI costs between approximately $700,000
and $1,700,000 plus siting and facility costs. Many medical
service providers in rural areas or other small hospitals and
clinics cannot afford a capital investment of this size or cannot
utilize the equipment in a cost-effective manner. However, a
medical service provider that does not have sufficient patient
volume and resources may still wish to contract for services with
a third-party company like MDI for a variety of reasons,
including avoidance of the risk of technological obsolescence of
the equipment, elimination of the need to recruit and employ
qualified technologists, elimination of the need for the medical
service providers to expend the time and resources necessary to
obtain regulatory approval for a MRI unit, where applicable, and
elimination of the costs and risks associated with billing and
collecting from third-party payers.
MDI generally enters into three to five-year affiliation
agreements with medical service providers served by its MRI and
SPECT units. These contracts are generally non-cancelable except
for cause.
MARKETING
MDI has developed a multi-faceted marketing strategy. MDI
markets its services to referring physicians through visits to
physicians' offices, by exhibiting MDI's services at professional
association meetings, notices of equipment enhancements and
upgrades and reprints of pertinent articles from professional
journals.
In addition to its direct marketing efforts aimed at
physicians and hospitals, MDI markets its services directly to
third-party payers, including insurance companies, managed care
entities, and government payers. By operating regional MRI
networks, MDI is able to offer third-party payers aggressive
discount pricing schedules geared to the volume of examinations
provided to each third-party payer's subscriber population.
MDI places substantial emphasis on the training and
motivation of its technologists by both MDI's personnel and
equipment manufacturers. MDI regularly conducts surveys of its
contracted hospitals, physicians and patients to monitor customer
satisfaction.
EXPANSION OF MARKETS AND SERVICES
MDI believes that, as imaging technology continues to
develop, new applications should increase and the demand for
diagnostic imaging as a means of detecting diseases at an earlier
stage will be greater. Current pressures on utilization should
be offset in the future as a result of an increased number of
cost-effective new applications for advanced imaging that replace
exploratory surgeries and invasive diagnostic procedures, as well
as the increased demand that should occur from the aging of a
large percentage of the population. Further, earlier detection
of diseases, particularly through non-invasive and minimally
invasive imaging technologies, can help reduce medical costs to
third-party payers by reducing treatment costs and malpractice
claims. MDI believes that, as physicians and third-party payers
become more knowledgeable and familiar with advanced imaging
capabilities, these services may become the primary diagnostic
tools for many additional clinical conditions.
EQUIPMENT; SUPPLIES
All of the diagnostic equipment utilized by MDI is
technologically complex. MDI contracts with equipment
manufacturers and third-party service organizations for
comprehensive maintenance and repair services for its MRI and
SPECT units to minimize the period of time equipment is
unavailable during scheduled use hours because of unanticipated
malfunctions or breakdowns. MDI also has extensive relationships
with other vendors for maintenance and repair of all of the
related and auxiliary equipment on the units that are subject to
mechanical failures, such as on-board generators and air
conditioning systems.
A significant portion of MDI's tangible assets consists of
diagnostic imaging equipment and trailers. Generally, each
trailer is moved, sometimes daily, or even during the day, from
one location to another, and there is always a risk that a
traffic accident or trailer breakdown will occur while the
equipment is in transit. Although MDI's major equipment is
insured against the risks of damage in an accident, repairs to
damaged equipment may not restore the equipment to its original
condition and level of performance. MDI also maintains business
interruption insurance to offset lost revenue that may occur in
the event of prolonged equipment downtime. However, no assurance
can be given that MDI would receive sufficient insurance proceeds
following any damage to its equipment to fully compensate it for
the losses resulting from such damage.
There are at least three suppliers of FDA-approved MRI
contrast agents used to enhance the images produced in certain
types of examinations. Further, several new organ-specific
contrast agents are in the FDA approval process that are expected
to increase abdominal applications for MRI which may have
significant value in diagnosing a variety of benign and malignant
conditions that would otherwise require exploratory surgery. MDI
has not experienced any problems in obtaining sufficient
quantities of contrast agents. In addition, there are numerous
suppliers of radiopharmaceuticals required to perform SPECT
imaging.
REHABILITATION SERVICES
MDI has diversified a portion of its business in niche
rehabilitation markets through its acquisition of a majority
interest in MVA Rehabilitation Associates. Through the MVA
centers, MDI provides comprehensive physician care, physical
therapy and case management for motor vehicle accident patients.
The MVA Center has developed a system to document valid personal
injury claims and exclude false claims that enable it to provide
more efficient patient care. In addition to the original MVA
Center, MDI established one new center and one new satellite
center during fiscal 1996 in Massachusetts where the business is
concentrated.
MDI's rehabilitation services business operates with lower
fixed costs than its radiology services, providing a lower risk
diversification opportunity.
GOVERNMENT REGULATION AND REIMBURSEMENT
The Company's operations are subject to extensive federal
and state regulations and are directly and indirectly impacted by
government regulations with respect to reimbursement for medical
services.
Magnetic Resonance Diagnostic Devices ("MRDD") are subject
to regulation by the FDA and certain state and federal agencies
that regulate the provision of health care, particularly the
Health Care Financing Administration ("HCFA") and the
Environmental Protection Agency ("EPA"). In addition, providers
of diagnostic imaging services are subject to various state
regulations that limits the acquisition of MRI equipment through
Certificate of Need ("CON") and "Determination of Need" ("DON")
programs and other federal and state regulation that is directed
at cost containment.
FDA REGULATION
In February 1996, the FDA cleared the commercial use of the
AMS Aurora breast imaging system.
In addition, there are numerous applications for contrast
agents and pharmaceuticals currently pending before the FDA that
have significant potential to positively impact Company
operations. New organ specific contrast agents will enhance MRI
sensitivity and specificity in diagnosing disease.
Pharmaceuticals in clinical trials show significant potential for
stroke treatment. MRI can not only detect stroke within minutes
of onset, but it can differentiate between strokes caused by
blood clots and those caused by hemorrhage. Strokes arising from
clots can be treated with thrombolytic agents while strokes that
involve bleeding are appropriately treated with neuron protector
drugs. MRI is the only imaging technology that can effectively
distinguish between the two causes of strokes.
HCFA AND RELATED HEALTH CARE REGULATION
Imaging Systems
---------------
The market for MRI systems and services is significantly
affected by the amount that Medicare and Medicaid, or other third
party payers including indemnity insurance and managed care
organizations, reimburse providers of diagnostic imaging
procedures. With the emphasis on limiting costs for health care,
MR manufacturers must more clearly demonstrate the clinical
efficacy and cost-effectiveness of upgrades and new MR systems in
order to generate sales.
Imaging and Rehabilitation Services
-----------------------------------
In its Imaging Services operations, the Company is subject
to HCFA Medicare and Medicaid anti-fraud and abuse statutes which
prohibit bribes, kickbacks, rebates and any direct or indirect
remuneration in connection with providing services, items or
equipment for which payment may be made in whole or in part under
Medicare or Medicaid. These statutes are intended to prevent the
improper referral of patients for medical tests or treatment by
health service providers who may have a financial interest in the
entity which provides such services. Violation of these
provisions may result in significant criminal penalties and
exclusion from participation in Medicare and Medicaid programs
for both the entity paying the kickback or rebate and the entity
receiving it.
The Company believes that none of its operations are in
violation of the anti-fraud and abuse statutes.
Congress has also enacted legislation generally prohibiting
physicians from billing Medicare and Medicaid for patients
referred by a physician to any of a broad range of health
services (including diagnostic imaging services) if the physician
has (i) an ownership or investment interest in the health
service, or (ii) otherwise receives compensation (broadly defined
in the legislation) from the health service. The legislative
prohibitions were effective January 1, 1995. The Company has no
physician ownership in its businesses that would violate this
statute.
MDI currently delivers diagnostic imaging services in
Massachusetts, New York, Virginia, West Virginia and Tennessee
and SPECT services in Virginia, West Virginia and Tennessee. In
New York, Virginia, West Virginia and Tennessee, a CON, and in
Massachusetts, a DON, generally must be obtained by an MRI
operator and/or the hospital where services are provided in order
for services to be provided at hospital sites or to hospital
inpatients and/or to receive certain third-party reimbursement
payments. The CON and DON programs of each of the five states in
which MDI currently conducts business vary significantly from
each other in the scope of regulation. Generally, however, the
CON or DON authorizes the holder to provide, or in the instance
of a hospital, to receive, services at specific sites and/or to
acquire equipment to provide services. In Massachusetts, a DON
is also required to obtain a clinic license. Where required, MDI
holds all CONs and DONs necessary for it to conduct business
where it currently operates. In New York, MDI is presently
ineligible to obtain a CON as state law prohibits publicly-held
corporations from qualifying for a CON. Thus, MDI contracts to
provide MRI equipment and management to a professional medical
corporation ("P.C.") that is licensed to actually provide the MRI
and other services.
In addition to its DON requirements, Massachusetts licenses
and regulates MDI's MRI operations. Massachusetts clinic
licensure regulations establish physical plant requirements for
each MRI service site, require inspection of the MRI unit and
require that certain operational policies be in place, in
addition to other standards. MDI believes that it is in
compliance with the Massachusetts licensure requirements.
ENVIRONMENTAL PROTECTION AGENCY ("EPA") REGULATION
The Company, and any research facility which it operates, is
required to comply with any applicable federal and state
environmental regulations and other regulations related to
hazardous materials used, generated, and/or disposed of in the
course of its operations. The Company currently is registered as
a Very Small Quantity Generator of hazardous waste. This means
that the Company is making an effort to reduce hazardous waste
produced, and to track the waste generated.
Future EPA regulations may impact Company policies on air
pollution, waste management, and radon testing. While the
Company does not expect to have to incur substantial costs in
order to comply with existing regulations, no assessment may be
made as to the impact of future regulations upon operations of
the Company.
NUCLEAR REGULATORY AGENCY REGULATION
In providing SPECT services, the Company is also subject to
the Nuclear Regulatory Commission regulations established for the
safe use, storage, transport and disposal of radioisotopes. The
Company employs a Radiation Safety Officer, as required, to
monitor its compliance with applicable regulations.
COMPETITION
The health care industry in general and the market for
diagnostic imaging equipment, in particular, is highly
competitive.
With respect to the Imaging Systems business, virtually all
of the competitors known to the Company presently offer their own
versions of echo planar imaging. Such manufacturers include
General Electric Company; Toshiba; Bruker Medical Imaging Inc.;
Elscint Ltd.; Siemens Corporation; Philips Medical Systems, a
division of Philips Industries, N.V.; Picker International
Corporation; Shimadzu; and Hitachi.
With respect to the Imaging and Rehabilitation Services
business, the Company competes with other MRI and SPECT providers
at hospitals, private clinics, physician practices and other
independent providers of MRI and SPECT services at fixed sites.
Competitive factors include the range of services provided,
equipment capabilities and the ability to serve a broad range of
patients. Barriers to entry into the Company's markets include
the cost of equipment, hiring of qualified technologists and
management, proprietary business practices and, where applicable,
CON or DON regulation and other regulatory constraints.
Although the Company's rehabilitation services are also
considered to be in highly competitive markets, the Company
believes the market sector it is targeting, (value-added services
for motor vehicle accident victims and their insurers) is unique.
The Company is not aware of any other significant participants in
this industry.
PATENTS
The Company and AMS currently own twenty (20) and two (2) U.
S. patents relating to MRI imaging, respectively. All major
patents are protected in Japan, Canada and the European Market
countries.
EMPLOYEES
As of December 31, 1996, the Imaging Systems business had a
staff of 31 full time employees and 3 short-term contractors,
including 14 persons who were full time employees of AMS.
Pursuant to a Shared Services Agreement with AMS, ANMR provides
the services of its executives, administrative personnel and
research scientists to AMS on an as-needed basis.
As of December 31, 1996, the Imaging and Rehabilitation
Services business had 142 full time employees and 38 part-time
employees including 5 senior management personnel, 65 MRI
technologists, 3 non-executive employees involved in marketing
and development and 107 employees involved in general and
administrative activities, including patient scheduling and
billing.
None of the Company's employees is represented by labor
organizations and the Company is not aware of any activities
seeking such organization. The Company considers its relations
with employees to be good.
ITEM 2. PROPERTIES
----------
The Company leases a facility in Wilmington, Massachusetts
(the "Shared Facility") consisting of approximately 61,000 square
feet of office, research and development, manufacturing and
warehouse space. The Company has exercised its option to renew
its lease as of May 1996 for another 5 year term at a base
monthly rental of approximately $37,000. As of December 31,
1996, the activities of AMS utilized approximately 17% of the
Shared Facility. The Company believes that the space it
currently occupies is adequate for the Company's needs for the
foreseeable future.
ANMR also leases office space in Fort Lee, New Jersey for
its administrative and investor relations personnel. The
approximate 1,290 square feet of space is leased by ANMR pursuant
to a lease expiring March 31, 1999, at a base monthly rental of
approximately $2,300. The personnel located in the New Jersey
office also perform services on behalf of AMS. Approximately 28%
of the costs of maintaining this office space is allocated to
AMS.
MDI owns a facility in Roanoke, Virginia consisting of
approximately 6,000 square feet of office space. MDI also leases
approximately 2,000 square feet of space in West Springfield,
Massachusetts at a current rental rate of $42,000 per annum, plus
operating expenses under a lease that expires on August 31, 1998.
MDI has the option to extend this lease for two additional one
year periods.
MDI also leases specially prepared sites and patient waiting
areas at certain hospitals and other locations at which it
operates its mobile MRI, SPECT and CT units. These leases
generally are for the term of the hospital's affiliation
agreement with MDI, with monthly rental payments generally
ranging from approximately $1,000 to $5,000. The rental amount
is generally designed to reimburse the hospital or landlord for
its cost of preparing the site.
MDI leases facilities for its Rehabilitation operations in
Springfield Massachusetts, Holyoke Massachusetts and Malden
Massachusetts. These facilities include approximately 7,400,
3,100 and 7,400 square feet , respectively, over lease terms that
expire on June 30, 2001, June 1, 2001, and January 31, 2001,
respectively. The current rent for these facilities are
$142,000, $19,000 and $82,000 per annum, respectively, plus
operating expenses.
ITEM 3. LEGAL PROCEEDINGS
-----------------
MDI, as general partner of Mass. Mobile Imaging Venture
(MMIV), and Western Massachusetts Magnetic Resonance Services,
Inc. (WMMRS) filed a complaint in September 1992 in Middlesex
County Superior Court, Cambridge, Massachusetts against Medical
Imaging Partners, L.P. (MIP), which is wholly owned by Raytel
Medical Corporation (Raytel), and certain of its affiliates,
seeking a declaration, damages and equitable relief relating to
an alleged breach by MIP of certain fiduciary and contractual
obligations with respect to the business of MMIV. MIP has filed
a counterclaim against MDI also seeking a declaratory judgment,
damages and equitable relief on the basis of an alleged breach of
fiduciary and contractual obligations by MDI with respect to the
business of MMIV. The parties have nearly completed pre-trial
proceedings, including discovery. Several pre-trial motions have
been argued and are awaiting decision. A trial date has not yet
been set. Although the outcome of this litigation cannot be
predicted, MDI does not believe that the results of this
litigation will have a material effect on MDI.
On November 29, 1994, Raytel filed a complaint in Delaware
Chancery Court naming MDI as a defendant. The lawsuit relates to
matters arising in conjunction with a tender offer launched by
Raytel to acquire MDI's predecessor. Raytel is seeking
injunctive relief against certain actions that MDI's predecessor
took or may have taken to defend itself against Raytel's tender
offer. On December 22, 1994, Raytel filed an amended complaint.
No trial date has been set. On May 4, 1995, Raytel terminated
its tender offer. MDI believes that it has meritorious defenses
to this lawsuit and, if necessary, intends to defend this lawsuit
vigorously.
In February and in March 1996, class action complaints, all
of which were consolidated in a matter styled In Re: Advanced
Mammography Systems, Inc. Shareholders Litigation (consolidated
C.A. No. 14821), were filed in the Court of Chancery in the State
of Delaware, in and for New Castle County, on behalf of all the
public stockholders of both the Company and AMS against the
Company and AMS and their directors seeking to (a) enjoin the
previously announced merger of the two companies, or (b) if the
merger is consummated, to award rescissory damages to the
proposed class of plaintiffs. The plaintiffs and the Company
entered into a stipulation of settlement whch is pending before
the court.
Effective November 28, 1995, ANMR terminated the Key
Employment Agreement, dated May 2, 1995, of John A. Lynch, Chief
Executive Officer of MDI. MDI's Chief Operating Officer was
named the Acting President of MDI. At September 30, 1995,
accrued expenses include approximately $500,000 of severance
benefits accrued in accordance with the terms of the Key
Employment Agreement. In March 1996, the Company's former Chief
Executive Officer filed a demand for arbitration seeking a
declaratory ruling, equitable relief and damages related to
claims arising out of the Key Employment Agreement. Although
the outcome of this arbitration is uncertain, the Company does
not believe that the results of this arbitration will have a
material effect on the consolidated financial position or results
of operations of the Company.
During 1996, the Company became engaged in litigation with
International Magnetic Imagimg, Inc., one of its customers
regarding the performance of its enhancement package for several
MRI systems sold to the customer for approximately $1,500,000.
The suit, entitled International Magnetic Imaging, Inc. vs.
Adavanced NMR Systems, Inc. (Case No. 96-014750(03)), was filed
in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida. The Company believes that this
situation was exacerbated by its decision to discontinue its
imaging systems operations. The Company is seeking an equitable
resolution to the dispute. The outcome of this matter is
unpredictable, but the Company does not believe that the final
outcome will have a material effect on the consolidated financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders
during the last quarter of fiscal year 1996.
[page break]
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(A) Since February 1994, the Company's Common Stock has
been included in the NASDAQ National Market System under the
symbol ANMR. Trading in the Warrants (NASDAQ: ANMRW) commenced
on August 31, 1995, after the closing of the MDI merger.
The following table sets forth the quarterly high and low
bid prices for the Common Stock and the Warrants as reported by
NASDAQ for the periods indicated. These prices are based on
quotations between dealers, and do not reflect retail mark-up,
mark-down or commissions.
Common Stock High Low
------------ ---- ---
1996
----
October 1 through December 31 2 1/4 1 1/16
January 1 through March 31 2 9/16 1
April 1 through June 30 2 1 3/32
July 1 through September 30 1 1/4 7/16
1995
----
January 1 through March 31 3 11/16 2 3/4
April 1 through June 30 3 1/4 2 1/8
July 1 through September 30 3 1/16 2 1/32
1994
-----
October 1 through December 31 4 1/4 2 1/4
Warrants
--------
1996
----
October 1 through December 31 9/16 1/8
January 1 through March 31 15/16 1/2
April 1 through June 30 3/4 1/4
July 1 through September 30 3/8 1/8
1995
----
August 31 through September 30 1/8 1/8
(B) On December 31, 1996, there were 1,125 holders of
record of the Common Stock of the Company. Since certain of the
shares of Common Stock are held in street name, it is believed
that there are substantial additional beneficial holders of the
Company's Common Stock. On December 31, 1996, there were
38,126,204 shares outstanding.
(C) The Company has paid no dividends on its shares of
Common Stock since its organization in July 1983. The Company is
prohibited from the payment of cash dividends under the
provisions of its credit facility with its primary lender.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Statement of Operations Data:
-----------------------------
The selected financial information for the year ended
September 30, 1996, the nine months ended September 30, 1995, and
for each of the years ended December 31, 1994, 1993 and 1992, is
derived from the audited financial statements of the Company and
its subsidiaries, AMS and MDI.
This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and notes
thereto included elsewhere in this Form 10-K.
<PAGE>
Year Ended Nine Months ended
Year Ended September 30, 1995 September 30, 1995
September 30, 1996 ------------------ ------------------
------------------ - -
(unaudited)
Revenues:
Net patient
service revenue $25,480,813 $1,934,322 $1,934,322
Management fees
and other 653,425 40,220 40,220
revenue ------------ ------------ ------------
Total Revenues 26,134,238 1,974,542 1,974,542
------------ ------------ ------------
Operating
Expenses:
Cost of service
operations 16,205,961 1,203,497 1,203,497
Research &
development -- 940,141 664,786
Selling, general
& administrative 4,254,964 2,449,364 2,002,075
Provision for
bad debt & 2,126,471 162,377 162,377
collection costs ------------ ------------ ------------
Total Operating
Expenses 22,587,396 4,755,379 4,032,735
------------ ------------ ------------
Income (Loss) from
Continuing
Operations 3,546,842 (2,780,837) (2,058,193)
Interest expense (1,847,910) (139,020) (139,020)
Interest income 212,814 195,191 265,208
Other Income 126,263 579,758 579,758
Minority interest (1,005,831) 783,520 569,354
Equity in loss of
subsidiary (1,830,880) -- --
Provision for (42,288) -- --
income taxes ------------ ------------ ------------
Loss from
Continuing
Operations (840,990) (1,361,388) (782,893)
Loss from
operations of
Discontinued
Division (3,928,706) (2,521,580) (894,865)
Loss on Disposal
of Discontinued
Division (3,510,563) -- --
------------ ------------ ------------
Net Loss $(8,280,259) $(3,882,968) $(1,677,758)
============ ============ ============
Loss Per Share:
Loss from
continuing
operations $(.03) $(.06) $(.03)
Loss from
operations of
discontinued
division (.13) (.10) (.04)
Loss on disposal
of discontinued (.11) -- --
division ------------ ------------ ------------
Net loss per $(.27) $(.16) $(.07)
share ============ ============ ============
Weighted average
number of common 30,583,320 24,020,652 24,243,902
shares ============ ============ ============
Year Ended
Nine Months ended December 31, Year Ended Year Ended
September 30, 1994 December 31,December 31,
1994 ------------ 1993 1992
----------------- ---- ----------- -----------
(unaudited)
Revenues:
Net patient
service revenue $ -- $ -- $ -- $ --
Management fees
and other -- -- -- --
revenue ------------ ------------ ------------ ------------
Total Revenues -- -- -- --
------------ ------------ ------------ ------------
Operating
Expenses:
Cost of
service
operations -- -- -- --
Research &
development 717,010 992,365 822,994 239,423
Selling,
general &
administrative 1,135,531 1,582,820 870,414 --
Provision for
bad debt &
collection
costs -- -- -- --
------------ ------------ ------------ ------------
Total Operating
Expenses 1,852,541 2,575,185 1,693,408 239,423
------------ ------------ ----------- -----------
Income (loss)
from
Continuing
Operations (1,852,541) (2,575,185) (1,693,408) (239,423)
Interest expense -- -- -- --
Interest income 278,497 208,480 170,720 --
Other Income -- -- (801,750) --
Minority
interest 488,799 702,965 414,641 --
Equity in loss
of subsidiary -- -- -- --
Provision for
income taxes -- -- -- --
------------ ------------ ----------- -----------
Loss from
Continuing
Operations (1,085,245) (1,663,740) (1,909,797) (239,423)
Loss from
operations of
Discontinued
Division (256,543) (1,883,258) (4,040,764) (5,253,106)
Loss on Disposal
of Discontinued
Division -- -- -- --
------------ ------------ ----------- -----------
Net Loss $(1,341,788) $(3,546,998) $(6,166,950) $(5,492,529)
============ ============ ============ ============
Loss Per Share:
Loss from
continuing
operations $(.05) $(.07) $(.10) $(.01)
Loss from
operations of
discoontinued
division
(.01) (.08) (.21) (.33)
Loss on
disposal of
discontinued -- -- -- --
division ------------ ------------ ------------ ------------
Net loss per
share $(.06) $(.15) $(.32) $(.34)
------------ ------------ ------------ ------------
Weighted
average number
of common 23,543,842 23,603,251 19,184,275 16,157,623
shares. ============ ============ ============ ============
<PAGE>
BALANCE SHEET DATA: September September December
------------------- 30, 30, 31,
1996 1995 1994
----------- ----------- ----------
Working Capital $(6,735,989) $11,083,145 $ 8,614,161
(Deficit)
Total Assets 50,724,530 58,431,709 12,692,152
Total Liabilities 26,906,107 27,799,636 2,511,853
Stockholders' 23,818,423 28,017,966 9,698,924
Equity
BALANCE SHEET DATA: December December
------------------- 31, 31,
1993 1992
---------- ----------
Working Capital $12,452,896 $ (759,956)
(Deficit)
Total Assets 15,864,126 2,685,896
Total Liabilities 2,335,099 2,659,378
Stockholders' 12,551,838 26,518
Equity
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITIONS AND RESULTS OF OPERATIONS
------------------------------------
General
-------
The financial statements for the year ended September 30, 1996 include
a full year of operations for the Company and MDI. The financial
statements for the year ended September 30, 1995 include a full year of
operations for the Company and AMS and one month of operations for MDI.
Accordingly, it is not always possible to draw meaningful comparisons
between periods ended September 30, 1996 and 1995. The results of
operations for the year ended September 30, 1996 are not necessarily
indicative of the results for future periods.
Fiscal Year Ended September 30, 1996 Compared to Year Ended September 30,
--------------------------------------------------------------------------
1995 (unaudited)
-----------------
During fiscal 1996, 1,748,364 shares of AMS Common Stock were issued
in connection with the conversion of convertible debentures issued in May
1996. As a result of these conversions, the Company's percentage ownership
of AMS has been reduced to approximately 48% at September 30, 1996.
Accordingly, the Company has switched from consolidation of AMS in 1995 to
the equity method of accounting for fiscal 1996.
Loss from operations of Imaging Systems business segment includes
all activity associated with the August 1996 plan to suspend the
operations of a significant portion of such segment. Based on
management's periodic review of the assumptions used in determining the
estimated loss from the disposal of the Imaging Systems business segment,
the Company recorded a provision of $3,510,563 for the loss on disposal
of the discontinued business in the fourth quarter of 1996.
As a result of the change in accounting method for the AMS subsidiary
and the discontinued Imaging Systems business segment, all fiscal 1996
revenues and operating expenses represent those of the Imaging and
Rehabilitation Services business segment exclusively.
Net patient service revenue of $25,481,000 for fiscal 1996 represents
a full year of operations from the Imaging and Rehabilitation Services
business acquired on August 31, 1995. The cost of service operations of
$16,206,000 and provision for bad debt and collection costs of $2,126,000
similarly represent a full year of operations of the service segment. The
year ended September 30, 1995 includes only one month of the Imaging and
Rehabilitation Services business.
Management fees and other revenues of $653,000 in fiscal 1996 is
primarily attributable to fees earned from an entity managed by MDI.
Selling, general, and administrative expenses increased from
$2,449,000 to $4,255,000, respectively, from the year ended September 30,
1995 to fiscal 1996. This increase was primarily due to a full twelve
months of Imaging and Rehabilitation Services operations in fiscal 1996
versus only one month in 1995 offset by the consolidation of the AMS
subsidiary in 1995 versus an equity accounting for this subsidiary in
fiscal 1996.
Interest expense increased from $139,000 to $1,848,000 reflecting the
full twelve months of Imaging and Rehabilitation Services operations during
fiscal 1996 as well as the financing of the MDI acquisition, effective
August 31, 1995.
Minority interests in net income of consolidated MDI entities for
fiscal 1996 totaled $1,006,000. During the year ended September 30, 1995
the minority interests in net loss of consolidated entities included ANMR's
proportionate share of AMS' losses incurred in that period, partially
offset by one months' allocation of income from certain subsidiaries of
MDI.
Equity in loss of unconsolidated subsidiary reflects the Company's
equity accounting for the AMS subsidiary losses during fiscal 1996.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
---------------------------------------------------------------------------
SEPTEMBER 30, 1994, (unaudited)
--------------------------------
Net patient service revenue for September 30, 1995 represents one
month of operations from the Imaging and Rehabilitation Services business
acquired on August 31, 1995. The cost of service operations of $1,203,000
and provision for bad debt and collection costs of $162,000 similarly
represent one month of operations of MDI.
Selling, general, and administrative expenses increased from
$1,136,000 to $2,002,000, respectively, in the 1994 and 1995 nine month
periods. This increase was primarily due to the one month of operations of
MDI, which included an accrual of approximately $500,000 for certain
severance benefits due to a former executive officer of MDI.
The decrease of $13,000 in interest income reflects the reduced
average cash and short-term investment balances available due to cash used
in operations and the acquisition of MDI.
Other income of $580,000 consists largely of $392,000 from the
cancellation of certain stock options previously granted as consideration
to a consultant and $180,000 in proceeds from an insurance claim.
Interest expense of $139,000 reflects the financing of the MDI
acquisition, effective August 31, 1995 and MDI's one month of operations.
The increased allocation of losses to minority interests is due to the
increase of the minority shareholders percentage ownership of AMS from 1994
as a result of the exercise of $3.2 million in warrants and options,
partially offset by one months' allocation of income from certain
subsidiaries of MDI.
Loss from operations of Imaging Systems business segment includes
all activity associated with the August 1996 plan to suspend the
operations of a significant portion of such segment.
Liquidity and Capital Resources
-------------------------------
The Company has available cash and cash equivalents of $3,288,000 at
September 30, 1996 (including $1,451,000 at MDI). As part of the MDI
acquisition, the Company entered into a $15,000,000 bank credit facility,
consisting of a $6,000,000 revolving credit loan which matures in August
1998, and a $9,000,000 term loan which expires in August 2001. As of
December 31, 1996, $5,555,000 of the revolving loan has been utilized,
including $1,200,000 for letters of credit securing certain MRI units
operated by MDI, and the term loan has a balance of $7,500,000.
In May 1996, ANMR closed a private placement (the "Placement") of $3.7
million principal amount of newly issued Series A Convertible Preferred
Stock, $.01 par value, (the "Preferred Stock"). Preferred Stock
shareholders are entitled to receive dividends at a rate of $40.00 per
share per annum, when and as declared by the Board of Directors of the
Company. At December 31, 1996, approximately 2,200 shares of Preferred
Stock were still outstanding after certain conversions. The net proceeds
from the Placement of approximately $3,320,000, after payment of fees and
related expenses, is being used for working capital.
In May 1996, AMS closed a private placement (the "AMS Placement") of
$3 million principal 4% convertible debentures. Net proceeds from the AMS
Placement was approximately $2,752,000 after payment of fees and related
expenses. As of September 30, 1996, an additional 1,748,364 shares of
common stock had been issued in connection with the conversion of these
debentures whereby the Company's percentage ownership of AMS has been
reduced to approximately 48% at September 30, 1996. Accordingly, the
Company has switched from consolidation of AMS to the equity method of
accounting for its investment in AMS.
The Significant Cash Flows from operating activities for the year
ended September 30, 1996 include non-cash adjustments for the discontinued
operations totaling $3,511,000 as well as the Company's equity in the loss
of the AMS Subsidiary of $1,831,000. Net cash used in investing activities
reflects the reduction of cash associated with the formerly consolidated
AMS Subsidiary totaling $1,833,000. Net cash provided by financing
activities reflects the proceeds from the issuance of convertible preferred
stock totaling $3,317,000.
The Company currently funds its operations principally through the use
of cash obtained from a private equity placement. The Company has
had discussions and negotiations with several companies in connection with
the disposition of significant portions of its Imaging business, and
these negotiations and discussions are continuing. Any proceeds from
such disposition should generate sufficient cash to repay the bank
credit facility and meet its other obligations as they come due through
fiscal 1997. However, there can be no assurance that an agreement
would be entered into or that any of the transactions contemplated by
such an agreement would be consummated. See Independent Auditor's Report
on page F-2 and Note C to the financial statements on page F-11.
Inflation
---------
To date, inflation has not had a material effect on the Company's
business. The Company believes that the effects of future inflation may be
minimized by controlling costs and increasing efficiency through an
increase in the volume of MRI examinations performed.
The Company is including the following cautionary statement in its
Annual Report on Form 10-K to make applicable and take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statements made by, or on behalf of the
Company. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements which are other than statements of
historical facts. Certain statements contained herein are forward looking
statements and accordingly involve risks and uncertainties which could
cause actual results or outcomes to differ materially from those expressed
in the forward-looking statements. The Company's expectations, beliefs and
projects are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitations, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs or projections will
result or be achieved or accomplished. In addition to other factors and
matters discussed elsewhere herein, the following are important factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements:
technological advances by the Company's competitors, changes in health care
reform, including reimbursement programs, capital needs to fund any delays
or extensions of research programs, delays in product development, lack of
market acceptance of technology and the availability of capital on terms
satisfactory to the Company. The Company disclaims any obligation to
update any forward-looking statements to reflect events or circumstances
after the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Item 14 and the Index therein for a listing of the financial
statements and supplementary data as a part of this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
No change in the Registrant's accountants occurred during the 24
months prior to the date of the Registrant's most recent financial
statements, nor did any disagreements occur on any matter of accounting
principles or practices or financial statement disclosure that would be
required to be reported on a Form 8-K.
[page break]
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The directors and executive officers of the Company are:
Name Age Position
----- --- --------
Jack Nelson(1)(4) 46 Chairman of the Board,
Chief Executive Officer
and Treasurer
Robert Spira, MD(1)
(3)(4) 48 Vice Chairman of the Board
Enrique Levy (1)(4) 59 President, Chief Operating Officer
and Director
Charles Moche 47 Chief Financial Officer
Robert Kwolyk 49 Vice President, Sales and Marketing
George Aaron(2)(3) 44 Director
David Gaynor 47 Director
Sol Triebwasser, PhD(2) 75 Director
____________________
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation/Option Committee.
(4) Member of the Strategic Development Committee
The principal occupations and brief summary of the background of each
Director and executive officer of ANMR during the past five years is as
follows:
Jack Nelson.
----------- Mr. Nelson has been Chairman of the Board since June
1991 and Treasurer since November 1990. He has also been Chairman of the
Board of AMS since its formation in July 1992. From 1976 through 1993, Mr.
Nelson had been engaged in the private practice of law as senior partner
with the law firm of Zaslowsky, Marx & Nelson in New York, New York for
more than five years prior to December 31, 1993. Since January 1994, he
has been employed full-time with the Company and AMS. Mr. Nelson holds a
B.A. degree from Yeshiva University and J.D. degree from Hofstra University
School of Law. Mr. Nelson serves on the Board of Directors of ARC Capital,
a publicly traded company (NASDAQ: ARCCA).
Robert Spira, M.D.
------------------ Dr. Spira has been a director of the Company since
September 1990, and Vice Chairman since February 1994, and a director and
Vice Chairman of AMS since August 1992. Since October 1992, he has been
the Director of the Department of Gastroenterology at St. Michael's Medical
Center in Newark, New Jersey, and for more than five years prior thereto,
he served as Chief of Gastrointestinal Endoscopy at St. Michael's Medical
Center. Dr. Spira is a graduate of New York University Medical School, a
past president of the New Jersey Society for Gastrointestinal Endoscopy and
President-elect of the New Jersey Society of Gastroenterology. Dr. Spira
is a graduate of New York University School of Medicine.
Enrique Levy.
------------ Mr. Levy has been President and Chief Operating Officer
of ANMR and AMS since October 1995 and a Director of ANMR and AMS since
August 31, 1995. From May 1994 to October 1995 he was Manager,
Manufacturing for Xerox Graphic Systems, the manufacturer of Verde Digital
Recording Film, Purchase, New York, a venture of Xerox Corporation. From
April 1989 to May 1994, he was Executive Vice President of Worldwide
Process Technologies, Allendale, New Jersey, a manufacturer of machinery
and equipment for the web handling and film and paper coating industries.
He holds a B.S. in Chemical Engineering from the Louisiana State
University.
Charles Moche, CPA.
------------------ Mr. Moche has been Chief Financial Officer of the
Company and AMS since January 1, 1994. He has practiced accounting in New
York with a concentration on tax planning and auditing from 1987 to 1993.
He is a member of the American Institute of Certified Public Accountants,
the New York State Society of CPA's, and the Board of Accountancy of the
State of New Jersey Consumer Affairs Division. Mr. Moche holds an MBA in
Accountancy from the Bernard M. Baruch Graduate School of Business, and a
BA in Economics from Yeshiva University. He received an Advanced
Certificate Degree in Taxation from the New York University Graduate School
of Business.
Robert Kwolyk.
-------------- Mr. Kwolyk has been Vice President, Sales and
Marketing since May 1, 1994. From 1988 through 1994, Mr. Kwolyk served as
Manager, MR Sales Planning and Sales Support and subsequently Manager, MR
Market Development of General Electric Medical Systems. Mr. Kwolyk
received his B.S. in Electrical Engineering from Stevens Institute of
Technology.
George Aaron.
------------ Mr. Aaron has been a director of both the Company and
AMS since August 1992. He is the President of Portman Group Inc. in Fort
Lee, New Jersey, an investment and consulting firm primarily in the health
care and consumer goods industries, which he co-founded in 1981. He is a
founder, President and Chief Operating Officer of Portman Pharmaceuticals,
Inc., which is engaged in the research and development of therapeutic and
diagnostic products for autoimmune diseases and immunomodulation. He also
serves in various capacities with other private health care companies. He
is a graduate of the University of Maryland.
David Gaynor.
------------ Mr. Gaynor joined MDI as Vice President for Project
Implementation in April 1988, has served as MDI's Executive Vice President
and Chief Operating Officer August 1988 through December 1995 when he
became President of MDI. From October 1986 to December 1987, Mr. Gaynor
served as Chief Executive Office of Wellcare of New England, a Health
Maintenance Organization ("HMO"). Mr. Gaynor holds a B.A. degree in
English Literature from Manhattan College and a Masters degree in Health
and Hospital Administration from Cornell University.
Sol Triebwasser, Ph.D.
---------------------- Dr. Triebwasser has been a director of the
Company since July 1984 and a director of AMS since August 1992. Until
recently, Dr. Triebwasser was Director of Technical Journals and
Professional Relations for the IBM Corporation in Thornwood, New York.
Since receiving his Ph.D. in physics from Columbia in 1952, he had managed
various projects in device research and applications at IBM. Dr.
Triebwasser is a fellow of the Institute for Electrical and Electronic
Engineers, the American Physical Society and the American Association for
the Advancement of Science.
All directors hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and
qualified. Executive officers hold office until their successors are
chosen and qualified, subject to earlier removal by the Board of Directors.
See Item 12. Security Ownership of Certain Beneficial Owners and
Management.
---------------------------------------------------------------
The Board of Directors met, either in person or telephonically,
eighteen times in fiscal 1996. Each of the directors attended or
participated in 75% or more of the meetings.
The Executive Committee exercises all the powers and authority of the
Board of Directors in the management and affairs of the Company between
meetings of the Board of Directors, to the extent permitted by law. The
executive committee met four times during fiscal 1996.
The Audit Committee reviews with the Company's independent accountants
the scope and timing of the accountants' audit services and any other
services they are asked to perform, their report on the Company's financial
statements following completion of their audit and the Company's policies
and procedures with respect to internal accounting and financial controls.
In addition, the Audit Committee reviews the independence of the
independent public accountants and makes annual recommendations to the
Board of Directors for the appointment of independent public accountants
for the ensuing year. The Audit Committee met twice in fiscal 1996.
The Compensation/Option Committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company and administers the Company's Stock Option Plans.
The Compensation/Option Committee met once in fiscal 1996.
The Strategic Development Committee reviews and recommends to the
Board of Directors major business prospects and future planning as to
products, marketing and joint ventures. The Committee met four times
during fiscal 1996.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the aggregate cash compensation paid by
the Company to (i) its Chief Executive Officer and (ii) its most highly
compensated officers whose cash compensation exceeded $100,000 for services
performed during the year ended September 30, 1996. The Company is
reimbursed by AMS for a portion of the executive salaries pursuant to the
Shared Services Agreement.
<PAGE>
Annual Compensation
-------------------------
Name and Principal Salary Bonus Other Annual
Position Year ($) ($) Compensation
------------------ ------- -------- ------- ------------
Jack Nelson(1) 1996(4) $234,999 $50,000 -0-
Chairman and CEO 1995 176,250 -0- -0-
1994 239,853 -0- -0-
Enrique Levy(5) 1996(4) 246,346 -0- -0-
President & COO
David Gaynor(2) 1996(4) 212,538 -0- -0-
President, MDI
Robert Kwolyk 1996(4) 170,769 -0- -0-
VP, Sales & 1995 109,615 -0- -0-
Marketing
Long-Term Compensation
---------------------------
Awards Payouts
---------- -------
Restricted Stock
Stock Options LTIP All Other
Name and Principal Award(s) Award(s) Payouts Compensation
Position ($) (#) ($) ($)
--------------------- ---------- -------- ------- ------------
Jack Nelson(1) -0- 250,000 -0- $16,200(3)
Chairman and CEO -0- -0- -0- 12,150(3)
-0- 300,000 -0- 18,900(3)
Enrique Levy(5) -0- -0- -0- 8,400(3)
President & COO
David Gaynor(2) -0- 150,000 -0- 6,000(3)
President, MDI
Robert Kwolyk -0- -0- -0- -0-
VP, Sales & Marketing -0- -0- -0- 4,500(3)
(1) Mr. Nelson became a full-time employee beginning January 1, 1994.
(2) Mr. Gaynor became President of MDI beginning December 1, 1995.
(3) Paid to Mr. Nelson for the purpose of reimbursing him for
transportation and other expenses; and to Messrs. Levy, Gaynor and
Kwolyk for the purpose of reimbursing them for transportation.
(4) Salary, all other compensation and stock options awarded during the
year ended September 30, 1996.
(5) Mr. Levy became President and COO beginning October 1, 1995. Mr.
Levy's salary includes a "signing" bonus of $30,000.
Employment Agreements
---------------------
As of December 20, 1995, both the Company and AMS entered into
employment agreements with Jack Nelson (the "Nelson Employment
Agreements"), employing him as Chairman of the Board, Chief Executive
Officer and Treasurer of the Company and AMS, respectively through December
31, 2000 at an aggregate base salary of $235,000, with a 10% increase in
base salary from both companies effective during the second year and with
any additional increases in base salary from both companies thereafter
being instituted by the Board of Directors subject to the Company meeting
revenue and net income budget projections.
Mr. Nelson was granted options to purchase 250,000 shares of the
Company's Common Stock, with 50,000 shares to vest each year. AMS did not
grant any stock options as part of Mr. Nelson's employment agreement with
AMS. The Nelson Employment Agreements further provide that if Mr. Nelson
terminates his employment "for cause" or the Company or AMS, as the case
may be, terminates his employment "without cause" (as each such term is
defined in the Nelson Employment Agreements), or upon Mr. Nelson's death or
disability, Mr. Nelson or his representative shall receive his annual base
salary as paid by the Company or AMS, as the case may be for two full years
from the date of his termination, less any amounts received under the
Company's or AMS' insurance policies, as the case may be. In the event
that the Company or AMS, as the case may be, without the consent of Mr.
Nelson, assigns its rights and obligations under either of the Nelson
Employment Agreements to any company with or into which the Company or AMS
may merge or consolidate, or to which the Company or AMS may sell or
transfer all or substantially all of its assets or of which 50% or more of
the equity investment and of the voting control is owned, directly or
indirectly, by the Company or AMS, and if the assignee was not previously
part of a consolidated group with the Company or AMS, then Mr. Nelson may
terminate the applicable Nelson Employment Agreement within thirty days
after notice of assignment, and he shall receive 2.99 times his full annual
base salary plus any bonuses, but not to exceed such amount which would
result in an excise tax.
As of September 1995, the Company entered into an Employment Agreement
with Enrique Levy (the "Levy Employment Agreement"), employing him as
President and Chief Operating Officer of the Company commencing October 1,
1995, through December 31, 2000, at a base salary of $225,000 per annum
with a 10% increase in base salary effective during the second year, with
any additional increases during the third, fourth and fifth years to be
based upon increasing net income of the Company and AMS in excess of the
annual budgeted net income of the respective companies. Mr. Levy also
received a $30,000 "signing" bonus and is entitled to receive annual cash
bonuses based upon Mr. Levy's overall performance including a comparison of
the actual annual financial results of each of the Company and AMS as
compared to budgets for the year. Mr. Levy was also granted options to
purchase (i) 250,000 shares of the Common Stock of the Company to vest over
a three year period and (ii) 100,000 shares of Common Stock of AMS to vest
over a three year period. The Levy Employment Agreement further provides
that if Mr. Levy terminates his employment "for cause" or the Company
terminates his employment "without cause" (as such term is defined in the
Levy Employment Agreement), or upon Mr. Levy's death or disability, Mr.
Levy or his representative shall receive his annual base salary for two
full years from the date of his termination, less any amounts received
under the Company's insurance policies. In the event that the Company,
without the consent of Mr. Levy, assigns its rights and obligations under
the Levy Employment Agreement to any company with or into which the Company
may merge or consolidate, or to which the Company may sell or transfer all
or substantially all of its assets or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly, by
the Company, and if the assignee was not previously part of a consolidated
group with the Company, then Mr. Levy may terminate the Levy Employment
Agreement within thirty days after notice of assignment, and he shall
receive 2.99 times his full annual base salary plus any bonuses, but not to
exceed such amount which would result in an excise tax. AMS pays 50% of
all compensation paid to Mr. Levy pursuant to the Company's Shared Services
Agreement with AMS.
On November 1, 1996, each member of senior management accepted the
opportunity to have the exercise price of all outstanding stock options
held by them repriced to the market price of the Company's Common Stock as
of August 22, 1996 ($0.50) if, in exchange for such repricing, such member
of senior management agreed to defer 17% of his salary for one year, at
which time the Compensation Committee would determine whether additional
deferrals were necessary. Messrs. Nelson, Levy and Gaynor agreed to the
repricing of options held by them on such terms. See "Report of the
Compensation Committee of the Board of Directors on Executive Compensation
and Repricing of Options.", below.
As of December 1, 1995, MDI entered into an Employment Agreement with
David Gaynor (the "Gaynor Employment Agreement"), employing him as
President of MDI through June 30, 1999, at a base salary of $225,000 per
annum. The base salary is increased by 10% without any conditions on the
first anniversary and a minimum 10% increase subject to achieving
performance targets on each anniversary thereafter during its term. Mr.
Gaynor is entitled to receive a bonus if MDI achieves performance targets
and as determined by the Board or the Compensation Committee of the
Company. Mr. Gaynor was also granted options under the ANMR Stock Option
Plan for the purchase of 150,000 shares of ANMR Common Stock, exercisable
over five years and with one-third of the shares on the date of the Gaynor
Employment Agreement and one-third to vest of the shares to vest on each
successive anniversary of the same date. The Gaynor Employment Agreement
further provides that if the Company terminates his employment "for cause",
Mr. Gaynor is not entitled to any compensation other than his base salary
through the date of termination. If the Company terminates his employment
"without cause" or if Mr. Gaynor terminates his employment "for cause", Mr.
Gaynor shall receive his annual base salary for two full years in addition
to health insurance coverage for one year and any outstanding invested
stock options would be exercisable for a period of twelve months from the
date of termination. In the event of Mr. Gaynor's death, Mr. Gaynor's
estate is entitled to his annual base salary for one year. In the event
that the Company assigns its rights and obligations under the Gaynor
Employment Agreement to any company with or into which the Company may
merge, or to which the Company may sell or transfer all or substantially
all of its assets or of which 50% or more of the equity investment and of
the voting control is owned, directly or indirectly, by the Company, or
there is a complete or substantial liquidation or dissolution of MDI, or
the sale of all or substantially all of the assets of MDI and if the
assignee was not previously part of a consolidated group with the Company,
then Mr. Gaynor may terminate the Gaynor Employment Agreement within sixty
days after notice of assignment, and he shall receive 2.99 times his full
annual base salary plus any bonuses, but not to exceed such amount which
would result in an excise tax.
As of May 1, 1994, the Company entered into an Employment Agreement
with Robert Kwolyk (the "Kwolyk Employment Agreement"), employing him as
Vice President, Sales and Marketing of the Company through April 30, 1997,
at a base salary of $150,000 per annum with a $15,000 increase in base
salary effective on each anniversary during its term. Mr. Kwolyk also
received a $20,800 "signing" bonus and is entitled to receive annual cash
bonuses based upon the recommendation of the Compensation Committee. No
bonuses were awarded for 1994 or 1995. Mr. Kwolyk was also granted options
to purchase (i) 200,000 shares of the Common Stock of the Company to vest
over a three year period and (ii) 50,000 shares of Common Stock of AMS to
vest over a three year period. The Kwolyk Employment Agreement further
provides that if Mr. Kwolyk terminates his employment "for cause" or the
Company terminates his employment "without cause" (as such term is defined
in the Kwolyk Employment Agreement), or upon Mr. Kwolyk's death or
disability, Mr. Kwolyk or his representative shall receive his annual base
salary for two full years from the date of his termination, less any
amounts received under the Company's insurance policies. In the event that
the Company, without the consent of Mr. Kwolyk, assigns its rights and
obligations under the Kwolyk Employment Agreement to any company with or
into which the Company may merge or consolidate, or to which the Company
may sell or transfer all or substantially all of its assets or of which 50%
or more of the equity investment and of the voting control is owned,
directly or indirectly, by the Company, and if the assignee was not
previously part of a consolidated group with the Company, then Mr. Kwolyk
may terminate the Kwolyk Employment Agreement within thirty days after
notice of assignment, and he shall receive 2.99 times his full annual base
salary plus any bonuses, but not to exceed such amount which would result
in an excise tax.
The Company does not have any annuity, retirement, pension or deferred
compensation plan or other arrangement under which any executive officers
are entitled to participate without similar participation by other
employees.
STOCK OPTIONS
-------------
In 1983, the Company adopted an Incentive and Non-Qualified Stock
Option Plan (the "1983 Plan") (which was amended and restated as of
February 1, 1988), which provided for the granting of options to purchase
not more than 1,000,000 shares of Common Stock. The options could have
been "incentive stock options" within the meaning of the Internal Revenue
Code of 1986 as amended (the "Code"), or non-qualified. The 1983 Plan
terminated on June 29, 1993. Options for an aggregate of 152,090 shares of
Common Stock at exercise prices ranging from $0.50 to $3.15 were
outstanding under the 1983 Plan as of December 31, 1996.
In November 1993, the Company adopted the 1993 Employee Stock Option
Plan (the "1993 Employee Plan") and the 1993 Directors Stock Option Plan
for Non-Employee Directors (the "1993 Directors Plan").
1993 EMPLOYEE STOCK OPTION PLAN
The 1993 Employee Plan is open to all employees and officers of the
Company, and certain advisors or consultants to the Company as selected by
the Option Committee, which administers the Plan. This Plan includes Non-
Qualified Options and Incentive Options, as denominated under the Code.
The maximum number of shares of Common Stock which may be issued by the
Company under the 1993 Employee Plan is 2,250,000 shares.
The Option Committee determines, subject to the provisions of the
Plan, to whom options are granted, the number of shares of Common Stock
subject to option and whether or not options shall be incentive stock
options or non-qualified stock options. The exercise price of incentive
stock options granted under the Plan must be at least equal the fair market
value (110% of the fair market value if the recipient owns more than 10% of
the combined voting power of all classes of outstanding stock of the
Company ("10% Stockholder")) of the Common Stock on the date of the grant.
The aggregate fair market value (determined as of the date of the grant) of
the shares of Common Stock with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar year
may not exceed $100,000. The exercise price of non-qualified options may
not be less than such fair market value. As of December 31, 1996,
incentive and non-qualified stock options to purchase an aggregate of
1,920,688 shares of Common Stock at per share exercise prices ranging from
$0.50 to $4.255 were outstanding under the Plan, and no options have been
exercised under this Plan.
Options and warrants assumed in the MDI Merger are exercisable for
ANMR Common Stock and warrants to purchase ANMR Common Stock.
1993 DIRECTORS STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1993 Directors Plan covers all directors of the Company who are
not employees of the Company. In 1994, this Plan was amended to reduce the
number of options to 15,000 shares from 25,000 shares of Common Stock a
person is granted upon becoming a director, and 10,000 shares thereafter
annually if such person has been a director of the Company for more than
six months. The maximum number of shares which may be issued under the
1993 Directors Plan is 625,000. At December 31, 1996, there were
outstanding options under this Plan for the purchase of 180,000 shares of
Common Stock at per share exercise price of $0.50.
OTHER STOCK OPTIONS
In addition to the above plans, at December 31, 1996, there were
outstanding options and warrants to purchase 1,366,698 shares of Common
Stock at prices ranging from $0.50 to $3.75 per share exercisable through
March 2005.
-------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual
Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to on Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
-------------------------------------------------------------------
Jack Nelson 250,000 62.5 $.50 12/20/2000
Enrique Levy -0-
David Gaynor 150,000 37.5 $.50 12/01/2000
Robert Kwolyk -0-
-----------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Alternativ
Value at Assumed Annual e to (f)
Rates of Stock Price and (g)
Appreciation for Option Grant Date
Term Value
(a) (f) (g) (h)
Grant Date
Present
Name 5% ($) 10% ($) Value $
------------------------------------------------------------
Jack Nelson $27,000 $58,000
Enrique Levy
David Gaynor $16,000 $35,000
Robert Kwolyk
<PAGE>
---------------------------------------------------------------
FISCAL YEAR END OPTION VALUE
VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED IN-
OPTIONS AT SEPT. 30, THE-MONEY OPTIONS
1996 EXERCISABLE/ AT SEPT. 30, 1996
NAME UNEXERCISABLE EXERCISABLE
---- ---------------------- -----------------
Jack Nelson . . . 250,000/250,000 $-0-
David Gaynor . . 191,791/50,000 -0-
Robert Kwolyk . . 133,333/66,667 -0-
Enrique Levy . . 83,333/166,667 -0-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION AND THE REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors (the
"Committee") establishes the general compensation policies of the
Company, establishes the compensation plans and specific
compensation levels for executive officers, and administers the
Employee and Directors Plans. The Committee is composed of two
independent, non-employee Directors.
The Committee believes that the chief executive officer's
("CEO") compensation and the compensation of the officers of the
Company should be heavily influenced by Company performance.
Stock options are granted to the CEO and other executives,
primarily based upon the executive's ability to influence the
Company's long term growth. In addition, the Committee considers
factors such as relative Company performance, the individual's
past performance and future potential in establishing the
compensation levels and stock option awards.
During 1996 the Committee considered that fact that the
exercise price for existing stock options for executive officers,
employees, current directors and consultants of the Company
granted in prior years had become considerably in excess of
market prices for the Company's Common Stock and that as a result
such options did not provide the holders with the desired
incentive of linking their long term compensation with the
performance goals of the Company's stockholders. This
consideration along with the Committee's consideration of certain
cash pressures experienced by the Company which prohibit
increases in cash compensation of executive officers lead to the
Committee's recommendation that previously issued options be
canceled and reissued at exercise prices close to the market
value of the Company's Common Stock.
As a result, in August 1996 the Committee and the Board
approved the cancellation and reissuance of certain previously
issued options held by current executive officers and directors
on the following terms. Each member of senior management was
given the opportunity to have the exercise price of all
outstanding stock options held by them repriced to the market
price of the Company's common stock as of August 22, 1996 ($.50)
if, in exchange for such repricing, such member of senior
management agreed to defer 30.00% of his salary for one year, at
which time the Compensation Committee would determine whether
additional deferrals were necessary. Messrs. Nelson, Levy and
Moche agreed to the repricing of the options held by them on such
terms and Dr. Roemer did not accept such offer. Each non-
employee director of the Company was also given the opportunity
to have the exercise price of options presently held by him
repriced to the market price of the Corporation's Common Stock as
of August 22, 1996 if, in exchange for such repricing, such
director agreed to forego the $10,000 board fee. All incumbent
non-employee directors agreed to the repricing of their options
on such terms.
The Committee and the Board felt that the deferral in the
salaries of the executive officers and the elimination of the
board fee in exchange for repricing of options held by executive
officers and directors, respectively, was the best way for the
Company to continue to provide incentive to its executive
officers and directors while simultaneously addressing the
Company's cash pressures by reducing payroll expenses.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Robert Spira
George Aaron
----------------------------------------------------------------
10-YEAR OPTION/SAR REPRICINGS
Number of
Securities Market Price Exercise
Underlying Of Stock At Price At
Options/SARs Time Of Time Of
Repriced Or Repricing Or Repricing Or
Amended Amendment Amendment
Name Date (#) ($) ($)
(a) (b) (c) (d) (e)
----------------------------------------------------------------
Jack Nelson, 8/22/96 250,000 .50 3.13
CEO 8/22/96 250,000 .50 1.16
----------------------------------------------------------------
Enrique
Levy,
President &
COO 8/22/96 250,000 .50 2.06
----------------------------------------------------------------
David Gaynor 8/22/96 23,840 .50 1.75
8/22/96 20,267 .50 2.01
8/22/96 47,684 .50 1.45
8/22/96 150,000 .50 1.28
-------------------------------------------------------------
10-YEAR OPTION/SAR REPRICINGS
Length Of
Original Option
Term Remaining
New At Date Of
Exercise Repricing Or
Name Price Amendment
(a) (f) (g)
-------------------------------------------------------------
Jack Nelson, CEO .50 02/09/98
.50 12/20/00
-------------------------------------------------------------
Enrique Levy, President &
COO .50 10/04/00
-------------------------------------------------------------
David Gaynor .50 08/09/01
.50 11/20/02
.50 12/16/03
.50 12/01/00
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------------------------------------------------------
MANAGEMENT
----------
The following table sets forth, as of December 31, 1996,
certain information regarding the beneficial ownership of Common
Stock by (i) each person who is known by the Company to own
beneficially more than five percent of the outstanding Common
Stock, (ii) each director of the Company, and (iii) all directors
and executive officers as a group:
[page break]
Amount and Percentage
Position Nature of of
Name and Address with Beneficial Common
Of Beneficial Owner Company Ownership (1) Stock
------------------ ---------- ------------- ---------
J. Morton Davis None 1,562,142 (2) 4.1%
44 Wall Street
New York, NY 10005
D.H. Blair None 1,562,142 (2) 4.1%
Holdings, Inc.
44 Wall Street
New York, NY 10005
Jack Nelson Chairmand of 300,000 (3) .8%
the
Board; Chief
Executive
Officer
Treasurer
Enrique Levy President; 83,333(4) .2%
Chief
Operating
Officer;
Director
George Aaron Director 112,500 (5) .3%
David Gaynor DIirector 229,791 (6) .5%
Robert Spira, MD Director 100,000 (7) .3%
Sol Triebwasser, Director 95,000 (8) .2%
Ph.D.
All directors and 882,624 2.3%
executive
officers as a group (7 persons) (3)(4)(5)(6)(7)(8)
(1) All shares of Advanced NMR Common Stock are beneficially
owned, and the sole voting and investment power is held by
the persons named, except as set forth in the notes below.
A person is deemed to be the beneficial owner of shares that
can be acquired within 60 days of the date of this table
upon exercise of options or warrants.
(2) Includes (i) 1,291,242 shares held by D.H. Blair Investment
Banking Corp., an investment banking firm of which D.H.
Blair Holdings Inc. is the sole stockholder, of which Mr.
Davis is the Chairman and sole stockholder, and (ii) 270,900
shares held by Engex, Inc., a closed-end investment company
of which Mr. Davis is the President and Chairman of the
Board and as to which Mr. Davis disclaims beneficial
ownership. The information set forth with respect to the
holdings of J. Morton Davis is taken from Amendment No. 2 to
Schedule 13G filed by J. Morton Davis and D.H. Blair
Investment Banking Corp. ("D.H. Blair") with the Securities
and Exchange Commission with respect to their holdings of
Advanced NMR Common Stock.
(3) Includes 300,000 shares underlying presently exercisable
options granted under the 1993 Employee Plan. Excludes (i)
2,000 shares owned by Mr. Nelson's wife, as to which shares
he disclaims beneficial ownership; and (ii) 200,000 shares
underlying options granted under the 1993 Employee Plan
which are subject to vesting thereunder.
(4) Includes 83,333 shares underlying presently exercisable
options and excludes 166,667 shares underlying options
granted which become exercisable subject to vesting
thereunder.
(5) Includes 112,500 shares underlying options presently
exercisable under the 1983 Plan and the 1993 Directors Plan,
and excludes 7,500 shares underlying options under the 1983
Plan and the 1993 Directors Plan which are not presently
exercisable.
(6) Includes (1) 38,000 shares held by Mr. Gaynor and (ii)
191,791 shares underlying options presently exercisable
under the 1993 Employee Plan, and excludes 50,000 shares
underlying options under the 1993 Employee Plan which are
not presently exercisable.
(7) Includes 100,000 shares underlying options presently
exercisable granted under the 1983 Plan and the 1993
Directors Plan.
(8) Includes 87,500 shares underlying presently exercisable
options granted under the 1983 Plan and the 1993 Directors
Plan, and excludes 7,500 shares underlying options granted
under the 1983 Plan and the 1993 Directors Plan which are
not presently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
In July 1992, the Company in forming AMS as a subsidiary for
the purpose of financing the development of MRI scanners for
breast imaging entered into the ANMR License Agreement, pursuant
to which the Company licensed to AMS the right to use the
Company's technology in the development of a dedicated breast
imaging system. In consideration, AMS paid $1,680,000 and issued
to the Company 4,000,000 shares of AMS Common Stock, of which
2,750,000 shares are subject to an escrow agreement described
below.
On August 29, 1996, the Company's Shared Services Agreement
with AMS, dated January 25, 1992 was terminated and the Company
and AMS entered into a new agreement which outlines a more
accurate method of allocating the services that are shared by the
companies. The new agreement has developed as a result of two
significant factors: (a) the changes in the profile of the
Company which is modifying its technology operations related to
the manufacture of its InstaScan retrofit system and is attending
to its service division, and (b) the growing independence of both
companies as each company pursues divergent objectives. Vendors
for parts and services have been instructed to provide separate
invoices directly to the Company and AMS, as the case may be.
Expenses related to the use of the facilities, such as rent,
utilities and insurance, will be apportioned based on the number
of square feet occupied by the Company or AMS, respectively. AMS
also pays the Company a monthly fee for overhead services, which
is calculated by apportioning the total amount spent by the
Company on all general overhead expenses, based on a fixed
percentage of overhead expenses plus an allocation of
compensation of the executive officers based upon the amount of
time spent with the respective companies. The Company's officers
and employees are required by the Shared Services Agreement to
devote as much time to AMS business as they, in their discretion,
consider appropriate. The Boards of Directors and the President
of both the Company and AMS are responsible for determining the
appropriate amount of time spent by the Company's officers and
employees pursuant to the Shared Services Agreement, and
overseeing the provision of such services. Seven of the ten
officers and directors of AMS are also officers and directors of
the Company. Any conflicts will be resolved by Jack Nelson,
Chairman of the Board of both the Company and AMS, and by the
Board of Directors of each company, consistent with their
fiduciary duties.
As of September 30, 1996, the Company had made advances and
been reimbursed for expenses incurred on behalf of AMS for
research and development and other activities relating to the
development of AMS' MRI scanner for breast imaging aggregating
approximately $3,626,000.
Also, in connection with the public offering, the Company
had placed 2,750,000 of its 4,000,000 shares of AMS Common Stock
into escrow. On May 1, 1997, all shares subject to the escrow
will be forfeited and contributed to the capital of AMS as a
result of AMS' failure to achieve certain financial milestones,
which if achieved would have resulted in the release of the
escrowed shares. Upon the forfeiture of the escrowed shares, AMS
will incur an expense based on the fair market value of AMS
Common Stock and the Company's interest in AMS will be reduced to
approximately 20%. For consolidation purposes, the Company
treats the escrow shares as if they were outstanding.
The Company believes that the transactions between the
Company and AMS described above were on terms not less favorable
to the Company than the terms that would have been available from
unaffiliated parties under similar circumstances. Actual
comparisons with other transactions are not possible, however.
[page break]
PART IV
---------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a)(1) The following financial statements are filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(a)(2) The following Financial Statement Schedules are filed
herewith: None All schedules have been omitted because
they are inapplicable or not required, or the
information is included in the financial statements or
notes thereto.
(a)(3) Exhibits, including those incorporated by reference.
[page break]
Exhibit
-------
No. Description
--- -----------
2 Agreement and Plan of Merger among Registrant, ANMR
Acquisition Corp. and Medical Diagnostics, Inc.
("MDI"), dated May 2, 1995 (incorporated by reference
to Annex A to the Joint Proxy Statement/Prospectus to
Registrant's Registration Statement on Form S-4,
declared effective August 3, 1995 (File No. 33-
95302)("Registrant's Form S-4").
3.1 Certificate of Incorporation of Registrant.
(incorporated by reference to Exhibit 3 filed with
Registrant's Registration Statement on Form S-2, and
amendments thereto, declared effective August 18, 1993
(File No. 2084785 ("Registrant's Form S-2"))
3.2 Amendment to Certificate of Incorporation of Registrant
filed November 5, 1993 (incorporated by reference to
Exhibit 3.2 to Registrant's Form S-4).
3.3 Amendment to Certificate of Incorporation of
Registrant, filed August 31, 1995, (incorporated by
reference to Exhibit 3.1 to Registrant's Form 8-K for
an event of August 31, 1995 (the "August 1995 Form 8-
K")).
3.4 Amendment to Certificate of Incorporation of
Registrant, filed September 21, 1995.
3.5 Amended and Restated By-laws of Registrant
(incorporated by reference to Exhibit 3.4 to
Registrant's Form S-4).
4.1.1 Form of Warrant Agreement between Registrant and
American Stock Transfer & Trust Company, as Warrant
Agent (incorporated by reference to Exhibit 4 to
Registrant's August 1995 Form 8-K).
4.1.2 Form of Warrant Certificate (incorporated by reference
to Annex B to the Registrant's Joint Proxy Statement,
dated August 31, 1995).
4.2 Specimen Certificate for Common Stock, par value $.01
per share, of Registrant (incorporated by reference to
Exhibit 4.2 to Registrant's Form S-4).
4.3.1 Form of Supplemental Agreement relating to Registrant's
assumption of MDI's Obligations under the Warrant
Agreement between MDI and First Albany Corporation and
Janney Montgomery Scott, Inc. (incorporated by
reference to Exhibit 4.3.1 to Registrant's Form S-4).
4.3.2 Form of Supplemental Agreement relating to Registrant's
assumption of MDI's Obligations under the Warrant
Agreement between MDI and Jacob Agam (incorporated by
reference to Exhibit 4.3.2 to Registrant's Form S-4).
4.4 Form of Warrant Certificate, dated as of March 6, 1994,
issued to Dominick & Dominick Incorporated
(incorporated by reference to Exhibit 4.4 to
Registrant's Form S-4).
4.5 Certificate of Designation of Series A Preferred Stock
of the Company (incorporated by reference to the
Company's Current Report on Form 8-K, filed on March
31, 1996 (File No. 0-11914)).
10.1 Registrant's 1983 Incentive and Non-Qualified Stock
Option Plan, Amended and Restated as of February 1,
1988, and form of incentive stock option (incorporated
by reference to Exhibit 10.4 to Registrant's Form S-2).
10.2 Registrant's 1993 Employee Stock Option Plan
(incorporated by reference to Exhibit A of the Proxy
Statement for Registrant's 1993 Annual Meeting of
Stockholders (File No. 0-11914)).
10.3 Registrant's 1993 Directors Stock Option Plan for Non-
Employee Directors (incorporated by reference to
Exhibit B of the Proxy Statement for Registrant's 1993
Annual Meeting of Stockholders (File No. 0-19914)).
10.4.1 Amended and Restated Agreement between the Registrant
and General Electric Company, dated November 30, 1989
(incorporated by reference to Exhibit 10.6 filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (File No. 0-19914)).
10.4.2 Amended 1989 Agreement with General Electric Company,
dated March 5, 1993 (incorporated by reference to
Exhibit 10.12 filed with Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
(File No. 0-11914)).
10.4.3 Amended 1993 Agreement with General Electric Company,
dated March 5, 1993 (incorporated by reference to
Exhibit 10.4.2 filed with Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-11914) (the "ANMR 1994 Form 10-K")).
10.4.5 1994 Agreement between Registrant and General Electric
Company, dated July 29, 1994 (incorporated by reference
to Exhibit 10.4.5 to Registrant's Form S-4).
10.5 Employment Agreement between Registrant and Jack
Nelson, dated as of December 6, 1993 (incorporated by
reference to Exhibit 10.5 filed with the ANMR 1994 Form
10-K).
10.6 Employment Agreement among Registrant, Advanced
Mammography Systems, Inc. ("AMS") and Enrique Levy,
dated September 17, 1995.
10.7 Employment Agreement between Registrant and Robert L.
Kwolyk, dated as of April 25, 1994 (incorporated by
reference to Exhibit 10.8 to Registrant's Form S-4).
10.8 Employment Agreement among Registrant, MDI and John A.
Lynch, dated May 2, 1995 (incorporated by reference to
Exhibit 47 to MDI's Schedule 14D-9 (Amendment No. 18)
filed on May 3, 1995).
10.9 Lease Agreement between Registrant and John T.
Spinelli,
dated May 5, 1991 (incorporated by reference to Exhibit
10.9 filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (File No.
0-19914)).
10.10 License Agreement between Registrant and AMS, dated
July 29, 1992 (incorporated by reference to Exhibit
10.13 to Registrant's Form S-2).
10.11* Shared Services Agreement between Registrant and AMS
dated August 29, 1996.
10.12 Escrow Agreement among Registrant, AMS and American
Stock Transfer & Trust Company, dated December 1992
(incorporated by reference to Exhibit 10.15 to
Registrant's Form S-2).
10.13 Loan and Security Agreement, dated as of August 31,
1995, between MDI and Chemical Bank (without exhibits)
(incorporated by reference to Exhibit 10.2 to
Registrant's August 1995 Form 8-K).
10.14 Guaranty and Security Agreement, dated as of August 31,
1995, between Registrant and Chemical Bank (without
exhibits) (incorporated by reference to Exhibit 10.3 to
Registrant's August 1995 Form 8-K).
10.15 Guaranty and Security Agreement, dated as of August 31,
1995, between certain subsidiaries of MDI and Chemical
Bank (without exhibits) (incorporated by reference to
Exhibit 10.4 to Registrant's August 1995 Form 8-K).
10.16 Pledge Agreement, dated as of August 31, 1995, between
Registrant and Chemical Bank (incorporated by reference
to Exhibit 10.5 to Registrant's August 1995 Form 8-K).
10.17 Pledge Agreement, dated as of August 31, 1995, between
MDI and Chemical Bank (incorporated by reference to
Exhibit 10.6 to Registrant's August 1995 Form 8-K).
10.18 Amended and Restated Joint Venture Agreement among MDI
and Medical Imaging Partners, L.P., dated August 6,
1990 (incorporated by reference to Exhibit 10(b)(1) to
MDI's Registration Statement on Form S-1 as amended on
October 30, 1991 (File No. 33-42748)) (the "MDI
Registration Statement").
10.19 Restated Management Agreement between MDI and Mass.
Mobile Imaging Venture, dated August 6, 1990
(incorporated by reference to Exhibit 10(b)(2) to the
MDI Registration Statement).
10.20 Restated and Amended Medical Imaging Lease and Services
Agreement between Western Mass. Magnetic Resonance
Services, Inc. and Mass. Mobile Imaging Venture, dated
August 6, 1990 (incorporated by reference to Exhibit
10(b)(3) to the MDI Registration Statement).
10.21 Medical Imaging Lease and Services Agreement between
Mobile MRI of Western Massachusetts Associates and
Mass. Mobile Imaging Venture, dated August 6, 1990
(incorporated by reference to Exhibit 10(b)(4) to the
MDI Registration Statement).
10.22 Lease Agreement between Medical Imaging Partners, L.P.
and Mass. Mobile Imaging Venture, dated December 31,
1986 (incorporated by reference to Exhibit 10(b)(9) to
the MDI Registration Statement).
10.23 MRI Management Services Agreement between Merrimack
Valley Health Services, Inc. and MDI dated October 1,
1990 (incorporated by reference to Exhibit 10(f)(1) to
the MDI Registration Statement).
10.24 Joint Venture Agreement of Mobile MRI of Western
Massachusetts Associates, between Mobile MRI of Western
Massachusetts, Inc. and MRI Associates Inc., dated
December 22, 1986 (incorporated by reference to Exhibit
10(h)(1) to the MDI Registration Statement).
10.25.1 Lease Agreement between MDI and the Trustees of Six New
England Executive Park, dated January 22, 1988
(incorporated by reference to Exhibit 10(j) to the MDI
Registration Statement).
10.25.2 First Amendment to Lease Agreement between MDI and the
Trustees of Six New England Executive Park, dated
October 15, 1992.
10.25.3 Second Amendment to Lease Agreement between MDI and the
Trustees of Six New England Executive Park, dated April
6, 1993.
10.26 Severance Agreements between MDI and each of Judy C.
Erbstein, David C. Gaynor, Steven J. James, Eileen H.
Kirrane, Elaine H. McCarthy, Ruselle W. Robinson and
John F. Sweeney, each dated February 16, 1995
(incorporated by reference to Exhibit 35 to MDI's
Schedule 14D-9 (Amendment No. 13) filed with the
Commission on February 23, 1995).
10.27 Stock Purchase Agreement between MDI, John W. Hammer
and Hi-Chicago Trust, dated October 12, 1988
(incorporated by reference to Exhibit 10(o) to the MDI
Registration Statement).
10.28 Clinical License for MRI Services by Western Mass.
Magnetic Resonance Services, Inc. (incorporated by
reference to Exhibit 10(p)(1) to the MDI Registration
Statement).
10.29 Clinical License for MRI Services by Mobile MRI of
Western Massachusetts Associates (incorporated by
reference to Exhibit (10(p)(2) to the MDI Registration
Statement).
10.30 Clinical License for MRI Services by Central Mass. MRI
Limited Partnership ("Central Mass.") (incorporated by
reference to Exhibit 10(p)(4) to the MDI Registration
Statement).
10.31 Clinical License for MRI Services by Greater Boston MRI
Limited Partnership ("Greater Boston") (incorporated by
reference to Exhibit 10(p)(3) to the MDI Registration
Statement).
10.32.1 Determination of Need issued to Western Mass. Magnetic
Resonance Services, Inc., to provide Mobile MRI
Services, dated May 29, 1986 (incorporated by reference
to Exhibit 10(q)(1) to the MDI Registration Statement).
10.32.2 Determination of Need issued to Western Mass. Magnetic
Resonance Services, Inc., to provide free-standing,
fixed site MRI services, dated April 3, 1989
(incorporated by reference to Exhibit 10(q)(2) to the
MDI Registration Statement).
10.33 Determination of Need issued to Central Mass., dated
July 20, 1988 (incorporated by reference to Exhibit
10(q)(3) to the MDI Registration Statement).
10.34.1 Determination of Need issued to Greater Boston MRI
Services, Inc. ("Greater Boston"), dated April 8, 1988,
with letter transferring ownership of the Determination
of Need to Greater Boston (incorporated by reference to
Exhibit 10(q)(4) to the MDI Registration Statement).
10.34.2 Determination of Need issued to Greater Boston, dated
October 12, 1989 (incorporated by reference to Exhibit
10(q)(5) to the MDI Registration Statement).
10.35 Determination of Need issued to Mobile MRI of Western
Massachusetts Associates, dated August 28, 1989
(incorporated by reference to Exhibit 10(q)(6) to the
MDI Registration Statement).
10.36 Agreement between Stephen O. Dell, Seacoast Scanning,
Inc., MDI and Casco Bay MR Services, Inc., dated June
20, 1987 (incorporated by reference to Exhibit 10(u) to
the MDI Registration Statement).
10.37 Agreement in principle between MDI and Toshiba America
Medical Systems, Inc., dated November 8, 1991
(incorporated by reference to Exhibit 10(ae)(7) to the
MDI Registration Statement).
10.38 "Maxiservice" MRI Lease Agreement between General
Electric Company and Mass. Mobile Imaging Venture,
dated February 21, 1991 (incorporated by reference to
Exhibit 10(af)(1) to the MDI Registration Statement).
10.39 "Masterline" Van Lease Agreement between General
Electric Company and Mass. Mobile Imaging Venture,
dated February 21, 1991 (incorporated by reference to
Exhibit 10(af)(2) to the MDI Registration Statement).
10.40 Asset Purchase Agreement and Support Services Agreement
(incorporated by reference to Exhibit E-1 and E-2 to
MDI's Report on Form 8-K filed on November 17, 1993
(File No. 0-11914)).
10.41 Stock Purchase Agreement and First Amendment to Stock
Purchase Agreement (incorporated by reference to
Exhibit E-1 and E-2 to MDI's Report on Form 8-K/A filed
on July 25, 1994 (File No. 0-11914)).
10.42 Amended License and Services Agreement between
Burlington Imaging Associates, Inc., P.C. and MDI
(incorporated by reference to Exhibit 10 to MDI's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (File No. 0-19736)).
10.43 Purchase and Sale Agreement dated November 17, 1994
between MDI Rehab, Inc. and MVA Center for
Rehabilitation, P.C. (incorporated by reference to
Exhibit 2 to MDI's Report on Form 8-K filed on February
15, 1995 (File No. 0-19736)).
10.44 Amended Management Agreement between MDI and ICI dated
October 30, 1987 and amended October 1, 1991
(incorporated by reference to Exhibit 10(a)(1) and
10(a)(2) to the MDI Registration Statement).
10.45 Key Employment Agreement between MVA Rehabilitation
Associates and Eric T. Shebar, M.D. dated as of January
31, 1995 (incorporated by reference to Exhibit 10(b) to
MDI's Report on Form 8-K filed on February 15, 1995
(File No. 0-19736)).
10.46 Amended and Restated Agreement of Partnership of MVA
Rehabilitation Associates (incorporated by reference to
Exhibit 10(a) to MDI's Report on Form 8-K filed on
February 15, 1995 (File No. 0-19736)).
10.47* Employment Agreement, dated December 20, 1995, between
ANMR and Jack Nelson.
10.48* Employment Agreement, dated December 1, 1995, between
MDI and David Gaynor.
10.49 Form of Regulation S Securities Subscription Agreement
relating to the Company's Series A Preferred Stock
(incorporated by reference to the Company's current
report on Form 8-K, dated March 31, 1996 (File No. 0-
11914)).
21. List of Company's subsidiaries.
23.* Consent of Richard A. Eisner & Company, LLP,
independent public accountants for Company.
(b) Reports on Form 8-K
-------------------
None.
-----------------------
* Filed herewith
[page break]
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Percentage
Subsidiary State of Incorporation of Ownership
-----------------------------------------------------------------
Advanced Mammography
Systems, Inc. Delaware 48
Medical Diagnostics, Inc. Delaware 100
Western Massachusetts Magnetic
Resonance Services, Inc.* Massachusetts 100
MRI Associates, Inc.* Massachusetts 100
MDI Investment, Inc.* Massachusetts 100
Greater Springfield MRI, Inc.* Massachusetts 100
Greater Boston MRI Services, Inc.* Massachusetts 100
Mobile MRI of Western Mass., Inc.* Massachusetts 100
Central Massachusetts MRI
Services, Inc.* Massachusetts 100
Casco Bay MR Services, Inc.* Maine 100
MDI Finance & Leasing, Inc.* Massachusetts 100
Merrimack Scanning, Inc.* New Hampshire 100
Middlesex MRI Center, Inc.* Massachusetts 100
MDI-New York Inc.* New York 100
MDI Rehab, Inc.* Massachusetts 100
Meritus PLS, Inc.* Virginia 100
* Owned directly by Medical Diagnostics, Inc.
[page break]
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 33-47517, 33-70834 and 33-78928 of Advanced NMR
Systems, Inc. (the "Company") on Form S-8 of our report dated
November 22, 1996 on the consolidated financial statements of the
Company and its subsidiaries for the year ended September 30,
1996, the nine month period ended September 30, 1995 and the year
ended December 31, 1994 appearing in this Annual Report on Form
10-K of the Company.
/s/ Richard A. Eisner & Company, LLP
-----------------------------------
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
January 10, 1997
[page break]
SIGNATURES
-----------
Pursuant to the requirements of the Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 10th day of January 1997.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Enrique Levy
---------------------------
Enrique Levy, President/COO
Pursuant to the requirements of the Securities Exchange Act
of 1934 this report has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
---------
/s/ Jack Nelson Chairman of the Board January 10,
-------------------- 1997
Jack Nelson
/s/ Enrique President, Chief January 10,
Levy Operating Officer and 1997
-------------------- Director
Enrique Levy
-------------------
/s/ Robert Vice Chairman of the January 10,
Spira, M.D. Board 1997
--------------------
Robert Spira, M.D.
--------------------
/s/ Charles Chief Financial and January 10,
Moche Accounting Officer 1997
--------------------
Charles Moche
-------------------- Director
George Aaron
-------------------- Director
David Gaynor
/s/ Sol Triebwasser,
Ph.D. Director January 10,
-------------------- 1997
Sol Triebwasser,
Ph.D.
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
- I N D E X -
---------------
PAGE
NUMBER
-------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS AS AT
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 (UNAUDITED), THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND
SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE YEAR
ENDED DECEMBER 31, 1994 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1996, THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND FOR
THE YEAR ENDED DECEMBER 31, 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 (UNAUDITED), THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE
YEAR ENDED DECEMBER 31, 1994 F-6
NOTES TO FINANCIAL STATEMENTS F-7
[page break]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Advanced NMR Systems, Inc.
We have audited the accompanying consolidated balance sheets
of Advanced NMR Systems, Inc. and subsidiaries as at September
30, 1996 and September 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows
for year ended September 30, 1996, the nine month period ended
September 30, 1995 and the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
enumerated above present fairly, in all material respects, the
consolidated financial position of Advanced NMR Systems, Inc. and
subsidiaries at September 30, 1996 and September 30, 1995, and
the results of their operations and their cash flows for the year
ended September 30, 1996, the nine month period ended September
30, 1995 and the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
However, the Company has experienced recurring losses and based
on current estimates of cash flow, management does not believe
that it will have sufficient cash flow to make scheduled term
loan payments. Accordingly, the entire amount outstanding under
the bank credit facility of $11,855,000 has been classified as a
current liability in the accompanying consolidated financial
statements resulting in a working capital deficiency at September
30, 1996. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note L to the
consolidated financial statements. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note G to the consolidated financial
statements, the Company has switched from consolidation to the
equity method for one of its subsidiaries.
/s/ Richard A. Eisner & Company, LLP
---------------------------------------
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 22, 1996
January 13, 1997 as
to Note C
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
ASSETS 1996 1995
------ ----------- -----------
Current assets:
Cash and cash equivalents
$3,287,880 $7,542,508
Accounts receivable, net
of reserve for bad debts
of $2,459,000 at
September 30, 1996 and
$2,119,000 at September
30, 1995 . . . . . . . . 8,015,083 9,741,892
Inventories:
Work-in-process . . . . . 907,128
Raw materials . . . . . . 526,597 2,405,463
----------- -----------
526,597 3,312,591
----------- -----------
Other current assets . . 1,002,846 1,972,871
----------- -----------
Total current assets . . 12,832,406 22,569,862
----------- -----------
Equipment, building,
furniture and leasehold
improvements (Note C):
Medical equipment . . . . 8,633,505 4,562,423
Office furniture and
equipment . . . . . . . . 685,133 833,886
Other equipment . . . . . 899,983 2,714,170
Leasehold improvements . 1,912,115 1,852,778
Building . . . . . . . . 210,739 210,739
---------- ----------
12,341,475 10,173,996
Less: accumulated
depreciation and
amortization . . . . . . 2,759,911 1,966,309
----------- ----------
9,581,564 8,207,687
----------- ----------
Patent costs, net of
accumulated amortization
205,754
----------- ----------
Goodwill, net of
accumulated amortization
(Note J) . . . . . . . . 26,205,525 26,858,226
Investment in and
advances to
unconsolidated subsidiary
(Note G) . . . . . . . . 1,440,191
Other . . . . . . . . . . 664,844 590,180
----------- -----------
TOTAL . . . . . . . . . . $50,724,530 $58,431,709
=========== ===========
LIABILITIES AND
STOCKHOLDERS'
-------------------------
EQUITY
------
Current liabilities:
Accounts payable . . . . $1,870,274 $1,001,130
Accrued expenses . . . . 2,335,028 3,644,211
Accrued compensation . . 762,028 711,193
Due to shareholders
(Note J) . . . . . . . . 46,102 1,696,102
Current portion of long
-term debt and capital
lease obligations
(Note C) . . . . . . . . 14,495,637 4,274,110
Other current liabilities
59,326 159,971
----------- -----------
Total current liabilities
19,568,395 11,486,717
----------- -----------
Long-term debt and
capital lease
obligations, less current
portion (Note C) . . . . 5,682,719 16,279,352
Deferred revenues . . . . 33,567
Minority interest in net
assets of consolidated
entities . . . . . . . . 1,654,993 2,614,107
Commitments and
contingencies
(Note E)
Stockholders' equity
(Note F):
Preferred stock, $.01 par
value; authorized,
1,000,000 shares; issued,
2,194 shares in 1996 and
none in 1995 . . . . . . 22
Common stock, $.01 par
value; authorized,
50,000,000 shares;
issued, 34,180,777 shares
in 1996 and 30,151,821 in
1995 . . . . . . . . . . 341,808 301,518
Additional paid-in
capital . . . . . . . . 53,616,726 58,246,689
Accumulated deficit . . . (30,137,883) (30,527,991)
----------- -----------
23,820,673 28,020,216
Less: treasury stock, at
cost -225,000 common
shares . . . . . . . . . 2,250 2,250
----------- ----------
Total stockholders'
equity . . . . . . . . . 23,818,423 28,017,966
-----------
TOTAL . . . . . . . . . . $50,724,530 $58,431,709
=========== ===========
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
-----------------------------
1996 1995
-------------- --------------
(unaudited)
Revenues:
Net patient service revenue . $25,480,813 $1,934,322
Management fees and other . . 653,425 40,220
----------- -----------
Total revenues . . . . . . . . 26,134,238 1,974,542
----------- -----------
Operating expenses:
Cost of service operations . . 16,205,961 1,203,497
Research and development . . . 940,141
Selling, general and
administrative . . . . . . . 4,254,964 2,449,364
Provision for bad debt and 2,126,471 162,377
collection costs . . . . . . ----------- -----------
Total operating expenses . . . 22,587,396 4,755,379
----------- -----------
Operating income (loss) from
continuing operations . . . . . 3,546,842 (2,780,837)
Other income (Note F) . . . . . . 126,263 579,758
Interest income . . . . . . . . . 212,814 195,191
Interest expense . . . . . . . . (1,847,910) (139,020)
----------- -----------
Income (loss) from continuing
operations before
minority interests, equity in
loss of subsidiary
and provision for income taxes
2,038,009 (2,144,908)
Minority interests in net
(income) losses of
consolidated entities . . . . . (1,005,831) 783,520
Equity in loss of subsidiary . . (1,830,880)
----------- -----------
Loss from continuing operations
before provision for income
taxes . . . . . . . . . . . . . (798,702) (1,361,388)
Provision for income taxes . . . (42,288)
----------- -----------
Loss from continuing operations . (840,990) (1,361,388)
Discontinued operations (Note K)
Loss from operations of
discontinued division . . . . . (3,928,706) (2,521,580)
Loss on disposal of discontinued
division, including provision
of $400,000 for operating
losses during (3,510,563)
phase-out period . . . . . . . ----------- -----------
Net loss . . . . . . . . . . . . $(8,280,259) $(3,882,968)
=========== ===========
Loss Per Common Share:
Loss from continuing operations . $(.03) $(.06)
Loss from operations of
discontinued division . . . . . (.13) (.10)
Loss on disposal of discontinued (.11)
division . . . . . . . . . . . ----------- -----------
Net loss per share . . . . . . . $(.27) $(.16)
=========== ===========
Weighted average number of common 30,583,320 24,020,652
shares outstanding =========== ===========
Nine Months Ended Year Ended
September 30, December 31,
------------------------------ ---------------
1995 1994 1994
-------------- -------------- ---------------
(unaudited)
Revenues:
Net patient
service revenue . $1,934,322 $ $
Management fees 40,220
and other . . . . ---------- ----------- -----------
Total revenues . 1,974,542
---------- ----------- -----------
Operating expenses:
Cost of service
operations . . . 1,203,497
Research and
development . . . 664,786 717,010 992,365
Selling, general
and administrative
2,002,075 1,135,531 1,582,820
Provision for bad
debt and 162,377
collection costs ---------- ----------- -----------
Total operating 4,032,735 1,852,541 2,575,185
expenses . . . . ---------- ----------- -----------
Operating income
(loss) from
continuing
operations . . . . (2,058,193) (1,852,541) (2,575,185)
Other income
(Note F) . . . . . 579,758
Interest income . . 265,208 278,497 208,480
Interest expense . (139,020)
---------- ----------- -----------
Income (loss) from
continuing
operations before
minority interests,
equity in loss of
subsidiary and
provision for income
taxes . . . . . . . (1,352,247) (1,574,044) (2,366,705)
Minority interests
in net (income)
losses of
consolidated
entities . . . . . 569,354 488,799 702,965
Equity in loss of
subsidiary . . . . ---------- ----------- -----------
Loss from continuing
operations before
provision for income
taxes . . . . . . . (782,893) (1,085,245) (1,663,740)
Provision for income
taxes . . . . . . . ---------- ----------- -----------
Loss from continuing
operations . . . . (782,893) (1,085,245) (1,663,740)
Discontinued
operations (Note K)
Loss from operations
of discontinued
division . . . . . (894,865) (256,543) (1,883,258)
Loss on disposal of
discontinued
division, including
provision of
$400,000 for
operating losses
during phase-out
period . . . . . . ---------- ----------- -----------
Net loss . . . . . $(1,677,758) $(1,341,788) $(3,546,998)
=========== =========== ===========
Loss Per Common
Share:
Loss from continuing
operations . . . . $(.03) $(.05) $(.07)
Loss from operations
of discontinued
division . . . . . (.04) (.01) (.08)
Loss on disposal of
discontinued
division . . . . . ---------- ----------- -----------
Net loss per share $(.07) $(.06) $(.15)
========== =========== ===========
Weighted average
number of common 24,243,902 23,543,842 23,603,251
shares outstanding ========== =========== ===========
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
------------------------------------
Shares Amount Shares Amount
----------- -------- ------- ------
Balance
December 31, 1993 . 23,467,030 $234,670 $
Exercise of stock
options . . . . . 312,509 3,125
Issuance of
warrant (Note F)
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
equity related
to sale of
subsidiary's stock
(Note F) . . . .
Note received in
exchange for stock
issued (Note F) .
Net loss for the
year . . . . . . ---------- -------- ------- -----
Balance
December 31, 1994 . 23,779,539 237,795
Exercise of stock
options . . . . . 15,125 151
Cancellation of
common stock
issued for
services (Note F) (63,000) (630)
Increase in
proportionate
share of
subsidiary's
equity related to
sale of
subsidiary's stock
(Note F) . . . .
Cancellation of
note received for
stock issued
(Note F) . . . . (250,000) (2,500)
Common stock
issued related to
service business
acquisition
(Note J) . . . . 6,670,157 66,702
Net loss for the
period . . . . . ---------- -------- ------- -----
Balance
September 30, 1995 30,151,821 301,518
Exercise of stock
options . . . . . 107,487 1,075
Issuance of
convertible
preferred stock
(Note F) . . . . 3,700 37
Increase in
proportionate
share of
subsidiary's
equity related to
sale of
subsidiary's stock
(Note F) . . . .
Cumulative effect
of change in
accounting for
subsidiary from
consolidation to
the equity method
(Note G) . . . .
Conversion of
preferred stock
(Note F) . . . . 3,921,469 39,215 (1,506) (15)
Net loss for the
period . . . . . ---------- -------- ------- -----
Balance 34,180,777 $341,808 2,194 $ 22
September 30, 1996 ========== ======== ======= =====
Note
Additional Receivable
Paid-in For Stock Accumulated
Capital Issued Deficit
----------- ---------- -------------
Balance
December 31, 1993 $37,622,653 $ $(25,303,235)
Exercise of
stock options . 841,095
Issuance of
warrant (Note F)
35,200
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 502,164
Note received in
exchange for
stock issued
(Note F) . . . (687,500)
Net loss for the (3,546,998)
year . . . . . ----------- ---------- -------------
Balance
December 31, 1994 39,001,112 (687,500) (28,850,233)
Exercise of
stock options . 9,680
Cancellation of
common stock
issued for
services
(Note F) . . . (391,620)
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 1,769,259
Cancellation of
note received
for stock issued
(Note F) . . . (685,000) 687,500
Common stock
issued related
to service
business
acquisition
(Note J) . . . . 18,543,258
Net loss for the (1,677,758)
period . . . . ----------- ---------- -------------
Balance
September 30, 1995
58,246,689 (30,527,991)
Exercise of
stock options . 129,592
Issuance of
convertible
preferred
stock (Note F) 3,316,608
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 633,404
Cumulative
effect of change
in accounting
for subsidiary
from
consolidation to
the equity
method
(Note G) . . . (8,670,367) 8,670,367
Conversion of
preferred stock
(Note F) . . . (39,200)
Net loss for the (8,280,259)
period . . . . ----------- ---------- -------------
Balance $53,616,726 $ $(30,137,883)
September 30, 1996
=========== ========== =============
Treasury Stock
---------------------
Shares Amount Total
---------- ------------------------
Balance
December 31, 1993 225,000 $(2,250) $12,551,838
Exercise of
stock options . 844,220
Issuance of
warrant (Note F)
35,200
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 502,164
Note received in
exchange for
stock issued
(Note F) . . . (687,500)
Net loss for the (3,546,998)
year . . . . . ------- ------- -----------
Balance
December 31, 1994 225,000 (2,250) 9,698,924
Exercise of
stock options . 9,831
Cancellation of
common stock
issued for
services
(Note F) . . . (392,250)
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 1,769,259
Cancellation of
note received
for stock issued
(Note F) . . .
Common stock
issued related
to service
business
acquisition
(Note J) . . . 18,609,960
Net loss for the (1,677,758)
period . . . . ------- ------- -----------
Balance
September 30, 1995
225,000 (2,250) 28,017,966
Exercise of
stock options . 130,667
Issuance of
convertible
preferred
stock (Note F) 3,316,645
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 633,404
Cumulative
effect of change
in accounting
for subsidiary
from
consolidation to
the equity
method (Note G)
Conversion of
preferred stock
(Note F) . . .
Net loss for the (8,280,259)
period . . . . ------- ------- -----------
Balance 225,000 $(2,250) $23,818,423
September 30, 1996
======= ======= ===========
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
-------------------------
1996 1995
------------ ------------
(unaudited)
Cash flows from operating
activities:
Net loss . . . . . . . . . . $(8,280,259) $(3,882,968)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in net
income (loss) of
subsidiaries . . . . . . . . 1,005,831 783,520
Equity in loss of
unconsolidated subsidiary . 1,830,880
Loss on disposal of
discontinued operations . . 3,510,563
Depreciation and
amortization . . . . . . . . 3,373,278 779,007
Gain on sale of assets . . . (174,891)
Common stock and warrant
issued (canceled) for
services . . . . . . . . . . (357,250)
Changes in assets and
liabilities:
Accounts receivable,
net . . . . . . . . . . 1,726,809 (667,558)
Inventories . . . . . . (50,949) (1,131,285)
Other assets . . . . . 249,001 (49,174)
Accounts payable and
accrued expenses . . . (2,375,539) 1,463,931
Other liabilities . . . (1,196,720)
------------ ------------
Net cash provided (used) in 814,724 (4,258,497)
operating activities . . . . ------------ ------------
Cash flows from investing
activities:
Purchase of imaging and
rehabilitation business
(Note J) . . . . . . . . . . (254,249) (12,055,201)
Proceeds from sale of
equipment . . . . . . . . . 344,527
Cash of formerly
consolidated subsidiary
(Note G) . . . . . . . . . . (1,832,563)
Patent costs . . . . . . . . (39,998) (137,172)
Purchase of equipment,
furniture and leaseholds (5,537,275) (254,056)
improvements . . . . . . . . ------------ ------------
Net cash used in investing (7,319,558) (12,446,429)
activities . . . . . . . . . . ------------ ------------
Cash flows from financing
activities:
Exercise of stock options . 130,667 9,831
Proceeds from issuance of
preferred stock (Note F) . . 3,316,645
Proceeds from issuance of
long-term debt . . . . . . . 3,949,658 13,500,000
Repayment of long-term debt
and capital lease
obligations . . . . . . . . (4,324,764) (219,731)
Distributions to minority
interests . . . . . . . . . (822,000) (37,500)
Contributions from minority
interests . . . . . . . . . 67,593
Sale of subsidiary stock . . 3,909,400
Payments received on note 110,000
receivable (Note F) . . . . ------------ ------------
Net cash provided by 2,250,206 17,339,593
financing activities . . . . ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS . . . . . (4,254,628) 634,667
CASH AND CASH EQUIVALENTS, 7,542,508 6,907,841
BEGINNING OF PERIOD . . . . . . ------------ ------------
CASH AND CASH EQUIVALENTS, END $3,287,880 $7,542,508
OF PERIOD . . . . . . . . . . . ============ ============
Supplemental disclosures of
cash flow information:
Interest paid during the period $1,842,591 $50,584
Note received in exchange for
stock (Note F) . . . . . . . .
Nine Months Ended
September 30, Year Ended
------------------------ December 31,
1995 1994 1994
------------------------ ------------
(unaudited)
Cash flows from operating
activities:
Net loss . . . . . . . . . . $(1,677,758)$(1,341,788) $(3,546,998)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in net
income (loss) of
subsidiaries . . . . . . . . (569,353) (488,799) (702,965)
Equity in loss of
unconsolidated subsidiary .
Loss on disposal of
discontinued operations . .
Depreciation and
amortization . . . . . . . . 633,948 330,859 475,918
Gain on sale of assets . . .
Common stock and warrant
issued (canceled) for
services . . . . . . . . . . (392,250) 35,000
Changes in assets and
liabilities:
Accounts receivable,
net . . . . . . . . . . (669,710) (2,082,539) (2,080,387)
Inventories . . . . . . (360,735) (154,603) (925,153)
Other assets . . . . . 25,193 24,312 (50,055)
Accounts payable and
accrued expenses . . . 780,867 (525,314) 157,750
Other liabilities . . . (712,669) 126,506
------------ ----------- ------------
Net cash provided (used) in
operating activities . . . . (2,229,798) (4,950,541) (6,510,384)
Cash flows from investing
activities:
Purchase of imaging and
rehabilitation business
(Note J) . . . . . . . . . . (12,055,201)
Proceeds from sale of
equipment . . . . . . . . .
Cash of formerly
consolidated subsidiary
(Note G) . . . . . . . . . .
Patent costs . . . . . . . . (91,057) (83,465) (129,580)
Purchase of equipment,
furniture and leaseholds (198,328) (606,573) (662,301)
improvements . . . . . . . . ------------ ----------- ------------
Net cash used in investing (12,344,586) (690,038) (791,881)
activities . . . . . . . . . . ------------ ----------- ------------
Cash flows from financing
activities:
Exercise of stock options . 9,831 46,921 47,125
Proceeds from issuance of
preferred stock (Note F) . .
Proceeds from issuance of
long-term debt . . . . . . . 13,500,000
Repayment of long-term debt
and capital lease
obligations . . . . . . . . (222,772) (110,948) (107,907)
Distributions to minority
interests . . . . . . . . . (37,500)
Contributions from minority
interests . . . . . . . . . 67,593
Sale of subsidiary stock . . 3,199,885 469,060 709,515
Payments received on note 110,000
receivable (Note F) . . . . ------------ ----------- ------------
Net cash provided by 16,517,037 405,033
financing activities . . . . ------------ ----------- 758,733
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS . . . . . 1,942,653 (5,235,546) (6,543,532)
CASH AND CASH EQUIVALENTS, 5,599,855 12,143,387 12,143,387
BEGINNING OF PERIOD . . . . . . ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END $7,542,508 $6,907,841 $5,599,855
OF PERIOD . . . . . . . . . . . ============ =========== ============
Supplemental disclosures of
cash flow information:
Interest paid during the period $47,390 $ $21,017
Note received in exchange for
stock (Note F) . . . . . . . . 797,500
See Note J with respect to imaging and rehabilitation business
acquired.
See Note E with respect to noncash leasing transactions.
See Note G with respect to change to equity method for former
consolidated subsidiary.
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE A) Business:
-------------------
Through September 1995, Advanced NMR Systems, Inc. ("ANMR"
or the "Company") operated under two segments (one of which was
discontinued during fiscal 1996 see Note K) consisting of Imaging
Systems and Imaging and Rehabilitation Services. The Company's
results of operations for the year and nine months ended
September 30, 1995 include only one month of Imaging and
Rehabilitation Services operations.
[1] Imaging Systems
---------------
The Company and one of its subsidiaries have engaged in the
development, manufacture and sale of Magnetic Resonance Imaging
("MRI") systems. In 1989, the Company completed fabrication of a
high-speed imaging option enhancement package for existing MRI
systems. In 1991, the Company commenced commercial manufacturing
of the option enhancement system and in August 1992 received
clearance by the United States Food and Drug Administration
("FDA"). Effective August 6, 1996, the Company discontinued its
Imaging Systems operations (see Note K).
On July 2, 1992, the Company formed a wholly-owned
subsidiary, Advanced Mammography Systems, Inc. ("AMS"). The
subsidiary was formed to develop a dedicated MRI system. AMS
obtained its mammography technology from the Company and retained
certain rights to other dedicated MRI systems utilizing the
technology rights. As more fully discussed in Note G, AMS
completed an initial public offering of its securities in 1993.
In October 1992, the Company entered into a Shared Services
Agreement with AMS that commenced on January 25, 1993 and
provides that (i) the Company shall make available its research
scientists, engineers, and other personnel and, (ii) provide
executive officers to AMS and (iii) allow AMS the use of its
administrative and research facilities and clerical staff. Costs
are allocated between the companies based on estimated usage.
Certain of AMS's officers serve as officers of the Company and
the Company provides management and administrative support to
AMS.
[2] Imaging and Rehabilitation Services
-----------------------------------
The Imaging and Rehabilitation Services segment consists of
Medical Diagnostics, Inc. ("MDI"), which the Company acquired on
August 31, 1995. MDI is an operator and manager of a network of
mobile and fixed MRI units in Massachusetts, New York, Virginia,
West Virginia and Tennessee. MDI also provides Single Photon
Emission Computer Tomography ("SPECT") nuclear medicine and
Computerized Axial Tomography ("CT") imaging services and
physical therapy services. The MRI, SPECT and CT units are
technologically
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL SYSTEMS
SEPTEMBER 30, 1996
advanced medical diagnostic devices that formulate images of
internal anatomy and vascular blood flow. The Company's mobile
MRI, SPECT and CT units are located in trailers that can be
driven to specially prepared sites at hospitals and clinics
according to a predefined schedule. MDI currently serves 40
hospitals and clinics and two free-standing sites with three
SPECT units, 10 mobile MRI units, two fixed MRI centers and two
managed MRI units. MDI currently operates three centers in
Massachusetts that provide comprehensive physician care, physical
therapy and case management for motor vehicle accident patients.
MDI operates much of its business through various partnerships
and joint ventures in which MDI or a wholly-owned subsidiary of
MDI serves as a general partner.
(NOTE B) Summary of Significant Accounting Policies
---------------------------------------------------
[1] Principles of consolidation:
---------------------------
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries (including MDI's
wholly-owned subsidiaries and various majority-owned or
controlled partnerships and joint ventures). All significant
intercompany transactions have been eliminated in consolidation.
See "Note G" with respect to a change in consolidated entities
for fiscal 1996.
[2] Revenue recognition:
--------------------
The Imaging Systems segment generally recognizes revenue
when its systems and products are shipped to the customer.
During 1994, a special order was received for a prototype system
with customer-determined specifications whereby revenue was
recognized when the system was substantially complete.
The Imaging and Rehabilitation Services segment recognizes
revenue as services are provided to patients. Reimbursements for
services provided to patients covered by Blue Cross/Blue Shield,
Medicare, Medicaid, HMO's and other contracted insurance programs
are generally less than rates charged by the Company.
Differences between gross charges and estimated third-party
payments are recorded as contractual allowances in determining
net patient service revenue during the period that the services
are provided. MDI provides management services to its
subsidiaries, affiliates and outside parties. Fees for
management services are generally based on a standard monthly
amount plus a percentage of net income, as defined. Management
fees are recognized as revenue during the period in which the
services are provided.
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
[3] Cash equivalents:
-----------------
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
[4] Inventories:
------------
Inventories are accounted for at the lower of cost or market
using the first-in, first-out ("FIFO") method.
[5] Equipment, building, furniture and leasehold
---------------------------------------------
improvements:
-------------
Property, equipment, furniture and leasehold improvements
are recorded at cost. Expenditures for repairs and maintenance
are charged to expense as incurred, whereas major betterments are
capitalized. Depreciation and amortization are computed by the
straight-line method over the estimated lives of the applicable
assets, or term of the lease, if applicable. Assets are written
off when they become fully depreciated.
Property and equipment under capital lease is stated at the
lower of the fair market value or the net present value of the
minimum lease payments at the inception of the lease.
Capitalized lease equipment is amortized over the shorter of the
term of the lease or the estimated useful life.
(NOTE B) Summary of Significant Accounting Policies (Continued):
----------------------------------------------------------------
[5] Equipment, building, furniture and leasehold
--------------------------------------------
improvements: (Continued)
-------------------------
Asset Classification Useful Lives
-------------------- ------------
Medical and other equipment 5-8 years
Office furniture and equipment 5 years
Research and production equipment 5 years
Leasehold improvements Term of lease
Building 30 years
[6] Patents:
--------
All patent costs have been written off in connection with
the
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
discontinued Imaging Systems business segment.
[7] Net loss per share:
-------------------
Net loss per common share was computed using the weighted
average common shares outstanding during the period. Outstanding
warrants and options had an anti-dilutive effect and were
therefore excluded from the computation of net loss per common
share.
[8] Minority interests in net income (losses) of
consolidated
-------------------------------------------------------
-
entities
--------
Minority interests in net income (losses) of consolidated
entities represents the allocation of net losses from certain
consolidated entities to the respective minority interest
shareholders and joint venture partners.
[9] Fiscal year end
---------------
During 1995, the Company changed its fiscal year from
December 31 to September 30.
[10] Letters of credit
-----------------
The Company utilizes letters of credit to back certain
financing instruments. The letters of credit reflect fair value
as a condition of their underlying purpose and are subject to
fees competitively determined in the market place.
[11] Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(NOTE B) Summary of Significant Accounting Policies (Continued):
---------------------------------------------------
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
[12] Recent Pronouncements
---------------------
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). The Company will
adopt the disclosure requirements of SFAS 123 during the
Company's fiscal year ending September 30, 1997 but will account
for its employee stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
as permitted under SFAS 123.
In addition, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS
121"). SFAS 121 is also effective for the Company's fiscal year
ending September 30, 1997. The Company believes adoption of SFAS
121 will not have a material impact on its financial statements.
(NOTE C) Long-term Debt and Capital Lease Obligations
-----------------------------------------------------
Long-term debt and capital lease obligations at September
30, 1996 and 1995 consisted of the following:
1996 1995
----------- ----------
Term loan and revolver loan
payable to a bank, $11,855,000 $13,500,000
collateralized by all the
business assets of the Company
Note payable to a leasing
company, interest at 11.5%,
monthly payments of principal
and interest of $40,147 payable 1,803,000
through September 2000,
collaterized by certain business
assets of the Company . . . . .
Note payable to a leasing
company, interest at 9.5%,
monthly payments of principal
and interest of $55,762 payable 1,214,077 1,698,000
through September 1998,
collaterized by certain business
assets of the Company . . . . .
Note payable to a leasing
company, interest at the prime
rate plus 0.5%, monthly
principal payments of $22,917
payable through September 1999
collaterized by certain business 804,061 1,077,440
assets of the Company . . . . .
Note payable to a bank, interest
at 8.7%, monthly payments of
principal and interest of
$10,415 payable through January
1997, collateralized by certain
business assets of the Company 30,797 156,817
Other notes payable . . . . . . 384,021 313,405
Capital lease obligations with
interest rates ranging primarily
from 9.6% to 16% . . . . . . . 4,086,510 3,807,800
---------- -----------
Total long-term debt and capital
lease obligations . . . . . . . 20,178,356 20,553,462
Less: Current maturities . . . 14,495,637 4,274,110
---------- -----------
$5,682,719 $16,279,352
=========== ===========
(NOTE C) Long-term Debt and Capital Lease Obligations - Continued
-----------------------------------------------------
On August 31, 1995, MDI entered into a bank credit facility
to borrow up to $15,000,000 (the "Credit Facility") under a
$6,000,000 revolving credit loan which expires August 31, 1998
and a $9,000,000 term loan. The term loan is required to be paid
in eighteen quarterly installments of $500,000 commencing March
31, 1996. As of September 30, 1996 and 1995, there was
$4,355,000 and $4,500,000, respectively, borrowed under the
revolving credit loan and $7,500,000 and $9,000,000,
respectively, borrowed under the term loan. Borrowings under the
revolving credit loan bear interest at either 0.25% over the
prime rate or 2.5% over the 30 day LIBOR rate. Borrowings under
the term loan bear interest at either 0.5% over the prime rate or
3.0% over the 30 day LIBOR rate. A condition of default would
increase the term loan rate to 2% over the prime rate.
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
The lenders have a security interest in substantially all of
the assets of the Company. The Credit Facility contains various
restrictive operating and financial covenants typically included
in bank credit arrangements (including limitations on incurring
additional indebtedness, paying cash dividends to the parent
company, and maintaining certain financial ratios and default
provisions). At September 30, 1996, the Company was not in
compliance with several restrictive covenants which have only
been waived by the bank only through March 31, 1997. In
addition, the bank has deferred the December 31, 1996 scheduled
term loan payment of $500,000 until March 31, 1997. In addition,
the bank has deferred the December 31, 1996 scheduled term loan
payment of $500,000 until March 31, 1997. Accordingly, the
entire amount under the bank credit facility has been classified
as current in the accompanying financial statements (see Note L).
On August 19, 1996, the Company amended its Credit Facility
to reduce the revolving credit loan to a maximum of $5,555,000,
including letters of credit totaling $1,200,000. Further, under
the terms of the amendment, ANMR was required to contribute
$500,000 to MDI.
In addition to the $11,855,000 balance outstanding at
September 30, 1996 under the Credit Facility, the Company has
outstanding letters of credit totaling $1,200,000 which guarantee
certain MDI equipment financings.
[PAGE BREAK]
Capital Lease Obligations
--------------------------
Future minimum lease payments, under capital leases, for the
next five years and thereafter are as follows:
Fiscal Year
-----------
1997 $1,608,195
1998 1,223,072
1999 1,041,067
2000 752,175
2001 159,071
----------
4,783,580
Less: Amounts representing interest 697,070
----------
4,086,510
Less: Current maturities 1,263,771
----------
$2,822,739
==========
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE C) Long-term Debt and Capital Lease Obligations - Continued
-----------------------------------------------------
Maturities of long-term debt and capital lease obligations
over the next five years and thereafter are as follows:
Fiscal Year
$14,495,637
1997 2,286,060
1998 1,574,319
1999 1,155,231
667,109
2000 -----------
2001 $20,178,356
===========
Property and equipment under capital lease at September
30, 1996 is as follows:
Property and equipment $4,976,000
Less: Accumulated 1,109,000
amortization ----------
$3,867,000
===========
(NOTE D) Income Taxes:
----------------------
As of September 30, 1996 and 1995, the components of the net
deferred tax asset and liability are as follows:
September 30, September 30,
1996 1995
-------------- -------------
Deferred tax assets:
Net operating loss $10,280,000 $9,000,000
carryforward . . . . . . .
Provision for discontinued 1,404,000 --
operations . . . . . . . .
Deferred gains . . . . 13,000 57,000
Stock option 322,000
compensation . . . . . . .
Capital lease . . . . 22,000 59,000
Other . . . . . . . . 57,000) 88,000)
Valuation Allowance . . . . (11.260,000) (8,760,000)
------------ -----------
$516,000 $766,000
------------ -----------
Deferred tax liabilities:
Depreciation . . . . . $296,000 $,420,000
Amortization . . . . . 184,000 137,000
------------ -----------
$480,000 $557,000
------------ -----------
$36,000 $209,000
============ ===========
At September 30, 1996 and September 30, 1995, the valuation
allowance relates principally to uncertainty surrounding the
realization of the net operating loss carryforward benefit.
At September 30, 1996 and September 30, 1995, the Company
had available net operating loss carryforwards for tax purposes,
expiring through 2011 of approximately $26,000,000 and
$21,000,000, respectively. The Internal Revenue Code contains
provisions which may limit the net operating loss carryforward
available for use in any given year if significant changes in
ownership interest of the Company occur.
The Company and MDI file a consolidated tax return. The
Company and AMS file separate income tax returns. Accordingly,
losses incurred by AMS are not available to the Company to offset
its future income.
(NOTE D) Income Taxes: (Continued)
---------------------
The following table reconciles the tax provision per the
accompanying statements of operations with the expected provision
obtained by applying statutory tax rates to the pretax loss:
Year Ended
September 30,
1996 1995
--------------- -----------------
(unaudited)
Pretax loss . . . . . . . . . $(8,139,575) $(3,882,968)
Loss attributable to AMS . . 2,414,331
----------- -----------
Parent company pretax $(8,139,575) $(1,468,637)
income (loss) . . . . . =========== ===========
Expected tax (benefit)
at 34% . . . . . . . . $(2,767,456) $(499,337)
Adjustment due to increase
in valuation reserve . . 2,767,456 499,337
Other . . . . . . . . . . . . 42,288
Utilization of available net
operating loss
carryforward . . . . . . ----------- -----------
Tax provision per financial $ 42,288 $
statements . . . . . . . =========== ===========
Nine Months Ended Year Ended
September 30, September 30,
1996 1995 1994
-------------- -------------- -------------
(unaudited)
Pretax loss . . . . . . . $(1,677,758) $(1,341,788) $(3,546,998)
Loss attributable to AMS 1,684,048 1,772,880 2,503,162
----------- ----------- -----------
Parent company pretax $6,290 $(431,092) $(1,043,836)
income (loss) . . . =========== =========== ===========
Expected tax (benefit) $2,000 $(147,000) $(355,000)
at 34% . . . . . .
Adjustment due to increase 147,000 355,000
in valuation reserve
Other . . . . . . . . . .
Utilization of available (2,000)
net operating loss ----------- ----------- -----------
carryforward . . . .
Tax provision per $ $ $
financial statements =========== =========== ===========
(NOTE E) Commitments and Contingencies:
---------------------------------------
[1] Operating leases:
-----------------
The Company leases facilities and equipment under
noncancelable operating leases expiring at various dates through
fiscal 2001. Facility leases require the Company to pay certain
insurance, maintenance and real estate taxes. Rental expenses
totaled approximately $2,349,000 and $1,555,000 for the years
ended September 30, 1996 and 1995, $485,000 and $300,000 for the
nine month periods ended September 30, 1995 and 1994 and $398,000
and $370,000 for the years ended December 31, 1994 and 1993,
respectively.
(NOTE E) Commitments and Contingencies: Continued
---------------------------------------
Future basic rental commitments under operating leases are
as follows:
Fiscal Year
-------------
1997 $1,828,087
1998 1,426,630
1999 847,086
2000 618,138
2001 172,318
----------
Total $4,892,259
==========
The Company also leases specially prepared sites at certain
hospitals at which it operates its mobile MRI units. Space is
also generally leased within the hospital facilities for patient
registration and clinical and other administrative services.
Lease agreements with the hospitals are typically for five years.
Future rentals under hospital rent agreements are as
follows:
Fiscal Year
------------
1997 $471,417
1998 435,581
1999 249,801
2000 135,401
2001 11,167
--------
Total $1,303,367
==========
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
Hospital rental expenses for the years ended September 30,
1996 and 1995 and the nine months ended September 30, 1995
totaled $481,000, $38,000 and $38,000, respectively.
[2] Legal proceedings:
-----------------
Effective November 28, 1995, ANMR terminated the Key
Employment Agreement, dated May 2, 1995, of John A. Lynch, Chief
Executive Officer of MDI. MDI's Chief Operating Officer was
named the Acting President of MDI. At September 30, 1995,
accrued expenses include approximately $500,000 of severance
benefits accrued in accordance with the terms of the Key
Employment Agreement. In March 1996, the Company's former Chief
Executive
Officer filed a demand for arbitration seeking a declaratory
ruling, equitable relief and damages related to claims arising
out of the Key Employment Agreement. Although the outcome of
this arbitration is uncertain, the Company does not believe that
the results of this arbitration will have a material effect on
the consolidated financial position or results of operations of
the Company.
During 1996, the Company became engaged in litigation with
one of its customers regarding the performance of its enhancement
package for several MRI systems sold to the customer for
approximately $1,500,000. The Company believes that this
situation was exacerbated by its decision to discontinue its
imaging systems operations (see Note K). The Company is seeking
an equitable resolution to the dispute. The outcome of this
matter is unpredictable, but the Company does not believe that
the final outcome will have a material effect on the consolidated
financial position or results of operations of the Company.
The Company is also subject to legal proceedings and claims
that arise in the normal course of business. Management
believes, based on consultation with counsel, that any such
liabilities resulting from these matters would not materially
affect the consolidated financial position of the Company or its
results of operations.
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE F) Capital Transactions:
------------------------------
[1] Convertible Preferred Stock:
In May 1996, the Company closed a private placement (the
"Placement") of $3.7 million principal amount of newly issued
Series A Convertible Preferred Stock, $.01 par value, (the
"Preferred Stock"). Preferred Stock shareholders are entitled to
receive dividends at a rate of $40.00 per share per annum, when
and as declared by the Board of Directors of the Company. At
December 31, 1996, approximately 2,200 shares of Preferred Stock
was still outstanding after certain conversions. The net
proceeds from the Placement of approximately $3,320,000, after
payment of fees and related expenses, is being used for working
capital.
Each share of Preferred Stock is convertible into shares of
common stock at a conversion price equal to the lesser of 125% of
the market price on the issuance date, or 75% of the market price
on the conversion date. The market price, as defined in the
agreement equals the average closing bid price of the common
stock for the five trading days immediately preceding the
issuance date or the conversion date, as may be applicable, as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). Through September 30,
1996, a total of 1,506 shares of Preferred Stock have been
converted into a total of 39,215 shares of common stock.
(NOTE F) Capital Transactions: Continued
-----------------------------
[2] Warrants: Continued
--------
In connection with the acquisition of MDI (see Note J), the
Company issued 2,331,722 warrants to purchase the Company's stock
at a purchase price of $3.75 per share at any time up to the
expiration date on August 31, 2000.
In connection with various debt and equity financing
arrangements prior to 1994, the Company had issued warrants to
purchase the Company's common stock. During 1993, all such
outstanding warrants were either exercised or expired. The
warrants exercised resulted in the Company issuing 6,262,746
shares of common stock for net proceeds of approximately
$10,600,000.
In 1993, a consultant was engaged to assist the Company in
connection with the exercise of the above warrants. In lieu of a
cash payment, the consultant was granted 189,000 shares of common
stock and an option to purchase 250,000 shares of common stock at
a purchase price of $2.50 per share. The difference between the
fair market value of the common stock and the amount to be paid
therefore, amounting to $801,750, was recorded as consulting
expense in the financial statements for the year ended December
31, 1993. The Company canceled all of the options and 63,000 of
the shares previously granted resulting in other income of
approximately $392,000 during the nine months ended September 30,
1995.
During 1994, in connection with an agreement with a
financial advisory firm, the Company issued a warrant to the
advisory firm to purchase 350,000 shares of the Company's common
stock. The warrant is exercisable at $5.00 per share at any time
up to the expiration date on March 6, 2005. The number of shares
under the warrant and the exercise price are subject to
adjustment in the event of stock dividends or splits. The
warrant was sold to the investment advisor for $200 and has been
valued at $35,200 in the accompanying financial statements. In
addition to the warrant, the advisory firm received a quarterly
retainer fee of $15,000 and received an additional fee for
specific financing, merger or acquisition services. The
agreement is cancelable by either party at any time.
[3] Related-party transactions:
---------------------------
One of the Company's former directors who is the brother of
the president and sole shareholder of the underwriting firm used
in the Company's initial public offering in 1983 was a director
at the time of the offering. The underwriting firm has also
assisted the Company in other financing transactions, including
the public offering of the Company's subsidiary. The
underwriting firm has received substantial fees, commissions and
expenses for its services. During 1993, the underwriting firm
exercised the remaining portion of a unit purchase option granted
in connection with a private placement of securities whereby the
underwriter purchased 146,000 shares of common stock and 146,000
class A warrants for $438,000. The warrants were also exercised
in 1993 as indicated in Note F [2].
[4] Stock options:
--------------
The Company has an Incentive and Nonqualified Stock Option
Plan which provides for the granting of options to purchase not
more than 1,000,000 shares of common stock. Exercise prices for
any incentive options are at prices not less than the fair market
value at the date of grant, while exercise prices for
nonqualified options may be at any price in excess of $.01. When
fair market value at the date of issuance is in excess of the
option exercise price, the excess is recorded as compensation
expense. The total number of shares authorized for grant under
this plan were reached during 1993 and no additional options can
be granted. During fiscal 1996 certain options were canceled and
replaced with options exercisable at the then fair market value.
Stock option transactions under the above plan for the past
three years are as follows:
Number of Option Price
Shares Per Share
----------- ----------------
Balance, December 31, 1993 336,487 $.65 $4.38
Exercised in 1994 (12,409) $.65 $3.18
Canceled in 1994 (2,438) $.65 $3.18
--------
Balance, December 31, 1994 321,640 $.65 $4.38
Granted in 1995 6,000 $3.18
Exercised in 1995 (15,125) $.65
Canceled in 1995 (16,300) $3.13 $3.18
---------
Balance, September 30, 296,215 $.65 $4.38
1995
Exercised in 1996 (31,625) $0.65
Canceled in 1996 (112,500) $2.63 $4.38
----------
Balance, September 30, 152,090 $.65 $4.38
1996 ==========
During 1993, the Company adopted a new employee stock option
plan and a stock option plan for nonemployee directors. The
employee stock option plan provides for the granting of options
to purchase not more than 2,250,000 shares of common stock. The
options issued under the plan may be incentive or nonqualified
options. The exercise price for any incentive options cannot be
less than the fair market value of the stock on the date of the
grant, while the exercise price for nonqualified options will be
determined by the option committee. The Directors' stock option
plan provides for the granting of options to purchase not more
than 625,000 shares of common stock. The exercise price for
shares granted under the Directors' plan cannot be less than the
fair market value of the stock on the date of the grant. Both
plans expire May 25, 2003. Stock option transactions under the
1993 plans are as follows:
(NOTE F) Capital Transactions: Continued
-----------------------------
[4] Stock options: Continued
-------------
Number of Option Price
Shares Per Share
----------- ------------
Balance, December 31, 1993 960,000 $3.13 $3.25
Granted in 1994 849,000 $2.38 $5.25
Canceled in 1994 (100,000) $5.25
-----------
Balance, December 31, 1994 1,709,000 $2.38 $5.25
Granted in 1995 871,242 $.79 $3.94
Canceled in 1995 (341,200) $2.38 $3.13
------------
Balance, September 30, 2,239,042 $.79 $5.25
1995
Granted in 1996 440,000 $.50 $2.19
Exercised in 1996 (75,862) $1.45 $2.56
Canceled in 1996 (622,492) $1.58 $5.25
----------
Balance, September 30, 1,980,688 $.50 $5.25
1996 ==========
Stock transactions not covered under the option plans in 1996,
1995 and 1994 are as follows:
Number of Option Price
Shares Per Share
-----------
Balance, December 31, 1993 573,750 $2.75 $3.38
Granted in 1994 10,000 $2.75
Exercised in 1994 (300,000) $2.75 $3.18
Canceled in 1994 (7,000) $3.18
----------
Balance, December 31, 1994 276,750 $3.18 $3.38
Granted in 1995 860,318 $.79 $2.01
Canceled in 1995 (261,750) $.79 $3.38
-----------
Balance, September 30, 875,318 $.79 $3.38
1995
Granted in 1996 130,000 $.50 $1.41
Canceled in 1996 (150,000) $2.56
-----------
Balance, September 30, 855,318 $.79 $3.38
1996 ==========
Under all plan and nonplan stock options, as of September
30, 1996, options to purchase 894,312 shares were available for
grant and options to purchase 2,988,096 shares at a weighted
average price of $1.39 per share were exercisable. The
outstanding options expire at various dates within ten years from
the date of grant.
(NOTE F) Capital Transactions: Continued
-----------------------------
[5] Common stock reserved:
--------------------
As of September 30, 1996, the Company has reserved
approximately 2,725,000 shares of common stock for issuance upon
the exercise of the outstanding stock options granted in
accordance with the stock option plans and stock options not
covered by stock option plans.
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
[6] Note receivable from stock sale:
--------------------------------
During 1994, a former employee of the Company exercised
stock options in exchange for a note. The note was a nonrecourse
promissory note bearing interest at the prime rate and was
collateralized by the stock issued upon the exercise of the stock
option. Interest was payable annually and the principal was due
upon the sale of the shares by the former employee. During 1995,
the note was canceled and the stock issued was returned to the
Company.
(NOTE G) Unconsolidated Subsidiary (AMS):
----------------------------------------
AMS completed its initial public offering of stock in 1993
which generated net cash proceeds to AMS of approximately
$7,400,000. As a result of the offering, the Company's
percentage ownership of AMS was reduced to 73%. Prior to the
offering, AMS issued bridge notes with warrants to purchase
shares of common stock at a price of one-half the public offering
price. In connection with the offering, AMS also granted an
option to the underwriter to purchase shares at a price of 130%
of the public offering price. AMS has also established an
employee stock option plan under which certain options have been
granted. As the warrants and options are exercised, the
Company's percentage ownership of AMS will be further reduced.
During 1994 and 1995, most of the above warrants and options were
exercised whereby the Company's percentage ownership of AMS was
reduced to approximately 61% at September 30, 1995.
On May 15, 1996, AMS closed a private placement (the "AMS
Placement") of $3 million principal 4% convertible debentures.
Net proceeds from the AMS Placement was approximately $2,752,000
after payment of fees and related expenses. As of September 30,
1996, an additional 1,748,364 shares of common stock had been
issued in connection with the conversion of these debentures
whereby the Company's percentage ownership of AMS has been
reduced to approximately 48% at September 30, 1996. Accordingly,
the Company has switched from consolidation of AMS to the equity
method of accounting.
Also in connection with the AMS public offering, the Company
agreed to place 2,750,000 of its 4,000,000 shares of AMS stock
into escrow. The escrow shares will be released based upon AMS
achieving certain levels of pretax income or share price in the
future. If and when the shares are released from escrow, AMS
will incur an expense based on the fair market value of AMS's
stock at the time they are released. For accounting purposes,
the Company treats the escrow shares as if they were outstanding.
If the shares are not ultimately released from escrow, the
Company's
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
future interest in the earnings or losses of AMS will be reduced.
The Company does not currently believe that the escrow shares
will be released.
(NOTE H) Related Party Transactions
-----------------------------------
MDI has a management agreement with a professional
corporation owned by an officer/director of MDI (the
"Professional Corporation"). Pursuant to the management
agreement, MDI manages all business and administrative aspects of
the Professional Corporation, excluding medical and related
services. Management fees under this contract totaled $15,000
and $5,000 for the year ended September 30, 1996 and the nine
months ended September 30, 1995, respectively.
Certain of the consolidated entities have entered into an
agreement with the Professional Corporation whereby the
Professional Corporation provided overall supervision and
direction of medical services provided by the consolidated
entities. Each of the agreements was for a five-year period, and
required the payment of an annual fee and an initial training
fee. Currently, each agreement renews automatically for one-year
periods unless terminated by either party with appropriate
advance notice.
(NOTE I) Joint Venture
-----------------------
MDI and an unrelated party (the "Joint Venture Partner")
formed a joint venture (the "Joint Venture") under an agreement
dated December 31, 1986, as amended (the "Joint Venture
Agreement"). The Joint Venture was organized to license an MRI
unit to an MDI operating entity (the "MDI Operating Entity") and
to manage the MDI Operating Entity. The Joint Venture Partner
was entitled to 46% of the net earnings of the Joint Venture
during the ten-year term of the Joint Venture Agreement.
The Joint Venture Partner purchased, for approximately
$2,620,000, the necessary MRI equipment/van and leasehold
improvements which it licenses to the Joint Venture. The Joint
Venture Agreement requires licensing fees to be paid as weekly
priority payments to the Joint Venture Partner. Licensing fees
have aggregated approximately $530,000 and $44,000 for the year
ended September 30, 1996 and one month ended September 30, 1995,
respectively. The Joint Venture in turn sublicenses the
equipment/van and leasehold improvements to the MDI Operating
Entity on the same terms under a Restated and Amended Medical
Imaging Lease and Services Agreement dated August 6, 1990 and
expiring on December 31, 1996 (the "Lease and Services
Agreement").
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
These transactions have been accounted for as a capital lease in
the accompanying consolidated financial statements and are
included in the disclosures in Note C.
(NOTE I) Joint Venture Continued
---------------------------------
In 1990, the parties agreed to amend and restate various
existing agreements and to sign a Medical Imaging Lease and
Services Agreement effective June 1, 1990 and expiring on
December 31, 1996 between the Joint Venture and a second MDI
operating entity. Also, the Joint Venture Partner agreed to loan
MDI up to $487,500 which amount was, on December 20, 1990,
converted to purchase from MDI an additional 5% interest in the
earnings of the Joint Venture. In connection with this
transaction, MDI deferred a $445,730 gain, which is being
amortized on a straight-line basis over the remaining term of the
Joint Venture Agreement as an offset to minority interest in
consolidated partnerships' net income in the accompanying
consolidated statements of income.
The Company filed a complaint in September 1992 against the
Joint Venture Partner and certain of its affiliates, seeking a
declaration, damages, and equitable relief relating to an alleged
breach by the Joint Venture Partner of certain fiduciary and
contractual obligations with respect to the business of the
Company. The Joint Venture Partner filed a counterclaim against
the Company also seeking damages and equitable relief while
alleging breach of fiduciary and contractual obligations by the
Company. Although the outcome of this litigation is uncertain,
the Company does not believe that the results of this litigation
will have a material effect on the consolidated financial
position or results of operations of the Company.
Deferred gains, including $60,000 per year related to the
Joint Venture Agreement, of approximately $134,000 and $11,000
related to the above transactions have been amortized during the
year ended September 30, 1996 and the one month ended September
30, 1995, respectively.
(NOTE J) Acquisition of Medical Diagnostics, Inc.
-------------------------------------------------
Effective August 31, 1995, Medical Diagnostics, Inc. ("MDI")
merged (the "Merger") with a wholly-owned subsidiary of the
Company. In connection with the Merger, MDI entered into a loan
and security agreement with a bank to finance the cash portion of
the merger (see Note C). The acquisition has been accounted for
under the purchase method of accounting and the purchase price of
$29,806,000, exclusive of related costs, consisted of cash of
approximately $11,196,000 and stock valued at approximately
[page break]
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
$18,610,000. In addition, 2,331,722 warrants to purchase ANMR
stock at $3.75 per share were issued to MDI shareholders (see
Note F). The purchase price and costs associated with the
acquisition exceeded the fair value of the net assets acquired by
approximately $26,933,000 which has been assigned to goodwill and
is being amortized on a straight-line basis over thirty years.
At September 30, 1996 and 1995, the Company owed former MDI
shareholders approximately $46,000 and $1,696,000, respectively,
for MDI common stock not yet converted.
(NOTE K) Discontinued Operations
--------------------------------
In August 1996, the Company's Board of Directors adopted a
formal plan to discontinue its Imaging Systems business segment.
The segment has been accounted for as discontinued operations in
accordance with APB 30, which among other provisions, requires
the plan of disposal to be carried out within one year.
Included in the loss from disposal of the Imaging Services
business segment totaling $3,511,000 is a provision of $400,000
for future expenses to be incurred in connection with the
disposal of the discontinued business. The operating results of
the discontinued operations are summarized as follows:
Year Ended
September 30,
---------------------------
Revenues: 1996 1995
---- ----
(unaudited)
Imaging systems sales and other
revenue . . . . . . . . . . . $ 4,847,648 $ 6,706,480
Operating expenses:
Cost of goods sold . . . . . . 3,914,329 4,581,864
Research and development . . . 1,320,044 1,735,022
Selling, general and 3,541,981 2,911,174
administrative . . . . . . . ----------- -----------
Total operating expenses . . . 8,776,354 9,228,060
----------- -----------
Loss from discontinued operations . $(3,928,706) $(2,521,580)
=========== ===========
Nine Months Ended Year Ended
September 30, December 31,
--------------------------- --------------
Revenues: 1995 1994 1994
---- ---- ----
(unaudited)
Imaging systems $6,643,090 $ 5,224,810 $ 5,288,200
sales and other
revenue . . . . .
Operating expenses:
Cost of goods sold 4,124,354 1,956,611 2,414,121
Research and 1,243,159 1,470,281 1,962,144
development . . .
Selling, general and 2,170,442 2,054,461 2,795,193
administrative . ----------- ----------- -----------
Total operating 7,537,955 5,481,353 7,171,458
expenses . . . . ----------- ----------- -----------
Loss from discontinued $ (894,865) $ (256,543) $(1,883,258)
operations . . . . . . =========== =========== ===========
The net assets of discontinued operations are summarized as
follows:
September 30, September 30,
1996 1995
---- ----
Current assets . . . . . . . . . . . . $3,263,394 $7,908,105
Equipment, building, furniture and
leasehold improvements, net . . . . 511,109 922,728
Other assets . . . . . . . . . . . . . 1,487,367 201,363
Current liabilities . . . . . . . . . . (1,000,000) (2,097,436)
Provision for estimated loss on
disposal of discontinued
operations . . . . . . . . . . . . . (400,000)
Long-term debt . . . . . . . . . . . . (133,440) (252,116)
----------- -----------
Net assets of discontinued operations . $3,351,189 $6,682,644
=========== ===========
(NOTE L) Liquidity and Business Risks
-------------------------------------
Based on current estimates of cash flow, management does not
believe that it will have sufficient cash to make mandatory term
loan payments. Accordingly, the entire amount outstanding under
the bank credit facility of $11,855,000 has been classified as a
current liability in the accompanying consolidated financial
statements. The Company is continuing to actively pursue various
funding options, including the sale of certain portions of the
Imaging and Rehabilitation services business segment. If the
sale is successful, it will generate sufficient cash to meet
obligations as they come due through fiscal 1997 (See Note C).
<PAGE>
EXHIBIT INDEX
---------------
10.11* Shared Services Agreement between the Registrant and AMS
dated August 29, 1996.
10.47* Employment Agreement, dated December 20, 1995, between ANMR
and Jack Nelson.
10.48* Employment Agreement, dated December 1, 1995, between MDI
and David Gaynor.
SHARED SERVICES AGREEMENT
SHARED SERVICES AGREEMENT, dated as of August 29, 1996,
1996, by and between ADVANCED NMR SYSTEMS, INC., a Delaware
corporation ("ANMR"), having offices at 46 Jonspin Road,
Wilmington, Massachusetts 01887, and Advanced Mammography
Systems, Inc., a Delaware corporation ("AMS"), having offices at
46 Jonspin Road, Wilmington, Massachusetts 01887.
WHEREAS, ANMR and AMS are parties to that certain
Shared Services Agreement, dated October 28, 1992 (the "Original
Agreement"), pursuant to which AMS engaged ANMR to provide
certain administrative services;
WHEREAS, ANMR has developed more accurate systems for
allocating expenses among ANMR and AMS and certain other changes
have occurred in the relationship between ANMR and AMS since the
Original Agreement was entered into;
WHEREAS, ANMR and AMS continue to share senior
management, outside services, facilities, administrative
employees and other employees;
WHEREAS, ANMR and AMS desire to terminate the Original
Agreement effective upon the execution of this Agreement; and
WHEREAS, ANMR and AMS desire to set forth in this
Agreement a more accurate method of allocating the services that
are shared between each company to be effective retroactively as
of October 1, 1996.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein set forth the parties hereto
agree as follows:
1. TERMINATION OF ORIGINAL AGREEMENT. The Original
---------------------------------
Agreement shall terminate immediately and automatically upon the
execution of this Agreement by ANMR and AMS.
2. SHARED SERVICES. During the term of this
---------------
Agreement, ANMR and AMS shall provide to each other, as
indicated, the following services:
2.1 Senior Management. The Designated Executive
-----------------
Officers (as hereinafter defined) shall be employed by both ANMR
and AMS and shall be available to perform their respective duties
as executive officers of each company and to devote as much time
as may be reasonably necessary to the business and affairs of
each Company. Each of ANMR and AMS shall pay fifty percent (50%)
of the aggregate annual cash compensation of each of the
Designated Executive Officers in accordance with the respective
employment agreements of each of the Designated Executive
Officers. The percentage amount of the annual cash compensation
payable by either of ANMR or AMS may be adjusted in the event
that the President and Chief Financial Officer of each company
determine that circumstances warrant such an adjustment. As used
in this Agreement, the term "Designated Executive Officers" means
the following persons who act as executive officers of both ANMR
and AMS: Jack Nelson, Enrique Levy and Charles Moche.
2.2 Administrative Services. The Administrative
-----------------------
Personnel (as hereinafter defined) shall be employed by both ANMR
and AMS and shall be available to perform their respective duties
as Administrative Personnel of each company and to devote as much
time as may be reasonably necessary to the business and affairs
of each Company. Each of ANMR and AMS shall pay fifty percent
(50%) of the aggregate annual cash compensation of the
Administrative Personnel. The percentage amount of the annual
cash compensation payable by either of ANMR or AMS may be
adjusted in the event that the President and Chief Financial
Officer of each company determine that circumstances warrant such
an adjustment. As used in this Agreement, the term
"Administrative Personnel" means personnel of ANMR and AMS who
perform secretarial, clerical administrative and in house
accounting services.
2.3 Facilities. ANMR shall permit AMS to share the
----------
Facilities (as hereinafter defined). AMS shall reimburse ANMR
for expenses incurred by ANMR that relate to AMS' use of the
Facilities, including rent, utilities, maintenance charges, and
insurance. The reimbursement amount shall be determined by
dividing the total amount of expenses for the Facilities by a
fraction, the numerator of which is the number square feet of the
Facilities occupied by AMS personnel and the denominator of which
is the total number of square feet of the Facilities. AMS shall
reimburse ANMR for its allocated portion of the expenses of the
Facilities upon the receipt by AMS of an invoice from ANMR for
such expenses. As used in this Agreement, the term "Facilities"
means the offices of ANMR at (i) Two Executive Drive, Fort Lee,
New Jersey 07024 and (ii) 46 Jonspin Road, Wilmington,
Massachusetts 01887.
2.4 Miscellaneous Services and Resources. ANMR shall
------------------------------------
permit AMS to utilize other supplies, resources and equipment of
ANMR as required by AMS and ANMR. The President and the Chief
Financial Officer of each of ANMR and AMS shall use their best
efforts to allocate the cost of such supplies, resources and
equipment to each of ANMR and AMS. AMS shall reimburse ANMR for
its allocated portion of such cost upon the receipt by AMS of an
invoice from ANMR for such costs.
2.5 Outside Services. ANMR and AMS shall request all
----------------
outside consultants and independent contractors to provide each
company with a separate invoice that allocates expenses
associated with services performed by such consultants and
independent contractors on behalf of either ANMR or AMS. To the
extent that any invoices received by either of ANMR or AMS do not
allocate expenses between ANMR and AMS or do not allocate such
expenses appropriately, the President and Chief Financial Officer
of each company shall determine an appropriate allocation. ANMR
and AMS agree to reimburse each other to the extent that any
invoices for outside services do not accurately allocate expenses
for such services. ANMR and AMS agree to reimburse each other
upon the receipt of an invoice for such expenses.
3. TERM.
-----
3.1 The term of this Agreement shall commence
retroactively as of October 1, 1996 and shall continue through
May 31, 2001, unless earlier terminated or extended in accordance
with the provisions of this Section 3.
3.2 The term of this Agreement shall be automatically
extended for two additional one-year periods unless written
notice of termination from either party is given at least 90 days
prior to the scheduled expiration thereof.
3.3 This Agreement may be terminated and any one or
more of the services may be reduced in scope or eliminated in its
entirety, at any time during the term hereof upon 90 days' prior
written notice to the other party.
4. OBLIGATIONS AND RELATIONSHIP. ANMR shall at all
----------------------------
times act as an independent contractor and, notwithstanding
anything contained herein, the relationship established hereunder
between the parties shall not be construed as a partnership,
joint venture or other form of joint enterprise. Except as
expressly authorized by a party hereto, no party shall be
authorized to make any representations or to create or assume any
obligation or liability in respect or on behalf of the other
party, and this Agreement shall not be construed as constituting
either party as the agent of the other party.
5. LIMITED LIABILITY; INDEMNIFICATION
----------------------------------
5.1 ANMR shall not be liable to AMS for any loss,
claim, expense or damage, including indirect, special,
consequential or exemplary damages, for any act or omission
performed or omitted by it hereunder so long as its act or
omission does not constitute fraud, bad faith or gross
negligence. ANMR shall not be liable to AMS for the consequences
of any failure or delay in performing any services provided such
failure shall be caused by labor disputes, strikes or other
events or circumstances beyond ANMR's control and provided
further, ANMR shall have provided prompt notice to AMS of its
inability to perform services and the reason therefor.
5.2 In any action, suit or proceeding (other than an
action by or in the right of ANMR or AMS, as the case may be) to
which either ANMR or AMS or any of their respective agents or
employees performing services hereunder (the "Indemnitee") was or
is a party by reason of his or its performance or non-performance
of services, either ANMR or AMS, as the case may be, shall
indemnify the Indemnitee and hold the Indemnitee harmless from
and against expenses, judgments, fines and amounts paid (with the
consent of the other party) in settlement actually and reasonably
incurred by the Indemnitee in connection therewith if the
Indemnitee acted in good faith and provided that the Indemnitee's
conduct does not constitute gross negligence, fraud or
intentional misconduct.
6. CONFIDENTIALITY. Any and all information obtained
---------------
by either party in connection with the services contemplated by
this Agreement shall be held in the strictest confidence and not
disclosed to any other person without the written consent of the
other party.
7. NOTICES. All notices and other
--------
communications permitted or required hereunder shall be in
writing and shall be deemed given when delivered by hand to an
officer of either party.
8. BINDING EFFECT. This Agreement and all of the
--------------
provisions hereof shall be binding upon and inure to the benefit
of the parties and their respective successors.
9. NO THIRD PARTY BENEFICIARIES. This Agreement is
----------------------------
solely for the benefit of the parties hereto and shall not confer
upon third parties any remedy, claim, cause or action or other
right in addition to those existing without reference to this
Agreement.
10. ENTIRE AGREEMENT. This Agreement constitutes the
-----------------
entire agreement between the parties with respect to the subject
matters covered and hereby and supersedes and prior agreement or
understanding between the parties with respect to those matters.
11. ASSIGNMENT; AMENDMENT; WAIVER. This Agreement is
-----------------------------
not assignable. Neither the rights nor the duties arising
hereunder may be assigned or delegated. This Agreement may not
be amended nor may any rights hereunder be waived except by an
instrument in writing signed by the party sought to be charged
with the amendment or waiver. The failure of a party to insist
upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that
term or any other term of this Agreement.
12. GOVERNING LAW. This Agreement shall be construed
-------------
in accordance with and governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the provisions,
policies or principles thereof relating to choice or conflict of
laws.
13. HEADINGS. The section and other headings
--------
contained in this Agreement are for references purposes only and
shall not effect the meaning or interpretation of this Agreement.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have caused in this
Agreement to be duly executed as of the date and year first above
written.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Enrique Levy
------------------------------
Name:Enrique Levy
Title: President
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Jack Nelson
----------------------------------
Name: Jack Nelson
Title: Chairman
EMPLOYMENT AGREEMENT
----------------------
AGREEMENT, dated as of December 20, 1995, by and
between ADVANCED NMR SYSTEMS, INC., a Delaware corporation (the
"Company"), and JACK NELSON ("the Executive").
WHEREAS, the Executive has been employed by the Company
pursuant to the Employment Agreement dated as of December 6, 1993
(the "1993 Agreement"), and the Company and the Executive wish to
extend the employment relationship in order that the Company will
have the continued benefit of the Executive's services by
entering into a new employment arrangement in substitution for
that under the 1993 Agreement;
WHEREAS, in accordance with the 1993 Agreement, the
Executive has devoted a portion of his executive services to
Advanced Mammography Systems, Inc. ("AMS"), a majority-owned
subsidiary of the Company for which services AMS has reimbursed
the Company; and
WHEREAS, it has been deemed that the Executive should
have separate employment agreements with the Company and AMS,
simultaneously with the execution of this Agreement, AMS and the
Executive are entering into an Employment Agreement (the "AMS
Agreement") with respect to the services that the Executive is to
render to AMS;
NOW THEREFORE, in consideration of the foregoing and
the mutual agreements contained herein, the Company and the
Executive agree as follows:
1. Employment. The Company hereby employs the
----------
Executive as its Chairman of the Board and Chief Executive
Officer, and the Executive accepts such employment and agrees to
perform services for the Company for the period and upon the
other terms and conditions set forth in this Agreement.
2. Term. The term of the Executive's employment
----
hereunder (the "Term") shall be for a period of five years
commencing as of the date of this Agreement (the "Commencement
Date") and terminating on December 31, 2000, subject to earlier
termination as hereafter specified. This Agreement may be
automatically extended for one (1) year terms unless either the
Company or the Executive gives the other written notice that the
Agreement is terminated prior to December 31, 1999 or thereafter
on the applicable anniversary date.
3. Position and Duties.
-------------------
3.01 Service with the Company. The Executive agrees
-------------------------
to perform such executive employment duties consistent with the
positions specified in Section 1 hereof and as the Board of
Directors of the Company shall assign to him from time to time.
The Executive also agrees to serve, during the Term hereof, as
requested by the Board, and without any additional compensation,
as a director of the Company and as an officer and/or director of
any subsidiary or affiliate of the Company. It is understood
that the Executive shall divide his full and exclusive business
time between the Company, pursuant to this Agreement, and to AMS,
pursuant to the AMS Agreement. Upon the termination or
expiration of the AMS Agreement, the Executive shall devote his
full and exclusive business time to the Company and its
subsidiaries. The Executive acknowledges that he is familiar
with the License Agreement and the Shared Services Agreement
between the Company and AMS, and agrees to observe the
obligations thereunder with respect to the Company and AMS.
3.02 Performance of Duties. The Executive agrees to
---------------------
serve the Company faithfully and to the best of his ability to
advance the business and affairs of the Company, including its
subsidiaries and affiliates, during the Term of this Agreement.
The Executive shall operate primarily out of the executive
offices located in Fort Lee, N.J. (the "Executive Offices"), but
it is understood that the Executive shall also spend considerable
time as business operations require at the Company's office in
Wilmington, Massachusetts and he will undertake such travel as is
necessary to perform his duties under this Agreement. During the
Term hereof, as provided herein, the Executive shall not serve as
a director, employee, consultant or advisor to any other
corporation or business entity not affiliated with the Company
(other than AMS) without the prior written consent of the
Company's Executive Committee, which consent shall not be
unreasonably withheld.
4. Compensation.
------------
4.01 Base Salary. As compensation for all services to
------------
be rendered by the Executive under this Agreement and while the
AMS Agreement is in effect, the Company shall pay to the
Executive an initial base annual salary (the "Base Salary") of
$117,500. The Base Salary for the second year of this Agreement
shall automatically increase by an amount equal to at least ten
percent (10%) of the initial Base Salary for the first year.
Thereafter, the Base Salary shall be reviewed annually by the
Compensation Committee of the Company's Board of Directors with
any increases to be based upon the Company having achieved both
the revenue and net income budget projections for the immediately
preceding fiscal year. The Base Salary throughout the Term shall
be paid in installments in accordance with the Company's normal
payroll procedures and policies. Upon termination of the AMS
Agreement, the Base Salary then in effect under this Agreement
shall be increased by one hundred (100%) percent, and such
increased Base Salary shall remain in effect for the balance of
the Term hereof, subject to adjustment as provided for in this
Section 4.01.
4.02 Stock Options. The Executive shall be entitled to
-------------
stock options for the purchase of 250,000 shares of the Company's
Common Stock exercisable over a five year period, with 50,000
shares to vest each year commencing as of the date of the grant,
which vesting may be accelerated as provided for in Section 6
hereof. He may be granted additional stock options as determined
by the Option Committee of the Board of Directors of the Company.
4.03 Participation in Benefit Plans. The Executive
-----------------------------
shall also be entitled, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him
eligible, to participate in all employee benefit plans or
programs (including medical/dental and life insurance,
retirement, pension, vacation time, sick leave and holidays) of
the Company currently in existence on the date hereof or as may
hereafter be instituted from time to time. The Executive's
participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto. The
Executive shall make himself available for medical examinations
in connection with the Company obtaining any insurance on the
life of the Executive. If necessary, the participation by the
Executive in the foregoing benefit plans may be coordinated
between plans of the Company and AMS as required under any such
plans to avoid any diminution of the Executive's full
participation therein.
4.04 Expenses. During the Term hereof the Company
--------
shall provide the Executive with a monthly non-accountable
allowance in the amount of $675 to cover expenses that the
Executive will incur in connection with his duties hereunder,
including, among other things, the Executive's life and
disability insurance policies, pension plan and automobile
insurance. The non-accountable amount would increase to $1,350 a
month upon the termination of the AMS Agreement. Upon the
Executive incurring non-recurring expenses on behalf of the
Company, the Company shall pay or reimburse the Executive for
such expenses, in accordance with the Company's policies
established from time to time, subject to the presentment of
appropriate vouchers and receipts.
5. Protective Covenants.
---------------------
5.01 Confidential Information. Except as permitted or
------------------------
directed by the Company's Board of Directors, the Executive shall
not during the Term of this Agreement or at any time thereafter
divulge, furnish or make accessible to anyone for use in any way
(other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of
the Company (for the purposes of this Section the term "Company"
shall be deemed to include any subsidiary or affiliate of the
Company, including AMS) which the Executive has acquired or
become acquainted with or will acquire or become acquainted with
prior to the termination of the period of his employment by the
Company, whether developed by himself or by others, concerning
any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or
patentable) directly or indirectly useful in any aspect of the
business of the Company, and confidential customer or supplier
lists of the Company, any confidential or secret development or
research work of the Company, or any other confidential or secret
aspects of the business of the Company, except as permitted or
directed by the Company's Board. The Executive acknowledges that
the above-described knowledge or information constitutes a unique
and valuable asset of the Company acquired at great time and
expense by the Company, and that any disclosure or other use of
such knowledge or information other than for the sole benefit of
the Company would be wrongful and would cause irreparable harm to
the Company. Both during and after the Term of this Agreement,
the Executive shall refrain from any acts or omissions that would
reduce the value of the use of such knowledge or information to
the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which
is now published or which subsequently becomes generally
publicly known, other than as a direct or indirect result of the
breach of this Agreement by the Executive.
5.02 Disclosure and Assignment. The Executive shall
-------------------------
promptly disclose in writing to the Company complete information
concerning each and every invention, discovery, improvement,
device, design, apparatus, practice, process, method or product,
whether patentable or not, made, developed, perfected, devised,
conceived or first reduced to practice by the Executive within
his duties and corporate responsibilities, either solely or in
collaboration with others, during the Term of this Agreement, or
within six (6) months thereafter, whether or not during regular
working hours, relating directly to the business, products or
practices of the Company (hereinafter referred to as
"Inventions"). The Executive, to the extent that he has the
legal right to do so, hereby acknowledges that any and all of
said Inventions are the property of the Company and hereby
assigns and agrees to assign to the Company any and all of the
Executive's right, title and interest in and to any and all of
said Inventions.
5.03 Future Inventions. As to any future Inventions
----------------
made within his duties and corporate responsibilities by the
Executive which relate to the business, products or practices of
the Company and which are first conceived or reduced to practice
during the Term of this Agreement, but which are claimed for any
reason to belong to an entity or person other than the Company,
the Executive shall promptly disclose the same in writing to the
Company and shall not disclose the same to others if the Company,
within twenty (20) days thereafter, shall claim ownership of such
Inventions under the terms of this Agreement.
5.04 Assistance of the Executive. Upon request and
---------------------------
without further compensation therefor, but at no expense to the
Executive, and whether during the Term of this Agreement or
thereafter, the Executive shall do all lawful acts, including,
but not limited to, the execution of papers and lawful oaths and
the giving of testimony, that in the opinion of the Company, its
successors and assigns, may be necessary or desirable in
obtaining, sustaining, reissuing, extending or enforcing United
States, Canadian and foreign Letters Patents, including, but not
limited to, design patents, on any and all of said Inventions,
and for perfecting, affirming and recording the Company's
complete ownership and title thereto, and to cooperate otherwise
in all proceedings and matters relating thereto.
5.05 Records. The Executive shall keep complete,
--------
accurate and authentic accounts, notes, data and records of all
Inventions in the manner and form requested by the Company. Such
accounts, notes, data and records shall be the property of the
Company. Upon termination of his employment with the Company,
the Executive shall deliver promptly to the Company all records,
manuals, books, blank forms, documents, letters, memoranda,
notes, notebooks, reports, data, tables, calculations or copies
thereof, which are the property of the Company and which relate
in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and
confidential information of the Company, including, but not
limited to, all documents which in whole or in part contain any
trade secrets or confidential information of the Company, which
in any of these cases are in his possession or under this
control.
5.06 Non-Competition. The Executive agrees that during
----------------
the Term of his employment hereunder and for a period of one (l)
year following the termination of such employment (except if this
Agreement is not renewed at end of any then Term, the foregoing
period shall be six (6) months following such termination of
employment) he shall not (i) directly or indirectly within the
geographical area in which the Company is manufacturing and
marketing its products engage in competition with the Company by
being an employee, shareholder, sole proprietor, partner, member
or consultant to an entity which is engaged in a business (the
"Competitive Business") similar to that conducted by the Company
at any time during the six (6) month period preceding his
termination of employment hereunder or which at the time of such
termination the Company had definitive plans to enter, or (ii) on
his own behalf or in the service of others solicit, divert or
attempt to solicit or divert any person then employed by the
Company. The restrictions in this Section 5.06 shall not apply
with respect to (i) a passive investment by the Executive of less
than 5% of the outstanding shares of capital stock of any
corporation or other business entity, (ii) employment by the
Executive with an entity in a management capacity in an area of
business which is not, directly or indirectly, a Competitive
Business, or (iii) a termination of this Agreement by the Company
other than for cause pursuant to Section 6.04 hereof or by the
Executive for cause pursuant to Section 6.05 hereof or upon a
change of control pursuant to Section 6.06 hereof. To the extent
that the employment of the Executive by AMS pursuant to the AMS
Agreement is deemed to be employment in a Competitive Business,
the Company hereby consents to such employment and waives any
claims that it may have against the Executive for breach of this
Section 5.06 by reason of such employment with AMS.
5.07 Remedies. The Executive agrees that it would be
--------
difficult to compensate the Company fully for damages for any
violation of the provisions of this Agreement, including without
limitation the provisions of this Section 5. Accordingly, the
Executive specifically agrees that the Company shall be entitled
to temporary and permanent injunctive relief to enforce the
provisions of this Agreement. This provision with respect to
injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages in addition to injunctive
relief.
6. Termination.
-----------
6.01 Death of the Executive. This Agreement shall
----------------------
automatically terminate in the event of the death of the
Executive. In the event this Agreement is terminated by reason
of the death of the Executive, the Company shall pay the
representative of the Executive (i) any accrued amount of the
Base Salary (and any Bonus), benefits, reimbursements or other
sums payable pursuant to this Agreement accrued to the date of
death, (ii) an amount equal to two (2) times the Base Salary in
effect at the time of his death, fifty (50%) percent payable
within thirty (30) days from the date of death and the remaining
fifty (50%) percent in twelve (12) equal consecutive monthly
installments, commencing on the first day of the month
immediately following the month in which the Executive died, and
(iii) an amount equal to the product of (A) any Bonus the Company
had paid to the Executive for the immediately preceding year of
this Agreement multiplied by (B) a fraction the numerator of
which shall be the number of whole months during the current year
hereof prior to the month in which the Executive died and the
denominator shall be 12; and the Company shall cause all stock
options and other equity based awards granted by the Company to
the Executive to become fully vested and immediately exercisable
by the Executive's estate subject to their respective terms.
6.02 Disability of the Executive. (a) If the
---------------------------
Executive is determined to be disabled pursuant to this Section,
within thirty (30) days of such determination of disability, the
Company shall have the option to terminate this Agreement by
written notice to the Executive stating the date of termination
which date may be at any time subsequent to the date of such
determination. For purposes of this Section 6.02, "disability"
shall mean a condition, due to illness or injury, either physical
or mental, subject to which the Executive is unable to perform
his customary duties and responsibilities as required by this
Agreement for more than six (6) months in the aggregate out of
any period of twelve (12) consecutive months. The determination
that the Executive is disabled shall be made by the Executive
Committee of the Company, based upon an examination and
certification by a qualified physician selected by the Company
and subject to the Executive's approval, which approval shall not
be unreasonably withheld.
(b) In the event this Agreement is terminated by reason
of the disability of the Executive, (i) the Company shall pay to
the Executive the accrued amount of the Base Salary (and any
Bonus), prorated through the date of termination (other than
expense reimbursements which shall be paid in full), if, as and
when such amounts would be paid but for the termination of this
Agreement, (ii) the Executive's inclusion in the Company's health
plan shall continue at the expense of the Company for a period of
ninety (90) days, provided the Executive does not obtain any
employment during that time which provides him with comparable
health plan coverage and also subject to any changes in such plan
as applicable to other executive officers, (iii) the Company
shall pay to the Executive an amount equal to (A) two (2) times
his then Base Salary, less (B) the aggregate amount of all income
disability benefits which he may be entitled to during the first
twenty-four (24) months after termination by reason of disability
policies for which the Company paid the premiums thereon,
commencing on the first day of the month immediately following
the month during which the foregoing termination of employment
occurred, and payable in twenty-four (24) equal consecutive
monthly installments, (iv) the Company shall pay to the Executive
an amount equal to the product of (A) any Bonus such Company had
paid to the Executive for the immediately preceding year of this
Agreement multiplied by (B) a fraction, the numerator of which
shall be the number of whole months during the current year
hereof that the Executive was an employee of the Company and the
denominator shall be 12, and (v) all stock options and other
equity based awards granted by the Company to the Executive shall
become fully vested and immediately exercisable subject to their
respective terms.
6.03 By the Company For Cause. The Company may
-------------------------
terminate this Agreement for cause at any time. For purposes of
this Section 6.03, the term "cause" shall be limited to (i) the
willful engaging by the Executive in misconduct which is
materially injurious to the Company or its subsidiaries or
affiliates, (ii) the conviction of the Executive of a crime
involving any financial impropriety or which would materially
interfere with the Executive's ability to perform his services
required under this Agreement or otherwise be materially
injurious to the Company or its subsidiaries or affiliates, or
(iii) the failure of the Executive to perform in any material
respect any of his material obligations under this Agreement
without proper justification, which failure is not cured within
ten (10) days after notice thereof from the Company. For the
purposes of this Section 6.03, no act, or failure to act, on the
Executive's part shall be considered willful unless done, or
admitted to be done, by the Executive in bad faith and without
reasonable belief that such action or omission was in the best
interest of the Company. In the event this Agreement is
terminated pursuant to this Section 6.03, the Executive shall not
be entitled to any compensation other than his then current Base
Salary which has accrued through his date of termination, subject
to the Company's right of offset based upon acts of the Executive
which gave rise to the termination, and any other claims which
the Company may then have against the Executive, and all stock
options and other equity based awards granted by the Company to
the Executive which have not yet vested shall terminate.
6.04 By the Company Not for Cause. If the Company
----------------------------
terminates this Agreement other than for cause as defined in
Section 6.03 hereof prior to the end of the then Term hereof, the
Executive shall be entitled to (i) an amount equal to two (2)
times the Base Salary in effect at the time of termination, fifty
(50%) percent payable within thirty (30) days from the date of
termination and the remaining fifty (50%) percent in twelve (12)
equal consecutive monthly installments, commencing on the first
day of the month immediately following the month in which the
Agreement is terminated pursuant to this Section 6.04, (ii) any
payments owed by the Company which have accrued through his date
of termination shall be paid upon termination, (iii) any Bonus
through the end of the current fiscal year shall be paid promptly
after calculation of any such Bonus, (iv) the continuation of his
participation in the health plan at the expense of the Company
for a period of two (2) years subject to termination of such
health benefits upon the Executive becoming covered by a
comparable plan offered by a subsequent employer and also subject
to any changes in such plan as applicable to other executive
officers, and (v) the immediate vesting and exercise of all stock
options and other equity based awards granted by the Company to
the Executive, subject to their respective terms.
6.05 By the Executive for Cause. The Executive may
--------------------------
terminate this Agreement for cause at any time upon written
notice given to the Company not more than thirty (30) days after
the Executive becomes aware of an event which may constitute
"cause." For purposes of this Section 6.05, the term "cause"
shall be limited to (I) the failure of the Company to perform in
any material respect any of its material obligations under this
Agreement without proper justification, and such failure
continues for at least fifteen (15) days after written notice
from the Executive to the Company specifying the nature of the
alleged failure, (II) the removal of the Executive as Chairman of
the Board and/or Chief Executive of the Company or a change in
responsibilities or functions of the Executive without his prior
written consent or (III) the relocation of the Executive Offices
of the Company to a site more than 30 miles away from the current
Executive Offices without the prior written consent of the
Executive. In the event that the Executive terminates this
Agreement pursuant to this Section 6.05, the Executive shall then
be entitled to: (i) a severance payment equal to an amount equal
to three (3) times his then Base Salary if the termination date
is within two (2) years of the Commencement Date or two (2) times
his then Base Salary if the termination date is more than two (2)
years after the Commencement Date, payable within thirty (30)
days after the termination of this Agreement by reason of this
Section 6.05, (ii) any payments owed by the Company which have
accrued through his date of termination shall be paid upon
termination, (iii) any Bonus through his date of termination
shall be paid promptly after calculation of any such Bonus,
(iv) the continuation of his participation in the Company's
health plan at the expense of the Company for a period of two (2)
years subject to termination of such health plan coverage
benefits upon the Executive becoming covered by a comparable plan
offered by a subsequent employer and also subject to any changes
in such plan as applicable to other executive officers, and (v)
the immediate vesting and exercise of all stock options and other
equity based awards granted by the Company to the Executive,
subject to their respective terms.
6.06 Change in Control of the Company. If, at anytime
---------------------------------
during the Term hereof, a change in control of the Company (as
defined in Section 6.07 hereof) occurs, then within sixty (60)
days after his receipt of written notice of such change in
control of the Company, the Executive may, by written notice to
the Company (or its successor), terminate this Agreement. In the
event of said termination, (i) the Executive shall receive a lump
sum payment equal to 2.99 times his then current Base Salary,
payable within thirty (30) days after termination of this
Agreement, (ii) the Company (or its successor) shall maintain, at
its expense, the health plan coverage of the Executive for a
period of twelve (12) months after such termination, subject to
termination of such health plan coverage benefits upon the
Executive becoming covered by a comparable plan offered by a
subsequent employer and also subject to any changes in such plan
as applicable to other executive officers and (iii) all stock
options and other equity based awards granted by the Company or
AMS to the Executive shall become fully vested and exercisable
subject to their respective terms; provided, however, if the
------- --------
amount to be paid or distributed to the Executive pursuant to
this Section 6.06 (taken together with any amounts otherwise to
be paid or distributed to the Executive by the Company) (such
amounts collectively the "Section 6.06 Payment") would result in
the application of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any
successor or similar provision thereto, the Section 6.06 Payment
shall not be paid or distributed in the amounts or at the times
otherwise required by this Agreement, but shall instead be paid
or distributed annually, beginning within thirty (30) days after
the termination date pursuant to Section 6.06 hereof and
thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of years
that are determined to be required to reduce the aggregate
present value of Section 6.06 Payment to an amount that will not
cause any Section 6.06 Payment to be non-deductible under Section
280G of the Code. For purposes of this Section 6.06, present
value shall be determined in accordance with Section 280G(d)(4)
of the Code. All determinations to be made under the foregoing
proviso to this Section 6.06 shall be made by the accounting firm
which served as the Company's independent public accountant
immediately prior to the change of control (the "Accounting
Firm"), which firm shall provide its determinations and any
supporting calculations both to the Company and the Executive
within twenty (20) days of the termination date. Any
determination by the Accounting Firm shall be binding upon the
Company and the Executive.
6.07 Change of Control, Defined. "Change of control
---------------------------
of the Company" shall be deemed to have occurred if:
(a) any "person" or "group" (as "person" and "group"
are defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than (i) the Executive or a person controlled by him, (ii) a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (iii) a person or group by reason of
a transaction with the Company approved by the Company's Board of
Directors as constituted in accordance with Subsection (b) below,
or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding
securities; or
(b) individuals who on the Commencement Date
constitute members of the Board of Directors, or successors
chosen by such individuals, shall cease for any reason to
constitute a majority of the whole Board of Directors.
6.08 Mitigation. In the event this Agreement is
---------
terminated pursuant to Section 6.04, 6.05 or 6.06 hereof, the
Executive shall not be required to mitigate the amount of any
payment that the Company becomes obligated to make to the
Executive in connection with this Agreement, by seeking other
employment otherwise, and there shall be no offset against any
payment for any remuneration the Executive may receive from any
subsequent employment or any other source.
7. Assignment and Inurement. This Agreement shall
------------------------
inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors, administrators,
successors and permitted assigns. The Company may, without the
consent of the Executive, assign its rights and obligations under
this Agreement to any corporation, firm or other business entity
with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer all or substantially all
of its assets or of which fifty (50%) percent or more of the
equity investment and of the voting control is owned, directly or
indirectly, by, or is under common ownership with, the Company,
provided there is no change in the rights of the Executive or the
obligations of any such assignee by reason of such assignment and
to the Executive's right to terminate this Agreement pursuant to
Section 6.05 or 6.06 hereof.
8. Miscellaneous.
-------------
8.01 Governing Law. This Agreement is made
-------------
under and shall be governed by and construed in accordance with
the laws of the State of Massachusetts, subject to any principles
of conflict of laws.
8.02 Prior Agreements. This Agreement contains
----------------
the entire agreement of the parties relating to the subject
matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, including,
without limitation, the 1993 Agreement. The parties hereto have
made no agreements, representations or warranties relating to the
subject matter of this Agreement which are not set forth herein.
8.03 Withholding Taxes. The Company may withhold
-----------------
from any benefits payable under this Agreement all federal,
state, city and other taxes as shall be required pursuant to any
law or governmental regulation or ruling.
8.04 Legal Expenses. In the event the Executive
--------------
institutes any judicial or other legal proceeding to enforce his
rights under this Agreement or defends any claims asserted
against him arising out of this Agreement, the Company shall
reimburse him for his legal fees and expenses with respect to all
portions of any such proceedings or claims for which the
Executive is successful. The obligation of the Company in this
Section 8.04 shall be separate from any claim that the Executive
may have for indemnification against the Company, whether by
statute, agreement or otherwise.
8.05 Amendments. No amendment, modification or
----------
termination of this Agreement shall be deemed effective unless
made in writing signed by the party against whom enforcement of
the amendment, modification or termination is sought. Any
written waiver hereunder shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific
term or condition for the future or as to any act other than that
specifically waived.
8.06 Notices. Any notice, request, demand or
--------
other document to be given hereunder shall be in writing, and
shall be delivered personally or sent by registered, certified
or express mail or facsimile followed by mail as follows:
If to the Company:
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887
Attn: Enrique Levy, President
FAX: (508) 658-3581
If to the Executive:
Jack Nelson
281 East Linden Ave.
Englewood, New Jersey 07631
FAX: (201) 569-2586
or to such other address as either party hereto may hereinafter
duly give to the other.
8.07 Severability. To the extent any provision of
------------
this Agreement shall be invalid, illegal or unenforceable, it
shall be considered deleted here from and the remainder of such
provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration or geographical
extent of, or business activities covered by any provision of
this Agreement be in excess of that which is valid or enforceable
under applicable law, then such provision shall be construed to
cover only that duration, extent or activities which may valid
and enforceable be covered. The Executive and the Company
acknowledge the uncertainty of the law in this respect and
expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable
to the maximum extent (not exceeding its express terms) possible
under applicable law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year set forth above.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Enrique Levy, President
-----------------------------
Enrique Levy, President
/s/ Jack Nelson
------------------------
Jack Nelson
EMPLOYMENT AGREEMENT
-----------------------
AGREEMENT, dated as of December 1, 1995, between
MEDICAL DIAGNOSTICS, INC., a Delaware corporation (the
"Company"), and DAVID C. GAYNOR (the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Executive has been employed by the
Company as an executive officer and recently became the
President of the Company, and the Company and the Executive
now desire to enter into an agreement providing for the
continuation of their relationship, subject to the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing
and the mutual agreements contained herein, the Company and
the Executive agree as follows:
1. Employment. The Company hereby employs the
----------
Executive in the position of President of the Company (the
"President"), and the Executive hereby accepts such
employment and agrees to perform services as President for
the Company for the period and upon the other terms and
conditions set forth in this Agreement.
2. Durational Term. The durational term of the
---------------
Executive's employment (the "Initial Term") shall be for a
period commencing as of December 1, 1995 (the "Effective
Date") and terminating on June 30, 1999. This Agreement
shall be automatically extended for an additional three year
term (the "Renewal Term") unless either the Company or the
Executive gives the other written notice that the Agreement
is not to be renewed, which notice shall be given not less
than one hundred and eighty (180) days prior to the end of
the Initial Term. (The Initial Term and the Renewal Term (as
applicable) sometimes collectively, the "Term".)
Notwithstanding the Term hereof, the Executive's employment
hereunder is subject to earlier termination as hereinafter
specified.
3. Position and Duties.
---------------------
3.01 Service with the Company. The Executive
------------------------
agrees to perform his executive employment duties consistent
with the position as the President, and as the Chairman of
the Board or the Board of Directors (the "Board") of the
Company shall assign to him from time to time, provided such
assignments are consistent with the position of President.
The Executive shall report to the Chairman of the Board of
the Company, the Executive Committee of the Board and to the
Board. The Executive also agrees to serve during the Term
hereof, as requested by the Board and without any additional
compensation, as a director of the Company and its parent
Advanced NMR Systems, Inc., a Delaware corporation ("ANMR"),
if elected by the stockholders or the Board of Directors of
ANMR, and as a director and officer of any subsidiaries of
the Company, from time to time in effect. The Executive
agrees that if upon termination of his employment hereunder
he is then serving as a director of the Company, any of its
subsidiaries and of ANMR, he shall cease all such
directorships and, if requested, he shall submit written
resignations thereof.
3.02 Performance of Duties. The Executive agrees
---------------------
to serve the Company faithfully and to the best of his
ability and to devote the time, attention and efforts
necessary to advance the business and affairs of the Company
during the Term hereof. It is understood that the Executive
shall devote his full and exclusive business time to the
Company and any of its subsidiaries. During the Term hereof,
the Executive shall not serve as an officer, director,
employee, proprietor, partner, consultant or advisor to any
other corporation or entity not affiliated with the Company
without the prior written consent of the Board.
4. Compensation.
-------------
4.01 Base Salary. As compensation for all
-----------
services to be rendered by the Executive under this
Agreement, the Company shall pay to the Executive an annual
base salary (the "Base Salary") of not less than $225,000.
The Base Salary shall be paid in installments in accordance
with the Company's normal payroll procedures and policies.
The Base Salary shall increase by a minimum of 10% on the
first anniversary of the Effective Date, not subject to any
condition, and by a minimum of 10% on the second anniversary
of the Effective Date, subject to achieving performance
targets that shall be mutually agreed upon by the Executive
and by either the Board or the Compensation Committee of
ANMR.
4.02 Bonus. In addition to the Base Salary, the
-----
Executive shall be eligible for an annual bonus (the "Bonus")
upon the Company achieving performance targets, based on
quantifiable criteria such as net income or operating income,
and for amounts as mutually determined by the Executive and
by either the Board or the Compensation Committee of ANMR.
4.03 Stock Options. The Executive shall be
-------------
granted stock options under the ANMR 1993 Employee Stock
Option Plan for the purchase of 150,000 shares of ANMR Common
Stock, exercisable over five (5) years and with one-third of
the shares to vest on the Effective Date, and one-third of
the shares to vest on each successive anniversary of the
Effective Date, and subject to the other terms as provided
herein and in the Stock Option Agreement therefor. The
Executive may be granted additional stock options as
determined by the Option Committee of ANMR.
4.04 Participation in Benefit Plans. The
------------------------------
Executive shall also be entitled, to the extent that his
position, title, tenure, salary, age, health (as to life
insurance only) and other qualifications make him eligible,
to participate in all employee benefit plans or programs
(including medical/dental and life insurance, retirement,
pension, vacation time, sick leave and holidays) of the
Company and ANMR currently in existence on the date hereof or
as may hereafter be instituted from time to time to the same
extent as available to other executive officers consistent
with their positions and prior service with the Company and
ANMR. The Company shall use its best efforts to maintain the
current disability insurance policy covering the Executive
which provides a benefit upon his disability (as defined in
such policy) equal to 60% of the Executive's annual Base
Salary at the time of any disability (the "Disability
Insurance Policy"). In the event the Disability Insurance
Policy is terminated, the Company shall use its best efforts
to obtain a policy with substantially similar coverage as
that provided for in the Disability Insurance Policy. The
Executive's participation in any such plan or program shall
be subject to the provisions, rules and regulations
applicable thereto. The Executive shall make himself
available for medical examinations in connection with the
Company obtaining any insurance on the life of the Executive.
4.05 Vacations. The Executive shall be eligible
---------
for six (6) weeks vacation with unlimited accrual rights;
provided, however, that such vacation may only be taken in
maximum increments of four consecutive weeks.
4.06 Expenses. The Company shall pay the
-------
Executive a sum of $500 per month for car expenses. In
accordance with the Company's policies, as established from
time to time, the Company shall pay or reimburse the
Executive for all reasonable and necessary out-of-pocket
expenses incurred by him in the performance of his duties to
the Company under this Agreement.
5. Confidential Information.
------------------------
5.01 Confidentiality. Except as permitted or
---------------
directed by the Company's Board, the Executive shall not
during the Term of this Agreement nor at any time thereafter
divulge, furnish or make accessible to anyone for use in any
way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information
of the Company or any of its subsidiaries or affiliates
(including ANMR) which the Executive has acquired or become
acquainted with prior to the termination of his employment by
the Company, whether developed by himself or by others,
concerning any trade secrets, confidential or secret business
plans, designs, devices or material (whether or not patented
or patentable) directly or indirectly useful in any aspect of
the business of the Company, and confidential client or
supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other
confidential or secret aspects of the business of the
Company. The Executive acknowledges that the above-described
knowledge or information constitutes a unique and valuable
asset of the Company acquired at great time and expense by
the Company, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of
the Company would be wrongful and would cause irreparable
harm to the Company. The foregoing obligations of
confidentiality, however, shall not apply to any knowledge or
information which is now published or which subsequently
becomes generally publicly known, other than as a direct or
indirect result of the breach of this Agreement by the
Executive, or the disclosure of which is required by law.
For purposes of this Section 5.01, "Company" shall mean
Medical Diagnostics, Inc., ANMR and their respective
subsidiaries and affiliates.
5.02 Disclosure and Assignment. The Executive
--------------------------
shall promptly disclose in writing to the Company complete
information concerning each and every invention, discovery,
device, design, practice, process, method or product, whether
patentable or not, made, developed, devised, conceived or
first reduced to practice by the Executive within his duties
and corporate responsibilities, either solely or in
collaboration with others, during the Term of this Agreement,
or within six (6) months thereafter, whether or not during
regular working hours, relating directly to the business,
products or practices of the Company or any of its
subsidiaries or affiliates (hereinafter referred to as
"Inventions"). The Executive, to the extent that he has the
legal right to do so, hereby acknowledges that any and all of
said Inventions are the property of the Company, and hereby
assigns and agrees to assign to the Company any and all of
the Executive's right, title and interest in and to any and
all of said inventions.
6. Non-Competition.
----------------
6.01 Non-Competition. The Executive recognizes
---------------
that the services to be performed by him for the Company are
special and unique. The Executive further recognizes that
the nature of the Company's business is such that the
Executive will have full knowledge of the Company's business
plans, practices and secrets. The parties therefore confirm
that, in order to protect the Company's goodwill, it is
necessary that the Executive agree, and the Executive hereby
does agree that during the Term of his employment hereunder
and for a period of one (1) year following the termination of
such employment, he shall not engage in competition with the
Company, including any of its subsidiaries or affiliates
(including ANMR) (collectively, the "Business Entities") by
being an employee, sole proprietor, stockholder, partner,
member, consultant to or otherwise associated with an entity
engaged in business within a 250 mile radius of a business
operation in which any of the Business Entities is then
engaged, or has engaged in at any time during the six-month
period prior to the termination of this Agreement, or is
planning to commence operation within six months after
termination of this Agreement (the "Competitive Business").
6.02 Application. The restrictions in this
-----------
Section 6 shall not apply with respect to (i) a passive
investment by the Executive of less than 5% of the
outstanding shares of capital stock of any corporation or of
the equity of any other entity, (ii) employment by the
Executive with an entity at which he is employed solely in a
management capacity in an area of business which does not,
directly or indirectly, include a Competitive Business, or
(iii) a termination of this Agreement pursuant to Section
7.07 hereof.
6.03 Remedies. The Executive agrees that any
-------
breach or threatened breach by him of any provision of this
Agreement shall entitle the Company, in addition to any other
legal remedies available to it, to apply to any court of
competent jurisdiction to enjoin such breach or threatened
breach.
7. Termination.
-----------
7.01 Disability of the Executive. The Executive
---------------------------
shall be considered disabled if, due to illness or injury,
either physical or mental, he is unable to perform his
customary duties and responsibilities as required by this
Agreement for the minimum period provided for in the
Disability Insurance Policy. The determination that the
Executive is disabled shall be made as provided for in the
Disability Insurance Policy then in effect or, in absence of
such a Policy, by the Executive Committee or by the Board
based upon an examination and certification by a physician
selected by the Company subject to the Executive's approval,
which approval shall not be unreasonably withheld, and using
the criteria as provided for in the last effective Disability
Insurance Policy that covered the Executive. The Executive
agrees to submit timely to any required medical or other
examination, provided that such examination shall be
conducted at a location convenient to the Executive and that
if the examining physician is other than the Executive's
personal physician, the Executive shall have the right to
have his personal physician present at such examination.
7.02 Effect of Disability. If the Executive is
--------------------
determined to be disabled pursuant to Section 7.01 hereof,
within (30) days of such determination of disability, the
Company shall have the option to terminate this Agreement by
written notice to the Executive stating the date of
termination, which date may be at any time subsequent to the
date of such determination. Upon termination of this
Agreement due to disability as provided herein, (i) the
Company shall pay to the Executive the accrued amount of the
Base Salary (including any earned Bonus), prorated through
the date of termination (other than expense reimbursements
which shall be paid in full), as and when such amounts would
be paid but for the termination of this Agreement, (ii) the
Executive's participation in the Company's health plan shall
continue at the expense of the Company for a period of ninety
(90) days, provided the Executive does not obtain any
employment during that time which provides him with
comparable health plan coverage, and thereafter the Executive
shall have his applicable COBRA rights in accordance with
Company policies, and (iii) for a period of two (2) years,
the Company shall pay to the Executive an amount equal to (A)
sixty (60%) of his then Base Salary less (B) the aggregate
amount of all benefits received under the Disability
Insurance Policy, payable in accordance with the Company's
payroll practices.
7.03 Death. If the Executive shall die during
-----
the Term of this Agreement, this Agreement and the
Executive's employment hereunder shall terminate immediately
upon the Executive's death. Upon such termination, (i) the
Company shall pay to the Executive's estate the accrued
amount of the Base Salary (including any earned Bonus),
benefits, reimbursements or other sums payable pursuant to
this Agreement, and (ii) the Company shall continue to pay to
the Executive's estate for a period of one (1) year an amount
equal to the Base Salary in effect at his death, payable in
twelve (12) equal monthly installments, commencing on the
first day of the month immediately following the month in
which the Executive died.
7.04 By The Company For Cause. Upon
------------------------
authorization by the Board, the Company may terminate this
Agreement for cause at any time. For purposes of this
Section 7.04, the term "cause" shall be limited to (i) the
willful and continued failure by the Executive to perform
substantially his duties with the Company (other than any
such failure resulting from incapacity due to physical or
mental illness), (ii) the conviction of the Executive by a
court of competent jurisdiction of a crime, or (iii) the
willful engaging by the Executive in illegal conduct which is
materially and demonstrably injurious to the Company;
provided, however, that with respect to clauses (i) and
(iii), the failure to perform or the conduct (if curable) is
not cured within thirty (30) days after receipt of written
notice thereof from the Company which specifically identifies
the manner(s) which the Board or the Chairman of the Company
believes constitutes failure to perform or conduct. In the
event this Agreement is terminated pursuant to this
Section 7.04, the Executive shall not be entitled to any
compensation other than his then current Base Salary or any
payments owed by the Company to the Executive which have
accrued through his date of termination, subject to the
Company's right of offset based upon debts owed by the
Executive to the Company.
7.05 By The Company Not For Cause. If the
----------------------------
Company terminates this Agreement other than for cause as
defined in Section 7.04 hereof prior to the end of the then
Term hereof, the Executive shall be entitled to (i) the
continuation of his then Base Salary for the balance of the
Term, but not less than two (2) years' Base Salary, payable
as to fifty (50%) percent of such amount within thirty (30)
days after the date of termination and the remaining fifty
(50%) percent in equal monthly installments over the
applicable period, (ii) any payments (including earned Bonus)
owed by the Company to the Executive which have accrued
through his date of termination, (iii) any Bonus through the
end of the current fiscal year, and (iv) the continuation of
his health insurance coverage at the expense of the Company
for a period of one (1) year subject to termination of such
benefits upon the Executive becoming covered by a comparable
plan offered by a subsequent employer and subject to any
changes in such plan as applicable to other executive
officers, and thereafter the Executive shall have his
applicable COBRA rights in accordance with Company policies.
Upon termination of this Agreement pursuant to this
Section 7.05, any outstanding unvested stock options granted
to the Executive by ANMR shall vest and be immediately
exercisable for a period of twelve (12) months from the date
of termination or until the stock options expiration date,
whichever is earlier.
7.06 By the Executive for Cause. (a) The
--------------------------
Executive may terminate this Agreement for cause at any time
upon written notice to the Company, which must be given not
more than thirty (30) days after the Executive has knowledge
of the action giving rise to the cause. The notice must
specifically identify the act constituting the cause and if
such act is curable the Company shall have thirty (30) days
after receipt of such notice to cure such cause. For
purposes of this Section 7.06, the term "cause" shall be
limited to:
(i) a material adverse change in the status
or position of the Executive as a senior executive
of the Company from that in effect as of the
Effective Date, or any removal from such position
(except in connection with the termination of this
Agreement pursuant to Section 7.01, 7.02, 7.03,
7.04 or 7.05 hereof);
(ii) a reduction by the Company in the Base
Salary;
(iii) the failure by the Company to continue
in effect any employee plan in which the Executive
is participating (or plans providing at least
substantially similar benefits) other than as a
result of the normal expiration of any such plan in
accordance with its terms, or the taking of any
action, or the failure to act, by the Company which
would adversely affect the Executive's continued
participation in any of such plans;
(iv) the failure by the Company to provide
and credit the Executive with the number of paid
vacation days to which he is then entitled pursuant
to this Agreement; or
(v) the Company's requiring the Executive
to be based at any office that is more than fifty
(50) miles from where his office is presently
located except for required travel on the Company's
business to an extent substantially consistent with
the business travel obligations required in the
performance of the Executive's employment.
(b) In the event that the Executive terminates
this Agreement pursuant to this Section 7.06, the Executive
shall be entitled to a severance allowance equal to (x) twice
his then current Base Salary if the remainder of the then
Term is at least twelve (12) full months or (y) twice the
amount of the current Base Salary that otherwise would be
payable for the remainder of the then Term, if the remainder
of the then Term is less than twelve (12) months, payable as
to fifty (50%) percent of the applicable amount within thirty
(30) days after the date of termination and the remaining
fifty (50%) percent in equal monthly installments over the
applicable period. The severance allowance provided for in
this Section 7.06 shall be in lieu of and shall supersede all
prior severance provisions contained in any other prior
agreement between the Executive and the Company. In
addition, the Executive shall be entitled to (i) any payments
(including earned Bonus) owed by the Company to the Executive
which have accrued through his date of termination, (ii) any
Bonus through the end of the current fiscal year, and (iii)
the continuation of his health insurance coverage at the
expense of the Company for a period of one (1) year subject
to termination of such benefits upon the Executive becoming
covered by a comparable plan offered by a subsequent employer
and subject to any changes in such plan as applicable to
other executive officers, and thereafter the Executive shall
have his applicable COBRA rights in accordance with Company
policies. Upon termination of this Agreement pursuant to
this Section 7.06, any unvested stock options granted to the
Executive by ANMR shall vest and be immediately exercisable
for a period of twelve (12) months or until the stock options
expiration date, whichever is earlier.
7.07 Change in Control. (a) For purposes of
-----------------
this Agreement, a "Change in Control" means and shall be
deemed to occur if any of the following occurs:
(i) an acquisition, by an individual, entity
or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more
of either (A) the outstanding shares of common
stock, par value $.01 per share, of ANMR (the
"Common Stock"), or (B) the combined voting power
of the voting securities of ANMR entitled to vote
generally in the election of directors (the "Voting
Securities");
(ii) individuals who, on January 1, 1996,
constituted the Board (the "Incumbent Board") of
ANMR, cease for any reason to constitute at least a
majority of the Board, provided, however, that any
------- --------
individual becoming a director subsequent to
January 1, 1996 whose election, or nomination for
election by the ANMR stockholders, was approved by
a vote of at least a majority of the directors then
serving and comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents;
(iii) approval by the Board or the
stockholders of ANMR of (A) a tender offer to
acquire 30% or more of the Common Stock or Voting
Securities, (B) a reorganization, (C) a merger, or
(D) a consolidation, other than a reorganization,
merger or consolidation with respect to which all
or substantially all of the individuals and
entities who were the beneficial owners,
immediately prior to such reorganization, merger or
consolidation, of the Common Stock and Voting
Securities beneficially own, directly or
indirectly, immediately after such reorganization,
merger or consolidation, more than 70% of the then
outstanding Common Stock and Voting securities
(entitled to vote generally in the election of
directors) of the corporation resulting from such
reorganization, merger or consolidation in
substantially the same proportions as their
respective ownership, immediately prior to such
reorganization, merger or consolidation, of the
Common Stock or the Voting Securities; or
(iv) approval by the Board or the ANMR
stockholders of (A) a complete or substantial
liquidation or dissolution of the Company or ANMR,
(B) the sale or other disposition of all or
substantially all of the assets of the Company or
ANMR, or (C) a merger of the Company with or into a
corporation not controlled, directly or indirectly,
by ANMR.
(b) If, at any time during the Term hereof, a
Change in Control (as defined in Subsection (a) above)
occurs, then within sixty (60) days after his receipt of
written notice of such Change in Control, the Executive may,
by written notice to the Company (or its successor),
terminate this Agreement. In the event of such termination,
the Executive shall receive a lump sum payment equal to 2.99
times his then current Base Salary, payable within thirty
(30) days after termination of this Agreement; provided,
-------------
however, if the amount to be paid or distributed to the
------
Executive pursuant to this Section 7.07 (taken together with
any amounts otherwise to be paid or distributed to the
Executive by the Company) (such amounts collectively the
"Section 7.07 Payment") would result in the application of an
excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor or similar
provision thereto, (the "Code"), the Section 7.07 Payment
shall not be paid or distributed in the amounts or at the
times otherwise required by this Agreement, but shall instead
be paid or distributed annually, beginning within thirty (30)
days after the termination date pursuant to this Section 7.07
hereof and thereafter on each anniversary thereof, in the
maximum substantially equal amounts and over the minimum
number of years that are determined to be required to reduce
the aggregate present value of Section 7.07 Payment to an
amount that will not cause any Section 7.07 Payment to be
non-deductible under Section 280G of the Code. For purposes
of this Section 7.07, present value shall be determined in
accordance with Section 280G(d)(4) of the Code. All
determinations to be made under the foregoing proviso to this
Section 7.07 shall be made by the accounting firm which
served as the independent public accountant of ANMR
immediately prior to the Change of Control (the "Accounting
Firm"), which firm shall provide its determinations and any
supporting calculations both to the Company and the Executive
within twenty (20) days of the termination date. Any
determination by the Accounting Firm shall be binding upon
the Company and the Executive. In addition, all unvested
stock options granted to the Executive by ANMR shall vest and
be immediately exercisable for a period of twelve (12) months
from the date of termination or until the stock options
expiration date, whichever is earlier.
8. Miscellaneous.
-------------
8.01 Assignment. This Agreement shall inure to
----------
the benefit of and be binding upon the parties hereto and
their respective heirs, successors, administrators,
successors and assigns.
8.02 Governing Law. This Agreement is made under
-------------
and shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
8.03 Prior Agreements. This Agreement contains
----------------
the entire agreement of the parties relating to the subject
matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter,
including, and not limited to, the Severance Agreement
between the Executive and the Company dated as of February
16, 1995, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.
8.04 Arbitration. Any dispute arising under this
-----------
Agreement shall be resolved by arbitration to be held before
one arbitrator under the auspices of the American Arbitration
Association to be heard in Boston, Massachusetts. In the
event the Executive is successful on any of his claims in the
arbitration proceeding, the Company shall reimburse him for
his costs directly related to the arbitration in an amount as
determined by the arbitrator. The determination of the
arbitrator shall be final and binding upon the parties
hereto.
8.05 Withholding Taxes. The Company may withhold
------------------
from any benefits payable under this Agreement all federal,
state, city and other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
8.06 Amendments. No amendment or modification of
-----------
this Agreement shall be deemed effective unless made in
writing signed by the party against whom enforcement is
sought.
8.07 Notices. Any notice, request, demand or
-------
other document to be given hereunder shall be in writing, and
shall be delivered personally or sent by registered,
certified or express mail or facsimile followed by mail as
follows:
If to the Company:
Medical Diagnostics, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887-1082
Attn: Chairman of the Board
Fax: (508) 658-3581
If to the Executive:
David C. Gaynor
56 Bulkeley Road
Littleton, Massachusetts 01460
or to such other address as either party hereto may
hereinafter duly give to the other parties hereto.
8.08 Severability. To the extent any provision
------------
of this Agreement shall be invalid, illegal or unenforceable,
it shall be considered deleted here from and the remainder of
such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and
not in limitation of the foregoing, should the duration of
geographical extent of, or business activities covered by any
provisions of this Agreement be in excess of that which is
valid or enforceable under applicable law, then such
provision shall be construed to cover only that duration,
extent or activities which may valid and enforceable be
covered. The Executive acknowledges the uncertainty of the
law in this respect and expressly stipulates that this
Agreement be given the construction which renders its
provisions valid and enforceable to the maximum extent (not
exceeding its express term) possible under applicable law.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year set forth above.
MEDICAL DIAGNOSTICS, INC.
By: /s/ Jack Nelson
----------------------
Jack Nelson, Chairman
/s/ David C. Gaynor
------------------------
DAVID C. GAYNOR
AGREED TO:
ADVANCED NMR SYSTEMS, INC.
By: /s/ Jack Nelson
-----------------------
Jack Nelson, Chairman
<PAGE>
56 Bulkeley Road
Littleton, MA 01460
May 31, 1996
Jack Nelson
Chairman of the Board
Advanced NMR Systems, Inc.
Medical Diagnostics, Inc. Subsidiary
46 Jonspin Road
Wilmington, MA 01887
Dear Jack:
The purpose of this letter is to memorialize the agreement
Medical Diagnostics, Inc (MDI) and I have reached regarding
my employment agreement with MDI effective December 1, 1995.
MDI and I have agreed that the attached definition "Cause"
will replace the definition of "cause" as found in Section
7.04 of the Employment Agreement which we mutually executed
today. The attached definition will be edited only as to
conformance with the appropriate reference letters and
numbers with the exception of the word "felony" which shall
be replaced by the word "crime".
If the foregoing accurately reflects your understanding of
our agreement, please sign on the appropriate line below.
Sincerely,
/s/ David C. Gaynor
---------------------
David C. Gaynor
Agreed and Accepted:
Medical Diagnostics, Inc.
/s/ Jack Nelson
--------------------------
By: Jack Nelson
<PAGE>
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and
continued failure by you to perform substantially your duties
with the Company (other than any such failure resulting from
your incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to
you by the President or the Board of Directors of the Company
which specifically identified the manner(s) in which the
President or the Board of Directors believes that you have
not substantially performed your duties , or (b) the willful
engaging by you in illegal conduct which is materially and
demonstrably injurious to the Company, or (c) conviction by
you by a court of competent jurisdiction of a felony. Any
act or failure to act based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or
omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood
that your attention to matters not directly related to the
business of the Company shall not provide a basis for
termination for Cause so long as the Board had approved your
engagement in such activities. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause to
pursuant to subsections 3(ii)(a) or (b), above, unless and
until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote and held for
such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard
before the Board), finding that in the good faith opinion of
the Board clauses (a) or (b) of this paragraph (ii) have been
breached and specifying the particulars thereof in detail.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ADVANCED NMR SYSTEMS, INC. FORM 10-K FOR
THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,287,880
<SECURITIES> 0
<RECEIVABLES> 10,474,083
<ALLOWANCES> 2,459,000
<INVENTORY> 526,597
<CURRENT-ASSETS> 12,832,406
<PP&E> 12,341,475
<DEPRECIATION> 2,759,911
<TOTAL-ASSETS> 50,724,530
<CURRENT-LIABILITIES> 19,568,395
<BONDS> 20,178,356
0
22
<COMMON> 341,808
<OTHER-SE> 23,476,593
<TOTAL-LIABILITY-AND-EQUITY> 50,724,530
<SALES> 0
<TOTAL-REVENUES> 26,134,238
<CGS> 0
<TOTAL-COSTS> 16,205,961
<OTHER-EXPENSES> 4,254,964
<LOSS-PROVISION> 2,126,471
<INTEREST-EXPENSE> 1,847,910
<INCOME-PRETAX> (798,702)
<INCOME-TAX> 42,288
<INCOME-CONTINUING> (840,990)
<DISCONTINUED> (7,439,269)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,280,259)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.01)
</TABLE>
