<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ADVANCED NMR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 3845 22-2457487
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
(508) 657-8876
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JACK NELSON
CHAIRMAN OF THE BOARD
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
(508) 657-8876
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
BRUCE A. RICH, ESQ.
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
TELEPHONE (212) 603-2000
FACSIMILE (212) 603-2001
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement is declared
effective and the effective time of the merger (the "Merger") of ANMR/AMS
Merger Corp. ("Merger Corp."), a wholly-owned subsidiary of Advanced NMR
Systems, Inc. ("Advanced NMR"), with and into Advanced Mammography Systems,
Inc. ("AMS"), pursuant to the Agreement and Plan of Merger, dated June 23,
1997, by and among Advanced NMR, Merger Corp. and AMS, as described in the
enclosed Joint Proxy Statement/Prospectus included as Part I of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SECURITIES TO BE REGISTERED (1) BE REGISTERED UNIT PRICE(3) (4)
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE 4,210,271(2) $.31 $1,305,184 $261.04
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to shares of common stock, $.01 par
value per share, of Advanced NMR ("Advanced NMR Common Stock") issuable
to holders of shares of common stock, par value $.01 per share, of AMS
("AMS Common Stock") in the Merger.
(2) Based on the product of (a) 7,391,854, the number of shares of AMS
Common Stock ("Outstanding AMS Shares") that will be converted pursuant
to the Merger and (b) .40, the Conversion Number (as defined in the
Merger Agreement), which product represents the number of shares of
Advanced NMR Common Stock that may be issued in the Merger. Also
includes a maximum of 1,233,529 shares issuable upon exercise of AMS
stock options and warrants to be assumed by Advanced NMR in the Merger.
(3) Pursuant to Rules 457(f)(1) and (2), and solely for the purpose of
calculating the registration fee, the proposed maximum aggregate
offering price represents the value of the Outstanding AMS Shares and
is based on the average of the high bid and low asked prices of
Advanced NMR Stock reported on the Nasdaq Small Cap System on
October 2, 1997.
(4) AMS paid $181.44 to the Commission on July 7, 1997 in connection with
the confidential filing of a Schedule 14A including the Joint Proxy
Statement/Prospectus that forms a part of this Registration Statement.
In accordance with Rule 457(b), the fee paid at the filing of this
Registration Statement is $79.60, which represents the difference
between the total registration fee for all securities registered hereby
and the amount so previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
[AMS LETTERHEAD]
October 10, 1997
Dear Fellow Stockholder:
You are cordially invited to attend a Meeting of Stockholders (the
"Meeting") of Advanced Mammography Systems, Inc. ("AMS") to be held on
November 10, 1997 at the offices of Reid & Priest LLP, 40 West 57th Street,
30th Floor, New York, New York. The Meeting will start at 9:30 a.m., local
time.
At the Meeting, you will be asked to vote upon the adoption of the
Agreement and Plan of Merger dated June 23, 1997 (the "Merger Agreement"),
providing for the merger (the "Merger") of ANMR/AMS Merger Corp. ("Merger
Corp."), a wholly-owned subsidiary of Advanced NMR Systems, Inc. ("Advanced
NMR"), with and into AMS, whereby AMS stockholders will be entitled to
receive, in exchange for each share of AMS Common Stock, on a tax free basis,
.40 of one share of Advanced NMR Common Stock upon the consummation by
Advanced NMR of a one-for-ten reverse stock split of the outstanding shares
of Advanced NMR Common Stock.
Because of the conflicts of interest in connection with the Merger, a
special committee of independent directors of AMS (the "Special Committee")
was formed. The Special Committee carefully reviewed and considered the terms
and conditions of the Merger, and, having determined that the Merger is in
the best interest of AMS stockholders, recommended to the Board of Directors
of AMS that the Merger Agreement be approved. In making its recommendation of
the Merger and Merger Agreement, the Special Committee also considered the
opinion of Valuemetrics, Inc., financial advisor to the Special Committee,
that the consideration to be paid pursuant to the Merger Agreement is fair to
the AMS stockholders from a financial point of view.
In view of the recommendation of the Special Committee, the opinion of
Valuemetrics, Inc. and other factors, your Board of Directors has approved
the Merger Agreement and recommends that stockholders vote their shares FOR
its adoption. Complete details of the Merger Agreement, the respective
businesses of AMS and Advanced NMR, and other information you should be aware
of in making your decision are contained in the attached Joint Proxy
Statement/Prospectus. WE URGE YOU TO STUDY THIS MATERIAL CAREFULLY.
The affirmative vote of the holders of a majority of the outstanding
shares of AMS Common Stock entitled to vote at the Meeting is required to
approve and adopt the Merger Agreement. Advanced NMR owns 1,250,000 shares of
AMS Common Stock, representing 14.46% of the outstanding shares of AMS Common
Stock. Advanced NMR intends to vote its shares of AMS Common Stock for the
Merger.
If the Merger is consummated, you will be informed of the time and method
of effecting the exchange of your AMS stock certificates for stock
certificates of Advanced NMR. PLEASE DO NOT SEND ANY AMS STOCK CERTIFICATES
AT THIS TIME.
TO ENSURE YOUR INTERESTS WILL BE REPRESENTED AT THE MEETING, WHETHER OR
NOT YOU PLAN TO ATTEND IN PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. WE URGE YOU TO READ THE
ACCOMPANYING MATERIALS CAREFULLY, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING.
Thank you for your continued support.
Jack Nelson
Chairman
<PAGE>
[ADVANCED NMR LETTERHEAD]
October 10, 1997
Dear Fellow Stockholder:
You are cordially invited to attend a Meeting of Stockholders (the
"Meeting") of Advanced NMR Systems, Inc. ("Advanced NMR") to be held on
November 10, 1997 at the offices of Reid & Priest LLP, 40 West 57th Street,
30th Floor, New York, New York. The Meeting will start at 11:00 a.m., local
time.
This Meeting is very important and marks a new strategic direction for
Advanced NMR. It relates to the merger (the "Merger") of a wholly-owned
subsidiary of Advanced NMR with and into Advanced Mammography Systems, Inc.
("AMS"). Pursuant to the Merger, AMS will become a wholly-owned subsidiary of
Advanced NMR.
At the Meeting you will be asked to approve six proposals. First, you will
be asked to approve a one-for-ten reverse stock split of Advanced NMR's
issued and outstanding shares of Common Stock. Second and third, you will be
asked to approve amendments to Advanced NMR's 1993 Employees Stock Option
Plan and 1993 Directors Stock Option Plan to increase the shares available to
be issued under each Plan to 1,000,000 and 200,000 shares, respectively.
Fourth, the annual election of directors will take place. Fifth, you will be
asked to approve the Company's change of name to "Caprius." Sixth, you will
be asked to approve Advanced NMR's appointment of its independent auditors
for the 1997 fiscal year.
Enclosed is a proxy statement describing the Merger and the related
stockholder proposals and containing financial statements. Please read the
proxy statement carefully and in its entirety. Also enclosed is a proxy card.
EVEN IF YOU NOW EXPECT TO ATTEND THE MEETING, YOU ARE REQUESTED TO MAKE,
SIGN AND DATE AND TO RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE. Your proxy may be revoked at any time before it is voted by signing
and returning a later dated proxy with respect to the same shares, by filing
with the Secretary of Advanced NMR a written revocation bearing a later date,
or by attending and voting your shares at the Meeting.
Thank you for your continued support.
Jack Nelson
Chairman
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
(508) 657-8876
-------------------------
NOTICE OF MEETING OF STOCKHOLDERS
-------------------------
TO BE HELD ON NOVEMBER 10, 1997
To the Stockholders of
Advanced Mammography Systems, Inc.:
A Meeting of the Stockholders (the "Meeting") of Advanced Mammography
Systems, Inc., a Delaware corporation ("AMS"), will be held on November 10,
1997 at the offices of Reid & Priest LLP, 40 West 57th Street, 30th Floor,
New York, New York, commencing at 9:30 a.m., local time, for the following
purpose:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated June 23, 1997, among Advanced NMR Systems, Inc. ("Advanced
NMR"), ANMR/AMS Merger Corp., a wholly-owned subsidiary of Advanced NMR
and AMS, which provides for the merger of Merger Corp. with and into AMS,
with AMS as the surviving corporation (the "Merger"), whereby holders of
common stock, par value $.01 per share, of AMS ("AMS Common Stock") will
be entitled to receive, in exchange for each share of AMS Common Stock,
.40 of a share of common stock, par value $.01 per share, of Advanced NMR,
as described in the accompanying Joint Proxy Statement/ Prospectus.
2. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
Stockholders of record of AMS Common Stock at the close of business on
October 8, 1997 will be entitled to notice of and to vote at the Meeting or
at any postponement or adjournment thereof. A Proxy and Joint Proxy
Statement/Prospectus are enclosed.
EVEN IF YOU NOW EXPECT TO ATTEND THE MEETING, YOU ARE REQUESTED TO MARK,
SIGN AND DATE AND TO RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
Your proxy may be revoked at any time before it is voted by signing and
returning a later dated proxy with respect to the same shares, by filing with
the Secretary of AMS a written revocation bearing a later date, or by
attending and voting your shares at the Meeting.
By Order of the Board of Directors.
Steven J. James
Secretary
October 10, 1997
<PAGE>
ADVANCED NMR SYSTEMS, INC.
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
(508) 657-8876
-------------------------
NOTICE OF MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 10, 1997
-------------------------
To the Stockholders of
Advanced NMR Systems, Inc.:
A Meeting of the Stockholders (the "Meeting") of Advanced NMR Systems,
Inc., a Delaware corporation ("Advanced NMR"), will be held on November 10,
1997 at the offices of Reid & Priest LLP, 40 West 57th Street, 30th Floor,
New York, New York, commencing at 11:00 a.m., local time, for the following
purposes:
1. To approve an amendment to Advanced NMR's Certificate of Incorporation to
effect a one-for-ten reverse stock split ("Reverse Stock Split") of the
presently issued and outstanding shares of Advanced NMR Common Stock.
2. To approve an amendment to the 1993 Employee Stock Option Plan increasing
the number of shares of Advanced NMR Common Stock available under such
Plan to 1,000,000 shares on a post-Reverse Stock Split basis.
3. To approve an amendment to the 1993 Directors Stock Option Plan for
Non-Employee Directors increasing the number of shares of Advanced NMR
Common Stock under such Plan to 200,000 shares on a post-Reverse Stock
Split basis.
4. To elect eight directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected.
5. To approve an amendment to Advanced NMR's Certificate of Incorporation to
change the name of Advanced NMR to "Caprius, Inc."
6. To ratify the selection of Richard A. Eisner & Company, LLP, independent
public accountants, as Advanced NMR's independent public accountants for
the 1997 fiscal year.
Approval of the Reverse Stock Split proposal is a condition to the
Agreement and Plan of Merger, dated June 23, 1997, by and among Advanced NMR,
ANMR/AMS Merger Corp., a wholly-owned subsidiary of Advanced NMR, and
Advanced Mammography Systems, Inc. ("AMS"), whereby AMS will become a
wholly-owned subsidiary of Advanced NMR.
Stockholders of record of Advanced NMR Common Stock at the close of
business on October 8, 1997, will be entitled to notice of and to vote at the
Meeting or at any postponement or adjournment thereof. A Proxy and a Joint
Proxy Statement/Prospectus are enclosed.
EVEN IF YOU NOW EXPECT TO ATTEND THE MEETING, YOU ARE REQUESTED TO MARK,
SIGN AND DATE AND TO RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
Your proxy may be revoked at any time before it is voted by signing and
returning a later dated proxy with respect to the same shares, by filing with
the Secretary of Advanced NMR a written revocation bearing a later date, or
by attending and voting your shares at the Meeting.
By Order of the Board of Directors.
Steven J. James
Secretary
October 10, 1997
<PAGE>
JOINT PROXY STATEMENT OF ADVANCED NMR SYSTEMS, INC.,
AND ADVANCED MAMMOGRAPHY SYSTEMS, INC.
-------------------------
PROSPECTUS OF
ADVANCED NMR SYSTEMS, INC.
-------------------------
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of ANMR/AMS Merger Corp., a Delaware corporation ("Merger Corp.")
and a wholly-owned subsidiary of Advanced NMR Systems, Inc., a Delaware
corporation ("Advanced NMR"), with and into Advanced Mammography Systems,
Inc., a Delaware corporation ("AMS"), with AMS as the surviving corporation,
pursuant to the Agreement and Plan of Merger, dated June 23, 1997, by and
among AMS, Advanced NMR and Merger Corp. (the "Merger Agreement").
This Joint Proxy Statement is being furnished to the stockholders of AMS
in connection with the solicitation of proxies by the AMS Board of Directors
(the "AMS Board") for use at the AMS stockholders meeting (the "AMS Meeting")
to be held on November 10, 1997 at the offices of Reid & Priest LLP, 40 West
57th Street, 30th Floor, New York, New York, and any adjournment or
postponement thereof.
This Joint Proxy Statement is also being furnished to the stockholders of
Advanced NMR in connection with the solicitation of proxies by the Advanced
NMR Board of Directors (the "Advanced NMR Board") for use at the Advanced NMR
stockholders meeting (the "Advanced NMR Meeting") to be held on November 10,
1997 at the offices of Reid & Priest LLP, 40 West 57th Street, 30th Floor,
New York, New York, and any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Advanced NMR, filed as part of a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to up to 4,210,271 shares of the common stock, par value $.01
per share, of Advanced NMR ("Advanced NMR Common Stock") to be issued in the
Merger pursuant to the Merger Agreement.
The Merger Agreement provides that AMS stockholders will receive in the
Merger, in exchange for each issued and outstanding share of common stock,
par value $.01 per share, of AMS ("AMS Common Stock"), .40 of a share of
Advanced NMR Common Stock, after consummation by Advanced NMR of the
one-for-ten reverse stock split of the issued and outstanding shares of
Advanced NMR Common Stock.
On October 8, 1997, the most recent practicable date prior to the printing
of this Joint Proxy Statement/Prospectus, the closing price of the Advanced
NMR Common Stock as quoted on the Nasdaq Small Cap Market was $.281, and
the closing price of AMS Common Stock as quoted on the NASDAQ Small Cap
Market was $.875. Based upon the current outstanding shares of AMS Common
Stock and the price of Advanced NMR Common Stock quoted above, the aggregate
market value of the consideration to be paid in the Merger is $8,308,445.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
AMS STOCKHOLDERS AND ADVANCED NMR STOCKHOLDERS. THIS INFORMATION APPEARS AT
PAGE 22 OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to the stockholders of Advanced NMR and AMS on or
about October 10, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM
OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT TO
THIS JOINT PROXY STATEMENT/ PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
The date of this Joint Proxy Statement/Prospectus is October , 1997.
<PAGE>
AVAILABLE INFORMATION
Each of Advanced NMR and AMS is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
accordingly files reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information filed with the SEC
are available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7
World Trade Center, 13th floor, New York, New York 10048. Copies of such
documents may also be obtained from the Public Reference Room of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants,
such as Advanced NMR and AMS, that file electronically with the Commission.
The address of the SEC's Web site is http://www.sec.gov. Advanced NMR Common
Stock and AMS Common Stock are quoted on the Nasdaq Small Cap Market.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted
in accordance with the rules and regulations of the SEC. The Registration
Statement, including any amendments, schedules and exhibits thereto, is
available for inspection and copying as set forth above. Statements contained
in this Joint Proxy Statement/Prospectus as to the contents of any contract
or other document referred to herein include all material terms of such
contracts or other documents but are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
All information herein with respect to Advanced NMR has been furnished by
Advanced NMR, and all information herein with respect to AMS has been
furnished by AMS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION 2
INDEX OF DEFINED TERMS 6
SUMMARY 7
The Companies 7
Advanced NMR 7
Merger Corp. 8
AMS 8
Risk Factors 8
The Meetings 10
AMS Meeting 10
Advanced NMR Meeting 10
The Merger 11
Effective Time 11
Conversion of AMS Shares 11
Background of the Merger 11
Opinion of Financial Advisors 12
Reasons for the Merger 12
Certain Terms of the Merger Agreement 13
Relationship between Advanced NMR and AMS 14
Interests of Certain Persons in the Merger; Conflicts of Interest 14
Conduct of AMS' Business After the Merger 15
Regulatory Matters 15
Nasdaq Listing 15
Certain Federal Income Tax Consequences 15
Accounting Treatment 16
Appraisal Rights 16
SUMMARY FINANCIAL INFORMATION 17
Summary Historical Consolidated Financial Information of Advanced NMR 17
Summary Historical Financial Information of AMS 18
Summary Unaudited Pro Forma Combined Consolidated Financial Information 19
Comparative Unaudited Per Share Data 19
Comparative Market Price Data 21
RISK FACTORS 22
Risk Factors Relating to the Combined Companies 22
Risk Factors Relating to Advanced NMR 25
Risk Factors Relating to AMS 25
MEETINGS, VOTING AND PROXIES 27
Introduction 27
AMS Meeting 27
Advanced NMR Meeting 28
Proxy Solicitation 28
THE MERGER 30
Background of the Merger 30
Reasons for the Merger, Recommendations of the AMS Board of Directors and Advanced
NMR Board of Directors 31
Opinion of Valuemetrics 34
Opinion of Houlihan Lokey 38
3
<PAGE>
PAGE
--------
Exchange of AMS Common Stock for the Merger Consideration 40
Fractional Shares 40
Exchange of Certificates in the Merger 41
Certain Terms of the Merger Agreement 41
Interests of Certain Persons in the Merger; Conflicts of Interest 42
Conduct of AMS Business After the Merger 43
Nasdaq Listing 43
Certain Federal Income Tax Consequences 43
Accounting Treatment 45
Appraisal Rights 45
SELECTED FINANCIAL INFORMATION OF ADVANCED NMR 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF ADVANCED NMR 57
Results of Operations 57
Liquidity and Capital Resources 58
Inflation 59
SELECTED AMS FINANCIAL INFORMATION 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF AMS 61
Results of Operations 61
Liquidity and Capital Resources 62
CERTAIN INFORMATION CONCERNING ADVANCED NMR 63
Business of Advanced NMR 63
General 63
Magnetic Resonance Imaging Technology 63
Rehabilitation Services 63
Research and Development 63
AMS 63
Government Regulation and Reimbursement 64
Competition 64
Patents 64
Employees 64
Properties 65
Legal Proceedings 65
Executive Officers and Directors 66
Security Ownership 68
Compensation of Advanced NMR's Executive Officers 69
Employment Agreements 69
Stock Options 71
CERTAIN INFORMATION CONCERNING AMS 76
Business of AMS 76
General 76
Breast Disease Incidence and Diagnosis 76
The Aurora(Trademark) Breast Imaging System 77
Agreements with Advanced NMR 77
Research and Development 78
Marketing 78
Competition 79
Patents and Proprietary Rights 79
4
<PAGE>
PAGE
--------
Governmental Regulation 79
Employees 81
Properties 81
Legal Proceedings 81
Executive Officers and Directors 82
Beneficial Ownership of AMS Common Stock 83
DESCRIPTION OF ADVANCED NMR CAPITAL STOCK 84
Common Stock 84
Preferred Stock 84
Public Warrants 84
COMPARISON OF STOCKHOLDER RIGHTS 85
General 85
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 1--REVERSE STOCK SPLIT 86
Reasons for the Reverse Stock Split 86
Derivative Securities 88
Federal Income Tax Consequences 88
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 2--INCREASE IN NUMBER OF SHARES ISSUABLE
UNDER THE 1993 EMPLOYEE STOCK OPTION PLAN 89
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 3--INCREASE IN NUMBER OF SHARES ISSUABLE
UNDER THE 1993 DIRECTORS STOCK OPTION PLAN 91
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 4--ELECTION OF DIRECTORS 92
Advanced NMR Nominees 92
Security Ownership by Nominees 94
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 5--CHANGE OF CORPORATE NAME 94
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 6-- RATIFICATION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS 94
PROPOSAL RELATING TO OTHER MATTERS REGARDING THE ADVANCED NMR MEETING 95
PROPOSAL RELATING TO OTHER MATTERS REGARDING THE AMS MEETING 95
STOCKHOLDER PROPOSALS 95
LEGAL MATTERS 95
EXPERTS 95
INDEX TO FINANCIAL STATEMENTS ADVANCED NMR SYSTEMS, INC. F-1
ANNEX A Agreement and Plan of Merger A-1
ANNEX B Opinion of Valuemetrices, Inc. B-1
ANNEX C Opinion of Houlihan Lokey Howard & Zukin, Inc. C-1
ANNEX D Delaware Appraisal Rights Statute D-1
ANNEX E Proposed Amendments to Certificate of Incorporation of Advanced NMR E-1
</TABLE>
5
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE TERM PAGE
- ------------------------------------ -------- ------------------------------------ --------
<S> <C> <C> <C>
Advanced NMR Cover Page Field of Use 64
Advanced NMR 1 Field of Use 77
Advanced NMR Board 1 GE 7
Advanced NMR Bylaws 85 GEMS 7
Advanced NMR Charter 85 HCFA 81
Advanced NMR Common Stock Cover Page Houlihan Lokey 12
Advanced NMR Common Stock 1 IMI 66
Advanced NMR Entity 78 IRS 44
Advanced NMR Meeting 1 Levy Employment Agreement 70
Advanced NMR Record Date 10 License Agreement 12
Advanced NMR Warrants 84 Licensed Technology 77
Amendment Effective Date 87 Lynch Employment Agreement 66
AMS Cover Page MDI 7
AMS 1 MDI 63
AMS Board 1 Merger Cover Page
AMS Bylaws 85 Merger 1
AMS Certificates 41 Merger Agreement 1
AMS Charter 85 Merger Corp Cover Page
AMS Common Stock Cover Page Merger Corp 1
AMS Common Stock 1 MIP 65
AMS Derivative Securities 44 MMIV 65
AMS Meeting 1 MQSA 26
CEO 73 MQSA 80
Class B Preferred Stock 9 MRDD 64
Code 15 MRDD 79
Committee 73 Multicare 93
Committee 89 MVA 25
Committee 91 Nelson Employment Agreements 69
CON 24 Outstanding AMS Shares Cover Page
CON 81 Penny Stock Rule 87
CPT 81 Raytel 65
Derivative Securities 86 Raytel Settlement 65
DGCL 11 Registration Statement 1
DHHS 26 Reverse Stock Split 10
DHHS 80 Reverse Stock Split Amendment 86
DON 64 RSNA 77
Effective Date 11 SEC 1
Englewood Hospital 8 Section 262 45
Escrow Agreement 14 Securities Act 1
Escrow Agreement 14 Shared Facility 65
Escrowed Shares 14 Shared Services Agreement 14
Escrowed Shares 76 Special Committee 11
Exchange Act 2 University of Arkansas Hospital 8
Exchange Agent 41 US Diagnostic 7
Faulkner Center 7 US Diagnostic 63
FDA 8 Valuemetrics 12
Field of Use 14 WMMRS 65
</TABLE>
6
<PAGE>
SUMMARY
The following is a summary of certain important matters discussed
elsewhere in this Joint Proxy Statement/Prospectus. This summary sets forth
all material elements of such matters but does not purport to be complete and
is qualified in its entirety by reference to the more detailed information
appearing in this Joint Proxy Statement/Prospectus and the Annexes hereto.
Stockholders of Advanced NMR and AMS are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
THE COMPANIES
ADVANCED NMR
Advanced NMR is engaged in rehabilitation services, consisting of
comprehensive physician care, physical therapy and case management for motor
vehicle accident patients, and is developing breast imaging centers. Advanced
NMR has a 14.46% equity ownership interest in, and other key relationships
with, AMS. AMS is developing, marketing and commercializing a dedicated MRI
system for breast imaging known as the Aurora(Trademark) System. Advanced NMR
has opened one breast imaging center since August 1996. This center is at the
Faulkner-Sagoff Center for Breast Health Care in Boston, Massachusetts
("Faulkner Center").
In August 1996, Advanced NMR announced a new strategic direction to focus
on the development of breast imaging centers and on its Imaging and
Rehabilitation Services businesses. Advanced NMR had provided very high field
MRI systems for clinical applications and advanced research through its
agreements with GE Medical Systems ("GEMS"). From its inception through
November 1992, Advanced NMR engaged exclusively in research and development
activities for its InstaScan(Trademark) ultrafast magnetic resonance imaging
system. In 1992, Advanced NMR received FDA clearance and commenced commercial
marketing activities up until August 1996, when Advanced NMR discontinued the
manufacture of its InstaScan(Trademark) product because of the lack of sales
of the product. On August 18, 1997, Advanced NMR and General Electric ("GE")
entered into a purchase agreement whereby GEMS purchased from Advanced NMR
all inventory, equipment, and other assets, and assumed liabilities relating
to the 3T, 4T and InstaScan(Trademark) business, in exchange for $2,432,580
in cash and the purchase by GE of $2.7 million stated value of a newly issued
class of Advanced NMR convertible redeemable preferred stock.
On February 27, 1997, Medical Diagnostics, Inc., a wholly-owned subsidiary
of Advanced NMR ("MDI") merged with MDI Acquisition Corporation, a new-formed
wholly-owned subsidiary of US Diagnostic, Inc. ("US Diagnostic") and became a
wholly-owned subsidiary of US Diagnostic. MDI, which provided Imaging and
Rehabilitation Services, had been acquired by Advanced NMR on August 31,
1995. Pursuant to the US Diagnostic merger, Advanced NMR retained three
rehabilitation centers formerly operated by MDI. At the time of the sale of
MDI to US Diagnostic, Advanced NMR was in covenant default under its credit
agreement with its senior lender. Advanced NMR sold MDI to US Diagnostic
principally to raise money to repay all indebtedness to Advanced NMR's senior
lender and accordingly the covenant defaults were no longer applicable.
In February 1996, Advanced NMR entered into a merger agreement with AMS
pursuant to which AMS would have become a wholly-owned subsidiary of Advanced
NMR. In May 1996, the merger was terminated due to increased pressures from
Advanced NMR's senior lender as well as the difficulty of raising capital on
a merged basis for Advanced NMR. At that time, Advanced NMR had been in
covenant default under its credit agreement with the senior lender, which
defaults had been waived. The senior lender had required Advanced NMR to use
available funds, including a portion of the proceeds of equity placements, to
provide additional security for the repayment of the indebtedness.
The mailing address and telephone number of the principal executive
offices of Advanced NMR is 46 Jonspin Road, Wilmington, Massachusetts 01887
(508) 657-8876. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR."
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MERGER CORP.
Merger Corp. is a wholly-owned subsidiary of Advanced NMR organized to
effect the Merger. The mailing address and telephone number of the principal
executive offices of Merger Corp. is 46 Jonspin Road, Wilmington,
Massachusetts 01887, (508) 657-8876.
AMS
AMS is a development stage company which was organized in Delaware in July
1992 to acquire and develop proprietary technology from Advanced NMR in order
to design, manufacture and commercialize a dedicated (or partial body) MRI
system for breast imaging which can be used to detect and characterize breast
tissue abnormalities. As part of its formation, AMS entered into a license
agreement and shared services agreement with Advanced NMR which have remained
in effect to date.
In February 1996, the U.S. Food and Drug Administration ("FDA") approved
AMS' 510(k) application to permit the commercial use of AMS'
Aurora(Trademark) dedicated MRI Breast Imaging System. In order to fully
commercialize the Aurora(Trademark) System and to demonstrate diagnostic
effectiveness as an accepted tool, AMS has launched a multi-site clinical
study which includes a scientific investigation of the improved breast
imaging device to provide objective evidence of its clinical utility. AMS
estimates that such clinical study will take approximately two years to
complete. In February 1997 a System was sold to the University of Texas
Medical Branch in Galveston, Texas, having been installed at such site in
early 1996. A second System has been installed at the Faulkner Center to be
operated by Advanced NMR at such location. AMS intends to install an
Aurora(Trademark) System in November 1997 at the University of Arkansas
Teaching Hospital in Little Rock, Arkansas (the "University of Arkansas
Hospital") and in January 1998 at the Breast Care Center at the Englewood
Hospital and Medical Center in Englewood, New Jersey (the "Englewood
Hospital"). In April 1997, a meeting of leading doctors in the breast imaging
field was held by AMS to develop approaches and protocols for determining the
clinical benefits of MRI in the diagnosis and management of breast diseases.
Based upon the results of this meeting and research and development conducted
by AMS, AMS believes 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. AMS intends to market the Aurora(Trademark) System breast
imaging product either directly to hospitals and clinics or through marketing
or joint venture arrangements with various distributors.
The mailing address and telephone number of the principal executive
offices of AMS is 46 Jonspin Road, Wilmington, Massachusetts 01887 (508)
657-8876. See "CERTAIN INFORMATION CONCERNING AMS."
RISK FACTORS
The Merger involves various risks that should be considered by
stockholders of AMS and Advanced NMR. See "RISK FACTORS. " In particular,
stockholders should consider the following factors:
Effects of Failure to Approve Merger. If the Merger is not approved by AMS
stockholders, AMS will be insolvent. The consequence of such insolvency to
Advanced NMR would be that AMS would be unable to pay approximately $1.3
million it owes to Advanced NMR. Advanced NMR is AMS' major creditor.
Advanced NMR would incur the overhead expense now allocated to AMS and its
interest in AMS Common Stock would lose substantial value. In addition, the
insolvency of AMS could lead to bankruptcy proceedings for AMS. In such
bankruptcy proceedings, Advanced NMR would, as AMS' largest creditor, seek to
obtain all of the assets of AMS in satisfaction of the $1.3 million of
indebtedness owed to Advanced NMR by AMS. Advanced NMR would have to evaluate
whether it would fund AMS' operations and research and development and for
how long it would provide such funding. In early October 1997, the Executive
Committee of Advanced NMR's Board of Directors determined to loan to AMS up
to an additional $500,000 to fund its ongoing operations. There can be no
assurance that Advanced NMR will provide additional funds to AMS if the
Merger is not approved.
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Conflicts of Interest. In considering the Merger and related proposals,
stockholders should be aware that the members of the management and a
majority of the members of the Board of Directors of AMS comprise the
Advanced NMR Board of Directors and have other relationships with Advanced
NMR which present them with conflicts of interest in connection with the
Merger.
Future Need for Working Capital and Funds for Research and Development and
Clinical Studies. Advanced NMR will require capital to finance its continued
investment in research and development and to support its clinical studies
and grow its existing business in connection with AMS' dedicated MRI
mammography system. Additional operating losses are expected and there can be
no assurance that adequate capital will be available to fund these
activities. There can be no assurance that Advanced NMR or AMS will have
adequate capital after the Merger to fund Advanced NMR's and AMS' research
and development and working capital requirements and Advanced NMR's plan to
open and operate breast imaging centers.
Efficacy of Aurora(Trademark) System. AMS has launched a multi-site
clinical study of the Aurora(Trademark) System. AMS anticipates that the
study will take two years to complete. There can be no assurance that such
clinical study will prove the effectiveness of the Aurora(Trademark) System.
Possible Delisting of Advanced NMR Common Stock and AMS Common Stock from
Nasdaq Small Cap Market. Nasdaq may delist Advanced NMR Common Stock from
eligibility for trading on the Nasdaq Small Cap Market for failure to
maintain a closing bid price equal to or greater than $1.00 for a certain
period of time. Advanced NMR believes that the Reverse Stock Split will
prevent such delisting, although there can be no assurance that Nasdaq will
not enforce such delisting. In addition, AMS has been advised by Nasdaq that
it intends to delist AMS Common Stock from eligibility for trading on the
Nasdaq Small Cap Market.
Volatility of Advanced NMR Common Stock Price. The market price for
Advanced NMR Common Stock historically has been very volatile. Such
volatility could adversely affect the market price of Advanced NMR Common
Stock following the Merger.
Lack of Dividends. Advanced NMR has never paid any dividends and intends
to retain all available earnings, if any, generated by its post-Merger
operations and therefore does not expect to be paying cash dividends for the
foreseeable future.
Adverse Accounting and Tax Consequences of Intangible Assets. Upon the
Merger, Advanced NMR will incur a charge to research and development expense
of approximately $7.5 million, approximately $1.0 million will be allocated
to other intangible assets and approximately $500,000 will be allocated to
purchased contracts. The other intangible assets will be amortized over the
next five years, resulting in annual non-cash charges of approximately
$200,000. The contracts will be amortized over the next five years, resulting
in annual non-cash charges of approximately $100,000. None of the above costs
will be deductible for income tax purposes.
Risks Related to Health Care Industry. Advanced NMR and AMS are now, and
following the Merger the companies will be, subject to a number of risks
inherent in the health care industry, including changing federal and state
regulatory environments, the unpredictable results of healthcare reform
initiatives, competition, and changes in the reimbursement policies of
government and/or private insurers of health care costs with respect to MRI
services. Uncertainty with respect to reimbursement may create an unfavorable
climate for potential customers to make capital investments.
Purchase Agreement with GE. On August 18, 1997, Advanced NMR and GE
entered into a purchase agreement whereby GE purchased $2.7 million in stated
value of a newly issued class of Advanced NMR convertible redeemable
preferred stock ("Class B Preferred Stock") and 3T, 4T and
InstaScan(Trademark) inventory. The Class B Preferred Stock is convertible
into 1,159,793 shares of Advanced NMR Common Stock on a post-Reverse Stock
Split basis after August 18, 1998 or earlier upon a change of control. If the
Advanced NMR stockholders do not approve the Reverse Stock Split proposal at
the
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Advanced NMR Meeting, Advanced NMR will not have available a sufficient
number of shares of Advanced NMR Common Stock to issue to GE if GE converts
its Class B Preferred Stock. Under such circumstances, GE would have the
right to redeem its Class B Preferred Stock for $2.7 million.
Risk Factors Specific to Advanced NMR and AMS. In addition to the risks
mentioned above, Advanced NMR and AMS are subject to risks particular to
their respective businesses. With respect to Advanced NMR, these include the
ability to keep up with and initiate technological change, the availability
and adequacy of professional liability insurance coverage, the success of its
entry into the Rehabilitation business, and the impact of technological
change on existing equipment. See "RISK FACTORS -- Risk Factors Relating to
Advanced NMR." With respect to AMS, risk factors include the factors
mentioned above, as well as a need for additional capital and research and
development funds and commercial acceptance of its dedicated MRI breast
imaging system, which has yet to be proven a modality of choice in view of
price and quality competition from both full-body MRI systems and
conventional mammography diagnostic techniques. See "RISK FACTORS -- Risk
Factors Relating to AMS."
THE MEETINGS
AMS MEETING
The AMS Meeting will be held on November 10, 1997, at the offices of Reid
& Priest LLP, 40 West 57th Street, 30th Floor, New York, New York commencing
at 9:30 a.m., local time, and at any adjournment or postponement thereof. The
holders of record at the close of business on October 8, 1997 (the "AMS
Record Date") of shares of AMS Common Stock are entitled to notice of and to
vote at the AMS Meeting. The purpose of the AMS Meeting is to consider and
vote upon the proposal to approve and adopt the Merger Agreement.
Each share of AMS Common Stock will be entitled to one vote on the
proposal to approve and adopt the Merger Agreement at the AMS Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
AMS Common Stock is required to adopt the Merger Agreement. Advanced NMR owns
1,250,000 shares of AMS Common Stock, representing approximately 14.46% of
the outstanding shares of AMS Common Stock, and intends to vote its AMS
shares for the approval and adoption of the Merger Agreement.
See "MEETINGS, VOTING AND PROXIES -- AMS Meeting."
ADVANCED NMR MEETING
The Advanced NMR Meeting will be held on November 10, 1997, at the offices
of Reid & Priest LLP, 40 West 57th Street, 30th Floor, New York, NY,
commencing at 11:00 a.m., local time, and at any adjournment or postponement
thereof. The holders of record at the close of business on October 8, 1997
(the "Advanced NMR Record Date") of shares of Advanced NMR Common Stock are
entitled to notice of and to vote at the Advanced NMR Meeting. At the
Advanced NMR Meeting, Advanced NMR stockholders will be asked to consider and
vote on the following six proposals: (i) an amendment to Advanced NMR's
Certificate of Incorporation to effect a one-for-ten reverse stock split
("Reverse Stock Split") of the issued and outstanding shares of Advanced NMR
Common Stock; (ii) an amendment to Advanced NMR's 1993 Employee Stock Option
Plan increasing the number of shares of Advanced NMR Common Stock available
under such Plan to 1,000,000 shares on a post-Reverse Stock Split basis;
(iii) an amendment to Advanced NMR's 1993 Directors Stock Option Plan for
Non-Employee Directors to 200,000 shares on a post-Reverse Stock Split basis;
(iv) the election of eight directors to serve until the next annual meeting
and until their successors are elected and qualified; (v) an amendment to
Advanced NMR's Certificate of Incorporation to change the name of Advanced
NMR to "Caprius, Inc.;" and (vi) the ratification of the selection of Richard
A. Eisner & Company, LLP, independent public accountants, as Advanced NMR's
independent public accountants for its 1997 fiscal year.
Each share of Advanced NMR Common Stock will be entitled to one vote on
the proposals described above. The affirmative vote of a majority of the
outstanding shares of Advanced NMR Common Stock
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is required to adopt each of the two amendments to the Certificate of
Incorporation; a majority vote of the shares present and voting thereon is
required to adopt the amendments to the two Option Plans and the ratification
of the selection of Advanced NMR's independent public accountants; and a
plurality of votes cast is required for the election of directors.
The directors and executive officers of Advanced NMR and their affiliates
own approximately 0.5% of the shares of Advanced NMR Common Stock entitled to
vote at the Advanced NMR Meeting. The directors and executive officers of
Advanced NMR have indicated their intention to vote such shares FOR the
adoption of each of the six proposals.
THE MERGER
EFFECTIVE TIME
Upon approval of the Merger Agreement by the stockholders at the AMS
Meeting, and the satisfaction or waiver (where permissible) of the other
Merger conditions, including the approval of the Reverse Stock Split proposal
at the Advanced NMR Meeting, the Merger will be consummated and become
effective at the time at which a Certificate of Merger meeting the
requirements of Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL") shall be delivered to the Secretary of State of
Delaware for filing (the time of such filing being the "Effective Time" and
the day of such filing being the "Effective Date"). It is expected that the
Effective Time will be promptly following completion of the AMS Meeting and
Advanced NMR Meeting. At the Effective Time, Merger Corp. will be merged with
and into AMS, with AMS being the surviving corporation of the Merger, and as
a result of the Merger, the Certificate of Incorporation of AMS will be
amended to reduce its authorized capital stock to 10,000 shares of AMS Common
Stock.
CONVERSION OF AMS SHARES
In the Merger, each issued and outstanding share of AMS Common Stock will
be converted into the right to receive .40 of a share of Advanced NMR on a
post-Reverse Stock Split basis. The .40 of a share of Advanced NMR Common
Stock to be received by AMS stockholders pursuant to the Merger is referred
to herein as the "Merger Consideration." The AMS options, warrants and
convertible debentures outstanding on the Effective Date will be assumed by
Advanced NMR and adjusted based upon the Merger Consideration. See "THE
MERGER -- Exchange of AMS Common Stock for the Merger Consideration."
Upon consummation of the Merger, all outstanding shares of AMS Common
Stock will cease to be outstanding and will be converted into the right to
receive the Merger Consideration. Fractional shares of Advanced NMR Common
Stock will not be issued in connection with the Merger. Pursuant to the terms
of the Merger Agreement, fractional shares will be rounded up or down to the
nearest whole share. See "THE MERGER -- Fractional Shares."
BACKGROUND OF THE MERGER
In March 1997, the Executive Committee of the Advanced NMR Board convened
to consider a new strategic direction for Advanced NMR, including a possible
merger with AMS, given that the sale of MDI had been completed. A special
committee of independent directors of AMS (the "Special Committee") was
formed at an AMS Board meeting held on April 7, 1997 to reformulate the
relationship between Advanced NMR and AMS. The Special Committee retained its
own counsel, and financial advisor, Valuemetrics, Inc. The Advanced NMR Board
had authorized the making of the Merger proposal to AMS on May 16, 1997. The
Special Committee carefully reviewed the Merger proposal and negotiated terms
of the Merger and then recommended to the AMS Board of Directors approval of
the Merger proposal at an AMS Board meeting held on May 26, 1997. At this
meeting, the AMS Board of Directors considered and approved Advanced NMR's
merger proposal. On May 27, 1997, AMS and Advanced
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NMR issued a joint press release announcing agreement of the terms of the
Merger. On June 23, 1997, the AMS Board of Directors and the Advanced NMR
Board of Directors separately considered and approved the Merger Agreement
and the filing of this Joint Proxy Statement/Prospectus. On June 23, 1997,
the Merger Agreement was executed.
For a further description of the negotiations leading up to the execution
of the Merger Agreement and related matters, see "THE MERGER -- Background of
the Merger."
OPINION OF FINANCIAL ADVISORS
The Special Committee retained Valuemetrics, Inc. ("Valuemetrics") as its
financial advisor in connection with the Merger. Valuemetrics has delivered
its written opinion to the Special Committee, dated May 26, 1997, stating
that, at the time of such opinion, the Merger Consideration to be paid by
Advanced NMR to holders of AMS Common Stock in the Merger is fair to the AMS
stockholders from a financial point of view. This opinion was based upon the
procedures and subject to the assumptions described in the opinion letter. A
copy of Valuemetrics' opinion letter is attached hereto as Annex B and should
be read by AMS stockholders carefully in its entirety. See "THE MERGER --
Opinion of Valuemetrics."
The Advanced NMR Board of Directors retained Houlihan Lokey Howard &
Zukin, Inc. ("Houlihan Lokey") as its financial advisor in connection with
the Merger. Houlihan Lokey has delivered its written opinion to the Advanced
NMR Board of Directors, dated May 16, 1997, stating that, at the time of such
opinion, the Merger Consideration to be paid by Advanced NMR to AMS
stockholders in the Merger is fair to Advanced NMR and its stockholders from
a financial point of view. This opinion was based upon the procedures and
subject to the assumptions described in the opinion letter. A copy of
Houlihan Lokey's opinion letter is attached hereto as Annex C and should be
read by Advanced NMR and AMS stockholders carefully in its entirety. See "THE
MERGER -- Opinion of Houlihan Lokey."
REASONS FOR THE MERGER
AMS. The Special Committee was formed in April 1997 to explore the
possibility of reformulating AMS' relationship with Advanced NMR. The
extended time frame for AMS to commence commercialization for its
Aurora(Trademark) System caused its cash position to erode. Obtaining debt
and equity financing for AMS from third parties has been difficult recently
because of the low market price of the AMS Common Stock and the lack of
market liquidity for the Stock. Furthermore, the cross-licensing and profit
participation provisions in the license agreement between Advanced NMR and
AMS ("License Agreement") were viewed as creating difficulties for both
companies' implementation of independent business plans. Given such
limitations, the Special Committee began to consider the benefits of a merger
between AMS and Advanced NMR to solve these problems.
Due to (i) the substantial dilutive effects that an additional issuance of
equity may have to AMS stockholders, (ii) the business and strategic
advantages that AMS may obtain in combining operations with Advanced NMR,
(iii) the risks of operating independently of Advanced NMR, (iv) the
advantages of retaining an interest in the Aurora(Trademark) System, while
gaining an interest in available cash and other assets of Advanced NMR, and
(v) the relationship arising from the Advanced NMR-operated breast imaging
center at the Faulkner Center using the Aurora(Trademark) System, the Special
Committee believes that the Merger is the best alternative reasonably
available to AMS and its stockholders. The Special Committee identified an
urgent need on the part of AMS for capital to fund its research and
development and the marketing and installation of the Aurora(Trademark)
System. The Special Committee believed that the Merger could facilitate AMS'
capital requirements.
Based on the recommendation of the Special Committee, the opinion of
Valuemetrics and other factors, the AMS Board of Directors unanimously (with
one director absent) approved the Merger and Merger Agreement and concluded
that the Merger is in the best interests of the stockholders of AMS.
Accordingly, the AMS Board of Directors recommends a vote FOR the adoption of
the Merger Agreement.
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ADVANCED NMR. Subsequent to the February 1997 merger of MDI into US
Diagnostic and the repayment of the related bank facility, Advanced NMR
management reviewed its future business opportunities. Considering its
limited resources, management thought that Advanced NMR should concentrate in
areas where it had some expertise and which were considered as having high
growth potential. Advanced NMR possessed technological expertise in certain
segments of the MRI industry and in the operation of imaging centers.
Advanced NMR already has a significant investment in and relationship with
AMS that it wishes to preserve through the Merger. The Executive Committee of
the Advanced NMR Board of Directors determined in late 1996 that Advanced NMR
should establish and operate a breast imaging facility at the Faulkner
Center. Advanced NMR purchased the Aurora(Trademark) System from AMS in
September 1997 and will run and operate such System on leased premises at the
Faulkner Center. There has been a growing awareness and sensitivity to the
occurrence of breast cancer in the United States, which has resulted in an
increased number of women obtaining mammographies and follow-up exams. AMS's
Aurora(Trademark) System appeared to present an entry into the breast cancer
diagnostic field. Management determined that a merger with AMS could
capitalize on Advanced NMR's prior expertise in the MRI industry and the
future potential of breast imaging technology. Additional benefits considered
were the possible operating efficiencies by acting as a single entity with
AMS and the elimination of confusion as to future ventures in MRI technology
by reason of the License Agreement with AMS.
The Advanced NMR Board of Directors has determined that one future
direction of Advanced NMR is to capitalize on the commercialization of AMS'
Aurora(Trademark) System by owning and/or operating breast imaging centers at
which the Aurora(Trademark) System will be installed. The Advanced NMR Board
believes the Merger will facilitate this plan. In addition, upon the sale of
MDI to US Diagnostic, Advanced NMR retained a small number of key MDI
personnel with considerable experience in opening up and operating imaging
centers. These individuals should be instrumental in Advanced NMR's plan to
open and operate breast imaging centers using the Aurora(Trademark) System.
The Advanced NMR Board identified the following risks in connection with
the Merger: the uncertainty of the commercial acceptability of AMS'
Aurora(Trademark) System; the considerable cost in developing and marketing
this System; and the uncertainty as to whether U.S. government agencies,
insurance companies and other third party payors would provide reimbursement
for scans performed using AMS' Aurora(Trademark) System. The Advanced NMR
Board believed, however, that these risks were outweighed by the potential
benefits to be realized from the Merger.
The Advanced NMR Board of Directors believes the terms of the Merger
Agreement are fair to and in the best interests of Advanced NMR because of a
number of factors, including the strategic and operating synergies and cash
savings that may result from the Merger. The Advanced NMR Board of Directors
also took into account the opinion of Houlihan Lokey. Accordingly, the
Advanced NMR Board of Directors unanimously (with one director absent)
approved the Merger and the Merger Agreement.
See "THE MERGER -- Reasons for the Merger, Recommendation of the AMS Board
of Directors; THE MERGER -- Interests of Certain Persons in the Merger;
Conflicts of Interest; and CERTAIN INFORMATION CONCERNING AMS -- Agreements
with Advanced NMR."
CERTAIN TERMS OF THE MERGER AGREEMENT
The Merger Agreement contains customary representations and warranties of
the parties, as well as customary covenants regarding the conduct of the
respective businesses of Advanced NMR and AMS prior to the Effective Time.
See "THE MERGER -- Certain Terms of the Merger Agreement -- Representations,
Warranties and Covenants." Each party's obligation to consummate the Merger
is subject to the satisfaction of customary consents and conditions prior to
the Effective Time as set forth in the Merger Agreement. See "THE MERGER --
Certain Terms of the Merger Agreement -- Conditions Precedent to the Merger."
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The Merger Agreement may be terminated before the consummation of the
Merger by either Advanced NMR or AMS under various circumstances, including
the failure to consummate the Merger on or before November 15, 1997. In
addition, the Merger Agreement may be terminated by either Advanced NMR or
AMS if AMS receives a bona fide third party acquisition proposal which the
AMS Board determines in good faith is more favorable to the AMS stockholders
than the Merger Consideration. See "THE MERGER -- Certain Terms of the Merger
Agreement."
Pursuant to the Merger Agreement, in the event that Advanced NMR
terminates the Merger Agreement because AMS has accepted another acquisition
proposal made by a third party which the AMS Board of Directors in its good
faith judgment recommends, or AMS breaches a material representation,
warranty or covenant set forth in the Merger Agreement and which breach is
not remedied, AMS is obligated to pay Advanced NMR $500,000. If AMS
terminates the Merger Agreement because Advanced NMR breaches a material
representation, warranty or covenant set forth in the Merger Agreement, and
which breach is not remedied, Advanced NMR must pay $500,000 to AMS.
RELATIONSHIP BETWEEN ADVANCED NMR AND AMS
In July 1992, Advanced NMR formed AMS as a subsidiary for the purpose of
financing the development of a MR breast imaging system. Pursuant to the
License Agreement, Advanced NMR licensed its proprietary technology for such
system to AMS, which paid $1,680,000 and issued to Advanced NMR 4,000,000
shares of AMS Common Stock, of which 2,750,000 were subject to an escrow
agreement ("Escrow Agreement"), which has been terminated. In early 1993, AMS
completed an initial public offering of 1,483,500 shares of its Common Stock
at $6.00 per share. Upon the effective date of such offering, AMS and
Advanced NMR entered into a shared services agreement ("Shared Services
Agreement"). These named agreements are discussed below.
Escrow Agreement. 2,750,000 shares (the "Escrowed Shares") of the
4,000,000 shares of AMS Common Stock owned by Advanced NMR were subject to an
Escrow Agreement, dated January 25, 1993 (the "Escrow Agreement") among AMS,
Advanced NMR and American Stock Transfer & Trust Company. On May 1, 1997, the
Escrow Agreement was terminated and Advanced NMR returned the Escrowed Shares
to AMS for AMS' failure to achieve certain financial and share price
milestones, which if achieved would have resulted in the release of the
Escrowed Shares to Advanced NMR. Advanced NMR presently owns 1,250,000 shares
of AMS Common Stock.
License Agreement and Shared Services Agreement. The License Agreement
grants to AMS a perpetual, worldwide, exclusive royalty-free license for the
Advanced NMR technology relating to the development of a dedicated MRI system
for mammography (the "Field of Use"). The License Agreement also grants to
Advanced NMR rights to future technology developed by AMS for use in
connection with mammography, and to AMS rights to future technology developed
by Advanced NMR for use outside the Field of Use including a 50% interest in
any entity which may be organized by Advanced NMR to develop dedicated use
MRI scanners.
Advanced NMR provides executive officers, research scientists and other
personnel to AMS, and AMS occupies a portion of the office and research and
manufacturing premises leased by Advanced NMR for which AMS pays Advanced NMR
a fee based upon a fixed percentage of overhead expenses and an allocation of
the time spent by Advanced NMR executive officers, pursuant to the Shared
Services Agreement. On August 29, 1996, Advanced NMR and AMS entered into a
new Shared Services Agreement which outlined a more accurate method of
allocating the services that are shared by the companies. At September 30,
1997, AMS owed approximately $1.3 million to Advanced NMR under the Shared
Services Agreement. For more information with respect to the License
Agreement and Shared Services Agreement, see "CERTAIN INFORMATION CONCERNING
AMS -- Agreements with Advanced NMR."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the Merger, stockholders of AMS should be aware that
members of the management and Board of Directors of AMS have conflicts of
interest in connection with the Merger. All of the
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executive officers and directors of AMS (except two directors) are also
officers and directors of Advanced NMR. Advanced NMR owns 1,250,000 shares of
AMS Common Stock, representing approximately 14.46% of the outstanding shares
of AMS Common Stock. The Advanced NMR officers and directors affiliated with
AMS collectively hold options to purchase approximately 5.8% of the
outstanding AMS Common Stock. These options, if not exercised prior to the
Merger, shall be converted into options to purchase Advanced NMR Common Stock
upon consummation of the Merger. Jack Nelson, Chairman of Advanced NMR and
AMS, Enrique Levy, President of Advanced NMR and AMS, and Steven J. James,
Chief Financial Officer of Advanced NMR and AMS, have employment agreements
with both companies which will remain in effect after the Merger. Messrs.
Nelson, Levy and James will receive no financial consideration in connection
with the Merger. In connection with the Merger, Advanced NMR has nominated
Bernard Weiner, M.D., and Alison Estabrook, M.D., presently directors of AMS,
to become directors of Advanced NMR, subject to Advanced NMR stockholder
approval, upon consummation of the Merger. The other AMS officers and
directors will not receive any consideration, such as stock and stock options
(other than the conversion of existing AMS stock options into Advanced NMR
stock options pursuant to the Merger Agreement), bonus or change of control
payments, participation in additional benefit plans and programs, or any
similar form of financial consideration, in connection with the Merger. To
the best of AMS' knowledge, the AMS officers and directors have no material
interests in the Merger apart from AMS stockholders generally. In the event
the Merger is not consummated, AMS will be insolvent. As an insolvent
corporation, AMS would not be able to make payments to its officers under the
employment agreements listed above. In the event that AMS filed for
bankruptcy law protection, the AMS options held by AMS officers and directors
would be worthless.
For more complete disclosure relating to the matters discussed in the
preceding paragraph, see "THE MERGER -- Interests of Certain Persons in the
Merger; Conflicts of Interest."
CONDUCT OF AMS' BUSINESS AFTER THE MERGER
Advanced NMR intends that, following consummation of the Merger, the
business of AMS will continue to be operated in its customary manner except
that the Shared Services Agreement and License Agreement will be terminated.
See "THE MERGER -- Conduct of AMS Business After the Merger; and CERTAIN
INFORMATION CONCERNING AMS -- Agreements with Advanced NMR."
REGULATORY MATTERS
No federal and state governmental or regulatory approvals are required in
order to consummate the Merger.
NASDAQ LISTING
Under the Merger Agreement, Advanced NMR has agreed to use its best
efforts to cause the shares of Advanced NMR Common Stock to be issued
pursuant to the Merger Agreement to be listed for trading on Nasdaq. Such
authorization for listing is a condition to the obligations of Advanced NMR
and AMS to consummate the Merger. Shares of Advanced NMR Common Stock and AMS
Common Stock currently trade on the Nasdaq Small Cap Market.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Assuming that the Merger so qualifies, no gain or loss will be
recognized for federal income tax purposes by holders of AMS Common Stock. In
addition, Advanced NMR, Merger Corp., and AMS each will recognize no tax gain
or loss as a result of the Merger. No ruling will be requested from the IRS
as to the tax status of the Merger. However, Reid & Priest LLP will render an
opinion with respect to the tax-free status of the Merger.
15
<PAGE>
ALL AMS STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION IN "THE MERGER
- -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND THE OTHER SECTIONS OF THIS
JOINT PROXY STATEMENT/PROSPECTUS REFERRED TO THEREIN AND ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO SPECIFIC CONSEQUENCES TO THEM OF THE MERGER
UNDER FEDERAL, STATE, LOCAL OR ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment."
APPRAISAL RIGHTS
Holders of shares of AMS Common Stock are entitled to appraisal rights
under the Merger pursuant to Section 262 of the DGCL. Stockholders who elect
to demand appraisal of their shares must comply with the requirements set
forth in that Section, which is attached as Annex D hereto. FAILURE TO
STRICTLY COMPLY WITH THESE REQUIREMENTS WILL RESULT IN THE LOSS OF APPRAISAL
RIGHTS. See "THE MERGER -- Appraisal Rights" and Annex D hereto.
The obligation of Advanced NMR to effect the Merger is subject to the
condition, which it may waive, that the holders of no more than three percent
(3%) of the outstanding shares of AMS Common Stock have duly demanded
appraisal of their shares at the time the Merger is to be consummated. See
"THE MERGER -- Certain Terms of the Merger Agreement -- Conditions Precedent
to the Merger."
There will be no appraisal rights for Advanced NMR stockholders with
respect to any of the six proposals to be considered at the Advanced NMR
Meeting.
16
<PAGE>
SUMMARY FINANCIAL INFORMATION
The information below sets forth summary historical financial information
and summary unaudited pro forma financial information. This financial
information should be read in conjunction with the historical financial
statements and notes thereto of Advanced NMR and AMS appearing elsewhere in
this Joint Proxy Statement/Prospectus, and in conjunction with the unaudited
pro forma financial information and notes thereto, selected historical
financial information and notes thereto and management's discussion and
analysis of financial condition and results of operations appearing elsewhere
in this Joint Proxy Statement/Prospectus. See "UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION," "SELECTED ADVANCED NMR FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ADVANCED NMR," "SELECTED AMS FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMS" AND "INDEX TO FINANCIAL STATEMENTS."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ADVANCED NMR
The summary historical consolidated financial information of Advanced NMR
set forth below has been derived from the consolidated financial statements
of Advanced NMR for each of the three years in the period ended December 31,
1994, the nine-month period ended September 30, 1995, the twelve-month period
ended September 30, 1996, and for the nine-month periods ended June 30, 1997
and 1996. Effective January 1, 1995, Advanced NMR changed its fiscal year
from December 31 to September 30. The summary financial data set forth below
for the nine months ended June 30, 1997 and 1996 are derived from unaudited
consolidated financial statements, which, in the opinion of Advanced NMR
management, contain adjustments necessary for the fair presentation of this
information. Results for the nine months ended June 30, 1997 and 1996 are not
necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. Results since 1992 include
Advanced NMR's interest in AMS. See "SELECTED ADVANCED NMR FINANCIAL
INFORMATION."
ADVANCED NMR HISTORICAL
<TABLE>
<CAPTION>
TWELVE NINE
MONTHS MONTHS
NINE MONTHS ENDED ENDED ENDED FISCAL YEAR ENDED DECEMBER 31,
---------------------- ----------- ----------- -------------------------------
JUNE JUNE SEPTEMBER SEPTEMBER
30, 1997 30, 1996 30, 1996 30, 1995 1994 1993 1992
---------- ---------- ----------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue ............................... $ 11,895 $19,584 $26,134 $ 1,975 $ -- $ -- $ --
Loss from continuing operations ............. (11,536) (1,229) (1,383) (783) (1,664) (1,208) (999)
Income (loss) from discontinued operations . 58 (3,327) (3,929) (895) (1,883) (4,959) (4,494)
(Loss) on disposal of discontinued division -- -- (3,511) -- -- -- --
Net (loss) .................................. (11,478) (4,556) (8,823) (1,678) (3,547) (6,167) (5,493)
BALANCE SHEET DATA:
Total assets ................................ $ 15,984 $58,950 $50,725 $58,432 $12,692 $15,864 $ 2,686
Net working capital (deficit) ............... 8,462 10,631 (6,736) 11,083 8,614 12,453 (760)
Long-term obligations ....................... 513 22,336 5,683 16,279 338 483 --
Stockholders' equity ........................ 12,820 27,699 23,818 28,018 9,699 12,552 27
PER COMMON SHARE DATA:
Loss from continuing operations ............. $ (.28) $ (.04) $ (.05) $ (.03) $ (.07) $ (.06) $ (.06)
Income (loss) from discontinued operations . -- (.11) (.13) (.04) (.08) (.26) (.28)
(Loss) on disposal of discontinued division -- -- (.11) -- -- -- --
Net (loss) per share ........................ (.28) (.15) (.29) (.07) (.15) (.32) (.34)
Book value .................................. .29 .92 .70 .93 .41 .53 .00
WEIGHTED AVERAGE SHARES
OUTSTANDING ................................ 40,430 30,211 30,583 24,244 23,603 19,184 16,158
</TABLE>
17
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION OF AMS
The summary historical financial information of AMS set forth below has
been derived from the financial statements of AMS for the period from July 2,
1992 (inception) to December 31, 1992, each of the years in the two year
period ended December 31, 1994, the nine month period ended September 30,
1995 and the twelve-month period ended September 30, 1996, and for the
nine-month periods ended June 30, 1997 and 1996. The summary financial data
set forth below for the nine months ended June 30, 1997 and 1996 are derived
from unaudited financial statements, which, in the opinion of AMS management,
contain all adjustments necessary for the fair presentation of this
information. Effective January 1, 1995, AMS changed its fiscal year from
December 31 to September 30. See "SELECTED AMS FINANCIAL INFORMATION."
AMS HISTORICAL
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS NINE MONTHS JULY 2, 1992
ENDED ENDED ENDED FISCAL YEAR ENDED (INCEPTION) TO
JUNE 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994 1994 1992
---- ---- -------------- ------------- ------------------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue .................. $ 400 -- -- -- -- -- --
Net (loss) ..................... (3,439) $(3,163) $(4,178) $(1,684) $(2,503) $(1,765) $(2,719)
BALANCE SHEET DATA:
Total assets ................... $ 2,515 $ 4,356 $ 3,984 $ 3,440 $ 2,147 $ 3,647 $ 211
Net working capital (deficit) . 186 3,164 2,239 2,606 1,098 3,309 (2,348)
Long-term obligations .......... 520 2,683 1,472 -- -- -- --
Stockholders' equity (deficit) 354 1,264 1,604 3,243 1,728 3,521 (2,179)
PER COMMON SHARE DATA:
Net (loss) ..................... (.53) (.82) $ (1.03) $ (0.44) $ (0.89) $ (0.68) $ (1.36)
Book value ..................... .05 .19 .19 .49 .30 .54 (.54)
Common dividends declared ..... -- -- -- -- -- -- --
WEIGHTED AVERAGE
SHARES OUTSTANDING: 6,488 3,848 4,046 3,830 2,802 2,585 2,000
</TABLE>
18
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The summary unaudited pro forma combined consolidated financial
information set forth below combines the historical balance sheets and income
statement data of Advanced NMR and AMS, after giving effect to the Merger and
the effect of the MDI merger with US Diagnostic, the effect of the purchase
agreement with GE and the conversion of AMS convertible debentures in
September 1997. Both the income statement data and the balance sheet data
also give effect to the proposed one-for-ten Reverse Stock Split. Such
unaudited pro forma combined financial information assumes the Merger had
been completed on June 30, 1997, in the case of the balance sheet
information, and October 1, 1995, in the case of the statement of operations
information. The Merger is accounted for under the purchase method of
accounting. The pro forma adjustments are described in the notes to the
unaudited pro forma combined financial information included in this Joint
Proxy Statement/Prospectus and AMS stockholders are urged to read such notes
carefully. The summary unaudited pro forma combined financial information is
presented for informational purposes only and is not necessarily indicative
of the operating results or financial position that would have occurred had
the Merger been consummated on the dates for which the Merger is being given
effect, nor is it indicative of future operating results or financial
position. See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
ADVANCED NMR AND AMS PRO FORMA COMBINED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AND FOR FOR THE
THE NINE TWELVE MONTHS
MONTHS ENDED ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996
--------------- ------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net revenue ............................................. $ 3,584 $ 4,711
Loss from continuing operations.......................... (4,631) (3,980)
BALANCE SHEET DATA:
Total assets ............................................ 22,564 N/A
Working capital.......................................... 14,114 N/A
Long-term debt and capital lease obligations less
current maturities...................................... 441 N/A
Stockholders' equity..................................... 16,525 N/A
PER SHARE DATA:
Loss from continuing operations.......................... (.66) (.66)
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain unaudited per share data of
Advanced NMR and AMS on both historical and pro forma combined bases and on
an equivalent pro forma basis for AMS. This table should be read in
conjunction with the historical financial statements and pro forma financial
information, and the related notes thereto, of Advanced NMR and AMS appearing
elsewhere in this Joint Proxy Statement/Prospectus. See "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION" and "INDEX TO FINANCIAL STATEMENTS."
Unaudited pro forma combined and equivalent pro forma per share data reflect
the combined results of Advanced NMR and AMS, after giving effect to the
Merger as if it had occurred on June 30, 1997, in the case of book value
data, and on October 1, 1995, in the case of statement of operations
information. The unaudited pro forma financial data are presented for
informational purposes only, and are not necessarily indicative of the
operating results or financial position that would have occurred had the
Merger and other transactions presented in the unaudited pro forma combined
financial information been completed on the dates indicated nor is it
indicative of future operating results or financial position.
19
<PAGE>
For purposes of calculating equivalent share data, it has been assumed for
pro forma purposes only that each share of AMS Common Stock is exchanged in
the Merger for .4 of a share of Advanced NMR Common Stock, on a post-Reverse
Stock Split basis, which represents the maximum number of shares of Advanced
NMR Common Stock issuable, for each outstanding share of AMS Common Stock
pursuant to the terms of the Merger Agreement.
COMPARATIVE SHARE DATA
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE TWELVE MONTHS
MONTHS ENDED ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996
--------------- ------------------
<S> <C> <C>
ADVANCED NMR
Loss from continuing operations per common share
Historical...................................... $(0.28) $ (.05)
Supplemental historical(1)...................... (2.84) (.45)
Pro forma ...................................... (.66) (.66)
Dividends per common share
Historical...................................... -- --
Book value per common share
Historical...................................... .29 N/A
Supplemental historical(1) ..................... 2.95 N/A
Pro forma....................................... 2.25 N/A
AMS
Income (loss) per common share
Historical...................................... (.53) (1.03)
Pro forma equivalent............................. (.26) (.26)
Dividends per common share
Historical...................................... -- --
Book value per common share
Historical...................................... .05 N/A
Pro forma equivalent ........................... .90 N/A
</TABLE>
- ------------
(1) Represents historical book value per common share adjusted for proposed
one-for-ten Reverse Stock Split.
Note: For purposes of calculating the purchase price of AMS, the Advanced NMR
share price is based on the closing trading price on October 6, 1997 of
$0.3125, before the effect of the proposed one-for-ten Reverse Stock
Split. Any incremental increase or decrease in the Advanced NMR share
price as of the closing date of 1/16th or $0.0625 will result in an
increase or decrease in the cost of AMS of approximately $1,850,000,
which increase or decrease will be allocated to purchased research
and development and have no impact on the pro forma loss per share
from continuing operations.
20
<PAGE>
COMPARATIVE MARKET PRICE DATA
Advanced NMR Common Stock (symbol "ANMR") has been quoted on the Nasdaq
Small Cap Market since May 17, 1996. From February 1994 to May 16, 1996, it
traded on the Nasdaq National Market System. Prior to February 1994, the
Advanced NMR Common Stock traded in the over-the-counter market and was
listed on the Boston and Pacific Stock Exchanges. The AMS Common Stock
(symbol "MAMO") has been quoted on the Nasdaq Small Cap Market since February
1, 1993.
The table below sets forth, for the calendar quarters indicated, the
reported high and low bid quotations per share of Advanced NMR Common Stock
and AMS Common Stock, as reported on the Nasdaq National Market System and
the Nasdaq Small Cap Market. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions. The prices shown below do not give effect to
the Reverse Stock Split.
<TABLE>
<CAPTION>
ADVANCED NMR AMS COMMON
COMMON STOCK STOCK
------------------ -------------------
HIGH LOW HIGH LOW
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Fiscal 1995
First Quarter ........................ $4.250 $2.250 $11.750 $ 7.375
Second Quarter ....................... 3.688 2.313 13.875 8.750
Third Quarter ........................ 3.250 2.125 15.250 10.000
Fourth Quarter ....................... 3.062 2.032 14.000 4.750
Fiscal 1996
First Quarter ........................ 2.250 1.062 5.937 1.000
Second Quarter ....................... 2.563 1.000 4.125 1.500
Third Quarter ........................ 2.000 1.094 4.623 1.813
Fourth Quarter ....................... 1.250 .438 2.063 .625
Fiscal 1997
First Quarter ........................ .688 .219 3.063 1.625
Second Quarter ....................... .656 .219 2.531 1.438
Third Quarter ........................ .410 .220 1.660 .690
Fourth Quarter ....................... .438 .156 1.031 .562
Fiscal 1998
First Quarter (through October 8,
1997) ............................... .344 .281 .968 .875
</TABLE>
On May 27, 1997, the day that Advanced NMR and AMS publicly announced the
Merger proposal, the closing price per share of Advanced NMR Common Stock was
$.25 and AMS Common Stock was $1.125.
On October 8, 1997, the most recent date for which it was practicable to
obtain market price data prior to the printing of this Joint Proxy
Statement/Prospectus, the closing price per share of Advanced NMR Common
Stock was $.281 and AMS Common Stock was $.875. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE ADVANCED NMR COMMON STOCK AND THE
AMS COMMON STOCK. The .40 share of Advanced NMR Common Stock to be received
by AMS stockholders for each share of AMS Common Stock in the Merger is on a
post-Reverse Stock Split basis.
Neither AMS nor Advanced NMR has declared a cash dividend on its Common
Stock since its respective inception. Advanced NMR does not expect to declare
any dividends on Advanced NMR Common Stock in the foreseeable future.
On October 8, 1997, there were approximately 1,200 holders of record of
Advanced NMR Common Stock and 100 holders of record of AMS Common Stock.
Since a large number of shares of both companies' Common Stock is held in
street or nominee name, it is believed that there are a substantial number of
additional beneficial owners of such Common Stock.
21
<PAGE>
RISK FACTORS
RISK FACTORS RELATING TO THE COMBINED COMPANIES
Effects of Failure to Approve Merger. If the Merger is not approved by AMS
stockholders, AMS will be insolvent. The consequence of such insolvency to
Advanced NMR would be that AMS would be unable to pay approximately $1.3
million it owes to Advanced NMR. Advanced NMR is AMS' major creditor. In
addition, the insolvency of AMS could lead to bankruptcy proceedings for AMS.
In such bankruptcy proceedings, Advanced NMR would, as AMS' largest creditor,
seek to obtain all of the assets of AMS in satisfaction of the $1.3 million
of indebtedness owed to Advanced NMR by AMS. Advanced NMR would incur the
overhead expense now allocated to AMS and its interest in AMS Common Stock
would lose substantial value. Advanced NMR would have to evaluate whether it
would fund AMS' operations and research and development and for how long it
would provide such financing. In early October 1997, the Executive Committee
of Advanced NMR's Board of Directors determined to loan to AMS up to an
additional $500,000 to fund ongoing operations. There can be no assurance
that Advanced NMR will provide additional funds to AMS if the Merger is not
approved. See "THE MERGER," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OF AMS."
Lack of General Utilization by the Medical Community. The business of AMS
involves the application of magnetic resonance technologies and equipment to
a dedicated breast imaging business, not all of which have yet been widely
used in the medical community or established as a preferred diagnostic
technique. The clinical utility of the Aurora (Trademark) System is not
proven for detecting breast cancers and other breast illnesses. A substantial
amount of clinical research and physician education will be required to
determine the full capabilities and to achieve widespread utilization of this
MRI mammography technology. The failure of the medical community to use AMS'
Aurora(Trademark) breast imaging systems would have a material adverse impact
on Advanced NMR's and AMS' business, financial condition and operations. See
"CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Business of Advanced NMR; and
CERTAIN INFORMATION CONCERNING AMS -- Business of AMS."
No Assurance of Future Sources of Capital and Product Development Funds to
Support and Grow Business. AMS requires funds for research and development,
marketing and production of MRI breast imaging technologies. There can be no
assurance that Advanced NMR or AMS will have adequate working capital to fund
these activities and technologies or any other business activities such as
the opening and operation of breast imaging centers. Advanced NMR's and AMS'
inability to fund their research and development, marketing and production
requirements would have a material adverse effect on Advanced NMR and AMS and
their respective business and financial condition. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
ADVANCED NMR," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF AMS."
Conflicts of Interest. Management and the Board of Directors of AMS have
relationships which present them with conflicts of interest in connection
with the Merger. Advanced NMR owns 1,250,000 shares of AMS Common Stock,
representing approximately 14.46% of the outstanding shares of AMS Common
Stock. All of the executive officers and directors of AMS (except two
directors) are also officers and directors of Advanced NMR. In addition,
Advanced NMR and AMS are parties to the License Agreement and the Shared
Services Agreement. At September 30, 1997, AMS owed approximately $1.3
million to Advanced NMR under the Shared Services Agreement. See "THE MERGER
- -- Interests of Certain Persons in the Merger; Conflicts of Interest,"
"CERTAIN INFORMATION CONCERNING AMS -- Agreements with Advanced NMR."
Possible Delisting of Advanced NMR Common Stock and AMS Common Stock from
Nasdaq Small Cap Market. Nasdaq may delist Advanced NMR Common Stock from
eligibility for trading on the Nasdaq Small Cap Market for failure to
maintain a closing bid price equal to or greater than $1.00 for a certain
period of time. Advanced NMR believes that the Reverse Stock Split will
prevent such delisting, although there can be no assurance that Nasdaq will
not enforce such delisting. If Advanced NMR Common Stock is delisted from the
Nasdaq Small Cap Market, Advanced NMR would seek to have its
22
<PAGE>
shares trade on the Nasdaq OTC Electronic Bulletin Board. Advanced NMR
believes that the effect of the trading of the shares of Advanced NMR Common
Stock on the Nasdaq OTC Electronic Bulletin Board could be greater price
fluctuations; increased spread between bid and asked prices; decrease in the
number of market makers for the stock; and reduced trading volume. AMS has
been advised by Nasdaq that it intends to delist AMS Common Stock from
eligibility for trading on the Nasdaq Small Cap Market for failure to
maintain a closing bid price equal to or greater than $1.00 for a certain
period of time. See "SUMMARY FINANCIAL INFORMATION--Comparative Market Price
Data."
Volatility of Common Stock Prices. Historically, the market prices of
Advanced NMR Common Stock and AMS Common Stock have been volatile. Factors
such as quarter-to-quarter variations in revenues and announcements of
technological innovations or new products by Advanced NMR, AMS or their
competitors, customers or suppliers could cause the market prices to greatly
fluctuate. In addition, in recent years the stock markets in general, and the
market prices for diagnostic imaging service companies in particular, have
experienced significant volatility, which often may be unrelated to the
operating performance of the affected companies. See "SUMMARY FINANCIAL
INFORMATION -- Comparative Market Price Data."
Lack of Dividends. Neither Advanced NMR nor AMS has ever paid a dividend
to its stockholders. Subsequent to the Merger, Advanced NMR intends to retain
all available earnings, if any, generated by its operations for the
development and growth of its business and does not anticipate paying any
cash dividends on Advanced NMR Common Stock in the foreseeable future. See
"SUMMARY FINANCIAL INFORMATION -- Comparative Market Price Data," and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ADVANCED NMR."
Purchase Agreement with GE. On August 18, 1997, Advanced NMR and GE
entered into a purchase agreement whereby GE purchased $2.7 million in stated
value of a newly issued class of Class B Preferred Stock. The Class B
Preferred Stock is convertible into 1,159,793 shares of Advanced NMR Common
Stock on a post-Reverse Stock split basis after August 18, 1998, or earlier
upon a change of control. If the Advanced NMR stockholders do not approve the
Reverse Stock Split proposal at the Advanced NMR Meeting, Advanced NMR will
not have available a sufficient number of shares of Advanced NMR Common Stock
to issue to GE if GE converts its Class B Preferred Stock. Under such
circumstances, GE would have the right to redeem its Class B Preferred Stock
for $2.7 million, plus any accrued and unpaid dividends. See "INFORMATION
CONCERNING ADVANCED NMR -- Business."
Adverse Accounting and Tax Consequences of Intangible Assets. Upon the
Merger, Advanced NMR will incur a charge to research and development expense
of approximately $7.5 million, approximately $1.0 million will be allocated
to other intangible assets and approximately $500,000 will be allocated to
purchased contracts. The other intangible assets will be amortized by
Advanced NMR over the next five years, resulting in annual non-cash charges
of approximately $200,000. The contracts will be amortized over the next five
years, resulting in annual non-cash charges of approximately $100,000. None
of the above costs will be deductible for income tax purposes. See "UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION."
Dependence on, and Need for, Key Personnel. Because of the specialized
nature of its businesses, Advanced NMR is dependent upon the efforts of its
current officers and employees, and upon its ability to attract and retain
technically qualified personnel. The loss of the services of Jack Nelson,
Chairman of the Board of Advanced NMR and AMS, or Enrique Levy, President of
Advanced NMR and AMS, could materially adversely effect Advanced NMR and AMS.
There is intense competition for qualified personnel in the MRI industry,
including competition from companies with substantially greater resources
than Advanced NMR. There can be no assurance that Advanced NMR will be
successful in recruiting or retaining personnel of the requisite scientific
caliber or in the requisite numbers to enable Advanced NMR to conduct its
business as planned. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR --
Executive Officers and Directors" and "CERTAIN INFORMATION CONCERNING AMS --
Executive Officers and Directors."
23
<PAGE>
Unpredictable Results of Healthcare Reform Initiatives. Many competing
proposals have been introduced in Congress and various state legislatures to
reform the present health care systems. Neither Advanced NMR nor AMS can
predict the health care reforms that may be enacted or the effect that any
such reforms may have on their respective businesses. Uncertainty in the area
of health care reform may contribute to an unwillingness on the part of
potential customers to make capital investments. See "CERTAIN INFORMATION
CONCERNING ADVANCED NMR--Business of Advanced NMR" and "CERTAIN INFORMATION
CONCERNING AMS--Business of AMS."
Efficacy of Aurora(Trademark) System. AMS has launched a multi-site
clinical study of the Aurora(Trademark) System. AMS anticipates that the
study will take two years to complete. In April 1997, a meeting of leading
doctors in the breast imaging field was held by AMS to develop approaches and
protocols for determining the clinical benefits of MRI in the diagnosis and
management of breast diseases. There can be no assurance that such clinical
study will prove the effectiveness of the Aurora(Trademark) System. See
"INFORMATION CONCERNING AMS -- Business."
Potential Adverse Impact of Competing Services and Equipment. The health
services and equipment industry is highly competitive. Some entities have
developed, and others may develop, competing products or services which may
be superior to those of Advanced NMR and AMS, both in terms of price and
quality. Many of these other entities have greater resources and more
substantial marketing capabilities than Advanced NMR and AMS. Furthermore, in
some cases, other imaging equipment such as PET scanners, conventional
x-rays, CAT scanners, nuclear medicine systems and ultrasound systems may be
used instead of magnetic resonance systems for certain diagnostic procedures.
These other equipment systems and methods may be less expensive to purchase,
install and maintain and involve lower patient charges for their use. See
"CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Business of Advanced NMR";
and CERTAIN INFORMATION CONCERNING AMS -- Business of AMS."
Potential Adverse Impact of Governmental Regulation. The manufacture,
marketing and use of MRI systems is subject to various federal and state
regulations, including premarket clearance by the FDA. Such clearance may
take considerable time to obtain and in some cases may not be granted. While
the Aurora(Trademark) System has received FDA 510(k) clearance, there can be
no assurance that any enhancements or improvements to such System, or any new
system developed by Advanced NMR would obtain FDA clearance and until such
clearance is obtained, neither government agencies nor private insurers will
reimburse the cost of MRI systems and diagnostic procedures. Furthermore,
reimbursement may not be authorized even after approvals are granted or it
may be delayed for substantial periods after such approvals. The market for
the products and services of Advanced NMR and AMS might also be adversely
affected by state certificate of need ("CON") laws, which in some states
restrict or limit the establishment of new facilities and services as well as
the purchase of major medical equipment. There can be no assurance that CONs
can be obtained by the prospective customers of Advanced NMR and AMS if
needed. In addition, federal and state health care and related regulations
are subject to constant change and Advanced NMR and AMS cannot predict what
changes may be enacted which may affect their respective businesses or the
manner in which its business would be affected by such changes. In addition,
manufacturers of medical devices are subject to pervasive and continuous
regulation by the FDA, including compliance with good manufacturing practice
regulations. Discovery of previously unknown problems or noncompliance with
applicable regulations may result in product labeling restrictions or
withdrawal of the product from the market. There can be no assurance that
these regulations will not have an adverse impact on Advanced NMR and AMS in
the future. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Business of
Advanced NMR; and CERTAIN INFORMATION CONCERNING AMS -- Business of AMS."
Possible Restrictions on Third Party Coverage and Reimbursement. MRI
technology devices are generally of the type that would be purchased by
hospitals or clinics, which then bill various third-party payers, such as
governmental programs and private insurance plans, for the health care
services provided to patients. Payment to health care providers by third
party payers for diagnostic services generally depends substantially upon
such payors' coverage and reimbursement policies. Consequently, those
policies will have a direct effect on health care providers' ability and
willingness to pay for any products
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of Advanced NMR and AMS. Mounting concerns about rising health care costs and
the future of the health care industry in general may cause more restrictive
coverage and reimbursement policies to be implemented in the future. Failure
by third party payers to cover MRI products or to obtain adequate
reimbursement for procedures employing products subsequently developed by AMS
or Advanced NMR could have a material adverse effect on their ability to
market their systems. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR --
Business of Advanced NMR; and CERTAIN INFORMATION CONCERNING AMS --
Governmental Regulation."
Potential Product Liability. The business of Advanced NMR and AMS exposes
them to potential product liability risks which are inherent in the testing,
manufacturing, marketing and sale of diagnostic products. There can be no
assurance that AMS will be able to maintain product liability and
professional liability insurance on acceptable terms or that any insurance
obtained will provide adequate protection against potential liabilities. In
the event of a successful suit against AMS, a lack or insufficiency of
insurance coverage could have a material adverse effect on AMS' business and
operations. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Business of
Advanced NMR; and CERTAIN INFORMATION CONCERNING AMS -- Business of AMS."
RISK FACTORS RELATING TO ADVANCED NMR
History of Net Losses. From its inception in 1983 until November 1992,
Advanced NMR was engaged exclusively in research and development activities
when it initiated the first commercial sale of its InstaScan(Trademark)
system and receipt of clearance from the FDA to market such system to
clinical institutions. Advanced NMR's cash requirements have been exceeding
its resources due primarily to expenditures related to research and
development. From its inception through June 30, 1997, Advanced NMR has
incurred losses. Advanced NMR has incurred net losses of $8,822,959,
$1,677,758, and $3,546,998 for the fiscal year ended September 30, 1996, the
nine-month period ended September 30, 1995, and the fiscal year ended
December 31, 1994, respectively, and $11,477,592 for the nine months ended
June 30, 1997. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ADVANCED NMR."
Technological Development Limited by Third Party Patents. Advanced NMR's
business is dependent upon the ability to offer systems which incorporate the
most current technology. Some of this technology is protected by patents and
patent applications of others to which Advanced NMR has no rights. Such
patents, if valid, may limit the proposed business of Advanced NMR to new
technologies and new magnetic resonance diagnostic methods outside the scope
of such patents. In the event that one or more patent holders were to assert
a claim of infringement with respect to any product or technology which
Advanced NMR may develop, no assurance can be given that such claim would not
be successful, and if successful, that its impact on Advanced NMR would not
be materially adverse. See "CERTAIN INFORMATION CONCERNING ADVANCED NMR --
Business of Advanced NMR."
Risks of Advanced NMR's Rehabilitation Business. Advanced NMR operates a
portion of its business in a niche rehabilitation services market through MVA
Rehabilitation Associates ("MVA"). MVA has centers in Springfield and
Holyoke, Massachusetts. MVA recently closed a rehabilitation facility in
Malden, Massachusetts because it was not profitable. The MVA centers are
operated by Eric Shebar, M.D. The loss of Dr. Shebar would have a material
adverse effect on Advanced NMR's rehabilitation business. There can be no
assurance that Advanced NMR will be able to open additional centers. The
rehabilitation business could become subject to increased state regulation,
such as limitations on referrals. See "INFORMATION CONCERNING ADVANCED NMR --
Business -- Rehabilitation Business."
RISK FACTORS RELATING TO AMS
Development Stage Company; Accumulated Deficit. AMS is in the development
stage having been formed in 1992 by Advanced NMR in order to design, develop,
manufacture and commercialize an MRI breast imaging scanner for mammography.
AMS has placed one Aurora(Trademark) System at a medical research center, and
is seeking to place additional systems at other centers. At June 30, 1997,
AMS had an accumulated deficit of $16,287,104. AMS' operations are subject to
numerous risks associated with
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establishing a new business with new technology, including a competitive and
regulatory environment in an industry characterized by numerous
well-established and well-capitalized companies and by exhaustive regulatory
scrutiny. There can be no assurance that AMS' research and development
activities will result in products that prove to be commercially viable or
that AMS will ever achieve significant revenues or profitable operations. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMS."
Need for Additional Funds and No Assurance of Available Financing. AMS
expects to incur substantial expenditures through the end of fiscal 1997 for
continued product development, testing, and hiring marketing personnel. At
June 30, 1997, AMS had working capital of only $186,000, including cash of
$833,000. AMS owes $1,274,000 to Advanced NMR. In early October 1997,
Advanced NMR agreed to loan to AMS up to an additional $500,000. AMS has used
substantially all of its funds to date to fund its research and development
activities. AMS is dependent on its existing cash reserves to continue its
operations. There can be no assurance that post-Merger Advanced NMR will be
able to fund the ongoing research and development activities of AMS. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMS."
Unproven Product. AMS' breast imaging system has not yet been subjected to
clinical use which will ultimately prove or dispute its efficacy. And, while
MRI is a well accepted diagnostic imaging method, the AMS system, an MRI
scanner adapted and optimized for breast imaging only, has not been tested
extensively by clinicians. AMS' ability to commercialize a dedicated use MRI
scanner for mammography will be highly dependent upon acceptance by
clinicians as well as demonstrations that it is sufficiently cost-effective
in the diagnosis and treatment of breast abnormalities, principally, breast
cancer. There is no assurance that this technology will ultimately be
successfully developed or prove to have commercially viable applications, and
further, the technology may be rendered obsolete by advances in technology.
See "CERTAIN INFORMATION CONCERNING AMS -- Business of AMS."
Governmental Regulation and Uncertainty of Product Approvals. The
Mammography Quality Standards Act of 1992 ("MQSA") authorizes the U.S.
Department of Health and Human Services ("DHHS") to regulate facilities that
provide mammography services and utilize radiological equipment. Under the
MQSA, no facility may provide mammogram (as defined therein to mean a
radiography (i.e., an x-ray) of the breast), unless it has obtained a
certificate from DHHS to do so. The MQSA also requires that the Secretary of
DHHS develop quality standards to assure the safety and accuracy of
mammography carried out by such facilities. AMS' MRI products currently under
development do not provide radiography of the breast. Instead, they rely upon
magnetic resonance imaging technology, which does not currently fall within
the scope of the MQSA. Nonetheless, AMS cannot predict whether the MQSA will
be amended or interpreted to regulate the use of any of AMS' proposed MRI
products. As such, there can be no assurance that the MQSA and the standards
promulgated thereunder will not have an adverse effect on AMS' future ability
to market its proposed MRI products currently under development. See "CERTAIN
INFORMATION CONCERNING AMS -- Governmental Regulation."
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MEETINGS, VOTING AND PROXIES
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the holders of
AMS Common Stock in connection with the solicitation of proxies by the AMS
Board from the holders of AMS Common Stock for use at the AMS Meeting, to
consider and vote upon the proposal to adopt the Merger Agreement. This Joint
Proxy Statement/Prospectus is also being furnished to the holders of Advanced
NMR Common Stock in connection with the solicitation of proxies by the
Advanced NMR Board from the holders of Advanced NMR Common Stock for use at
the Advanced NMR Meeting to consider and vote upon the six proposals and also
serves as an offering of shares of Advanced NMR Common Stock to be issued in
the Merger.
AMS MEETING
Purpose of AMS Meeting. The purpose of the AMS Meeting is to consider and
vote upon the proposal to adopt the Merger Agreement. The AMS Board does not
know, as of the date of mailing of this Joint Proxy Statement/Prospectus, of
any other business to be brought before the AMS Meeting.
Board of Directors Recommendation. Based upon the recommendation of the
Special Committee, the opinion of Valuemetrics and the other factors
discussed herein, the AMS Board has unanimously adopted the Merger Agreement
and unanimously recommends that AMS stockholders vote FOR adoption of the
Merger Agreement. See "THE MERGER -- Reasons for the Merger, Recommendation
of the AMS Board of Directors." Stockholders should be aware that all of the
members of the AMS Board (except for two members) are members of the Advanced
NMR Board and thus have a conflict of interest with respect to the Merger.
See "THE MERGER -- Interests of Certain Persons in the Merger; Conflicts of
Interest."
Date, Place and Time; Record Date. The AMS Meeting is scheduled to be held
on November 10, 1997 at 9:30 a.m., local time at the offices of Reid & Priest
LLP, 40 West 57th Street, 30th floor, New York, New York, and at any
adjournment or postponement thereof. The AMS Board has fixed the close of
business on October 8, 1997 as the AMS Record Date for the AMS Meeting. Only
holders of record of AMS Common Stock on the AMS Record Date will be entitled
to notice of and to vote at the AMS Meeting. As of the close of business on
the AMS Record Date, 8,641,854 shares of AMS Common Stock were issued and
outstanding and entitled to vote at the AMS Meeting.
Voting Rights. Each holder of record of AMS Common Stock on the AMS Record
Date is entitled to cast one vote per share on approval and adoption of the
Merger Agreement. The affirmative vote of the holders of a majority of the
issued and outstanding shares of AMS Common Stock is required to approve the
Merger Agreement. For purposes of determining whether the Merger proposal has
received a majority of those AMS shares entitled to vote, abstentions will be
included in the vote totals with the result that an abstention has the same
effect as a negative vote. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not
returned a proxy (so-called "broker non-votes"), those AMS Shares will not be
included in the vote totals and, therefore, will have the effect of a no
vote. Advanced NMR owns 1,250,000 shares of AMS Common Stock, representing
approximately 14.46% of the outstanding shares of AMS Common Stock. Advanced
NMR intends to vote all of its shares of AMS Common Stock FOR the adoption of
the Merger Agreement.
Proxies. All shares of AMS Common Stock which are represented by a
properly executed proxy received prior to or at the AMS Meeting will, unless
such proxies have been revoked, be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated on a properly
executed AMS proxy, such shares will be voted FOR the proposal to adopt the
Merger Agreement. An AMS stockholder may revoke a proxy at any time prior to
the AMS Meeting by delivering to the Secretary of AMS a notice of revocation
bearing a later date, by a duly executed proxy bearing a later date or by
attending such meeting and voting in person.
The AMS Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
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ADVANCED NMR MEETING
Purpose of Advanced NMR Meeting. The purpose of the Advanced NMR Meeting
is to consider and vote upon the six proposals. The Advanced NMR Board does
not know, as of the date of mailing of this Joint Proxy Statement/Prospectus,
of any other business to be brought at the Advanced NMR Mailing.
Board of Directors Recommendations. The Advanced NMR Board unanimously
recommends that Advanced NMR stockholders vote FOR: the amendments to
Advanced NMR's Certificate of Incorporation to effect the Reverse Stock Split
and to change its name, the amendments to its two Stock Option Plans to
increase the number of shares for grant thereunder, the ratification of the
selection of Richard A. Eisner & Company, LLP, as Advanced NMR's independent
public accountants and the election of eight directors.
Date, Place and Time; Record Date. The Advanced NMR Meeting will be held
on November 10, 1997, at the offices of Reid & Priest LLP, 40 West 57th
Street, 30th Floor, New York, New York, commencing at 11:00 a.m., local time,
and at any adjournment or postponement thereof. The Advanced NMR Board has
fixed the close of business on October 8, 1997 as the Advanced NMR Record
Date. As of the close of business on the Advanced NMR Record Date, 43,532,430
shares of Advanced NMR Common Stock were issued and outstanding and entitled
to vote at the Advanced NMR Meeting.
Voting Rights. Each holder of record of Advanced NMR Common Stock on the
Advanced NMR Record Date will be entitled to one vote on each of the six
proposals.
The affirmative vote of a majority of the outstanding shares of Advanced
NMR Common Stock is required to approve the Reverse Stock Split Proposal and
the change of name proposal; a majority of the shares voting is required to
amend the Stock Option Plans and to ratify the selection of the independent
public accountants and a plurality of votes cast is required to elect
directors. Abstentions from voting with respect to all proposals except the
election of directors are counted as "votes cast" with respect to such
proposals and, therefore, have the same effect as a vote against those
proposals. Broker non-votes will not be included in the vote totals and,
therefore, will have no effect on the vote on the proposals to amend the
Stock Option Plans and the ratification of the selection of the independent
public accountants but would have the effect of a no vote on the proposals to
amend the Certificate of Incorporation.
The directors and executive officers of Advanced NMR, together with their
affiliates, as a group, own beneficially (excluding unexercised options)
approximately 0.5% of the outstanding shares of Advanced NMR Common Stock
entitled to vote at the Advanced NMR Meeting. The directors and executive
officers of Advanced NMR have indicated their intention to vote such shares
FOR the adoption of each of the six proposals.
Proxies. All shares of Advanced NMR Common Stock which are represented by
a properly executed proxy received prior to or at the Advanced NMR Meeting
will, unless such proxies have been revoked, be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated on a
properly executed Advanced NMR proxy, such shares will be voted FOR the six
proposals. An Advanced NMR stockholder may revoke a proxy at any time prior
to the Advanced NMR Meeting by delivering to the Secretary of Advanced NMR a
notice of revocation bearing a later date, by a duly executed proxy bearing a
later date or by attending such Meeting and voting in person.
The Advanced NMR Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
PROXY SOLICITATION
In addition to soliciting proxies by mail, proxies may also be solicited
by Advanced NMR and AMS and their respective directors, officers and
employees (who will receive no additional compensation therefor in addition
to their regular salaries and fees) by telephone, telegram, facsimile
transmission and other electronic communication methods or in person. All
expenses of soliciting proxies from Advanced NMR and AMS stockholders will be
borne by the respective company. Banks, brokerage firms and other custodians
who hold shares of Advanced NMR Common Stock and AMS Common Stock or in their
name
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or custody or in the name of nominees for others will be reimbursed by
Advanced NMR and AMS for their reasonable expenses incurred in forwarding
proxy solicitation materials to those persons for whom they hold such shares.
Advanced NMR and AMS have jointly retained Morrow & Co., Inc. to aid in the
solicitation of proxies in connection with the Advanced NMR and AMS Meetings.
The fee for such firm is $6,500 for Advanced NMR and $5,000 for AMS. Advanced
NMR has advanced $6,000 and AMS $3,500 to Morrow & Co., Inc. for
out-of-pocket expenses.
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THE MERGER
The description of the Merger Agreement set forth in this Section includes
all material terms of the Merger Agreement but does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated by reference herein.
BACKGROUND OF THE MERGER
In the Fall of 1995, the Boards of Directors of Advanced NMR and AMS
identified a crucial need to reformulate the relationship between Advanced
NMR and AMS and to provide additional capital for AMS. The agreements
governing the relationship between Advanced NMR and AMS -the Shared
Services Agreement and License Agreement -were viewed by the Advanced NMR
and AMS Boards as being complex and creating problems, the most significant
of which being AMS' ability to raise capital. These problems had caused
product research and development and marketing and commercialization efforts
for AMS' breast imaging technology to take longer than expected. In addition,
AMS had an immediate and crucial need for additional capital. The Advanced
NMR and AMS Boards believed that a merger between the two companies would
facilitate AMS' capital raising needs and facilitate the development of AMS'
breast imaging technology. At an AMS Board meeting held on December 20, 1995,
the AMS Board appointed a special committee of independent directors to
negotiate and consider the terms and conditions of a possible merger between
Advanced NMR and AMS. AMS was formed in July 1992 to acquire and develop
proprietary technology from Advanced NMR in order to design, manufacture and
commercialize a MRI system for breast imaging.
During January and early February 1996, the Advanced NMR Board and the AMS
special committee negotiated a merger agreement. On February 4, 1996,
Advanced NMR, AMS Merger Corporation, a wholly-owned subsidiary of Advanced
NMR, and AMS executed a merger agreement whereby AMS Merger Corporation would
be merged with and into AMS, with AMS as the surviving corporation. The 1996
merger agreement provided that AMS stockholders would receive for each share
of AMS Common Stock a number of shares of Advanced NMR Common Stock
determined by dividing $2.625 by the average closing price of Advanced NMR
Common Stock over the 30 trading days ending five trading days prior to the
closing of the merger agreement, provided that AMS stockholders would receive
not more than 1.297058 or fewer than 1.173529 shares of Advanced NMR Common
Stock. Based upon this formula, the value of the Advanced NMR Common Stock
which would have been issued to AMS stockholders (other than Advanced NMR)
pursuant to the 1996 merger agreement would have been approximately $6.8
million based upon the closing sale price of $2.125 for the Advanced NMR
Common Stock on February 20, 1996. Pursuant to the Merger Agreement, the
value of the Advanced NMR Common Stock to be issued to AMS stockholders
(other than Advanced NMR) is approximately $9.2 million based upon the
closing sale price of $.3125 for the Advanced NMR Common Stock as quoted on
the Nasdaq Small Cap Market on October 3, 1997. The total purchase price,
excluding $580,000 in estimated transaction costs, is approximately $10.6
million consisting of the value of the Advanced NMR Common Stock to be
issued plus approximately $1.3 million of the Advanced NMR receivable
from AMS.
Shortly after public announcement of the proposed 1996 merger a class
action lawsuit was instituted in a Delaware state court against Advanced NMR,
AMS and certain of their directors seeking to enjoin the merger and to obtain
damages claiming the merger consideration was insufficient. Two additional
lawsuits seeking substantially similar relief were instituted. Effective on
March 19, 1997, the class action complaints against Advanced NMR, AMS and
their directors were dismissed without any payment by Advanced NMR or AMS,
except that AMS paid plaintiffs' counsel fees in the amount of $50,000.
In May 1996, the Advanced NMR and AMS Boards of Directors terminated the
merger agreement. The merger agreement was terminated because the Advanced
NMR and AMS Boards believed that Advanced NMR's former senior lender would
require that any cash funds of Advanced NMR and AMS post-merger from
operations and equity placements would have to be applied in part to reduce
the senior lender's indebtedness and increase the lender's security for such
indebtedness. Subsequently, the AMS special committee was disbanded. The
Advanced NMR and AMS Boards believe that the Merger is more favorable to
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their respective stockholders than the terminated 1996 merger because
Advanced NMR no longer has any financial restrictions imposed on it by its
former senior lender with respect to raising and providing capital to AMS.
These financial restraints were eliminated in February 1997 when Advanced
NMR sold MDI to US Diagnostic and repaid in full its senior lender. The
following recent AMS developments also make the Merger more desirable now
than in 1996: (i) AMS sold an Aurora(Trademark) System to the University of
Texas in Galveston and to Advanced NMR for use at the Faulkner Center; (ii)
AMS has reached agreements to have the System installed at the Englewood
Hospital and University of Arkansas Hospital; and (iii) AMS held a meeting in
April 1997 of leading doctors in the breast care field to develop protocols
and approaches for determining the clinical benefits of MRI in the diagnosis
and management of breast disease.
After the termination of 1996 merger agreement, Advanced NMR concentrated
its efforts on restructuring its business activities, which required the
discontinuance of its Instascan(Trademark) product offerings, and a reduction
in its debt burden, which required the sale of its imaging centers of its MDI
subsidiary. Advanced NMR sold MDI in February 1997, repaid $11,855,000 to its
senior lender, which represented all of its indebtedness to its senior
lender, and received net cash proceeds after expenses of $8,605,000.
The Advanced NMR and AMS Boards considered alternatives to the Merger.
These alternatives were discussed at management meetings and at Advanced NMR
and AMS Board meetings held in the Spring of 1997. The first alternative
considered was a sale of AMS to a third party. The Advanced NMR and AMS
Boards believed that the sale of AMS was difficult because of the complexity
and significance of the relationship between the two companies. The Advanced
NMR Board also considered purchasing for cash the shares of AMS Common Stock
not owned by Advanced NMR. This alternative was rejected by the Advanced NMR
Board because it would not leave Advanced NMR with adequate funds for the
research and development, installation and marketing of AMS'
Aurora(Trademark) System and for the development of its other business and
the exploration of other business opportunities.
Merger discussions resumed in the Spring of 1997 after the sale of MDI had
been completed and Advanced NMR's senior lender had been repaid in full.
These two events enabled Advanced NMR to resume merger discussions with AMS.
The Advanced NMR Board believed that a merger with AMS was consistent with
Advanced NMR's strategy to develop AMS' Aurora(Trademark) System breast
imaging product.
At a meeting held on April 7, 1997, the AMS Board appointed a new Special
Committee, whose members are Bernard Weiner, M.D. and Alison Estabrook, M.D.,
to negotiate and consider the possibility of a merger between Advanced NMR
and AMS. Bernard Weiner was appointed Chairman of the Special Committee. The
Special Committee selected and retained Noah Klarish & Associates, P.C. as
its legal counsel and Valuemetrics as its financial advisor to advise it as
to its options and to render a fairness opinion in connection with any
merger. During April and May 1997, the Special Committee, its legal counsel
and Valuemetrics received and reviewed documents from Advanced NMR, AMS,
their legal counsel and Houlihan Lokey, financial advisor to Advanced NMR,
and had discussions regarding the terms of a business combination. On May 16,
1997, the AMNR Board proposed the terms of a merger between the two
companies.
On May 26, 1997, the AMS Board held a board meeting at which
representatives of Valuemetrics, financial advisor to AMS, and Mr. Klarish,
counsel to the Special Committee, participated. The Special Committee
recommended to the AMS Board, after receiving the recommendation of
Valuemetrics, that the proposed Merger was fair to AMS and its stockholders.
Based upon such recommendations, the AMS Board unanimously (with George Aaron
absent) voted to accept the Merger proposal from Advanced NMR and authorized
AMS management to negotiate a merger agreement with Advanced NMR.
On May 27, 1997, AMS and Advanced NMR issued a joint press release
announcing the Merger. On June 23, 1997, the AMS Board of Directors and the
Advanced NMR Board of Directors separately considered and approved the Merger
and the Merger Agreement and the filing of this Joint Proxy
Statement/Prospectus. On June 23, 1997, the Merger Agreement was executed.
REASONS FOR THE MERGER, RECOMMENDATIONS OF THE AMS BOARD OF DIRECTORS AND
ADVANCED NMR BOARD OF DIRECTORS
THE AMS BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF AMS VOTE FOR
APPROVAL OF THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.
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STOCKHOLDERS SHOULD BE AWARE THAT ALL OF THE MEMBERS OF THE AMS BOARD (EXCEPT
TWO DIRECTORS) ALSO ARE DIRECTORS OF ADVANCED NMR AND THUS HAVE CERTAIN
CONFLICTS OF INTEREST WITH RESPECT TO THE MERGER. SEE "INTERESTS OF CERTAIN
PERSONS IN THE MERGER; CONFLICTS OF INTEREST" HEREIN.
AMS. In evaluating the Merger, the AMS Board of Directors was concerned
that all directors of AMS, except Bernard Weiner, M.D., and Alison Estabrook,
M.D., were directors of Advanced NMR and thus had a conflict of interest with
respect to the Merger. To address this concern and its fiduciary obligations
to AMS stockholders, the AMS Board appointed the Special Committee to
evaluate and negotiate the terms of the Merger. In addition, Valuemetrics was
retained to provide a fairness opinion with respect to the Merger to the AMS
Board. The AMS Board noted that the members of the AMS Board were not
receiving any additional financial consideration (such as stock, additional
stock options (other than the conversion of AMS options into Advanced NMR
stock options pursuant to the Merger), bonuses, change of control payments,
participation in benefit plans or programs) in connection with the Merger and
thus the AMS Board members did not have a financial interest in the Merger.
The AMS Board acknowledged that Drs. Estabrook and Weiner were being
nominated by Advanced NMR, subject to stockholder approval, to become
directors of Advanced NMR upon consummation of the Merger.
The AMS Board considered and unanimously approved the Merger Agreement and
unanimously determined that the Merger is fair to and in the best interests
of AMS and its stockholders. In its deliberations, the AMS Board considered,
without assigning relative weights to, the factors listed below.
(i) The recommendation of the Special Committee of the Board of Directors
of AMS to approve and adopt the Merger Agreement.
(ii) The written opinion of Valuemetrics providing that as of the date
that the AMS Board agreed to the Merger proposal, the consideration to be
received by AMS stockholders from Advanced NMR was fair to such
stockholders from a financial point of view.
(iii) The Merger would combine the management, marketing, research and
personnel of both companies and may thereby enhance the ability of AMS to
expand its research and development, product commercialization and
marketing efforts. In addition, the AMS Board believes that AMS' working
capital and research and development requirements may be better supported
if AMS is a wholly-owned subsidiary of Advanced NMR. The AMS Board
believes that operating AMS as a separate company from Advanced NMR will
not enhance the ability of AMS to expand its research and development,
product commercialization and marketing efforts because AMS would not be
able to raise necessary capital as a separate company.
(iv) The risks and possible dilutive effects associated with pursuing
other options as compounded by AMS' eroding cash position and liquidity
crisis. AMS is dependent on its existing cash reserves to continue its
operations. These reserves would not be adequate to fund its operating
activities through fiscal 1997.
(v) The terms and conditions of the Merger Agreement, including the
opportunity for AMS stockholders to own shares in Advanced NMR on a
tax-free basis, and the protection provided by the ability of AMS to
terminate the Merger Agreement if a bona fide offer for AMS Common Stock
at a higher price is received from a third party.
(vi) The elimination of the $1.3 million amount payable from AMS to
Advanced NMR pursuant to the Shared Services Agreement as a result of the
Merger.
(vii) The elimination of the License Agreement and Shared Services
Agreement with Advanced NMR, which agreements are complex, can cause
operating inefficiencies and conflicts over interpretation.
The AMS Board also considered the following potential risks relating to
the Merger: (i) the risk that the Merger would not be consummated, with
resulting distraction in the interim to AMS' normal business operations, and
any adverse effect that might have on AMS' ability to have funds to operate
and to retain and attract key employees while the Merger was pending; (ii)
the litigation exposure Advanced NMR
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might have in the Raytel and Lynch proceedings (see "CERTAIN INFORMATION
CONCERNING ADVANCED NMR -- Business -- Litigation"); and (iii) the risk that
the Reverse Stock Split proposal will not be approved by the Advanced NMR
stockholders which could result in Advanced NMR Common Stock being delisted
from the Nasdaq Small Cap Market and Advanced NMR being unable to deliver the
Merger Consideration to AMS stockholders pursuant to the Merger Agreement
because it did not have authorized the number of shares of Advanced NMR
Common Stock to issue to AMS stockholders. The AMS Board believed, however,
that these risks were outweighed by the potential benefits to be realized
from the Merger.
Based on this analysis, the AMS Board determined that the Merger is fair
to, and in the best interests of AMS' stockholders. The foregoing discussion
of the information and factors considered by the AMS Board is not intended to
be exhaustive, and such information and factors were considered collectively
by the AMS Board in connection with its review of the Merger Agreement. In
view of the variety of factors considered in connection with its evaluation
of the Merger, the AMS Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the AMS Board may have given different weights to different factors.
Advanced NMR. Subsequent to the February 1997 merger of MDI into US
Diagnostic and the repayment of the related bank facility, Advanced NMR
management reviewed its future business opportunities. Considering its
limited resources, management thought that Advanced NMR should concentrate in
areas where it had some expertise and which were considered as having high
growth potential. Advanced NMR possessed technological expertise in certain
segments of the MRI industry and in operating imaging centers. Advanced NMR
had previously committed to establishing and operating the center at Faulkner
Hospital. AMS's Aurora(Trademark) System appeared to present an entry into
the breast cancer diagnostic field. There has been a growing awareness and
sensitivity to the occurrence of breast cancer in the United States, which
has resulted in increased number of women obtaining mammographies, as well as
follow-up examinations. Management determined that a merger with AMS could
capitalize on Advanced NMR's prior expertise in the MRI industry and the
future potential of breast imaging technology for the operation of additional
centers as well as marketing the Aurora(Trademark) System to third party
users. Additional benefits considered were the possible operating
efficiencies by acting as a single entity with AMS and the elimination of
confusion as to future ventures in MRI technology by reason of the License
Agreement with AMS.
In evaluating the Merger, the Advanced NMR Board was concerned that all
directors of Advanced NMR were directors of AMS and thus had a conflict of
interest with respect to the Merger. To address this concern and its
fiduciary obligations to Advanced NMR stockholders, the Advanced NMR Board
retained Houlihan Lokey to provide a fairness opinion to the Advanced NMR
Board.
In their deliberations with respect to the Merger, the Advanced NMR Board
did not consider what effect, if any, the Merger might have on each company's
officers and directors. The officers and directors of Advanced NMR will not
receive any financial consideration, such as stock and stock options, bonus
or change of control payments, participation in additional benefit plans and
programs, or any similar form of financial consideration, in connection with
the Merger, and thus have no financial interest in the Merger. In connection
with the Merger, the Advanced NMR Board has nominated Drs. Weiner and
Estabrook, currently directors of AMS, to become directors of Advanced NMR,
subject to stockholder approval, upon consummation of the Merger.
The Advanced NMR Board of Directors believes the terms of the Merger
Agreement are fair to and in the best interests of Advanced NMR and its
stockholders. Accordingly, the Advanced NMR Board unanimously approved the
Merger and the Merger Agreement.
In reaching its determination, the Advanced NMR Board consulted with
Advanced NMR management, as well as its financial and legal advisors, and
considered the factors listed below without assigning relative weights to any
of the factors listed below:
(i) The written opinion of Houlihan Lokey providing that as of the date
that the Advanced NMR Board made the Merger proposal to AMS the
consideration to be paid by Advanced NMR to AMS stockholders was fair to
Advanced NMR and its stockholders from a financial point of view.
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(ii) The strategic and operating synergies and efficiencies that may
result from the Merger. Advanced NMR and AMS currently share resources
such marketing, scientific, financial, personnel and facilities.
Combination of the two companies may enhance coordination and ensure
efficiencies in working with suppliers, customers, the medical community
and government agencies. The Advanced NMR Board believes that the
combination of the two companies will avoid possible conflicts of interest
in the allocation of resources.
(iii) The belief that the Merger may result in certain cash savings. The
Merger should eliminate the costs of running AMS as a public company,
including SEC filing and registration fees, transfer agent, legal,
accounting and director's fees, with little incremental increase in those
fees for Advanced NMR.
(iv) The elimination of agreements governing the relationship between
Advanced NMR and AMS that will occur as a result of the Merger. Currently,
the relationship between Advanced NMR and AMS is governed principally by
two agreements, the Shared Services Agreement and the License Agreement.
These agreements are complex and can cause operating inefficiencies and
conflicts over interpretation.
(v) The terms of the Merger Agreement.
(vi) The evaluation of the commercial potential of and prospects for the
AMS Aurora(Trademark) System.
(vii) Advanced NMR's interest in preserving its investment in and
relationship with AMS.
The Advanced NMR Board also considered the following potential risks
relating to the Merger: (i) the uncertainty of the commercial acceptability
of AMS' Aurora(Trademark) System; (ii) the considerable cost of the
Aurora(Trademark) System; and (iii) the uncertainty as to whether U.S.
government agencies, insurance companies and other third party payors would
provide reimbursement for scans performed using AMS; Aurora(Trademark)
System. The Advanced NMR Board believed, however, that these risks were
outweighed by the potential benefits to be realized from the Merger.
Based on this analysis, the Advanced NMR Board unanimously determined that
the Merger is fair to, and in the best interests of, Advanced NMR's
stockholders. The foregoing discussion of the information and factors
considered by the Advanced NMR Board is not intended to be exhaustive, and
such information and factors were considered collectively by the Advanced NMR
Board in connection with its review of the Merger Agreement. In view of the
variety of factors considered in connection with its evaluation of the
Merger, the Advanced NMR Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Advanced NMR Board may have given different weights to different factors.
OPINION OF VALUEMETRICS
Valuemetrics has acted as financial advisor to the AMS Special Committee
in connection with the Merger and has assisted the AMS Special Committee in
its examination of the fairness, from a financial point of view, of the
Merger Consideration to be paid holders of AMS Common Stock, other than
Advanced NMR. Pursuant to the terms of the Merger Agreement, at the Closing
(as defined therein), each outstanding share of AMS Common Stock (other than
shares held by Advanced NMR) will be converted into the right to receive the
Merger Consideration.
On May 26, 1997, Valuemetrics rendered its oral opinion to the Special
Committee of the AMS Board of Directors that, as of the date of such opinion,
the Merger Consideration was fair, from a financial point of view, to the
holders of shares of AMS Common Stock, excluding Advanced NMR. Valuemetrics
subsequently rendered a written opinion confirming its earlier oral opinion
that, as of May 26, 1997, the Merger Consideration was fair, from a financial
point of view, to such holders.
Valuemetrics' opinion is for the benefit and use of the AMS Board of
Directors in its consideration of the Merger. The opinion does not constitute
a recommendation of the Merger over any other alternative transactions which
may be available to AMS and does not address the underlying business
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decision of the AMS Board of Directors to proceed with or effect the Merger.
Furthermore, the opinion does not constitute a recommendation by Valuemetrics
to any stockholder to vote in favor of the Merger. The summary of the opinion
of Valuemetrics set forth herein is qualified in its entirety by reference to
the full text of such opinion.
The Advanced NMR Board had suggested the Merger Consideration for which
Valuemetrics provided a fairness opinion to the AMS Special Committee.
Factors Considered. In connection with rendering its oral opinion to the
Special Committee on May 26, 1997, Valuemetrics performed financial analyses
and considered the following factors: (i) a review of AMS' business and
operations and the industry in which it operates; (ii) a review of AMS'
historical operating results and financial forecast to increase its
understanding of the financial performance and prospects of its business;
(iii) a review of the consideration proposed to be paid in connection with
the proposed merger; (iv) a review of the current tangible book value of AMS;
(v) a review of the stock price performance of AMS; and (vi) evaluated the
history of AMS' private financings in the years after its initial public
offering. Based upon such analyses and factors, Valuemetrics concluded that
the Merger Consideration was fair, from a financial point of view, to holders
of AMS Common Stock, other than Advanced NMR. The summary set forth below
does not purport to be a complete description of the analyses performed by
Valuemetrics in this regard.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or a summary description. In arriving at its
opinion, Valuemetrics did not attribute any particular weight to any one
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor.
Accordingly, Valuemetrics believes that its analyses must be considered as
a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its
analyses, Valuemetrics made numerous assumptions with respect to AMS and
Advanced NMR, industry outlook, general business, economic market and
financial conditions and other matters, many of which are beyond the control
of AMS. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
AMS Due Diligence and Analysis. Valuemetrics reviewed certain financial
and other information of AMS that was publicly available, including SEC
filings. Among other things, Valuemetrics reviewed (i) the form of 4%
Convertible Debentures; (ii) License Agreement between AMS and Advanced NMR;
(iii) form of Amendment No. 1 to the License Agreement; (iv) Shared Services
Agreement; (v) AMS 1992 Stock Option Plan as amended August 22, 1996; (vi)
AMS 1992 Non-Employee Directors Stock Plan as amended August 22, 1996; and
(vii) form of Offshore Securities Subscription Agreement. Valuemetrics also
reviewed the AMS financial statements for the years ending December 31, 1992
through September 30, 1996, as well as, the Form 10-Qs for December 31, 1996
and March 31, 1997. In addition, Valuemetrics reviewed available industry and
market research concerning: (i) breast cancer, (ii) imaging/breast imaging,
(iii) MRI, (iv) the history and development of AMS, (v) industry trends, (vi)
competition, and (vii) substitute technology or procedures.
In rendering its opinion, Valuemetrics conducted on site due diligence and
held discussions with AMS' key management, advisors, and various industry
experts. Among other things, investigation topics included: (i) AMS history,
(ii) products and technology, (iii) end markets, (iv) competitors, (v)
competing technologies, (vi) suppliers, (vii) personnel and management,
(viii) general industry trends, (ix) development strategy for AMS, (x)
operating cost structure, (xi) capital spending program, (xii) financial
contingency plans, and (xiii) budgets and financial controls. Key areas of
discussion included, but were not
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limited to: (i) the January 1993 initial public offering of AMS, (ii)
subsequent financings, (iii) liquidity, (iv) other available options for
financing and partnership, and (v) the status of technology development.
Additional information sought and obtained for review by Valuemetrics
included: options schedules and past projections and business plans.
Market Efficiency Study. In connection with rendering its opinion,
Valuemetrics performed a variety of financial analyses including an
assessment of the public market valuation of AMS as well as independent
valuations of AMS. With respect to such analyses, Valuemetrics conducted a
study of the efficiency of the market price of AMS Common Stock. This
efficiency study was comprised of both qualitative and quantitative analyses,
including a statistical analysis of the historical market price of AMS Common
Stock to determine the degree of auto-correlation from trade to trade. At the
time of the analysis, the AMS Common Stock was thinly traded and there was
not a market maker in AMS Common Stock. According to Valuemetrics analysis,
the market for AMS Common Stock did not exhibit the characteristics of an
efficient market. Therefore, it was Valuemetrics determination that the per
share market value of AMS Common Stock may or may not be a relative indicator
of value.
Comparable Transactions Analysis. In addition, Valuemetrics performed a
merger and acquisition analysis of the multiples paid in selected acquisition
transactions. The companies utilized in the merger and acquisition analysis
included companies that possessed general business, operating and financial
characteristics representative of the companies in the industry in which AMS
operates. The specific transactions reviewed included the following (target,
acquiror, date of announcement): Medical Imaging Centers of America, US
Diagnostic Inc., July, 17, 1996; Endocare Inc., Shareholders, January 16,
1996; Daig Corporation, St. Jude Medical Inc., January 30, 1996; Infrasonics
Inc., Nellcor Puritan-Bennett, March 11, 1996; Target Therapeutics Inc.,
Boston Scientific Corp., January 20, 1997; Ventritex, St. Jude Medical Inc.,
October 23, 1996; Aequitron Medical Inc., Nellcor Puritan-Bennett, September
10, 1996; MediSense Inc., Abbott Laboratories, March 29, 1996; MDT Corp.,
Getinge Industrier AB, May 13, 1996; Applied Bioscience Intl., Pharmaceutical
Product Development, June 21, 1996; Medex, Inc., FCY Inc., November 13, 1996;
and Health Images Inc., HealthSouth Corp., December 2, 1996.
Due to the developmental stage of AMS' operations and the specific
business, operating and financial characteristics of the acquired companies
in the transaction sample, Valuemetrics determined that it would be
inappropriate to apply the pricing multiples observed in these industry
related transactions for a determination of AMS' equity value.
Option Pricing Analysis. Valuemetrics performed an option pricing analysis
which included an analysis of (i) all options issued and outstanding under
the 1992 Stock Option Plan and the 1992 Non-Employee Director's Stock Option
Plan, (ii) convertible debentures and (iii) all other outstanding options and
warrants. Valuemetrics used the standard Black Scholes option valuation
formula to value the outstanding options and warrants. Based upon AMS'
current stock price, the specific terms and conditions of the outstanding
options and warrants and certain assumptions regarding the future volatility
of asset returns, Valuemetrics estimated the value of the outstanding options
and warrants to be within the range of approximately $500,000 to $1,000,000.
Analysis of Historical Capital Raising Activities. In connection with
rendering its opinion, Valuemetrics evaluated the history of AMS with a focus
on transactions relating to raising capital. As part of this analysis,
Valuemetrics analyzed the formation and initial financing of AMS. AMS was
originally formed in 1992 and subsequently acquired from Advanced NMR its
technology license for the development and commercialization of a MRI scanner
for mammography. In exchange for the rights to the technology, Advanced NMR
received $1,680,000 in cash and 4,000,000 shares of AMS Common Stock of which
2,750,000 shares were held in escrow and later released to AMS for
cancellation. In January 1993, AMS issued shares in an initial public
offering at a price of $6.00 per share. Assuming the public offering price,
the proprietary technology of AMS was valued at $9,180,000 ($1,680,000 in
cash plus 1,250,000 shares valued at $6.00 per share). Valuemetrics also
evaluated the history of AMS' private financings in the years after its
initial public offering, specifically, the (i) $3 million of convertible debt
issued in a May 1996 transaction, and (ii) the $1.3 million of AMS Common
Stock issued in February 1997. Based upon this analysis it was evidenced that
post-IPO financings had been priced at an approximate discount of between
25.0 to 40.0 percent below AMS' then current trading price.
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Advanced NMR Due Diligence and Analysis. Valuemetrics reviewed certain
financial and other information of Advanced NMR that was publicly available,
including SEC filings. In conducting its due diligence of AMS, Valuemetrics
reviewed: (i) Agreement and Plan of Merger among Advanced NMR, Advanced NMR
Acquisition Corp. and Medical Diagnostics, Inc., dated May 2, 1995; (ii)
Escrow Agreement among Advanced NMR, AMS and American Stock Transfer & Trust
Company; (iii) 1993 Employee Stock Option Plan; (iv) 1993 Director's Stock
Option Plan for Non-Employee Directors; (v) 1994 Agreement between Advanced
NMR and GEMS dated July 29, 1994; (vi) License Agreement; (vii) Shared
Services Agreement; (viii) financial statements for the years ended December
31, 1992 through September 30, 1996 as well as, the Form 10-Qs for December
31, 1996 and March 31, 1997. It also reviewed Advanced NMR's pro forma
balance sheet on a fair market value basis as of December 31, 1996. In
addition, Valuemetrics reviewed available industry and market research
concerning: (i) breast cancer, (ii) imaging/breast imaging, (iii) MRI, (iv)
the history and development of AMS, (v) industry trends, (vi) competition,
(vii) rehabilitation, and (viii) substitute technology or procedures.
In rendering its opinion, Valuemetrics conducted on site due diligence and
held discussions with Advanced NMR's key management, advisors, and various
industry experts. Investigation topics included: (i) Advanced NMR history,
(ii) current business strategy, (iii) patents, (iv) competitors, (v) sources
of cash and liquidity, (vi) investments, (vii) personnel and management,
(viii) general industry trends, (ix) services and technologies, (x) operating
cost structure, (xi) capital spending program, (xii) contingency plans, and
(xiii) budgets and financial controls. Key areas of discussion included, but
were not limited to: (i) the current business plan, (ii) status of pending
litigation, (iii) status of the GEMS contract, (iv) other available options
for acquisition and partnership, and (v) the status of technology
development. Additional information sought and obtained for review by
Valuemetrics included: (i) options schedules, (ii) MVA financial statements,
and (iii) past projections and business plans.
Market Efficiency Study. In connection with rendering its opinion,
Valuemetrics performed a variety of financial analyses including an
assessment of the public market valuation of Advanced NMR as well as
independent valuations of Advanced NMR. With respect to such analyses,
Valuemetrics conducted a study of the efficiency of the market price of
Advanced NMR Common Stock. This efficiency study was comprised of both
qualitative and quantitative analyses, including a statistical analysis of
the historical market price of Advanced NMR Common Stock to determine the
degree of auto-correlation from trade to trade. At the time of the analysis,
Advanced NMR Common Stock was thinly traded nor was there a market maker in
Advanced NMR Common Stock. According to Valuemetrics analysis, the market for
Advanced NMR Common Stock did not exhibit the characteristics of an efficient
market. Therefore, it was Valuemetrics determination that the per share
market value of Advanced NMR Common Stock may or may not be a relative
indicator of value.
Net Asset Value Analysis. Valuemetrics' net asset value analysis of
Advanced NMR was based upon balance sheet data as of December 31, 1996 and
March 31, 1997 which was provided by AMS' management, and other such analysis
and due diligence as described below. The net asset values of Advanced NMR
were summed and adjusted for certain non-operating assets and liabilities.
Advanced NMR's assets included: (i) cash and cash equivalents; (ii) the fair
market value of MVA; (iii) the fair market value of Advanced NMR's investment
in AMS; (iv) the $1,200,000 face value of advances from Advanced NMR to AMS;
(v) the fair market value of the GEMS agreement agreement for 3T/4T
InstaScan(Trademark) systems, including royalties; and (vi) the fair market
value of the Faulkner agreement. Advanced NMR's liabilities included: (i) the
estimated cost of pending litigation; (ii) other balance sheet items, such as
working capital; (iii) the face value of long term debt and capital lease
obligations; and (iv) the fair market value of all issued and outstanding
options. The fair market value of all issued and outstanding options was
explicitly determined using the Black-Scholes Option Pricing Formula. The
implied range of net asset values of Advanced NMR of $10,865,000 to
$14,965,000 (rounded) was then divided by the 43,747,628 shares of Advanced
NMR Common Stock outstanding as of March 31, 1997 to yield an implied range
of net asset values per share of $0.25 to $0.29.
Excluding cash and cash equivalents, the single largest asset of Advanced
NMR is its investment in MVA. In confirming the fair market value of MVA
provided by management, Valuemetrics performed a market comparables analysis
and a comparable transactions analysis of MVA. These analyses were based
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upon balance sheet data as of March 31, 1997, and profit and loss statements
for the fiscal year ended September 30, 1996, and the quarters ended December
31, 1996 and March 31, 1997, which were provided by AMS' management, and
other such analysis and due diligence as described below.
Market Comparables Analysis. In confirming the fair market value of MVA
provided by management, Valuemetrics compared the relevant historical and
current operating results of MVA with such financial and operating results of
selected publicly traded companies in the context of a comparable company
analysis. The companies utilized in the market comparables analysis included
companies which possessed general business, operating and financial
characteristics representative of the companies in the industry in which MVA
operates. The specific companies reviewed included: Mariner Health Group,
Inc.; Northstar Health Services, Inc.; Novacare, Inc.; Occupational Medical
Corporation of America; Regency Health Services, Inc.; RehabCare Group, Inc.;
Consolidated Health Care Associates, Inc.; HealthSouth Corp.; Meadowbrook
Rehabilitation; Arbor Health Care Co.; and HealthTech International, Inc.
Valuemetrics utilized the following ratios in its determination of the
fair market value of MVA: the market capital as a multiple of book capital,
sales, historical earnings, historical cash flow, historical EBIT and
historical EBITDA of the selected public companies.
Comparable Transactions Analysis. In confirming the fair market value of
MVA provided by management, Valuemetrics also performed a merger and
acquisition analysis of the multiples paid in selected acquisition
transactions. The companies utilized in the merger and acquisition analysis
included companies which possessed general business, operating and financial
characteristics representative of the companies in the industry in which MVA
operates. The specific transactions reviewed included the following (target,
acquiror, date of announcement): Rehability Corp., Living Centers of America,
April 12, 1995; Quantum Health Resources, Olsten Corp., May 1, 1996; Pacific
Rehab and Sports Medicine, Horizon/CMS Healthcare, October 30, 1996; Helian
Health Group, TheraTX, August 30, 1995; Advantage Health Corp., HealthSouth
Corp., December 18, 1995; Professional Sports Care Management, HealthSouth
Corp., May 16, 1996; and ReadiCare Inc., HealthSouth Corp., September 11,
1996.
Valuemetrics utilized the following ratios in its determination of the
fair market value of MVA: the market capital as a multiple of sales,
operating income, EBITDA, total assets and pretax income of the selected
acquired companies.
Other Factors and Analyses. In rendering its opinion, Valuemetrics
considered certain other factors and conducted certain other analyses,
including, among other things: (i) the current liquidity and capital
resources of AMS, (ii) AMS' expectation to continue to incur substantial
expenditures for development, marketing, and clinical studies of its breast
imaging system, (iii) the current indebtedness of AMS, including the
$1,180,078 in accounts payable owed to Advanced NMR as of March 31, 1997, and
(iv) other factors it deemed relevant.
Fees and Expenses. Valuemetrics, Inc., a nationally recognized financial
advisory firm, has regularly been engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, sales and other
corporate purposes. The AMS Special Committee selected Valuemetrics because
of its experience and expertise in performing valuation and fairness
analyses. Valuemetrics does not beneficially own nor has it ever beneficially
owned any interest in Advanced NMR and AMS nor does it have any other
material relationship with Advanced NMR or AMS. As compensation for its
services as financial advisor to the AMS Special Committee, AMS has agreed to
pay Valuemetrics a fee of approximately $65,000, plus out of pocket costs.
AMS has also agreed to reimburse Valuemetrics for its out-of-pocket expenses,
and to indemnify Valuemetrics against certain liabilities arising out of or
in connection with its engagement.
OPINION OF HOULIHAN LOKEY
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies followed by Houlihan Lokey. The summary does not purport to be
a complete statement of the analyses and procedures applied, the judgments
made or the conclusion reached by Houlihan Lokey or a complete description of
its presentation. Houlihan Lokey believes, and so advised
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the Advanced NMR Board, that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create an incomplete view
of the process underlying its analyses and opinions.
Advanced NMR retained Houlihan Lokey to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness, from
a financial point of view, of the Merger Consideration to the stockholders of
Advanced NMR. At the May 16, 1997 meeting of the Advanced NMR Board, Houlihan
Lokey delivered its oral opinion that as of such date and based on the
matters described therein, the Merger Consideration was fair to the
stockholders of Advanced NMR from a financial point of view.
Houlihan Lokey's opinion to the Advanced NMR Board addressed only the
fairness from a financial point of view of the Merger Consideration, and does
not constitute a recommendation to the stockholders as to how such
stockholder should vote at the Advanced NMR Special Meeting. Houlihan Lokey's
opinion does not address Advanced NMR's underlying business decision to
effect the Merger. Furthermore, at the Advanced NMR Board's request, Houlihan
Lokey has not advised the Advanced NMR Board with respect to its alternatives
to the Merger.
The Advanced NMR Board had suggested the Merger Consideration for which
Houlihan Lokey provided a fairness opinion to the Advanced NMR Board.
In connection with the preparation of its opinion, Houlihan Lokey, among
other things: (i) reviewed Advanced NMR's annual reports to shareholders and
Form 10-Ks for the fiscal years ended December 31, 1992, December 31, 1993,
December 31, 1994, September 30, 1995 and September 30, 1996, and quarterly
reports on Form 10-Q for the quarters ended December 31, 1996 and March 31,
1997, which Advanced NMR's management identified as being the most current
financial statements available; (ii) reviewed AMS' annual reports to
shareholders and Form 10-Ks for the fiscal years ended December 31, 1993,
December 31, 1994, September 30, 1995 and September 30, 1996, and quarterly
reports on Form 10-Q for the quarters ended December 31, 1996 and March 31,
1997, which AMS management identified as being the most current financial
statements available; (iii) met with certain members of the senior management
of Advanced NMR and AMS to discuss the operations, financial conditions,
future prospects, and projected operations and performance of Advanced NMR
and AMS, respectively; (iv) reviewed certain internal analyses prepared by
Advanced NMR's management with respect to the contingent assets and
liabilities of Advanced NMR; (v) reviewed the historical market prices and
trading volumes for Advanced NMR's and AMS' publicly traded securities; (vi)
reviewed certain publicly available financial data for certain companies
Houlihan Lokey deemed comparable to Advanced NMR and AMS; (vii) reviewed
publicly available data for transactions deemed comparable to the Merger; and
(viii) conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
In assessing the fairness of the Merger Consideration to the stockholders
of Advanced NMR, Houlihan Lokey (i) analyzed the reasonableness of Advanced
NMR's and AMS' unaffected stock prices; (ii) analyzed the relative values of
Advanced NMR and AMS based on their publicly traded stock prices from the
date of the AMS initial public offering on January 25, 1993 through May 15,
1997 and (iii) analyzed premiums or discounts paid in publicly disclosed
transactions that Houlihan Lokey deemed similar to the Merger.
The core of Houlihan Lokey's fairness analysis involved determining an
appropriate range of value for AMS. Because the consideration to be paid by
Advanced NMR for AMS consists of Advanced NMR Common Stock, Houlihan Lokey
also assessed the reasonableness of the recent trading price for the Advanced
NMR's Common Stock. Houlihan Lokey applied the following valuation
methodologies in assessing the appropriateness of the proposed Merger
Consideration in the Merger:
Historical Stock Trading Analysis. Houlihan Lokey reviewed the trading
prices and volumes for Advanced NMR's and AMS' Common Stock from May 15, 1996
to May 15, 1997 and compared both Advanced NMR's and AMS' daily average
volume to Advanced NMR's and AMS' "float" (total shares outstanding less
shares held by holders of 30% or greater) and shares outstanding. In
addition, Houlihan
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Lokey compared the ratios of average volume to float and shares outstanding
of Advanced NMR and AMS to similar ratios of six other publicly traded MRI
development and manufacturing companies. Houlihan Lokey noted that based on
this analysis the shares of Advanced NMR Common Stock and AMS Common Stock
trade reasonably actively.
Comparison of Relative Historical Valuations. As part of its analysis,
Houlihan Lokey analyzed the historical relationship of Advanced NMR's
publicly traded stock price (as adjusted retroactively for the Reverse Stock
Split) to AMS' publicly traded stock price from January 25, 1993 (the date of
AMS' initial public offering) to May 15, 1997. Houlihan Lokey noted that the
ratio of Advanced NMR's publicly trade price to AMS' publicly traded price
ranged from a high of .80 at December 19, 1996 to a low of .083 at December
1, 1995 as compared to the Merger Consideration.
Comparable Transaction Analysis. Houlihan Lokey analyzed the acquisition
premiums or discounts (the difference between acquisition price and
unaffected trading price) paid in four acquisitions in 1996 in which the
target was a publicly traded development company with revenue of less than
$20.0 million in its latest fiscal year.
Houlihan Lokey has relied upon and assumed, without independent
verification, that the financial information provided to it has been
reasonably prepared and reflects the best currently available estimates of
the future financial results and condition of Advanced NMR and AMS, and that
there has been no material change in the assets, financial condition,
business or prospects of Advanced NMR or AMS since the date of the most
recent financial statements made available to it.
Houlihan Lokey has not independently verified the accuracy and
completeness of the information supplied to it with respect to Advanced NMR
and AMS and does not assume any responsibility with respect to it. Houlihan
Lokey has not made any physical inspection or independent appraisal of any of
the properties or assets of Advanced NMR or AMS. Houlihan Lokey's opinion is
based on business, economic, market and other conditions as they exist and
can be evaluated by it at the date of its opinion.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities
and rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, and employee stock ownership plans. Advanced NMR
selected Houlihan Lokey because of its experience and expertise in performing
valuation and fairness analysis. Houlihan Lokey does not beneficially own nor
has it ever beneficially owned any interest in Advanced NMR and AMS nor does
it have any other material relationship with Advanced NMR and AMS, except
that Houlihan Lokey provided a fairness opinion dated February 4, 1996 to the
AMS special committee with respect to the terminated 1996 merger agreement.
Houlihan Lokey was paid a fee of $50,000 plus out-of-pocket expenses for
providing a fairness opinion.
Fees and Expenses. Pursuant to an agreement entered into on May 6, 1997,
Houlihan Lokey was retained by Advanced NMR to analyze the fairness of the
Merger Consideration to the holders of Advanced NMR Common Stock, from a
financial point of view. Advanced NMR has agreed to pay Houlihan Lokey a fee
of $175,000 plus its reasonable out-of-pocket expenses incurred in connection
with the rendering of a fairness opinion. Advanced NMR has further agreed to
indemnify Houlihan Lokey against certain liabilities and expenses in
connection with the rendering of its services.
EXCHANGE OF AMS COMMON STOCK FOR THE MERGER CONSIDERATION
In the Merger, each issued and outstanding share of AMS Common Stock will
be converted into the right to receive .40 of one share of Advanced NMR
Common Stock on a post-Reverse Stock Split basis. The AMS options, warrants
and convertible debentures outstanding on the Effective Date will be assumed
by Advanced NMR and adjusted based upon the Merger Consideration.
FRACTIONAL SHARES
No fractional shares of Advanced NMR Common Stock will be issued in the
Merger. In lieu of issuing any fractional shares of Advanced NMR Common
Stock, the Exchange Agent (as defined below) shall round up or down any
fractional share to the nearest whole share.
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EXCHANGE OF CERTIFICATES IN THE MERGER
Promptly after the Effective Time, American Stock Transfer & Trust Company
(the "Exchange Agent") will mail to each holder of record of certificates,
which immediately prior to the Effective Time represented outstanding shares
of AMS Common Stock (the "AMS Certificates"), a form letter of transmittal
advising such holder of the terms of the exchange effected by the Merger and
the procedure to be used for the surrender of the AMS Certificates in
exchange for the Merger Consideration such holder has the right to receive
pursuant to the Merger Agreement (consisting of a certificate representing
the number of whole shares of Advanced NMR Common Stock which such holder has
the right to receive pursuant to the Merger Agreement). AMS STOCKHOLDERS ARE
REQUESTED NOT TO SURRENDER THEIR AMS CERTIFICATES FOR EXCHANGE UNTIL AFTER
THE EFFECTIVE TIME WHEN THE LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE
RECEIVED. Certificates for shares of Advanced NMR Common Stock shall be
delivered to such holder as promptly as practicable and in no event later
than 20 days after proper delivery of the applicable AMS Certificates and
letters of transmittal to the Exchange Agent.
At and after the Effective Time and until surrendered as provided above,
AMS Certificates will be deemed to represent, for all purposes, only the
right to receive certificates representing the number of whole shares of
Advanced NMR Common Stock into which the shares of AMS Common Stock formerly
represented by such AMS Certificates were converted in the Merger. Upon
surrender as provided above, AMS Certificates shall be canceled.
CERTAIN TERMS OF THE MERGER AGREEMENT
Representations, Warranties and Covenants. The Merger Agreement contains
various customary representations and warranties of the parties, none of
which survive the consummation of the Merger, including, among other things,
representations from the parties, as of the date of the Merger Agreement and
as of the Effective Time, relating to (i) there being no material adverse
change in their respective businesses, (ii) each party's organization and
similar corporate matters, (iii) each party's capital structure, (iv) the
authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters, (v) required consents or approvals and
violations of any instruments or laws, (vi) the documents and reports filed
by each party with the SEC and the accuracy of the information contained
therein, and (vii) the AMS stockholder vote required to approve the Merger.
Pursuant to the Merger Agreement, each of AMS and Advanced NMR has agreed
that prior to the Effective Time it will (unless otherwise consented to by
the other party): (i) preserve intact its business organization; (ii)
preserve the goodwill and advantageous relationship with customers,
suppliers, independent contractors, employees and other persons material to
the operation of its business; and (iii) not permit any action or omission
which would cause any of the representations or warranties made in the Merger
Agreement to become inaccurate or any of the covenants to be breached in any
material respect.
Conditions Precedent to the Merger. In addition to the approval and
adoption of the Merger Agreement and the terms of the Merger by the
stockholders of AMS, the approval and adoption of the Merger Proposals by the
stockholders of Advanced NMR, the obligations of Advanced NMR and AMS to
effect the Merger are subject to the fulfillment or waiver of certain
conditions specified in the Merger Agreement including, among others: (i) the
continuing accuracy in all material respects of the representations and
warranties of the respective parties contained in the Merger Agreement; (ii)
the performance and compliance in all material respects by the respective
parties of all obligations under the Merger Agreement required to be
performed on or prior to the consummation of the Merger; (iii) the receipt of
any applicable material consents, approvals and waivers from governmental
authorities and third parties; (iv) the absence of any injunction or other
order by any federal or state court preventing consummation of the Merger and
the absence of any law or regulation prohibiting the Merger; (v) in the case
of Advanced NMR, the total number of shares of AMS Common Stock held by
stockholders of AMS who have duly demanded their dissenters' rights under the
DGCL being not more than 3% of the outstanding shares of AMS Common Stock at
the time; (vi) the absence of any stop order suspending the effectiveness of
the Registration Statement; and (vii) the approval for listing on Nasdaq of
all shares of Advanced NMR Common Stock to be issued in the Merger. The
Advanced NMR and AMS Boards may waive any and all of the Merger
considerations set forth in this paragraph upon a determination that
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<PAGE>
under the circumstances the waiver of a condition is necessary to consummate
the Merger. If the Advanced NMR Board or AMS Board determines that the waiver
is material, it would resolicit proxies from its stockholders.
Termination. The Merger Agreement may be terminated (a) at any time by
mutual written consent, (b) by either party if (i) the Effective Time shall
have not occurred on or before November 15, 1997 and such failure does not
result from any non-fulfillment by the terminating party of any obligation
under the Merger Agreement, (ii) the requisite vote of the stockholders of
AMS to approve the Merger and the Merger Agreement shall not have been
obtained, (iii) the requisite vote of the stockholders of Advanced NMR to
approve the Reverse Stock Split proposal shall not have been obtained; (iv)
the Board of Directors of AMS approves a third party offer to purchase all or
substantially all of the outstanding shares of AMS Common Stock or a similar
acquisition proposal for AMS which is determined by the AMS Board to be more
favorable to AMS stockholders from a financial point of view than the Merger
Consideration; or (v) any court of competent jurisdiction shall have issued
an order, judgment or decree restraining, examining or otherwise prohibiting
the Merger and such order, judgment or decree shall have become final and
non-appealable (provided that the party seeking to so terminate the Merger
Agreement shall have used all reasonable efforts to remove such order,
judgment or decree).
The Merger Agreement also provides that Advanced NMR may terminate the
Merger Agreement by written notice to AMS if (i) there shall have been any
breach of any representation, warranty, covenant or agreement of AMS which,
if not remedied prior to the consummation of the Merger, would have a
material adverse effect on AMS and such breach shall not have been remedied
or AMS shall not have provided Advanced NMR with reasonable assurance that
such breach will be remedied prior to the consummation of the Merger; or (ii)
the Special Committee of the Board of Directors and/or the Board of Directors
of AMS shall withdraw or modify in any manner adverse to Advanced NMR its
approval or recommendation of the Merger Agreement or the Merger.
The Merger Agreement also provides that AMS may terminate the Merger
Agreement by written notice to Advanced NMR if (i) there shall have been any
breach of any representation, warranty, covenant or agreement of Advanced NMR
which, if not remedied prior to the consummation of the Merger, would have a
material adverse effect on Advanced NMR and such breach shall not have been
remedied or Advanced NMR shall not have provided AMS with reasonable
assurance that such breach will be remedied prior to the consummation of the
Merger; or (ii) the Advanced NMR Board shall withdraw or modify in any manner
adverse to AMS its approval or recommendation of the Merger Agreement or the
Merger.
Termination Payments. The Merger Agreement provides that AMS shall pay
$500,000 to Advanced NMR if the Board of Directors of AMS approves an
acquisition proposal from a third party which the AMS Board of Directors
recommends, or AMS materially breaches a representation, warranty or covenant
in the Merger Agreement, and such breach is not remedied or waived. Advanced
NMR shall pay $500,000 to AMS if Advanced NMR materially breaches a
representation, warranty or covenant in the Merger Agreement, and such breach
is not remedied or waived.
Amendment; Waiver. The Merger Agreement may be amended, modified or
supplemented, but only in writing signed by Advanced NMR, Merger Corp. and
AMS.
No waiver by a party of any condition or of any breach of any term,
covenant, representation or warranty contained in the Merger Agreement shall
be effective unless in writing, and no waiver in any one or more instances
shall be deemed to be a further or continuing waiver of any such condition or
breach in other instances or a waiver of any other condition or breach of any
other term, covenant, representation or warranty.
Expenses. Except as provided in the context of certain termination
payments described above, the Merger Agreement provides that each party
thereto will pay its own expenses in connection with the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the Merger, stockholders of AMS should be aware that
members of the management and Board of Directors of AMS have relationships
which present them with conflicts of interest in
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connection with the Merger. All of the officers and directors of AMS (except
two directors) are also officers and directors of Advanced NMR. See "CERTAIN
INFORMATION CONCERNING ADVANCED NMR -- Executive Officers and Directors" and
"CERTAIN INFORMATION CONCERNING AMS -- Executive Officers and Directors."
Advanced NMR owns 1,250,000 shares of AMS Common Stock, representing
approximately 14.46% of the outstanding shares of AMS Common Stock. Advanced
NMR intends to vote these shares in favor of the Merger Agreement. AMS'
officers and directors collectively hold options to purchase approximately
7.9% of the outstanding AMS Common Stock. Pursuant to the terms of the Merger
Agreement, these options, if not exercised prior to the Merger Agreement,
will be converted into options to purchase shares of Advanced NMR Common
Stock. Jack Nelson, Chairman of Advanced NMR and AMS, Enrique Levy, President
of Advanced NMR and AMS, and Steven J. James, Chief Financial Officer of
Advanced NMR and AMS, have employment agreements with each respective company
which will remain in effect after the Merger. Messrs. Nelson, Levy and James
will receive no financial consideration in connection with the Merger. In
connection with the Merger, Advanced NMR has nominated Drs. Weiner and
Estabrook, presently directors of AMS, to become directors of Advanced NMR,
subject to stockholder approval, upon consummation of the Merger. The other
AMS officers and directors will not receive any financial consideration, such
as stock and stock options (other than the conversion of existing AMS stock
options into Advanced NMR options pursuant to the Merger Agreement), bonus or
change of control payments, participation in additional benefit plans and
programs, or any similar form of financial consideration, in connection with
the Merger. To the best of AMS' knowledge, the AMS officers and directors
have no material interests in the Merger apart from AMS stockholders
generally.
Indemnification; Insurance. Under the Merger Agreement, Advanced NMR has
agreed to indemnify, defend and hold harmless the present and former
officers, directors and employees of AMS against losses, claims, damages or
liabilities arising out of or pertaining to the transactions contemplated by
the Merger Agreement to the same extent as provided to the officers and
directors of Advanced NMR in its Certificate of Incorporation and By-Laws.
CONDUCT OF AMS BUSINESS AFTER THE MERGER
Following consummation of the Merger, Advanced NMR intends that the
business of AMS will continue to be operated in its customary manner except
that the License Agreement and Shared Services Agreement will be terminated.
The present management of AMS shall continue. For a description of these
Agreements, see "CERTAIN INFORMATION CONCERNING AMS -- Business of AMS --
Agreements with Advanced NMR."
NASDAQ LISTING
Under the Merger Agreement, Advanced NMR has agreed to use its best
efforts to cause the shares of Advanced NMR Common Stock to be issued
pursuant to the Merger Agreement to be listed for trading on Nasdaq. Such
authorization for listing is a condition to the obligations of Advanced NMR
and AMS to consummate the Merger. Shares of Advanced NMR Common Stock
currently trade on the Nasdaq SmallCap Market.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the Code, the applicable Treasury
Department regulations thereunder, judicial authority and current
administrative rulings and practice as of the date hereof. The following
discussion does not address (i) certain federal income tax consequences
applicable to special classes of taxpayers including, without limitation,
foreign corporations, tax exempt entities and persons who acquired AMS Common
Stock pursuant to the exercise of an employee option or otherwise as
compensation or (ii) the consequences of the Merger under state, local or
foreign law.
In the opinion of Reid & Priest LLP, the following are the material
federal income tax consequences of the Merger. This discussion is based upon
the Code, the applicable Treasury Department regulations thereunder, judicial
authority, and current administrative rulings and practice as of the date
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hereof. No rulings have been requested from the Internal Revenue Service
("IRS") regarding the federal income tax consequences of the Merger and no
such rulings will be requested. Accordingly, each holder of AMS Common Stock
should consult such holder's own tax advisor as to the specific tax
consequences of the Merger to such holder.
Reorganization Status
In the opinion of Reid & Priest LLP, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code.
Tax Consequences to Holders of AMS Common Stock
Assuming that the Merger qualifies as a reorganization within the meaning
of Section 368(a) of the Code, then no gain or loss will be recognized for
federal income tax purposes by the holders of AMS Common Stock upon the
receipt of shares of Advanced NMR Common Stock in exchange for their shares
of AMS Common Stock pursuant to the Merger. The tax basis of the shares of
Advanced NMR Common Stock received by the former holders of AMS Common Stock
will be the same as that stockholder's basis in the shares of AMS Common
Stock surrendered pursuant to the Merger. The holding period of the shares of
Advanced NMR Common Stock received by the former holders of AMS Common Stock
will include the period during which such stockholder held the shares of AMS
Common Stock surrendered pursuant to the Merger, provided that the shares of
AMS Common Stock were held as a capital asset on the Effective Date of the
Merger.
Tax Consequences to Holders of AMS Options and AMS Warrants
Pursuant to the Merger Agreement, Advanced NMR has agreed to assume all of
the rights and obligations of AMS pursuant to the AMS option plans, AMS
warrants and AMS debentures (the "AMS Derivative Securities"), except that
Advanced NMR shall not be obligated to issue AMS Common Stock upon the
exercise or conversion of the AMS Derivative Securities, but shall instead be
obligated to issue, for each share of AMS Common Stock that would have been
issuable upon exercise of such AMS Derivative Securities immediately prior to
the Effective Time, a number of shares of Advanced NMR Common Stock equal to
the Merger Consideration.
The exchange of "compensatory" AMS options (i.e., options which were
received as compensation for services) for Advanced NMR options pursuant to
the Merger normally would not be a taxable event. However, the exercise of
such compensatory AMS options generally would be a taxable event pursuant to
which holders of such compensatory AMS options would recognize ordinary
income.
The exchange of AMS warrants for Advanced NMR warrants pursuant to the
Merger will be a taxable event pursuant to which holders of AMS warrants
would recognize gain or loss. However, if holders of AMS warrants should
exercise those warrants prior to the Merger, that exercise would not
constitute a taxable event.
This discussion is intended to provide only a general summary, and each
holder of AMS options, AMS warrants and AMS debentures is strongly urged to
consult with such holder's tax advisor to determine the particular tax
consequences of the Merger to such holder.
Tax Consequences to Advanced NMR, Merger Corp. and AMS
Advanced NMR, Merger Corp., and AMS each will recognize no tax gain or
loss as a result of the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE ONLY
A GENERAL SUMMARY, AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH,
OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION
DOES NOT ADDRESS ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER.
ACCORDINGLY, EACH HOLDER OF AMS COMMON STOCK IS STRONGLY URGED TO CONSULT
WITH SUCH STOCKHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER.
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ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles.
APPRAISAL RIGHTS
Holders of shares of AMS Common Stock are entitled to appraisal rights
under Section 262 of the DGCL ("Section 262") as to shares owned by them.
Holders of shares of Advanced NMR Common Stock will not have appraisal rights
under Section 262 in respect to the Merger. Section 262 is reprinted in its
entirety as Annex D to this Joint Proxy Statement/Prospectus. All references
in Section 262 and in this summary to a "stockholder" are to the record
holder of the shares of AMS Common Stock as to which appraisal rights are
asserted. A person having a beneficial interest in shares of AMS Common Stock
that are held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect whatever
appraisal rights the beneficial owner may have.
The following discussion includes all material elements of the law
relating to appraisal rights but is not a complete statement of such rights
and is qualified in its entirety by reference to Annex D. THIS DISCUSSION AND
ANNEX D SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF AMS COMMON STOCK WHO
WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO COMPLY WITH THE PROCEDURES SET
FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. Any
such holder will be deemed to have elected, and will receive, the Merger
Consideration in the Merger. See "THE MERGER -- Exchange of AMS Common Stock
for the Merger Consideration."
Each stockholder electing to demand the appraisal of his or her shares of
AMS Common Stock shall deliver to AMS, before the taking of the vote on the
Merger at the AMS Special Meeting, a written demand for appraisal of his or
her shares of AMS Common stock. ANY SUCH STOCKHOLDER MUST MAIL OR DELIVER HIS
OR HER WRITTEN DEMAND TO THE SECRETARY OF AMS. The written demand for
appraisal must specify the stockholder's name and mailing address, the number
of shares of AMS Common Stock owned, and that the stockholder is thereby
demanding appraisal of his or her shares of AMS Common Stock. This written
demand for appraisal must be in addition to and separate from any proxy or
vote against the Merger. Voting against, abstaining from voting or failing to
vote on the Merger will not constitute a demand for appraisal within the
meaning of Section 262. Any stockholder electing to demand his or her
appraisal rights will not be granted appraisal rights under Section 262 if
such stockholder has either voted in favor of the Merger or consented thereto
in writing (including by granting the proxy solicited by this Joint Proxy
Statement/Prospectus or by returning a signed proxy without specifying a vote
against the Merger or a direction to abstain from such vote). ACCORDINGLY, A
VOTE IN FAVOR OF THE MERGER OR A PROXY WITHOUT INSTRUCTIONS WILL CONSTITUTE A
WAIVER OF APPRAISAL RIGHTS. Additionally, appraisal rights will not be
granted under Section 262 if the stockholder does not continuously hold
through the Effective Time the shares of AMS Common Stock with respect to
which he or she demands appraisal.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the AMS
Certificate or Certificates. If the shares of AMS Common Stock are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
such demand must be executed by the fiduciary. If the shares of AMS Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may
execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as an agent for the record
owner.
A record owner, such as a broker, who holds shares of AMS Common Stock as
nominee for others, may exercise appraisal rights with respect to the shares
of AMS Common Stock held for all or less than all beneficial owners of shares
of AMS Common Stock as to which such person is the record owner. In such case
the written demand must set forth the number of shares of AMS Common Stock
covered by
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such demand. Where the number of shares of AMS Common Stock is not expressly
stated, the demand will be presumed to cover all shares of AMS Common Stock
outstanding in the name of such record owner. Beneficial owners who are not
record owners and who intend to exercise appraisal rights should instruct the
record owner to comply strictly with the statutory requirements with respect
to the exercise of appraisal rights before the taking of the vote on the
Merger at the AMS Special Meeting.
Within 120 days after the Effective Time, either the surviving corporation
in the Merger or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the shares of AMS Common
Stock. If a petition for an appraisal is timely filed, after a hearing on
such petition, the Delaware Chancery Court will determine which stockholders
are entitled to appraisal rights and will appraise the shares of AMS Common
Stock owned by such stockholders, determining the fair value of such shares
of AMS Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., et al., decided
February 1, 1983, the Delaware Supreme Court discussed the factors that could
be considered in determining fair value in an appraisal proceeding, stating
that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides the fair value is
to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Weinberger, the Delaware Supreme Court
construed Section 262 to mean that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
Stockholders considering seeking appraisal should have in mind that the
"fair value" of their shares of AMS Common Stock determined under Section 262
could be more than, the same as or less than the consideration being paid to
the AMS stockholders in the Merger, and that opinions of investment banking
firms as to fairness, from a financial point of view, are not opinions as to
fair value under Section 262. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the parties as
the Delaware Chancery Court deems equitable in the circumstances. Upon
application of a dissenting stockholder, the Delaware Chancery Court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including without
limitation, reasonable attorneys' fees and the fees and expense of experts,
be charged pro rata against the value of all shares of AMS Common Stock
entitled to appraisal.
Within 120 days after the Effective Time, any stockholder who has complied
with the requirements for exercise of appraisal rights, as discussed above,
is entitled, upon written request, to receive from the surviving corporation
in the Merger a statement setting forth the aggregate number of shares not
voted in favor of the Merger and with respect to which demands for appraisal
have been made and the aggregate number of holders of such shares. Such
statement must be mailed within 10 days after the written request therefor
has been received by the surviving corporation in the Merger.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of AMS Common Stock subject to such demand or to receive
payment of dividends or other distributions on such shares of AMS Common
Stock, except for dividends or distributions payable to stockholders of
record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger; after this period, the stockholder may withdraw
his or her demand for appraisal only with the consent of the surviving
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corporation in the Merger. If no petition for appraisal is filed with the
Delaware Chancery Court within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease. Inasmuch as Advanced NMR will
have no obligation to cause the surviving corporation in the Merger to file
such a petition, and has no present intention to do so, any stockholder who
desires such a petition to be filed is advised to file it on a timely basis.
However, no petition timely filed in the Delaware Chancery Court demanding
appraisal shall be dismissed as to any stockholder without the approval of
the Delaware Chancery Court, and such approval may be conditioned upon such
terms as the Delaware Chancery Court deems just. Any AMS stockholder who
effectively withdraws his or her demand for appraisal, or whose right to an
appraisal shall cease, shall be deemed to have elected, and shall receive,
the Merger Consideration as provided in the Merger Agreement. See "Exchange
of AMS Common Stock for the Merger Consideration" herein.
The obligation of Advanced NMR to effect the Merger is subject to the
condition, which it may waive, that the holders of no more than three percent
(3%) of the outstanding shares of AMS Common Stock have duly demanded
appraisal of their shares at the time the Merger is to be consummated. See
"CERTAIN TERMS OF THE MERGER AGREEMENT -- Conditions Precedent to the Merger"
herein.
Advanced NMR Stockholders will have no appraisal rights with respect to
the six proposals to be considered at the Advanced NMR Meeting.
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PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial statements set forth
the financial position as of June 30, 1997, as if the Merger of Advanced NMR
with AMS had occurred on that date, and the results of operations for the
twelve months ended September 30, 1996 and the nine months ended June 30,
1997, as if the Merger had occurred as of October 1, 1995. The pro forma
adjustments also include the effect of the merger of MDI with US Diagnostic
Inc., the purchase agreement with GE and the conversion of the AMS convertible
debentures as if those transactions had occurred as of the dates above. In
addition, both the income statement data and the balance sheet data give
effect to the proposed one-for-ten Reverse Stock Split. The pro forma
condensed financial statements do not purport to represent what Advanced NMR's
financial position or results of operations would actually have been if the
Merger had occurred on October 1, 1995 or to project Advanced NMR's financial
position or results of operations for any future date or period.
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ADVANCED NMR SYSTEMS, INC.
PRO FORMA CONDENSED BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------- -----------------------------------------------------------------
ADVANCED GE AMS
NMR SYSTEMS, TRANSACTION ADJUSTED AMS PROFORMA ANMR
INC. ADJUSTMENTS ANMR HISTORICAL ADJUSTMENTS PROFORMA
-------------- ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................. 5,913 5,132 11,045 833 (580) 11,298
Cash, restricted .......................... 1,722 1,722 1,722
Accounts receivable ....................... 2,780 2,780 2,780
Inventories ............................... 482 (482) 987 987
Other current assets ...................... 218 218 7 225
-------------- ------------- ---------- ------------ ------------- ----------
Total current assets ..................... 11,115 4,650 15,765 1,827 (580) 17,012
-------------- ------------- ---------- ------------ ------------- ----------
Equipment, building, furniture & leasehold
improvements............................... 955 (147) 808 623 1,431
Patents, net ............................... 20 20
Goodwill, net .............................. 2,418 2,418 2,418
Investment in and advances to
unconsolidated Subsidiary ................. 1,332 1,332 (1,332) 0
Debt Issue Cost ............................ 27 (27) 0
Other ...................................... 165 165 18 1,500 1,683
-------------- ------------- ---------- ------------ ------------- ----------
TOTAL ASSETS ............................... 15,985 4,503 20,488 2,515 (412) 22,591
============== ============= ========== ============ ============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY .......
Current liabilities:
Accounts payable and accrued expenses .... 1,935 1,935 274 2,209
Other current liabilities ................. 41 41 93 134
Accounts payable to related parties ....... 1,274 (1,274) 0
Current portion of long-term debt and
capital lease obligations................. 676 (121) 555 555
-------------- ------------- ---------- ------------ ------------- ----------
Total current liabilities ................ 2,652 (121) 2,531 1,641 (1,274) 2,898
-------------- ------------- ---------- ------------ ------------- ----------
Long-term debt and capital lease
obligations, less current portion.......... 513 (72) 441 520 (520) 441
Minority interest in net assets of
consolidated entities......................
Redeemable preferred stock ................. 2,700 2,700 2,700
Stockholders' equity:
Common stock .............................. 437 437 76 (440) 73
Additional paid-in-capital ................ 55,776 55,776 16,565 (6,961) 65,380
Accumulated deficit ....................... (43,391) 1,996 (41,395) (16,287) 8,756 (48,926)
-------------- ------------- ---------- ------------ ------------- ----------
12,822 1,996 14,818 354 1,355 16,527
Less: Treasury stock, at cost ............. 2 2 0 0 2
-------------- ------------- ---------- ------------ ------------- ----------
Total stockholders' equity ............... 12,820 1,996 14,816 354 1,355 16,525
-------------- ------------- ---------- ------------ ------------- ----------
Total liabilities and stockholders' equity 15,985 4,503 20,488 2,515 (439) 22,564
============== ============= ========== ============ ============= ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
49
<PAGE>
ADVANCED NMR SYSTEMS, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1997
---------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------- ------------------------------------------------------------------
ADVANCED AMS
NMR SYSTEMS, MDI SALE ADJUSTED AMS PROFORMA ANMR
INC. ADJUSTMENTS ANMR HISTORICAL ADJUSTMENTS PROFORMA(1)
-------------- ------------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................
Net patient service revenue ............ $ 11,608 (8,424) 3,184 3,184
Systems sales .......................... 400 400
Management fees and other .............. 287 (287) 0
-------------- ------------- ---------- ------------ ------------- -----------
Total revenue ......................... 11,895 (8,711) 3,184 400 3,584
-------------- ------------- ---------- ------------ ------------- -----------
Operating expenses:
Cost of service operations ............. 8,269 (5,788) 2,481 2,481
Research and development ............... 1,318 1,318
Manufacturing .......................... 704 704
Selling, general and administrative ... 3,045 (1,254) 1,791 1,834 225 3,850
Provision for bad debt and collection
costs ................................. 850 (657) 193 193
-------------- ------------- ---------- ------------ ------------- -----------
Total operating costs ................. 12,164 (7,699) 4,465 3,856 225 8,546
-------------- ------------- ---------- ------------ ------------- -----------
Operating income from continuing
operations ............................. (269) (1,012) (1,281) (3,456) (225) (4,962)
Amortization of debt issuance cost ..... (51) (51)
Other income ............................ 240 240 240
Loss on sale of imaging business ....... (9,377) 9,377 0 0
Interest income ......................... 149 (1) 148 68 216
Interest expense ........................ (950) 807 (143) (143)
-------------- ------------- ---------- ------------ ------------- -----------
Loss before minority interest and
provision for taxes .................... (10,207) 9,171 (1,036) (3,439) (225) (4,770)
Minority interest in net income of
consolidated entities .................. (202) 208 6 6
Equity in net loss of unconsolidated
subsidiary ............................. (1,190) (1,190) 1,190 0
-------------- ------------- ---------- ------------ ------------- -----------
Loss before income taxes ................ (11,599) 9,379 (2,220) (3,439) 965 (4,694)
Provision for income taxes .............. 63 63 63
-------------- ------------- ---------- ------------ ------------- -----------
Loss from continuing operations ........ $(11,536) 9,379 (2,157) (3,439) 965 $(4,631)
============== ============= ========== ============ ============= ===========
Loss per share from continuing
operations ............................. $ (0.28) $ (0.66)
-------------- -----------
Weighted average number of shares
outstanding ............................ 40,430 7,000
============== ===========
Supplemental historical loss per share
from continuing operations(1)........... $ (2.84)
--------------
Supplemental historical weighted average
number of shares outstanding(1)......... 4,043
==============
</TABLE>
- ------------
(1) Adjusted to reflect 1:10 Reverse Stock Split
The accompanying notes are an integral part of these condensed financial
statements.
50
<PAGE>
ADVANCED NMR SYSTEMS, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------- ------------------------------------------------------------------
ADVANCED AMS
NMR SYSTEMS, MDI SALE ADJUSTED AMS PROFORMA ANMR
INC. ADJUSTMENTS ANMR HISTORICAL ADJUSTMENTS PROFORMA(1)
-------------- ------------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................
Net patient service revenue ............ 25,481 (20,770) 4,711 4,711
Management fees and other .............. 653 (653) 0 0
-------------- ------------- ---------- ------------ ------------- -----------
Total revenue ......................... 26,134 (21,423) 4,711 4,711
-------------- ------------- ---------- ------------ ------------- -----------
Operating expenses.......................
Cost of service operations ............. 16,206 (13,237) 2,969 2,969
Research and development ............... 1,007 1,007
Selling, general and administrative ... 4,255 (3,419) 836 2,210 300 3,346
Provision for bad debt and collection
costs ................................. 2,126 (1,738) 388 388
-------------- ------------- ---------- ------------ ------------- -----------
Total operating costs ................. 22,587 (18,394) 4,193 3,217 300 7,710
-------------- ------------- ---------- ------------ ------------- -----------
Operating income (loss) ................. 3,547 (3,029) 518 (3,217) (300) (2,999)
Amortization of debt issuance costs .... (31) (31)
Other income ............................ 126 (126)
Interest income ......................... 213 (31) 182 70 252
Interest expense ........................ (1,848) 1,848 (1,000) (1,000)
-------------- ------------- ---------- ------------ ------------- -----------
Loss before minority interest and
provision for taxes .................... 2,038 (1,338) 700 (4,178) (300) (3,778)
Minority interest in net income of
consolidated entities .................. (1,006) 846 (160) (160)
Equity in net loss of unconsolidated
subsidiary ............................. (2,374) (2,374) 2,374 0
-------------- ------------- ---------- ------------ ------------- -----------
Loss before income taxes ................ (1,342) (492) (1,834) (4,178) 2,074 (3,938)
Provision for income taxes .............. (42) (42) (42)
-------------- ------------- ---------- ------------ ------------- -----------
Loss from continuing operations ........ (1,384) (492) (1,876) (4,178) 2,074 (3,980)
============== ============= ========== ============ ============= ===========
Income (loss) from continuing
operations.............................. $ (0.05) $ (0.66)
Weighted average number of shares
outstanding ............................ 30,583 6,015
============== ===========
Supplemental historical loss per share
from continuing operations(1)........... $ (0.45)
--------------
Supplemental historical weighted average
number of shares outstanding(1)......... 3,058
==============
</TABLE>
- ------------
(1) Adjusted to reflect 1:10 reverse split
The accompanying notes are an integral part of these condensed financial
statements.
51
<PAGE>
ADVANCED NMR SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
The pro forma adjustments reflect the Merger, the sale of certain
operations of MDI effective February 27, 1997, a transaction with GE
effective August 18, 1997 and the conversion of the AMS convertible
debentures in September 1997. The allocation of the purchase price of AMS is
preliminary while Advanced NMR continues to try to obtain information to
determine the fair market value of the assets acquired and liabilities
assumed. When Advanced NMR obtains final information, management believes
that adjustments, if any, will not be material in relation to Advanced NMR's
consolidated financial statements.
NOTE 2 PRO FORMA ADJUSTMENT TO REFLECT THE GE TRANSACTION
On August 18, 1997, Advanced NMR entered into an agreement with GE,
whereby it sold certain assets and rights to its 3T and 4T systems. In
addition, GE made a capital investment in Advanced NMR. The following
adjustment reflects these transactions as if they had occurred on June 30,
1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
(IN THOUSANDS,
EXCEPT PRICE PER
SHARE)
<S> <C>
Sale:
Selling Price ............ 2,625
Book Value of Assets
Sold:
Inventory ............... (482)
Equipment ............... (147)
----------------------
Gain on Sale ............ 1,996
----------------------
Investment:
Preferred stock shares .. 27
Price per share .......... $ 100
----------------------
Purchase price ........... 2,700
----------------------
Cash received:
Selling price, above .... 2,625
Lease obligations
assumed:
Short term lease ........ (121)
Long term lease ......... (72)
Investment, above ........ 2,700
----------------------
Total .................... 5,132
======================
</TABLE>
52
<PAGE>
ADVANCED NMR SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 PRO FORMA ADJUSTMENTS TO REFLECT THE SALE OF MDI
On February 27, 1997, Advanced NMR sold most of its interest in MDI. The
following adjustments remove the operations of the Imaging Business of MDI as
if the sale had occurred on October 1, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996
----------------- -------------------
(IN THOUSANDS) (IN THOUSANDS)
DEBIT (CREDIT) DEBIT (CREDIT)
<S> <C> <C>
Remove income from MDI Imaging Business
Net patient service revenue ................... 8,424 20,770
Management fees and other ..................... 287 653
Cost of service operations .................... (5,788) (13,237)
Selling, general and administrative ........... (1,254) (3,419)
Provision for bad debt and collection costs .. (657) (1,738)
Other Income .................................. 126
Interest income ............................... 1 31
Interest expense .............................. (807) (1,848)
Minority interest in net income of
consolidated subsidiaries..................... (208) (846)
Reverse loss on sale of MDI Imaging ............
Loss on sale of imaging business .............. (9,232)
</TABLE>
NOTE 4 PRO FORMA ADJUSTMENTS TO REFLECT THE PURCHASE OF AMS, THE CONVERSION
OF THE AMS CONVERTIBLE DEBENTURES AND TO CONSOLIDATE ANMR AND AMS
<TABLE>
<CAPTION>
<S> <C>
Calculation of cost of AMS:
Shares outstanding(1) ................ 8,641,854
Less: ANMR shares owned .............. (1,250,000)
-------------
Shares converted ..................... 7,391,854
Conversion ratio ..................... 0.40
-------------
ANMR shares to be issued ............. 2,956,742
ANMR share price(2) .................. $ 3.125
-------------
Value of ANMR shares to be issued ... $ 9,239,818
Transaction costs .................... 580,000
-------------
Cost of AMS shares purchased ......... 9,819,818
Basis of existing investment in AMS . 58,064
Accounts receivable from AMS ......... 1,274,068
-------------
Total cost of AMS .................... $11,151,950
=============
Cost allocated as follows:
Cash ................................. 832,611
Inventories .......................... 987,069
Equipment ............................ 622,510
Other assets ......................... 45,756
Purchased Contracts(3) ............... 500,000
Purchased research and development(4) 7,531,369
Other Intangible Assets(5) ........... 1,000,000
Accounts payable and accrued expenses (367,365)
-------------
$11,151,950
=============
</TABLE>
- ------------
(1) Shares outstanding include 1,025,600 shares issued upon conversion of
the AMS convertible debentures in September 1997.
(2) Advanced NMR share price is based on the closing trading price on
October 6, 1997 of $0.312, before the effect of the proposed
one-for-ten Reverse Stock Split. Any incremental increase or decrease
in the Advanced NMR share price as of the closing date of 1/16th or
$0.0625 will result in an increase or decrease in the cost of AMS of
approximately $1,850,000, which increase or decrease will be allocated
to purchased research and development and would have no impact on the
pro forma loss per share from continuing operations.
(3) Purchased contracts represent the net present value of the estimated
future cash flow arising from the AMS executed hospital contracts based
on management's estimates.
53
<PAGE>
ADVANCED NMR SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) Purchased research and development represents the balance of the
purchase price to be allocated to the value of research and development
on AMS breast imaging system. The estimated value of purchased research
and development was based on the net present value of estimated future
cash flow arising from the sale and installation of breast imaging
systems. Generally accepted accounting principles requires that a
portion of the purchase price be allocated to research and development
projects in process and that, if those projects have no alternative
future use, the amount should be charged to expense as a research and
development cost. Advanced NMR has determined that the technology being
developed by AMS is specific to breast MRI and has no alternative use.
Accordingly, the portion of the purchase price allocated to purchased
research and development has been charged to accumulated deficit on the
Pro Foma Condensed Balance Sheet.
(5) Other intangible assets represent the estimated value of product name,
employee base and general infrastructure, etc.
ADJUSTMENTS:
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1996
--------------- ------------------
(IN THOUSANDS) (IN THOUSANDS)
DEBIT (CREDIT) DEBIT (CREDIT)
<S> <C> <C>
A. To record conversion of AMS convertible
debentures
Debt issue costs............................. (27)
Long-term debt and capital lease obligations
less current portion......................... 520
Common stock................................. (10)
Additional paid-in capital................... (483)
B. To record excess of purchase price of AMS
over net book value of AMS assets and
liabilities
Cash ........................................ (580)
Common stock ................................ (29)
Additional paid-in capital .................. (8,422)
Other intangible assets...................... 1,000
Other assets ................................ 500
Purchased R&D costs ......................... 7,531
C. Eliminate ANMR investment in AMS and
reflect forgiveness of debt
Investment in and advances to unconsolidated
subsidiary.................................. (1,332)
Accounts payable to related parties ......... 1,274
Common Stock ................................ 12
Additional paid-in capital................... 46
D. To record impact of ANMR 1:10 Reverse
Stock Split
Capital stock ............................... 393
Additional paid-in capital .................. (393)
E. Reverse equity accounting for investments
in AMS Equity in net loss of unconsolidated
subsidiary.................................. (1,190) (2,374)
</TABLE>
54
<PAGE>
ADVANCED NMR SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note: The adjustment to capital stock and additional paid in capital in the
accompanying balance sheet is as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital stock:
Adjustment A, above ....... (10)
Adjustment B, above........ (29)
Adjustment C, above ....... 12
Adjustment D, above........ 393
----------
Net book value of AMS .... 74
----------
440
==========
Additional Paid-In Capital:
Adjustment A, above ....... (483)
Adjustment B, above........ (8,422)
Adjustment C, above ....... (46)
Adjustment D, above........ (393)
Net book value of AMS(1) . 16,213
----------
6,961
==========
Accumulated deficit:
Adjustment A, above........ 7,531
Net book value of AMS ..... (16,287)
----------
(8,756)
==========
</TABLE>
(1) Adjusted for pro forma adjustment to record conversion of AMS
convertible debentures and excluding Advanced NMR's share of the AMS
book value.
Note:
The other intangible assets and contracts will be amortized on a
straight-line basis over the periods estimated to be benefitted. The
contracts will be amortized over the life of the contracts which is generally
five years. The other intangible assets will be amortized over five years,
the minimum period expected to be benefitted.
NOTE 5 OTHER PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996
----------------- -------------------
(IN THOUSANDS) (IN THOUSANDS)
DEBIT (CREDIT) DEBIT (CREDIT)
<S> <C> <C>
Amortization of purchased contracts and other
intangible assets Selling, general and
administrative ................................. 225 300
</TABLE>
55
<PAGE>
SELECTED FINANCIAL INFORMATION OF ADVANCED NMR
The selected historical financial information of Advanced NMR set forth
below has been derived from the consolidated financial statements of Advanced
NMR for each of the three fiscal years in the period ended December 31, 1994,
for the nine-month period ended September 30, 1995, the twelve month period
ended September 30, 1996, and for the nine month periods ended June 30, 1997
and 1996. On August 31, 1995, Advanced NMR changed its fiscal year to
September 30 from December 31. The financial statements for each of the three
years in the period ended December 31, 1994, the nine-month period ended
September 30, 1995 and the twelve month period ended September 30, 1996 have
been audited by Richard A. Eisner & Company, LLP, independent public
accountants,whose report with respect to certain of the historical financial
statements appears elsewhere in this Joint Proxy Statement/ Prospectus. Prior
to such time, Advanced NMR employed different independent public accountants.
The financial statements for the nine-month periods ended June 30, 1997 and
1996 are unaudited. In the opinion of Advanced NMR management, such unaudited
information includes all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. The selected financial
information should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Joint Proxy
Statement/Prospectus and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ADVANCED NMR."
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS NINE MONTHS AS OF AND FOR THE
ENDED JUNE 30, TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31
------------------------------- ENDED SEPTEMBER 30, ---------------------------
1997 1996 SEPTEMBER 30, 1996 1995 1994 1993 1992
---- ---- ------------------ ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
REVENUES:
SYSTEM SALES ................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
NET PATIENT SERVICE REVENUE 11,608,067 19,052,622 25,480,813 1,934,322 -- -- --
MANAGEMENT FEES AND OTHER
REVENUE .................... 287,316 531,885 653,425 40,220 -- -- --
-------------- ------------- --------------- --------------------------------------------------
TOTAL REVENUES ............. 11,895,383 19,584,507 26,134,238 1,974,542 -- -- --
-------------- ------------- --------------- --------------------------------------------------
OPERATING EXPENSES:
COST OF SERVICE OPERATIONS . 8,269,199 11,970,632 16,205,961 1,203,497 -- -- --
RESEARCH & DEVELOPMENT ..... -- 750,957 -- 664,786 992,365 822,994 239,423
SELLING, GENERAL &
ADMINISTRATIVE ............. 3,045,433 4,798,040 4,254,964 2,002,075 1,582,820 870,414 --
PROVISION FOR BAD DEBT ..... 849,842 1,576,874 2,126,471 162,377 -- -- --
-------------- ------------- --------------- --------------------------------------------------
TOTAL OPERATING EXPENSES ... 12,164,474 19,096,503 22,587,396 4,032,735 2,575,185 1,693,408 239,423
-------------- ------------- --------------- -------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS.................. (269,091) 488,004 3,546,842 (2,058,193) (2,575,185) (1,693,408 ) (239,423)
INTEREST EXPENSE ............ (950,056) (2,397,189) (1,847,910) (139,020) -- (99,999) --
OTHER INCOME (EXPENSE) ..... 239,611 126,263 126,263 579,758 -- -- --
INTEREST INCOME ............. 149,674 221,378 212,814 265,208 208,480 170,720 --
LOSS ON SALE OF IMAGING
BUSINESS ................... (9,377,283) -- -- -- -- -- --
EQUITY IN NET LOSS OF
UNCONSOLIDATED SUBSIDIARY . (1,190,108) -- (2,373,580) -- -- --
MINORITY INTEREST ........... (202,234) 360,487 (1,005,831) 569,354 702,965 414,641 --
-------------- ------------- --------------- --------------------------------------------------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES ...................... (11,599,487) (1,201,057) (1,341,402) (782,893) (1,663,740) (1,208,046) (239,423)
PROVISION FOR INCOME TAXES . 63,445 (27,983) (42,288) -- -- -- --
-------------- ------------- --------------- --------------------------------------------------
(LOSS) FROM CONTINUING
OPERATIONS ................. (11,536,042) (1,229,040) (1,383,690) (782,893) (1,663,740) (1,208,046) (239,423)
(LOSS) FROM OPERATIONS OF
DISCONTINUED DIVISION ...... 58,450 (3,327,068) (3,928,706) (894,865) (1,883,258) (4,958,904) (5,253,106)
(LOSS) ON DISPOSAL OF
DISCONTINUED DIVISION ...... -- -- (3,510,563) -- -- -- --
-------------- ------------- --------------- --------------------------------------------------
NET INCOME (LOSS) ........... $(11,477,592) $(4,556,108) $(8,822,959) $(1,677,758)$(3,546,998)$(6,166,950)$(5,492,529)
============== ============= =============== ==================================================
(LOSS) PER COMMON SHARE:
(LOSS) FROM CONTINUING
OPERATIONS ................. $ (0.28) $ (0.04) $ (0.05) $ (0.03)$ (0.07)$ (0.06)$ (0.06)
INCOME (LOSS) FROM
OPERATIONS OF DISCONTINUED
DIVISION ................... -- (0.11) (0.13) (0.04) (0.08) (0.26) (0.28)
(LOSS) ON DISPOSAL OF
DISCONTINUED DIVISION ...... -- -- (0.11) -- -- -- --
-------------- ------------- --------------- --------------------------------------------------
NET INCOME (LOSS) PER SHARE (0.28) (0.15) $ (0.29) $ (0.07)$ (0.15)$ (0.32)$ (0.34)
============== ============= =============== ==================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING ................ 40,429,532 30,186,913 30,583,320 24,243,902 23,603,251 19,184,275 16,157,623
BALANCE SHEET DATA:
WORKING CAPITAL (DEFICIT) .. $ 8,462,451 $10,631,472 $(6,735,989) $11,083,145 $ 8,614,161 $12,452,896 $ (759,956)
TOTAL ASSETS ................ 15,984,817 58,950,014 50,724,530 58,431,709 12,692,152 15,864,126 2,685,896
TOTAL LIABILITIES ........... 3,164,454 31,251,264 26,906,107 30,413,743 2,993,228 3,312,288 2,659,378
STOCKHOLDERS' EQUITY ........ 12,820,363 27,698,750 23,818,423 28,017,966 9,698,924 12,551,838 26,518
</TABLE>
56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ADVANCED NMR
The following discussion should be read in conjunction with the audited
consolidated financial statements of Advanced NMR and notes thereto for the
two fiscal years ended December 31, 1994, the nine-month period ended
September 30, 1995, the twelve month period ended September 30, 1996, and the
unaudited consolidated financial statements of Advanced NMR for the nine
months ended June 30, 1997 as compared to the nine months ended June 30,
1996. Effective January 1, 1995, Advanced NMR changed its fiscal year from
December 31 to September 30.
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Net patient service revenue totaled $11,608,000 for the nine months ended
June 30, 1997 versus $19,053,000 for the nine months ended June 30, 1996.
Cost of service operations totaled $8,269,000 for the nine months ended June
30, 1997 versus $11,971,000 for the nine months ended June 30, 1996. These
decreases were largely the result of the MDI merger in February 1997
partially offset by increased rehabilitation service revenues and expenses
associated with the new MVA centers established in the second and third
quarters of fiscal 1996.
Management fees and other revenues for the nine months ended June 30,
1997, include a $70,000 settlement with an equipment manufacturer associated
with the delay in delivery of imaging equipment.
Selling, general and administrative expenses totaled $3,045,000 for the
nine months ended June 30, 1997 versus $4,798,000 for the nine months ended
June 30, 1996. This decrease is due to the change in the accounting treatment
of Advanced NMR's investment in AMS from consolidation to equity accounting
and due to the MDI merger.
Other income includes a gain of $223,000 from the sale of certain
equipment.
Minority interests in net income of consolidated entities consists of
earnings allocated to MDI's joint venture partners. Prior to September 1996,
the allocated earnings were offset by losses allocated to the AMS minority
shareholders. The equity in net loss of unconsolidated subsidiary reflects
Advanced NMR's equity share of the AMS loss subsequent to September 1996. Due
to the MDI merger in February 1997, most of the categories included in the
statements of operations will decrease substantially compared to prior year
periods.
Fiscal Year Ended September 30, 1996 Compared to Year Ended September 30,
1995
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, Advanced NMR's percentage ownership of AMS
was reduced to approximately 48% at September 30, 1996. Accordingly, Advanced
NMR 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 System business segment, Advanced NMR 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 AMS 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
57
<PAGE>
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 administration expenses increased from $2,449,000 to
$4,255,000 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 AMS in 1995 versus an equity accounting
for AMS 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 totalled $1,006,000. During the year ended September 30, 1995 the
minority interests in net loss of consolidated entities included Advanced
NMR's proportionate share of AMS' losses incurred in that period, partially
offset by one month's allocation of income from certain subsidiaries of MDI.
Equity in loss of unconsolidated subsidiary reflects Advanced NMR's equity
accounting for AMS losses during fiscal 1996.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September
30, 1994
Net patient service revenue for September 30, 1995 represents one month of
operations from Advanced NMR's 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. Advanced NMR expects that MDI will contribute
significant revenue and operating income in 1996 and beyond, which earnings
will be significantly enhanced by the tax net operating loss carryforwards
available from Advanced NMR.
Research and development expenses totaled $665,000 in the nine months
ended September 30, 1995 versus $717,000 in the comparable 1994 period. These
spending levels reflect software enhancement and the development of a
localization and biopsy device for the dedicated MR Breast Imaging system of
AMS.
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 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 represents 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 stockholders percentage ownership of AMS from 1994
as a result of the redemption of $3.2 million in warrants and options,
partially offset by one months' allocation of income in certain subsidiaries
of MDI.
LIQUIDITY AND CAPITAL RESOURCES
Advanced NMR had available cash and cash equivalents of $7,635,000 at June
30, 1997 (including $1,722,000 of restricted cash). Assuming completion of
the Merger, Advanced NMR intends to utilize the funds for the continuing
development of the AMS dedicated breast imaging system, for the clinical
research study being conducted on the role of MRI in breast care and for the
opening of breast imaging centers.
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<PAGE>
If the Merger is not completed, Advanced NMR intends to explore other
strategic alternatives in order to enhance stockholder value. Included among
those options is the future expansion of its Rehabilitation Services business
and/or other service activities. However, there can be no assurance that any
transactions contemplated would be consummated and, assuming consummation,
Advanced NMR may require additional capital, and there is no assurance that
such capital would be obtainable or on satisfactory terms.
The significant cash flows from investing activities for the nine months
ended June 30, 1997 include approximately $7,939,000 in proceeds from the MDI
merger, $2,000,000 used for medical imaging equipment additions and
$1,500,000 used for the acquisition of the minority interest in Advanced
NMR's rehabilitation business. Cash flows from financing activities include
$1,843,000 of proceeds from financing of medical equipment and $1,300,000 for
the purchase of the minority interest in the rehabilitation business offset
by principal payments on equipment debt.
INFLATION
To date, inflation has not had a material effect on Advanced NMR's
business. Advanced NMR 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.
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SELECTED AMS FINANCIAL INFORMATION
The selected historical financial information of AMS set forth below has
been derived from the financial statements of AMS for the period from July 2,
1992 (inception) to December 31, 1992, the two fiscal years ended December
31, 1994, the nine-month period ended September 30, 1995, the twelve month
period ended September 30, 1996, and for the nine month periods ended June
30, 1997 and 1996. In September 1995, AMS changed its fiscal year to
September 30 from December 31. The financial statements for AMS for the
period from July 2, 1992 (inception) to December 31, 1992, the two fiscal
years ended December 31, 1994, the nine-month period ended September 30, 1995
and the twelve month period ended September 30, 1996 have been audited by
Richard A. Eisner & Company, LLP, independent public accountants,whose report
with respect to certain of the historical financial statements appears
elsewhere in this Joint Proxy Statement/Prospectus. The financial statements
for the nine-month periods ended June 30, 1997 and 1996 are unaudited.
Unaudited information includes all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation. The selected financial
information should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Joint Proxy
Statement/Prospectus and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMS."
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS JULY 2, 1992
NINE MONTHS ENDED ENDED ENDED FISCAL YEAR ENDED (INCEPTION) TO
JUNE 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
REVENUE ..................... $ 400,000 $ -- $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS & EXPENSES:
MANUFACTURING .............. 703,571 -- -- -- -- -- --
ACQUIRED TECHNOLOGY RIGHTS.. -- -- -- -- -- -- 1,720,000
RESEARCH & DEVELOPMENT ..... 1,318,026 705,956 1,007,294 664,786 992,365 822,994 239,423
GENERAL & ADMINISTRATIVE .. 1,833,986 1,571,595 2,209,736 1,107,326 1,582,820 870,414 --
TOTAL OPERATING EXPENSES ... 3,855,583 (2,322,551) 3,217,030 1,772,112 2,575,185 1,693,408 1,959,423
----------- ----------- ----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS ........ (3,455,583) (2,322,551) (3,217,030) (1,772,112) (2,575,185) (1,693,408) (1,959,423)
INTEREST INCOME ............. 67,606 42,923 70,248 88,064 72,023 80,636 --
INTEREST EXPENSE ............ -- (883,333) (1,000,000) -- -- (99,999) (500,000)
AMORTIZATION OF DEBT ISSUANCE
COSTS ...................... (51,122) -- (30,857) -- -- (51,825) (259,137)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET LOSS .................... $(3,439,099) (3,162,961) $(4,177,639) $(1,684,048) $(2,503,162) $(1,764,596) $(2,718,560)
=========== =========== =========== =========== =========== =========== ===========
NET LOSS PER SHARE .......... $ (0.53) $ (0.82) $ (2.58) $ (1.10) $ (2.23) $ (1.71) $ (3.40)
=========== =========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ......... 6,488,513 3,848,376 1,618,464 1,532,037 1,120,778 1,034,275 800,000
=========== =========== =========== =========== =========== =========== ===========
BALANCE SHEET DATA:
WORKING CAPITAL (DEFICIT) .. $ 185,857 $ 3,163,870 $ 2,239,089 $ 2,605,522 $ 1,097,761 $ 3,308,814 $(2,347,861)
TOTAL ASSETS ................ 2,514,946 4,355,759 3,984,351 3,440,367 2,146,632 3,647,055 211,339
TOTAL LIABILITIES ........... 2,161,111 3,091,994 2,380,346 197,020 419,123 125,699 2,389,899
STOCKHOLDERS' EQUITY (DEFICIT) 353,835 1,263,765 1,604,005 3,243,347 1,727,509 3,521,356 (2,178,560)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AMS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto of AMS for the two fiscal
years ended December 31, 1994, the nine-month period ended September 30,
1995, the twelve month period ended September 30, 1996, and the unaudited
financial statements of AMS for the nine months ended June 30, 1997 and 1996.
In September 1995, AMS changed its fiscal year from December 31 to September
30.
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
AMS was formed in July 1992 and is in the development stage. In the second
quarter of this fiscal year, AMS received payment in full and recorded its
first sale of the Aurora(Trademark) System to the beta site in Galveston,
Texas. As a result of charging operations with the cost of its technology
license acquired from Advanced NMR, as well as salaries and consulting fees
of persons engaged in research and development activities, AMS had an
accumulated deficit of $16,287,000 at June 30, 1997.
Research and development expense was approximately $1,318,000 in the nine
months of fiscal 1997, an increase of 76% compared with approximately
$751,000 in the same period in fiscal 1996. The increase is due to the
addition of technical personnel assigned from Advanced NMR to complete the
AMS' research and development effort. AMS expects research and development
expense to stabilize at this level through fiscal 1997.
General and administrative expenses for the nine months of fiscal 1997 was
approximately $1,834,000, an increase of 17% compared with approximately
$1,571,000 for the same period in fiscal 1996. The increase is due primarily
to additional personnel responsible for clinical applications, customer
support and regulatory and compliance management.
Total operating expenses for the nine months of fiscal 1997 were
approximately $3,856,000, an increase of 66% compared to approximately
$2,323,000 in the same period in fiscal 1996. The increase was mainly due to
the cost of sales of the first Aurora(Trademark) System, increased staffing
of the manufacturing process to prepare for future Aurora(Trademark) System
sales, and increased expenditures for research and development.
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
(unaudited)
AMS' only source of revenue was interest income of $70,000 in fiscal year
1996 as compared with $97,000 in fiscal year 1995.
Research and development costs were $1,007,000 during the twelve months
ended September 30, 1996 and $940,000 in the comparable 1995 period. AMS
focused its research activity in evolving the clinical platform to enhance
future system performance including an integrated biopsy capability.
General and administration expenses in the year ended September 30, 1996
of $2,210,000 increased from $1,571,000 in the comparable fiscal 1995 period.
The increase of approximately $640,000 is primarily due to legal and
investment banking fees incurred in the aborted merger between AMS and
Advanced NMR, public relations fees, certain costs associated with the
private placement of the convertible debentures and recruiting fees for
additional technical personnel.
Interest expense for the year ended September 30, 1996 of $1,000,000
represents the interest expense pertaining to the beneficial conversion
feature of the convertible debentures issued in May 1996.
Nine Month Period Ended September 30, 1995 Compared to the Nine Month Period
Ended September 30, 1994 (unaudited)
AMS' only source of revenue was interest income which was $88,000 in the
nine months ended September 30, 1995 as compared with $63,000 in the
comparable 1994 period.
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Research and development costs were $665,000 in the nine months ended
September 30, 1995 and $717,000 in the comparable 1994 period. AMS redirected
its research efforts towards systems related issues and focused on the
development of a working prototype for installation in medical facilities.
General and administrative expenses in the nine months ended September 30,
1995 of $1,107,000 decreased from $1,119,000 in the comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 AMS had working capital of approximately $186,000
including available cash of approximately $833,000. AMS expects to continue
to incur substantial expenditures for development, marketing, and clinical
studies of the breast imaging system. AMS believes its existing cash reserves
at June 30, 1997 are adequate to fund its operating activities for only two
to three months.
Assuming completion of the Merger, AMS will have sufficient resources to
fund its activities beyond twelve months. If the Merger is not completed, AMS
will be insolvent and in order to continue operations, AMS would have to
obtain additional funds through debt or equity placements or through joint
ventures or other collaborations. Should AMS be unable to obtain any such
future financing arrangements, it would examine alternative courses, such as
sale or disposition of assets or alliances or mergers with strategic
partners. However, there is no assurance that such placements, joint
ventures, collaborations, sales or alliances with strategic partners would be
successful or on terms not dilutive to present stockholders.
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CERTAIN INFORMATION CONCERNING ADVANCED NMR
BUSINESS OF ADVANCED NMR
GENERAL
Advanced NMR is engaged in rehabilitation services, consisting of
comprehensive physician care, physical therapy and case management for motor
vehicle accident patients, and is developing breast imaging centers. Advanced
NMR has a 14.46% equity ownership interest in, and other key relationships
with, AMS. AMS is developing, marketing and commercializing a dedicated MRI
system for breast imaging known as the Aurora(Trademark) System. Advanced NMR
has leased a location at the Faulkner Center for the installation and
operation of a breast imaging center which opened in September 1997. AMS has
sold an Aurora(Trademark) System to Advanced NMR for use at such center.
On February 27, 1997, Medical Diagnostics, Inc., a wholly-owned subsidiary
of Advanced NMR ("MDI") merged with MDI Acquisition Corporation, a new-formed
wholly-owned subsidiary of US Diagnostic, Inc. ("US Diagnostic"). MDI, which
provides Imaging and Rehabilitation Services, had been acquired by Advanced
NMR on August 31, 1995. Pursuant to the MDI merger, Advanced NMR retained
three rehabilitation centers formerly operated by MDI.
In August 1996, Advanced NMR discontinued the manufacture of its
InstaScan(Trademark) product because of the lack of sales of the product. On
August 18, 1997, Advanced NMR and GE entered into a purchase agreement
whereby GE purchased from Advanced NMR all inventory, equipment, and other
assets, and assumed all liabilities relating to 3T, 4T and
InstaScan(Trademark) machines, in exchange for $2,432,580 in cash and the
purchase by GE of $2,700,000 of Advanced NMR's Class B Preferred Stock.
MAGNETIC RESONANCE IMAGING TECHNOLOGY
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, Computerized Axial Tomography and conventional
x-ray).
REHABILITATION SERVICES
Advanced NMR operates a portion of its business in a niche rehabilitation
services market through its ownership of MVA. Through two MVA centers located
in Massachusetts, Advanced NMR provides comprehensive physician care,
physical therapy and case management for motor vehicle accident patients. The
MVA centers have developed a comprehensive system to document valid personal
injury claims and exclude false claims that enable it to provide more
efficient patient care.
RESEARCH AND DEVELOPMENT
Advanced NMR has ceased all new research and development activity in
InstaScan(Trademark) technology. Under the License Agreement, AMS holds an
exclusive license to proprietary rights and know-how, including the rights to
any patents owned by Advanced NMR which relate to, or are useful in
connection with, the development of an MRI scanner for use in the field of
breast imaging.
AMS
Through AMS, Advanced NMR is developing a dedicated MRI breast imaging
system known as the Aurora(Trademark) System. In February 1996, the FDA
cleared the commercial use of this dedicated MRI breast imaging system. In
order to fully commercialize the Aurora(Trademark) System and to demonstrate
diagnostic effectiveness as an accepted tool for the diagnosis and management
of breast disease and permit
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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 a second System was installed at the Faulkner Center in September 1997.
AMS plans to install a System in November 1997 at the University of Arkansas
Hospital and in January 1998 at the Englewood Hospital. 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, subject to pricing
of competitive technology.
In July 1992, Advanced NMR licensed pursuant to the License Agreement to
AMS the right to use Advanced NMR's technology in the development of a
dedicated breast imaging system (the "Field of Use").
For additional information regarding the License Agreement and Shared
Services Agreement, see "INFORMATION CONCERNING AMS -- Agreements with
Advanced NMR."
GOVERNMENT REGULATION AND REIMBURSEMENT
Advanced NMR'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 HCFA and EPA. In addition, providers of
diagnostic imaging services are subject to various state regulations that
limits the acquisition of MRI equipment through CON and "Determination of
Need" ("DON") programs and other federal and state regulation that is
directed at cost containment.
FDA Regulation
Advanced NMR has continuing obligations pursuant to FDA 510(k) clearance
with respect to its InstaScan(Trademark) product. For additional information,
see "CERTAIN INFORMATION CONCERNING AMS -- Business of AMS -- Governmental
Regulation."
COMPETITION
The health care industry in general and the market for diagnostic imaging
equipment, in particular, is highly competitive.
With respect to the Rehabilitation Services business, Advanced NMR
competes in Massachusetts with other providers at hospitals, private clinics,
and physician practices. Competitive factors include the range of services
provided, equipment capabilities and the ability to serve a broad range of
patients. Advanced NMR's rehabilitation services are also considered to be in
highly competitive markets.
PATENTS
Advanced NMR currently owns 19 U. S. patents relating to MRI imaging. Four
additional patents are in various stages of submission, two were filed by
Advanced NMR and two by AMS. All major patents are protected in Japan, Canada
and the European Market countries. These patents were licensed to GE on
August 18, 1997 pursuant to a license agreement.
EMPLOYEES
As of September 30, 1997, Advanced NMR had 57 employees, of which eight
were management, including four persons who also devoted a portion of their
time to AMS. Pursuant to the Shared Services Agreement with AMS, Advanced NMR
provides the services of its executives, administrative personnel and
research scientists to AMS on an as-needed basis.
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None of Advanced NMR's employees is represented by labor organizations and
Advanced NMR is not aware of any activities seeking such organization.
Advanced NMR considers its relations with employees to be good.
PROPERTIES
Advanced NMR 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. As of May 1996 it renewed
the lease for another five year term at a base monthly rental of
approximately $37,000. Advanced NMR sublet approximately 31,000 square feet
of the Shared Facility to a third party. AMS uses space at the Shared
Facility pursuant to the Shared Services Agreement. Advanced NMR believes
that the space it currently occupies is adequate for the Advanced NMR's needs
for the foreseeable future.
Advanced NMR 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 Advanced NMR pursuant to a lease expiring in March
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.
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, unspecified monetary 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, unspecified
monetary 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 completed pre-trial proceedings, including discovery.
On August 12, 1997 the judge decided the remaining pre-trial motions in this
action. It denied MIP's motion for summary judgment on its tender offer
claims. It granted part of MDI's summary judgment motion ruling that MIP's
interest in the MMIV joint venture ended on December 31, 1996. MIP had argued
that its interest in the MMIV joint venture extended to December 1999. 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
sought injunctive relief against certain actions that MDI's predecessor took
or may have taken to defend itself against Raytel's tender offer. No monetary
damages were sought in this action by Raytel. On December 22, 1994, Raytel
filed an amended complaint. On May 4, 1995, Raytel terminated its tender
offer. On September 12, 1997, the parties entered into a settlement agreement
(the "Raytel Settlement") to settle their disputes in the above-described
actions. Pursuant to the Raytel Settlement, MDI and Raytel dismissed all
actions between them and provided each other with mutual releases, and agreed
to divide all funds in an escrow account equally between themselves. The
Raytel Settlement also provides that Raytel shall reimburse MDI in an amount
equal to the amount, if any, by which the legal fees and expenses paid by MDI
in connection with the litigation concerning a hospital exceeded 50% of
the total of such legal fees and expenses.
Pursuant to Advanced NMR's Merger Agreement with US Diagnostic, Advanced
NMR agreed to indemnify US Diagnostic in connection the potential liabilities
that could arise out of the Raytel and Lynch proceedings against MDI
described above. To secure its indemnification obligations for the Raytel
proceedings, Advanced NMR pledged its 1,250,000 shares of AMS Common Stock
and $1,000,000, pursuant to a Blocked Account, Pledge and Security Agreement
and an Escrow Agreement. As a result of the Raytel Settlement described
above, the 1,250,000 shares of AMS Common Stock and $1,000,000 will be
released out of escrow to Advanced NMR. There is no accounting treatment for
the pledged shares and cash.
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Effective November 28, 1995, Advanced NMR terminated the Key Employment
Agreement, dated May 2, 1995, of John A. Lynch, former Chief Executive
Officer of MDI ("Lynch Employment Agreement"). In March 1996, Mr. Lynch filed
a demand for arbitration seeking a declaratory ruling, equitable relief and
monetary damages of approximately $2,000,000 and legal fees against Advanced
NMR and MDI related to claims arising out of the Lynch Employment Agreement.
The Lynch Employment Agreement provides that Lynch may recover his reasonable
legal fees and expenses if he is successful in this action. Hearings have
been held and the proceeding is anticipated to terminate by the end of the
1997. On September 23, 1997, the arbitration panel ruled in favor of Advanced
NMR and MDI on substantially all of Mr. Lynch's claims. The only issues
remaining in the Lynch arbitration are his claims under the Lynch Key
Employment Agreement for performance unit payments and attorneys' fees.
Advanced NMR believes that the results of the remaining two issues in this
arbitration should not have material adverse effect on Advanced NMR and its
business, results of operation and financial condition.
During 1996, Advanced NMR became engaged in litigation with International
Magnetic Imaging, Inc. ("IMI"), one of its customers regarding the
performance of its enhancement package for five MRI systems sold to the
customer for approximately $1,500,000. The suit was filed in the Circuit
Court of the 17th Judicial Circuit in and for Broward County, Florida. On
August 4, 1997, Advanced NMR and IMI entered into a settlement agreement
pursuant to which (i) IMI retained three Advanced NMR MRI systems, for which
Advanced NMR will license to IMI its software to be used in such systems;
(ii) IMI transferred to Advanced NMR two MRI systems; and (iii) IMI made a
$15,940 payment to Advanced NMR and Advanced NMR retained certain equipment
deposits. The receivable balance due from IMI of $751,500 was previously
written off in September 1996. The settlement payment of $15,940 will be
recorded as a gain in fiscal 1997. The two systems transferred to Advanced
NMR were not valued, as they had no use within Advanced NMR or otherwise, and
ultimately were transferred to GEMS as part of the GE Purchase Agreement.
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of Advanced NMR are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- ----- -------------------------------------------------
<S> <C> <C>
Jack Nelson (1)(2) ......... 46 Chairman of the Board, Chief Executive Officer
and Treasurer
Robert Spira, MD (1)(2)(4) 48 Vice Chairman of the Board
Enrique Levy (1)(2) ........ 60 President, Chief Operating Officer and Director
Steven J. James ............ 41 Chief Financial Officer and Secretary
George Aaron (3)(4) ........ 44 Director
Sol Triebwasser, PhD (3) .. 73 Director
</TABLE>
- ------------
(1) Executive Committee
(2) Strategic Planning Committee
(3) Audit Committee
(4) Compensation/Option Committee
The principal occupations and brief summary of the background of each
director and executive officer of Advanced NMR during the past five years is
as follows:
Jack Nelson has been Chairman of the Board of Advanced NMR since June
1991, Chief Executive Officer since January 1994 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 in New York, New York, and for more than five years prior to
December 31, 1993, he had been a senior partner with the law firm of
Zaslowsky, Marx & Nelson. Since January 1994, he has been employed full-time
with Advanced NMR and AMS. Mr. Nelson serves on the Board of Directors of
Advanced Machine Vision Corp., a publicly traded company (Nasdaq: AMVC). Mr.
Nelson holds a B.A. degree from Yeshiva University and J.D. degree from
Hofstra University School of Law.
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Robert Spira, M.D. has been a director of Advanced NMR 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 of 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 of the New Jersey
Society of Gastroenterology.
Enrique Levy has been President and Chief Operating Officer of Advanced
NMR and AMS since October 1995. From May 1994 to October 1995, he was at
Xerox Graphic Systems, Harrison, 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 process
systems and equipment for the web handling and film and paper coating
industries. Prior to 1989, he was President and Chief Executive Officer of
Polychrome Corporation, an international manufacturer of supplies to the
graphic arts and printing industry. He holds a B.S. in Chemical Engineering
from Louisiana State University.
Steven J. James has been Chief Financial Officer and Secretary of Advanced
NMR and AMS since February 1997. From December 1993 through February 1997, he
served as Chief Financial Officer of MDI. Mr. James joined MDI as controller
in 1988 and served as MDI's Vice President of Finance from September 1992 to
December 1993. Mr. James is a graduate of Bentley College with a B.S. in
Accounting. He is a Certified Public Accountant.
George Aaron has been a director of both Advanced NMR 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, Vice
President and Chief Operating Officer of Portman Pharmaceutical, Inc., which
is engaged in the research and development of therapeutic and diagnostic
products for autoimmune diseases and immunomodulation, and a founder, Chief
Executive Officer and a director of CBD Technologies, Inc., which is engaged
in the research and development of cellulose binding domains. He also serves
in various capacities with other private health care companies. He is a
graduate of the University of Maryland.
Sol Triebwasser, Ph.D. has been a director of Advanced NMR since July 1984
and a director of AMS since August 1992. Until September 1996, he had been
the 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 has 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.
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SECURITY OWNERSHIP
The following table sets forth, as of October 8, 1997, certain information
regarding the beneficial ownership of Advanced NMR Common Stock before and
after the Merger by (i) each person who is known by Advanced NMR to own
beneficially more than five percent of the outstanding Common Stock, (ii)
each director of Advanced NMR, and (iii) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE PERCENTAGE
NAME AND ADDRESS POSITION WITH BENEFICIALLY OF COMMON STOCK OF COMMON STOCK
OF BENEFICIAL OWNER COMPANY OWNED(1) BEFORE MERGER AFTER MERGER
- ----------------------- -------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Jack Nelson ............ Chairman of the Board; 675,000(2) 1.5% *
Chief Executive Officer
Enrique Levy ........... President; Chief Operating 166,750(3) * *
Officer; Director
George Aaron ........... Director 120,000(4) * *
Robert Spira, MD ....... Director 40,000(5) * *
Sol Triebwasser, Ph.D. Director 95,000(6) * *
All directors and executive 1,184,750 2.6% 1.6%
officers as a group
(6 persons)(2)(3)(4)(5)(6)
</TABLE>
- ------------
* Ownership represents less than one percent (1%).
(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 325,000 shares owned and 350,000 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) 150,000 shares underlying
options granted under the 1993 Employee Plan which are subject to
vesting thereunder.
(3) Includes 166,750 shares underlying presently exercisable options and
excludes 83,250 shares underlying options granted which become
exercisable subject to vesting thereunder.
(4) Includes 120,000 shares underling options presently exercisable under
the Incentive and Non-Qualified Stock Option Plan (the "1983 Plan") and
the 1993 Directors Plan.
(5) Includes 40,000 shares underlying options presently exercisable granted
under the 1983 Plan and the 1993 Directors Plan.
(6) Includes 95,000 shares underlying presently exercisable options granted
under the 1983 Plan and the 1993 Directors Plan.
68
<PAGE>
COMPENSATION OF ADVANCED NMR'S EXECUTIVE OFFICERS
The following table sets forth the aggregate cash compensation paid by
Advanced NMR to (i) its Chief Executive Officer and (ii) its most highly
compensated officers whose cash compensation exceeded $100,000 for services
performed during the fiscal year ended September 30, 1996. Advanced NMR is
reimbursed by AMS for a portion of the executive salaries pursuant to the
Shared Services Agreement.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ------------------------------------
AWARDS PAYOUTS
-------------- ---------
STOCK
OTHER ANNUAL RESTRICTED OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION STOCK AWARD(S) AWARD(S) PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------ --------- ---------- --------- -------------- -------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Nelson(1) ... 1996(4) $234,999 $50,000 -0- -0- 250,000 -0- $16,200(3)
Chairman and CEO . 1995 176,250 -0- -0- -0- -0- -0- 12,150(3)
1994 239,853 -0- -0- -0- 300,000 -0- 18,900(3)
Enrique Levy(5) .. 1996(4) 246,346 -0- -0- -0- -0- -0- 8,400(3)
President & COO ..
David Gaynor(2) .. 1996(4) 212,538 -0- -0- -0- 150,000 -0- 6,000(3)
President, MDI ...
Robert Kwolyk ..... 1996(4) 170,769 -0- -0- -0- -0- -0- -0-
VP, Sales &
Marketing ........ 1995 109,615 -0- -0- -0- -0- -0- 4,500(3)
</TABLE>
- ------------
(1) Mr. Nelson became a full-time employee beginning January 1, 1994.
(2) Mr. Gaynor became President of MDI beginning December 1, 1995, and
terminated his Employment Agreement effective January 31, 1997 upon the
entry by MDI into the merger agreement with US Diagnostic, he received
$247,500 in severance, plus accrued salary and vacation pay in the
amount of $60,380.
(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. Mr. Kwolyk's employment agreement
expired on April 30, 1997.
(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 Advanced NMR 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
Advanced NMR 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 Advanced NMR meeting revenue and net income budget
projections.
Mr. Nelson was granted options to purchase 250,000 shares of Advanced NMR
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 Agreement further provide that if Mr. Nelson terminates his
employment "for cause" or Advanced NMR 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
Advanced NMR or AMS, as the case may be for two full years from the date of
his termination, less any amounts received under Advanced NMR's or AMS'
insurance policies, as the case may be. In the event that Advanced NMR 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
69
<PAGE>
which Advanced NMR or AMS may merge or consolidate, or to which Advanced NMR
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 Advanced NMR or AMS, and if the assignee
was not previously part of a consolidated group with Advanced NMR 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, Advanced NMR and AMS entered into Employment
Agreements, with Enrique Levy (the "Levy Employment Agreement"), employing him
as President and Chief Operating Officer of Advanced NMR and AMS commencing
October 1, 1995, through December 31, 2000, at a base salary of $225,000 per
annum with a 10% increase in base salary from both companies effective during
the second year, with any additional increases during the third, fourth and
fifth years to be based upon increasing net income of Advanced NMR 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 his overall performance including a comparison of the actual
annual financial results of each of Advanced NMR and AMS as compared to budgets
for the year. Mr. Levy was also granted options to purchase (i) 250,000 shares
of Advanced NMR Common Stock vesting over a three year period and (ii) 100,000
shares of AMS Common Stock vesting over a three year period. The Levy
Employment Agreement further provides that if Mr. Levy terminates his
employment "for cause" or Advanced NMR or AMS, as the case may be,
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 Advanced
NMR's or AMS' insurance policies. In the event that Advanced NMR or AMS, as the
case may be, without the consent of Mr. Levy, assigns its rights and
obligations under the Levy Employment Agreement to any company with or into
which Advanced NMR or AMS may merge or consolidate, or to which Advanced NMR
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 Advanced NMR or AMS, and if the assignee was not
previously part of a consolidated group with Advanced NMR, 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 Advanced NMR'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 Advanced NMR and
AMS stock options held by him repriced to the market price of Advanced NMR
Common Stock and AMS Common Stock, respectively, as of August 22, 1996
($0.50) if, in exchange for such repricing, such member of senior management
agreed to defer an aggregate of 33% of his salary for one year, or until the
consummation of a qualifying event (such as the sale of MDI), at which time
the Compensation Committee would determine whether additional deferrals were
necessary. Messrs. Nelson and Levy 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 March 31, 1997, Steven J. James' employment agreement was amended to
provide that upon the MDI merger his employment as Vice President-Finance/CFO
would be with both Advanced NMR and AMS, instead of MDI, at an annual base
salary of $125,000 split between the two companies, terminating on June 30,
1999, and each company would grant to him options for the purchase of 25,000
shares of its Common Stock at the market price upon the respective dates of
grant. The change of control provisions in his employment agreement were
terminated upon payment of $150,000 to Mr. James in satisfaction of the
application of such provisions to the entry into the MDI/US Diagnostic merger
agreement.
Advanced NMR 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.
70
<PAGE>
STOCK OPTIONS
1983 PLAN
In 1983, Advanced NMR 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 Code, or non-qualified. The 1983
Plan terminated on June 29, 1993, except options previously granted
thereunder remain outstanding pursuant to their respective terms. As of
September 30, 1997, options for an aggregate of 95,000 shares of Common Stock
at exercise prices ranging from $0.50 to $3.13 were outstanding under the
1983 Plan.
In November 1993, Advanced NMR 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 Advanced
NMR, and certain advisors or consultants to Advanced NMR 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 Advanced NMR Common Stock which may be issued
by Advanced NMR under the 1993 Employee Plan is 2,250,000 shares.
The Option Committee determines, subject to the provisions of the 1993
Employee Plan, to whom options are granted, the number of shares of Advanced
NMR 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 1993 Employee 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 Advanced NMR ("10% Stockholder")) of the Advanced NMR 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 Advanced NMR 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 September 30, 1997, incentive and non-qualified stock options to
purchase an aggregate of 1,667,673 shares of Advanced NMR Common Stock at per
share exercise prices ranging from $.50 to $4.25 were outstanding under the
1993 Employee Plan, and no options have been exercised under the 1993
Employee Plan.
1993 DIRECTORS STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1993 Directors Plan covers all directors of Advanced NMR who are not
employees of Advanced NMR. 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 Advanced NMR for more than six
months. The maximum number of shares which may be issued under the 1993
Directors Plan is 625,000. At September 30, 1997, there were outstanding
options under this Plan for the purchase of 180,000 shares of Common Stock at a
per share exercise price of $.50.
See Proposals No. 2 and No. 3 herein for information regarding proposed
amendments to increase the number of shares which may be issued under the
1993 Employee Plan to 1,000,000 shares and under the 1993 Directors Plan to
200,000 shares, assuming stockholder approval of the Reverse Stock Split.
OTHER STOCK OPTIONS AND WARRANTS
In addition to the above plans, at September 30, 1997, there were
outstanding options and warrants to purchase 4,033,420 shares of Common Stock
at prices ranging from $.50 to $10.63 per share exercisable through May 2005.
See "Description of Advanced NMR Capital Stock -- Public Warrants."
71
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK ALTERNATIVE
PRICE APPRECIATION TO (F) AND
INDIVIDUAL FOR (G) GRANT
GRANTS OPTION TERM DATE VALUE
(A) (B) (C) (D) (E) (F) (G) (H)
% OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO EXERCISE GRANT
OPTIONS/ EMPLOYEES ON BASE DATE
SARS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($) VALUE $
- -------------- ------------ ------------ ---------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Nelson.... 250,000 62.5 $.50 12/20/2000 $27,000 $58,000
Enrique Levy... -0-
Robert Kwolyk.. -0-
David Gaynor... 150,000 37.5 $.50 12/01/2000 $16,000 $35,000
</TABLE>
FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT SEPT. 30, 1996 AT SEPT. 30, 1996
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE
- -------------- ------------------------- --------------------
<S> <C> <C>
Jack Nelson.... 250,000/250,000 $-0-
Robert Kwolyk.. 133,333/66,667 -0-
Enrique Levy... 83,333/166,667 -0-
</TABLE>
72
<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 Advanced NMR, establishes
the compensation plans and specific compensation levels for executive
officers, and administers the 1993 Employee Plan and 1993 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 Advanced NMR should be
heavily influenced by Advanced NMR performance. Stock options are granted to
the CEO and other executives, primarily based upon the executive's ability to
influence Advanced NMR's long term growth. In addition, the Committee
considers factors such as relative Advanced NMR performance, the individual's
past performance and future potential in establishing the compensation levels
and stock option awards.
During fiscal 1996 the Committee considered the fact that the exercise
price for existing stock options for executive officers, employees, current
directors and consultants of Advanced NMR granted in prior years had become
considerably in excess of market prices for Advanced NMR 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 Advanced NMR's stockholders. This consideration along with the Committee's
consideration of certain cash pressures experienced by Advanced NMR 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 Advanced NMR 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 Advanced NMR and AMS stock options held by them repriced to
the market price of Advanced NMR Common Stock and AMS Common Stock,
respectively, as of August 22, 1996 ($.50) if, in exchange for such
repricing, such member of senior management agreed to defer 33% of his salary
for one year, or until the consummation of a qualifying event (such as the
sale of MDI), at which time the Compensation Committee would determine
whether additional deferrals were necessary. Messrs. Nelson and Levy 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 Advanced NMR was also
given the opportunity to have the exercise price of options presently held by
him repriced to the market price of Advanced NMR Common Stock as of August
22, 1996 if, in exchange for such repricing, such director agreed to forego
the $10,000 board fee. All incumbent non-employee directors agreed to the
repricing of their options on such terms.
The Committee and the Advanced NMR Board felt that the deferral in the
salaries of the executive officers and the elimination of the board fee in
exchange for repricing of options held by executive officers and directors,
respectively, was the best way for Advanced NMR to continue to provide
incentive to its executive officers and directors while simultaneously
addressing its cash pressures by reducing payroll expenses.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Robert Spira
George Aaron
73
<PAGE>
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS/SARS TIME OF TIME OF NEW REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
(A) (B) (C) (D) (E) (F) (G)
- ---------------- --------- -------------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jack Nelson, CEO 8/22/96 250,000 .50 3.13 .50 02/09/98
8/22/96 250,000 .50 1.16 .50 12/20/00
- ---------------- --------- -------------- -------------- -------------- ---------- --------------
Enrique Levy, 8/22/96 250,000 .50 2.06 .50 10/04/00
President & COO
- ---------------- --------- -------------- -------------- -------------- ---------- --------------
David Gaynor 8/22/96 23,840 .50 1.75 .50 08/09/01
8/22/96 20,267 .50 2.01 .50 11/20/02
8/22/96 47,684 .50 1.45 .50 12/16/03
8/22/96 150,000 .50 1.28 .50 12/01/00
- ---------------- --------- -------------- -------------- -------------- ---------- --------------
Robert Kwolyk 0
- ---------------- --------- -------------- -------------- -------------- ----------
</TABLE>
STOCK PERFORMANCE GRAPH
The following performance graph assumes an investment of $100 on September
30, 1992 and compares the change to September 30, 1996 in the market price of
the Advanced NMR Common Stock with a broad market index (the S&P 500 Index)
and industry index (S&P Healthcare (Medical Products and Supplies)). Advanced
NMR paid no dividends during the periods shown; the performance of the
indices is shown on a total return (dividend reinvestment) basis. The graph
lines merely connect the prices on the dates indicated and do not reflect
fluctuations between those dates.
[GRAPH OF STOCK PERFORMANCE]
74
<PAGE>
ANNUAL RETURN PERCENTAGE
YEARS ENDING
<TABLE>
<CAPTION>
COMPANY/INDEX SEP92 SEP93 SEP94 SEP95 SEP96
- ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ADVANCED NMR SYSTEMS INC ... -44.92 184.21 -55.56 -32.30 -75.38
S&P 500 INDEX ............... 11.05 13.00 3.69 29.74 20.33
HLTH CARE (MED PDS&SUPP)-500. -2.67 -24.23 28.02 61.54 20.22
</TABLE>
INDEXED RETURNS
YEARS ENDING
<TABLE>
<CAPTION>
BASE
PERIOD
COMPANY/INDEX SEP91 SEP92 SEP93 SEP94 SEP95 SEP96
- ---------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ADVANCED NMR SYSTEMS INC ... 100 55.08 156.54 69.57 47.10 11.60
S&P 500 INDEX ............... 100 111.05 125.49 130.11 168.82 203.14
HLTH CARE (MED PDS&SUPP)-500. 100 97.33 73.75 94.41 152.52 183.35
</TABLE>
75
<PAGE>
CERTAIN INFORMATION CONCERNING AMS
BUSINESS OF AMS
GENERAL
AMS is a development stage company which was organized in Delaware in July
1992 to acquire and develop proprietary technology from Advanced NMR in order
to design, manufacture and commercialize a dedicated (or partial body) MRI
system for breast imaging which can be used to detect and characterize breast
tissue abnormalities.
In February 1996, the FDA cleared the commercial use of Advanced NMR's
Aurora(Trademark) dedicated MRI breast imaging system. In order to fully
commercialize the Aurora(Trademark) System and to demonstrate diagnostic
effectiveness as an accepted tool for the diagnosis and management of breast
disease, 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. AMS
has sold a second system to Advanced NMR which has been installed for
commercial use at the Faulkner Center. AMS intends to install an
Aurora(Trademark) System at the Englewood Hospital and University of Arkansas
Hospital. 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, subject to the pricing of competitive technologies.
In July 1992, Advanced NMR licensed to AMS the right to use Advanced NMR's
technology in the development of a dedicated breast imaging system. Advanced
NMR, which was then solely engaged in the manufacture and sale of MRI-based
products, decided it was more feasible to establish AMS to obtain the
financing necessary to develop an MRI scanner for breast imaging than to
continue to finance and develop the product independently. As consideration
for the License Agreement, AMS paid to Advanced NMR $1,680,000 and issued
4,000,000 shares of Advanced NMR Common Stock, of which 2,750,000 shares (the
"Escrowed Shares") were subject to an escrow arrangement for release which
was based upon AMS achieving certain future minimum pre-tax income, or the
market price of the AMS Common Stock reaching certain levels. The conditions
for the release of the Escrowed Shares were not met and the Escrowed Shares
were returned to AMS as of May 1, 1997. AMS uses a portion of Advanced NMR's
facilities and Advanced NMR's executives and employees pursuant to a Shared
Services Agreement.
For information regarding MRI technology, see "CERTAIN INFORMATION
CONCERNING ADVANCED NMR -- MRI Technology."
BREAST DISEASE INCIDENCE AND DIAGNOSIS
According to the American Cancer Society, except for skin cancer, which
has a low mortality rate, breast cancer is the most common cancer among
women, accounting for one out of every three cancer diagnoses. In 1996,
approximately 184,300 cases of invasive breast cancer were diagnosed, and
44,300 women died from this disease. Only lung cancer causes more cancer
deaths in women The procedure generally employed to diagnose breast cancer
involves several steps. First, x-ray mammography is used to screen for breast
tissue abnormalities or existence of a lesion. If an abnormality in breast
tissue is discovered and determined to be possibly indicative of a lesion,
confirming ultrasound is generally performed. Then a biopsy procedure must be
performed to determine whether or not a malignancy is present. There is also
a subset of patients who have a palpable mass that cannot be seen on x-ray.
Biopsy in these patients is presently being done by ultrasound or by excision
by a surgeon.
In the U.S., National Cancer Institute guidelines recommend women over 40
undergo an annual screening for breast cancer using x-ray mammography.
Previously, such recommendation was for women 50 years or older.
Approximately 25 million screening procedures were performed in 1996
generally utilizing conventional x-ray and ultrasound equipment. Screening
exams with x-ray mammography are generally credited with the earlier
detection of lesions and, thus, increased survival rates among breast
76
<PAGE>
cancer patients. Despite this improvement, however, screening x-ray
mammography results in ambiguous or indeterminate findings in 15-20% of
patients tested. It is in these cases where AMS believes its
Aurora(Trademark) System will provide important diagnostic information not
now available.
Over the last several years there has been increased activity in the field
of breast cancer: detection, diagnosis, treatment, and overall management.
The National Institutes of Health is currently sponsoring a major initiative
in breast cancer research. In addition, there has been generally an increased
application of magnetic resonance breast imaging. Two investigators in Europe
have now performed several thousand exams using a whole body scanner with a
breast surface coil and have, as a result, reshaped their clinical practice.
In the U.S., the National Cancer Institute is sponsoring a multi-center trial
that began in 1994 and at least one participating center has developed
complementary data to the European research. The increase in application is
evident by the increase of focus on imaging of diagnosis of breast cancer at
the Annual Meeting of the Radiologic Society of North America ("RSNA") in
1996. The first international MR breast imaging conference took place in May
1997 in Germany at which numerous papers were submitted regarding the use of
MR systems in the detection and diagnosis of breast cancer.
THE AURORA(TRADEMARK) BREAST IMAGING SYSTEM
AMS believes its Aurora(Trademark) breast imaging system has the potential
to become an important adjunct in the evaluation of the 15-20% of x-ray
mammograms that are ambiguous or indeterminate, for imaging dense breast
tissue using a patent pending technique that can suppress fat in breast
images, for earlier diagnostic intervention among high risk individuals, for
characterizing breast lesions, for determining breast implant leakage or
rupture, for staging cancer treatment and for post surgery and post radiation
follow-up. AMS is initiating studies among its clinical partners to
accelerate the expansion of MRI's potential in breast imaging. The study's
goal is to establish breast MRI as an integral tool in the diagnosis and
treatment of breast disease. These studies will be performed applying
American College of Radiology (ACR) lexicon or decision making criteria. As
broader diagnostic applications are established, the next AMS goal will be to
demonstrate clinical utility beyond diagnosis to include screening. This
expansion of breast MRI's clinical utility could alter medical practices to
include MR on a more routine basis which will derive patient demand that
should exceed the capacity of currently available whole body MRI systems. The
Aurora(Trademark) System solution is a technology dedicated to breast imaging
to address this probable future demand and meet patient needs that are
distinct from and not adequately served by whole body MRI systems. Also, the
Aurora(Trademark) System will be offered at about 1/3 of the cost of a whole
body system, or approximately $550,000. With future expanded applications and
the System's market pricing strategy, AMS expects sales of the
Aurora(Trademark) System and its diffusion in the women's healthcare
marketplace to develop commensurate with new applications. AMS plans to
market the Aurora(Trademark) System to mammography clinics and practices
where patient volume is sufficient to justify the cost of adding MR breast
imaging to the diagnostic workup of certain breast patients. AMS has been
notified that tests utilizing its Aurora(Trademark) breast imaging technology
are eligible for reimbursement to their patient members by certain
Massachusetts managed health care providers.
Technological Aspects. The Aurora(Trademark) System for breast imaging
utilizes a .5T magnet that maintains an imaging field of view and image
quality comparable to a 1.5T whole body system, dramatically reducing the
customer purchase price and siting costs. In February 1997, AMS sold an
Aurora(Trademark) System to Advanced NMR for use at the University of Texas
Medical Branch in Galveston which had been installed by Advanced NMR at such
site in early 1996. A second installation of the Aurora(Trademark) System
took place at the Faulkner Center. AMS intends to install a System in
November 1997 at the University of Arkansas Hospital and in January 1998 at
the Englewood Hospital.
AGREEMENTS WITH ADVANCED NMR
In June 1992, the Company entered into the License Agreement with Advanced
NMR pursuant to which AMS was granted a perpetual, worldwide exclusive,
royalty-free license to all proprietary technology and related know-how,
including patents owned and/or licensed by Advanced NMR and patent
applications filed or to be filed by Advanced NMR (the "Licensed
Technology"), to the extent, if any, useful in connection with developing a
dedicated MRI system for mammography (the "Field of Use").
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AMS believes other dedicated use (or partial body) MRI scanners might be
developed for fields of use in addition to breast imaging. AMS has not been
granted the right to use any technology now or hereafter obtained by AMS from
Advanced NMR in connection with any other dedicated use MRI scanners.
However, AMS has been granted a 50% interest in any entity which may be
organized by Advanced NMR to develop dedicated use MRI scanners outside of
the Field of Use ("Advanced NMR Entity") and a 50% interest in any net
profits, as defined in the License Agreement (after allocation of
development expenses), derived by Advanced NMR from the sale or license of
dedicated use MRI scanners utilizing or based upon the Licensed Technology
outside of the Field of Use. The License Agreement provides that (i) any
inventions outside the Field of Use developed solely by Advanced NMR or an
Advanced NMR Entity shall be owned by Advanced NMR or such Advanced NMR
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 Advanced NMR 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 AMS and Advanced NMR or an Advanced NMR
Entity shall be jointly owned in equal shares by AMS, on the one hand, and
Advanced NMR or an Advanced NMR Entity, on the other hand, and AMS or an
Advanced NMR Entity shall automatically license its interest to Advanced NMR
on an exclusive, worldwide basis. Accordingly, Advanced NMR shall obtain the
right to future technology developed by AMS for use in connection with breast
imaging, and AMS shall obtain the right to further technology developed by
Advanced NMR for use outside of the Field of Use.
Neither party may assign its rights under the License Agreement without
the prior written consent of the other party, except that either party may
transfer, assign or sublicense its rights under the License Agreement in
connection with disposing of an entire product line, subcontracting to a
third party the development, manufacture or sale of a particular product,
granting to a third party the right to manufacture, develop or sell a
particular product in any territory within or without the United States, or,
in the case of AMS, a transfer of all of its rights to the Licensed
Technology to a single entity.
To optimize AMS' and Advanced NMR's operating efficiency, AMS and Advanced
NMR 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 AMS and Advanced ANMR entered into a new agreement which outlined a more
accurate method of allocating the services that are shared by the companies.
Vendors for parts and services have been instructed to provide separate
invoices directly to AMS or Advanced NMR, as the case may be. Advanced NMR's
expenses related to the use of the facilities, such as rent, utilities and
insurance, are apportioned based on the number of square feet occupied by AMS
or Advanced NMR, respectively. The remaining expenses, including senior
management, administration and miscellaneous supplies and resources, are
allocated equitably between the companies.
These Agreements would terminate upon consummation of the Merger.
RESEARCH AND DEVELOPMENT
AMS is developing and has installed its first Aurora(Trademark) System at
The University of Texas Medical Branch at Galveston in early 1996 as a beta
test site. AMS continues to enhance the product's software capabilities and
is in full prototype development of a biopsy accessory for the product.
For the twelve months ended September 30, 1996, AMS expended $1,007,000
for research and development costs as compared to $940,000 for the twelve
months ended September 30, 1995. AMS expects to spend approximately $1.8
million for research and development in the 1997 fiscal year.
MARKETING
AMS intends to market its MRI breast imaging products or components
thereof, either directly to hospitals and clinics or through a marketing or
joint venture arrangement with various distributors.
In February 1996, AMS was granted a 510(k) clearance by the FDA for the
purpose of commercial distribution of the Aurora System. To accelerate the
establishment of MRI's clinical efficacy and cost
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effectiveness in the diagnosis of breast diseases, in addition to its
arrangements with its two current institutions, AMS is partnering under terms
currently in negotiations with other leading institutions to conduct rigorous
and scientifically sound clinical and economic outcome comparisons between
MRI breast imaging and mammography. AMS has commenced a comprehensive sales
campaign, which includes advertising, trade shows and application training.
COMPETITION
The health care industry in general, and the market for diagnostic imaging
equipment in particular, is highly competitive and virtually all of the other
entities known to management of AMS to be engaged in the manufacture of MRI
systems possess substantially greater resources than AMS. At the present
time, manufacturers of whole body scanners include the General Electric
Company; Toshiba; Bruker Medical Imaging Inc.; Elscint; Siemens Corporation;
Philips Medical Systems, a division of Philips Industries, N.V.; Picker
International Corporation; Shimadzu; and Hitachi. Although AMS is not aware
of any other entities involved in developing dedicated use MRI scanners for
breast imaging, AMS may experience competition from either entities
developing other dedicated use MRI scanners to image other parts of the body
seeking to expand into the area of mammography or manufacturers of whole body
scanners designed to utilize breast coils to image the breast area. In
addition to competition on price, the principal elements of competition which
will affect the ability of AMS to engage in the marketing of MRI systems will
include product performance, service and support capability, financing terms
and brand name recognition. To some extent, competition will also come from
the manufacturers of other types of diagnostic imaging systems, such as
ultrasound or thermography.
AMS will also experience competition from the use of x-ray mammography
machines, which machines are widely established and clinically accepted. The
cost of x-ray mammography equipment is typically $60,000 which is
significantly less than the expected cost to the user of AMS' breast imaging
MRI system. Today, the patient charge for a typical mammogram is about $130
and an MRI scan can cost as much as $1,000. Since AMS' cost to the purchaser
is expected to be about one-half to one-third of a whole body MRI system, AMS
believes that a proportionate savings might be passed to the patient, which
should make MRI scans more economically viable and competitive.
Although AMS believes that an MRI scanner for breast imaging will
represent a safer and more effective diagnostic imaging device, there can be
no assurance that any products developed by AMS will be commercially
accepted, especially in light of the cost savings involved in purchasing
x-ray mammography machines and the familiarity of current practitioners in
operating such devices. However, AMS also believes that MRI breast imaging
would provide additional information, especially in patients with
mammographically dense breasts, and will make it an important diagnostic tool
without having to displace x-ray mammography.
An additional competitive factor is whether AMS would obtain reimbursement
from third parties for a MRI breast imaging scan.
PATENTS AND PROPRIETARY RIGHTS
AMS currently owns two patents but intends to file at least one imaging
technique patent application this year. Pursuant to the terms of the License
Agreement, AMS has rights to 19 issued U.S. patents and related technology
relating to MRI imaging owned by Advanced NMR if any such patents and/or
applications are useful for developing a dedicated MRI scanner for breast
imaging. These rights have been licensed to GE. All major Advanced NMR
patents are protected in Japan, Canada and the European Market countries.
Additionally, AMS intends to seek patent protection for any products it
develops, or components thereof.
GOVERNMENTAL REGULATION
The health care operations of AMS are subject to extensive federal and
state regulation. Magnetic Resonance Diagnostic Devices ("MRDD") generally,
and any products AMS may develop, in particular, are subject to regulation by
the FDA, certain state and federal agencies that regulate the provision of
health care, particularly the HCFA and the EPA.
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A. FDA Regulation
The MRI scanner for breast imaging and other MRI technology devices which
AMS intends to develop will be regulated as medical devices by the FDA and as
such require regulatory clearance prior to commercialization. The level of
its classification as a medical device would determine the extent and the
scope of the FDA approval process for the MRI scanner. Various states and
foreign countries in which AMS' products may be sold in the future may impose
additional regulatory requirements.
AMS submitted a Pre-Market Notification of Intent to market the
Aurora(Trademark) System under section 510(k) of the Federal Food, Drug, and
Cosmetic Act in February 1995. Clearance to market the Aurora(Trademark)
System was granted by the FDA in February 1996.
Any products distributed by AMS pursuant to the above described clearances
will be subject to continuous regulation by the FDA, such as performance
standards or special controls promulgated by the FDA. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The export of medical devices is
also subject to regulation in certain instances. In addition, the use of AMS'
products may be regulated by various state agencies. Moreover, future changes
in regulations or enforcement policies could impose more stringent
requirements on AMS, compliance with which could adversely affect AMS'
business. Failure to comply with applicable regulatory requirements could
result in enforcement action, including withdrawal of marketing
authorization, injunction, seizure of products, and liability for civil
and/or criminal penalties.
B. Third Party Coverage, Reimbursement and Related Health Care Regulations
The market for MRI systems, including AMS' proposed products, is likely to
be affected significantly by the amount which Medicare, Medicaid or other
third party payers, including private insurance companies, will reimburse
hospitals and other providers for diagnostic procedures using MRI systems.
Recent proposals to reduce reimbursement for certain diagnostic procedures
coupled with studies questioning the need for custom testing for breast
cancer could result in limitations on or reductions for reimbursements to
providers of MRI for breast imaging.
MRI diagnostic services provided on an outpatient basis are reimbursable
under Part B of the Medicare program. The professional and technical
components of radiological procedures which are performed in a physician's
office or freestanding diagnostic imaging center, and the professional
component of radiological procedures performed in a hospital setting, are
currently reimbursed on the basis of a recently adopted relative value scale
which phased in, beginning January 1, 1992. Prior to January 1, 1992,
screening mammography was not a covered benefit under Medicare. Payment for
the professional and technical component is limited by statute.
The market for AMS' proposed products could also be adversely affected by
the amount of reimbursement provided by third party payers to hospitals for
procedures performed using such products. Reimbursement rates from private
insurance companies vary depending upon the procedure performed, the
third-party payor, the insurance plan, and other factors. Medicare generally
reimburses hospitals that are expected to purchase AMS' proposed products for
their operating costs for in-patients on a prospectively-determined fixed
amount for the costs associated with an inpatient hospital stay based on the
patient's discharge diagnosis, regardless of the actual costs incurred by the
hospital in furnishing care. The willingness of these hospitals to purchase
AMS' proposed products could be adversely affected if they determined that
the prospective payment amount to be received for the procedures for which
AMS' proposed products are used would be inadequate to cover the hospitals'
costs associated with performing the procedures using AMS' proposed products,
or to be less profitable than using an alternative procedure for the same
condition.
The Mammography Quality Standards Act of 1992 ("MQSA") authorizes the U.S.
Department of Health and Human Services ("DHHS") to regulate facilities that
provide mammography services and utilize radiological equipment. Under the
MQSA, no facility may provide mammographies (as defined therein to mean a
radiography (i.e., an x-ray) of the breast), unless it has obtained a
certificate from DHHS to do so. The MQSA also requires that the Secretary of
DHHS develop quality standards to assure the safety and accuracy of
mammography carried out by such facilities. AMS' MRI products currently
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under development do not provide radiography of the breast. Instead, they
rely upon magnetic resonance imaging technology, which does not currently
fall within the scope of the MQSA. AMS is aware of the high MQSA standard and
endeavors to develop the Aurora System to meet the MQSA guidelines.
Nonetheless, AMS cannot predict whether the MQSA will be amended or
interpreted to regulate the use of any of AMS' proposed MRI products. As
such, there can be no assurance that the MQSA and the standards promulgated
thereunder will not have an adverse effect on AMS' future ability to market
its Aurora MRI product.
A number of states, through Certificate of Need ("CON") laws, limit the
establishment of a new facility or service or the purchase of major medical
equipment to situations where it has been determined that the need for such
facility, service or equipment exists. While many states exempt non
institutional providers from CON coverage, a number of states have extended
CON coverage to physicians' offices or medical groups by restricting the
purchase of major medical equipment wherever located. There can be no
assurance that such CONs can be obtained if needed.
The Health Care Financing Administration ("HCFA"), a federal agency that
regulates national standards for charges for all medical examinations,
currently has Customary Procedure Time ("CPT") codes for MRI imaging of the
breast. The use of MRI to diagnose implant leaks is approved as a
reimbursable procedure by third party payers. However, this does not assure
that breast imaging for other clinical applications will become a
reimbursable procedure by third party payers.
Furthermore, laws, rules and regulations pertaining to health care
benefits have been subject to change in the past and the current
administration is seeking changes in the cost and delivery of health care
benefits. At this time AMS cannot predict how any such changes would affect
it.
C. EPA Regulation
AMS, and any research facility which it operates, will also be 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. Although AMS does not expect to
have to incur substantial costs in order to comply with such regulations, no
assessment can be made as to the impact of future regulations upon operations
of AMS.
EMPLOYEES
As of September 30, 1997, AMS had 15 full-time personnel involved in
research and development. Pursuant to the Shared Services Agreement with
Advanced NMR, AMS utilizes the services of Advanced NMR's personnel and
research scientists on an as-needed basis. AMS' or Advanced NMR's employees
are not represented by any labor organization, and AMS is not aware of any
activity seeking such organization. AMS and Advanced NMR consider their
relationships with such employees to be good. For a description of the Shared
Services Agreement, see "--Agreements with Advanced NMR."
PROPERTIES
AMS does not lease or own any facilities. AMS occupies space at Advanced
NMR's facility in Wilmington, Massachusetts. The Shared Facility consists of
approximately 30,000 square feet of office, research and development,
manufacturing and warehouse space which is leased by Advanced NMR pursuant to
a lease expiring May 2001, at a base monthly rental of approximately $37,000.
As of September 30, 1997, the activities of AMS utilized approximately 32% of
the Shared Facility. AMS believes that the space it currently occupies is
adequate for AMS' needs for the foreseeable future.
LEGAL PROCEEDINGS
AMS is not a party to any pending material litigation.
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EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of AMS are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- ----- -----------------------------------------------------------
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND
<S> <C> <C>
Jack Nelson(1) ............ 46 Treasurer
Robert Spira, M.D.(1)(3) . 48 Vice Chairman of the Board
Enrique Levy(1) ........... 60 President, Chief Operating Officer and Director
Steven J. James ........... 41 Chief Financial Officer and Secretary
Peter B. Roemer, Ph.D. ... 42 Vice President, Research and Technology
George Aaron(2) ........... 44 Director
Alison Estabrook, M.D.(2) 45 Director
Sol Triebwasser, Ph.D.(2) 73 Director
Bernard Weiner, M.D.(3) .. 49 Director
</TABLE>
- ------------
(1) Executive Committee
(2) Audit Committee
(3) Compensation/Option Committee
For biographical information with respect to Messrs. Nelson, Spira, Levy,
James, Aaron, and Triebwasser, see "CERTAIN INFORMATION CONCERNING ADVANCED
NMR -- Executive Officers and Directors."
Peter B. Roemer, PhD. has been Executive Vice President, Research and
Technology at AMS since October 1995, and was Corporate Engineering Managing
Director from June 1994 to October 1995. From 1990 to June 1994, Dr. Roemer
was employed by General Electric where he managed the Magnetic Resonance
Imaging and Image Guided Therapy Programs for GE's Corporate Research and
Development Group. Dr. Roemer has authored or co-authored 25 U.S. MRI
patents. Dr. Roemer is author or co-author of 17 journal articles and 39
published proceedings. He holds a PhD. in Nuclear Engineering and a B.S. in
Electrical Engineering from the Massachusetts Institute of Technology and is
a member of the American Physical Society and the External Advisory Board of
the National High Field Magnetic Laboratory (University of Florida at
Tallahassee).
Alison Estabrook, M.D. has been a director of AMS since August 1996. Since
1992, she has been an Associate Attending Physician at Columbia Presbyterian
Hospital and Associate Professor of Clinical Surgery at Columbia University.
From 1985 through 1995, Dr. Estabrook served as Director of the Breast Clinic
and since 1991 she has been the Chief of Breast Service at Columbia
University. Dr. Estabrook serves on the quality assurance committee of the
Division of Breast Surgery at Columbia Presbyterian Hospital. She has
received the Outstanding Woman Doctor of the Year Award in 1989. Dr.
Estabrook holds a B.A. degree from Barnard College and is a graduate of New
York University School of Medicine.
Bernard Weiner, M.D. has been a director of AMS since June 1995. Since
1985, Dr. Weiner has been the Director of Nephrology and Hemodialysis at
Westchester Square Medical Center. Since 1980, Dr. Weiner has been Assistant
Clinical Professor in the Department of Medicine at Albert Einstein College
of Medicine. Dr. Weiner has written articles in several medical publications
and is a member of American College of Physicians, the National Kidney
Foundation, the American Society of Internal Medicine and the International
Society of Nephrology.
All directors hold office until the next annual meeting of AMS
stockholders and until their successors are elected and qualified. Executive
officers hold office until their successors are chosen and qualify, subject
to earlier removal by the Board of Directors.
Non-employee directors receive $10,000 per annum for their services to AMS
as directors, are reimbursed for expenses incurred in connection with
attending meetings of the Board of Directors, and receive periodic options
under the AMS 1992 Non-Employee Directors Stock Option Plan (the "1992
Directors Plan").
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The Executive Committee exercises all the powers and authority of the
Board of Directors in the management and affairs of AMS between meetings of
the Board of Directors, to the extent permitted by law.
The Audit Committee reviews with AMS' independent accountants the scope
and timing of the accountants' audit services and any other services they are
asked to perform, their report on AMS' financial statements following
completion of their audit and AMS' 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 Compensation/Option Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of AMS, reviews
general policy matters relating to compensation and benefits of AMS employees
of the Company and administers the AMS 1992 Employees Stock Option Plan (the
"1992 Employees Plan").
BENEFICIAL OWNERSHIP OF AMS COMMON STOCK
The following table sets forth certain information as of October 8, 1997
concerning ownership by (i) all persons who own beneficially 5% or more of
the outstanding shares of AMS Common Stock, (ii) each director, and (iii) all
executive officers and directors of AMS as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------- ---------------------- ---------------
<S> <C> <C>
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, MA 01887................. 1,250,000 14.46%
Jack Nelson........................... 1,380,000(1) 15.97%
Enrique Levy.......................... 1,338,333(2) 15.49%
George Aaron ......................... 29,375(3) *
Alison Estabrook...................... 16,250(4) *
Robert Spira, M.D..................... 29,375(3) *
Sol Triebwasser, Ph.D. ............... 29,375(3) *
Bernard Weiner, M.D. ................. 20,625(5) *
All officers and directors as a group
(9 persons) ......................... 1,613,000(1)(2)(3)(4)(5) 17.91%
</TABLE>
- ------------
* Less than one percent (1%).
(1) Includes (i) 130,000 shares underlying options currently exercisable
under the 1992 Employees Option Plan (ii) 1,250,000 shares beneficially
owned by Advanced NMR, of which Mr. Nelson is an executive officer and
director, and excludes 90,000 shares underlying options granted in 1994
under the 1992 Employees Plan which are subject to vesting thereunder.
(2) Includes (i) 83,333 shares underlying options currently exercisable
outside the 1992 Employees Plan and (ii) 1,250,000 shares beneficially
owned by Advanced NMR, of which Mr. Levy is an executive officer and
director, and excludes 66,667 options granted under the 1992 Employees
Plan subject to later vesting.
(3) Includes 29,375 underlying options exercisable under the 1992 Directors
Plan and excludes 5,625 shares underlying options under the 1992
Directors Plan which are not presently exercisable.
(4) Includes 16,250 shares underlying options presently exercisable under
the 1992 Directors Plan and excludes 18,750 shares underlying options
under the 1992 Directors Plan which are not presently exercisable.
(5) Includes 20,625 shares underlying options presently exercisable under
the 1992 Directors Plan and excludes 14,375 shares underlying options
under the 1992 Directors Plan which are not presently exercisable.
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DESCRIPTION OF ADVANCED NMR CAPITAL STOCK
The authorized capital stock of Advanced NMR currently consists of
50,000,000 shares of Advanced NMR Common Stock and 1,000,000 shares of
Preferred Stock. As of October 8, 1997, 43,532,430 shares of Advanced NMR
Common Stock were issued and outstanding and 27,000 shares of Class B
Preferred Stock were issued and outstanding.
COMMON STOCK
Holders of Advanced NMR Common Stock are entitled to one vote per share on
all matters submitted to a vote of stockholders of Advanced NMR and to
receive dividends when, as and if declared by the Advanced NMR Board from
funds legally available therefor. Upon liquidation of Advanced NMR, holders
of Advanced NMR Common Stock are entitled to share ratably in any assets
available for distribution to stockholders after payment of all obligations
of Advanced NMR and priority payments to any senior class of capital stock.
Stockholders of Advanced NMR do not have cumulative voting rights or
preemptive, subscription or conversion rights.
PREFERRED STOCK
The Board of Directors of Advanced NMR is authorized to issue, without
further action by the stockholders of Advanced NMR, up to 1,000,000 shares of
Preferred Stock upon the conditions and terms set by the Advanced NMR Board.
The Preferred Stock may be issued in one or more series and the authority of
the Board of Directors with respect to each such series includes, without
limitation, determinations of: the number of shares and designation of each
series; the dividend rates, conditions and preferences, if any; whether the
shares are redeemable and the amount per share payable in case of redemption;
the amount payable per share in the event of any liquidation, and the
relative rights of preference; the right, if any, to convert shares; the
voting rights, if any; and all other powers, preferences, rights, limitations
and restrictions. The issuance of Preferred Stock by the Board of Directors
could be utilized as a method of preventing a takeover of Advanced NMR.
On August 18, 1997, Advanced NMR sold to GE 27,000 shares of its
newly-created Class B Preferred Stock. The Class B Preferred Stock ranks
senior to any other shares of Advanced NMR Preferred Stock and the Advanced
NMR Common Stock. The Class B Preferred Stock has a liquidation value of
$100.00 per share, plus accrued and unpaid dividends. The Class B Preferred
Stock is initially convertible into 1,159,793 shares of Advanced NMR Common
Stock on a post-Reverse Stock Split basis after August 18, 1998, or earlier
upon a change of control of Advanced NMR. A change of control is defined as:
(i) ownership of 45% or more of the outstanding shares of Advanced NMR Common
Stock; (ii) sale of substantially all of the assets of Advanced NMR; or (iii)
election of an Advanced NMR board of directors, the majority of whose members
had not been nominated by a majority of the members of the previous board of
directors. If there are not enough shares of Advanced NMR Common Stock
available to issue to GE upon a conversion of the Class B Preferred Stock, GE
has the right to have the Class B Preferred Stock redeemed for $100 per
share. No fixed dividends are paid on the shares of Class B Preferred Stock,
except that if a dividend is paid on the Advanced NMR Common Stock, dividends
are paid on the shares of Class B Preferred Stock as if they were converted
into shares of Advanced NMR Common Stock. Holders of shares of Class B
Preferred Stock do not have voting rights, except if Advanced NMR proposes an
amendment to its Certificate of Incorporation which would adversely affect
the rights of the holders of Class B Preferred Stock or if Advanced NMR
proposes to issue additional shares of Class B Preferred Stock without the
consent of at least a majority of the holders of the shares of Class B
Preferred Stock.
PUBLIC WARRANTS
Advanced NMR currently has outstanding 2,331,772 publicly-traded warrants
("Advanced NMR Warrants"). The Advanced NMR Warrants are traded on the Nasdaq
Small Cap Market under the symbol "ANMRW." Each Advanced NMR Warrant entitles
the holder thereof to purchase a share of Advanced NMR Common Stock at the
price of $3.75 per share, subject to customary antidilution adjustments. Each
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Advanced NMR Warrant may be exercised until 5:00 P.M., New York City time, on
the earlier of August 31, 2000 or the date fixed for redemption of the
Advanced NMR Warrants. The Advanced NMR Warrants are subject to redemption at
the option of Advanced NMR, in whole but not in part, at a redemption price
of $.05 per Advanced NMR Warrant, in the event that the average market price
of Advanced NMR Common Stock has been at least $4.50 per share (subject to
stock splits and combinations) for any twenty consecutive trading days.
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Both AMS and Advanced NMR are incorporated in the State of Delaware. The
rights of AMS stockholders are governed by the laws of the State of Delaware
and by the AMS Certificate of Incorporation, (the "AMS Charter"), and Bylaws
(the "AMS Bylaws"). Upon consummation of the Merger, AMS stockholders who
become holders of ANMR Common Stock will continue to have their rights
governed by the laws of the State of Delaware and otherwise governed by the
Advanced NMR Certificate of Incorporation, as amended (the "Advanced NMR
Charter"), and Advanced NMR's Amended and Restated Bylaws (the "Advanced NMR
Bylaws").
The rights of the stockholders of Advanced NMR under their respective
Certificate of Incorporation and By-Laws are similar and thus there are no
material differences that exist between the rights of AMS stockholders and
Advanced NMR stockholders.
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ADVANCED NMR SYSTEMS, INC.
PROPOSAL NO. 1 -- REVERSE STOCK SPLIT
The Board of Directors of Advanced NMR has adopted a proposal declaring
advisable an amendment to the Certificate of Incorporation of Advanced NMR to
effect a one-for-ten reverse stock split of all of the issued and outstanding
shares of Advanced NMR Common Stock (the "Reverse Stock Split Amendment"). As
of October 8, 1997, Advanced NMR had authorized 50,000,000 shares of Advanced
NMR Common Stock, and 1,000,000 shares of Preferred Stock. As of that date,
there were issued and outstanding 43,532,430 shares of Advanced NMR Common
Stock and 27,000 shares of Class B Preferred Stock. The proposed form of the
Certificate of Amendment to Advanced NMR's amended Certificate of
Incorporation respecting the Reverse Stock Split Amendment is attached hereto
as Annex E.
Adoption of the Reverse Stock Split Amendment will reduce the presently
outstanding shares of Advanced NMR Common Stock as indicated on the table
below, but will not affect the number of authorized shares of Advanced NMR
Common Stock. In connection with the Reverse Stock Split, current
stockholders would receive one share of Advanced NMR Common Stock in exchange
for every ten currently outstanding shares of Advanced NMR Common Stock they
own on the filing date of the Reverse Stock Split Amendment.
<TABLE>
<CAPTION>
BEFORE SPLIT AFTER SPLIT
-------------------------- -------------------------
AUTHORIZED ISSUED AUTHORIZED ISSUED
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
CLASS OF STOCK
- --------------
Common Stock 50,000,000 43,532,430 50,000,000 7,309,985*
</TABLE>
- ------------
* Includes approximately 2,956,742 shares issuable to the holders of the
AMS Common Stock upon the Merger. Does not include shares reserved for
issuance upon exercise of options and warrants of AMS to be assumed in
the Merger, and shares issuable upon conversion of the Class B Preferred
Stock.
The number of issued shares after the Reverse Stock Split are approximate.
Except for changes resulting from the Reverse Stock Split, the rights and
privileges of holders of shares of Advanced NMR Common Stock will remain the
same, both before and after the filing of the Reverse Stock Split Amendment.
REASONS FOR THE REVERSE STOCK SPLIT
Advanced NMR's management is proposing the Reverse Stock Split as part of
an effort to maintain Advanced NMR's listing on the Nasdaq Small Cap Market
and also to have additional shares available for issuance not only upon
exercise or conversion of Advanced NMR options, warrants, convertible
debentures and Class B Preferred Stock ("Derivative Securities"), but for
capital raising and other corporate transactions.
Under Nasdaq's new listing requirements, in order to maintain the listing
for Advanced NMR Common Stock on the Nasdaq Small Cap Market, Advanced NMR
Common Stock must have a minimum bid price of at least $1.00 in trading on
the Nasdaq Small Cap Market. Under Nasdaq's new rules, if a stock falls below
the $1.00 minimum bid price for 30 days, it will then have 90 days to rise
above the $1.00 threshold. It must remain at $1.00 for 10 consecutive trading
days to be in compliance with Nasdaq's new rules.
On May 16, 1996, Nasdaq delisted Advanced NMR Common Stock and Warrants
from trading on the Nasdaq National Market System, where Advanced NMR Common
Stock had traded since February 1994, for the failure to meet Nasdaq price
requirements. Since that time, Advanced NMR Common Stock has traded on the
Nasdaq Small Cap Market. If Advanced NMR Common Stock and Warrants are
delisted from the Nasdaq Small Cap Market, Advanced NMR would seek to have
its shares and Warrants traded on the Nasdaq OTC Electronic Bulletin Board.
The bid price for Advanced NMR's Common Stock as reported on the Nasdaq
Small Cap Market on October 8, 1997 was $.281. Advanced NMR believes that the
one-for-ten reverse stock split will better
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<PAGE>
position Advanced NMR Common Stock to be listed for trading on the Nasdaq
Small Cap Market. See "SUMMARY FINANCIAL INFORMATION -- Comparative Market
Price Data."
Advanced NMR's management believes that maintaining the listing of
Advanced NMR Common Stock on Nasdaq is very important to Advanced NMR and its
stockholders. Pursuant to Rule 15c2-6 (the "Penny Stock Rule") adopted by the
SEC under the Exchange Act, broker-dealers are required to implement certain
supplemental sales practice requirements when recommending and selling
"designated securities" to customers in transactions not exempt under the
Penny Stock Rule. The Penny Stock Rule was directed at the elimination of
certain practices in connection with the sale of certain low priced
securities. The Penny Stock Rule exempts from its requirements the securities
of issuers listed on national securities exchanges and Nasdaq. Management of
Advanced NMR believes that the market for Advanced NMR Common Stock will be
improved by maintaining a listing on the Nasdaq Small Cap Market, thereby
qualifying Advanced NMR Common Stock for the exemption from the impact of the
Penny Stock Rule.
The Advanced NMR Board of Directors also believes that the current per
share price level of Advanced NMR Common Stock has reduced the effective
marketability of the shares because of the reluctance of many leading
brokerage firms to recommend low priced stock to their clients. In addition,
a variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing in low priced stock. Some
of those policies and practices pertain to the payment of brokers'
commissions and to time consuming procedures that function to make the
handling of low priced stocks unattractive to brokers from an economic
standpoint.
The decrease in the number of shares of Advanced NMR Common Stock
outstanding as a consequence of the proposed Reverse Stock Split should
increase the per share price of the Advanced NMR Common Stock, which may
encourage greater interest in the Advanced NMR Common Stock and possibly
promote greater liquidity for Advanced NMR stockholders. However, based upon
the experience of other issuers, the increase in the per share price of the
Advanced NMR Common Stock as a consequence of the proposed Reverse Stock
Split probably will be proportionately less than the decrease in the number
of shares outstanding. In addition, any increased liquidity due to any
increased per share price could be partially or entirely offset by the
reduced number of shares outstanding after the proposed Reverse Stock Split.
Nevertheless, the proposed Reverse Stock Split could result in a per share
price that adequately compensates for the adverse impact of the market
factors noted above. There can, however, be no assurance that the favorable
effects described above will occur, or that there will not be a
disproportionate decrease in the per share price of Advanced NMR Common Stock
resulting from the proposed Reverse Stock Split.
The proposed Reverse Stock Split will become effective on the effective
date of the filing of the Reverse Stock Split Amendment (the "Amendment
Effective Date"). Commencing on the Amendment Effective Date, each currently
outstanding Advanced NMR certificate will be deemed for all corporate
purposes to evidence ownership of the reduced number of shares resulting from
the Reverse Stock Split. Currently outstanding Advanced NMR certificates do
not have to be surrendered in exchange for new certificates in connection
with the Reverse Stock Split. Rather, new stock certificates reflecting the
number of shares resulting from the Reverse Stock Split will be issued only
as currently outstanding certificates are transferred. However, Advanced NMR
will provide stockholders with instructions as to how to exchange their
certificates and encourage them to do so. Advanced NMR will obtain a new CUSIP
number for shares of Advanced NMR Common Stock on a post-Reverse Stock Split
basis.
To the extent a stockholder holds a number of shares that would result in
a residual fractional interest, no cash for fractional interests will be paid
and Advanced NMR will instruct its transfer agent to round up or down the
post-Reserve Stock Split shares to the nearest whole share.
As of October 8, 1997, Advanced NMR had approximately 1,200 stockholders
of record and believes that there are additional beneficial holders of
Advanced NMR Common Stock based on information received from the transfer
agent and those brokerage firms who hold Advanced NMR Common Stock in
custodial or "street" name. After the Reverse Stock Split Advanced NMR
estimates that, based on the stockholders of record as of October 8, 1997, it
will continue to have approximately the same number of stockholders of
record.
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<PAGE>
DERIVATIVE SECURITIES
As of October 8, 1997, there were outstanding Advanced NMR Warrants to
acquire an aggregate of 2,331,772 shares of Advanced NMR Common Stock. See
"DESCRIPTION OF ADVANCED NMR CAPITAL STOCK -- Public Warrants." As with
Advanced NMR Common Stock, the Advanced NMR Warrants will be reverse split
one-for-ten so that the total number of outstanding Advanced NMR Warrants
shall become 233,177. Each Advanced NMR Warrantholder shall have one Advanced
NMR Warrant for every ten Warrants held previously or one-tenth of the Advanced
NMR Warrant for each Advanced NMR Warrant previously owned. To the extent an
Advanced NMR Warrantholder holds a number of Advanced NMR Warrants that would
result in a residual fractional interests, Advanced NMR will round up to the
next whole Warrant. As a result of the Reverse Stock Split, the exercise price
of the Advanced NMR Warrants will be adjusted to $37.50 per share, the closing
bid price which the Advanced NMR Common Stock must achieve before the Advanced
NMR Warrants become subject to redemption will be adjusted to $45.00 per share,
and the redemption price will be adjusted to $0.50 per share.
Advanced NMR also has outstanding or is authorized to issue various
options and other warrants exercisable to acquire up to an aggregate of
3,644,321 shares of Advanced NMR Common Stock at various exercise prices. The
amount of stock issuable pursuant to these options and warrants will be
reduced to one-tenth the previous amounts and the per share exercise prices
will be increased 1,000%.
The conversion rate for each share of Class B Preferred Stock will be
changed from 429.533 to 42.9553 shares of Advanced NMR Common Stock as a
result of the Reverse Stock Split. The Class B Preferred Stock is convertible
into an aggregate of 1,159,793 shares of Advanced NMR Common Stock on a
post-Reverse Stock Split basis.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of new shares of Advanced NMR Common Stock solely in exchange
for the present shares by reason of the Reverse Stock Split will not result
in recognition of tax gain or loss to Advanced NMR stockholders as the Split
will be a tax-free reorganization. The adjusted tax basis of each
stockholders' new shares will be the same as his adjusted tax basis in the
exchanged shares. The holding period of new shares received solely in
exchange for present shares will include the stockholders' holding periods in
the exchanged present shares. No gain or loss will be recognized by the
Company upon the Reverse Stock Split. The foregoing is a general discussion
of certain federal income tax consequences of the Reverse Stock Split.
Stockholders should consult their own tax advisors as to the tax effects of
the Reverse Stock Split in light of their individual circumstances.
THE ADVANCED NMR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS APPROVE
THE REVERSE STOCK SPLIT.
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<PAGE>
ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 2 --
INCREASE IN NUMBER OF SHARES ISSUABLE
UNDER THE 1993 EMPLOYEE STOCK OPTION PLAN
In 1993, the Board of Directors of Advanced NMR and its stockholders
approved the 1993 Employee Stock Option Plan (the "1993 Employee Plan") to
issue options to purchase up to 1,500,000 shares of Advanced NMR Common
Stock. On August 31, 1995, the stockholders of Advanced NMR amended the 1993
Employee Plan to increase the maximum number of shares of Advanced NMR Common
Stock issuable under the 1993 Employee Plan to 2,250,000 shares. As of
October 8, 1997, 1,667,673 shares of Advanced NMR Common Stock were reserved
for issuance upon exercise of options granted under the 1993 Employee Plan.
On June 23, 1997, the Board of Directors of Advanced NMR unanimously
approved, subject to stockholder approval, an amendment to the 1993 Employee
Plan to increase the number of shares of Advanced NMR Common Stock available
upon the exercise of options granted thereunder to 1,000,000 shares on a
post-Reverse Stock Split basis. The Board of Directors of Advanced NMR has
determined that additional shares of Advanced NMR Common Stock should be made
available under the 1993 Employee Plan for the purpose of making grants of
stock options and providing incentives to existing and future employees,
officers, consultants or advisors of Advanced NMR and its subsidiary
corporations and for grant of options to AMS optionees upon completion of the
Merger. At October 8, 1997, AMS had outstanding options for the purchase of
an aggregate of 1,667,673 shares of AMS Common Stock under the 1993 Employee
Plan. The Merger Agreement provides for Advanced NMR to grant equivalent
options for AMS options outstanding on the Effective Date of the Merger.
Management has found the 1993 Employee Plan to be useful in the hiring and
retention of qualified officers and key personnel.
The essential features of the 1993 Employee Plan are outlined below:
Shares Subject to 1993 Employee Plan. Up to 2,250,000 shares of Advanced NMR
Common Stock may be issued under the 1993 Employee Plan, as amended to date.
If this Proposal and the Reverse Stock Split Proposal are approved, then up
to 1,000,000 shares will be available for issuance under the 1993 Employee
Plan. The number of shares available for options and subject to option, and
the option exercise price, is to be adjusted up or downward, as the case may
be, in the event of any stock dividend, recapitalization, reclassification,
stock split, reverse stock split or other similar transaction affecting
shares of Advanced NMR Common Stock. If any option granted under the 1993
Employee Plan terminates or expires without having been exercised in full,
the shares not purchased under such options will again be available for
purposes of the 1993 Employee Plan.
Administration. The 1993 Employee Plan is administered by Advanced NMR's
Option Committee (the "Committee") consisting of not less than two members of
the Board of Directors. The Committee has sole authority to determine which
eligible employees of Advanced NMR shall receive options under the 1993
Employee Plan, the times when they are to receive them, the number of shares
to be optioned in each case, the provisions of the option agreements and the
terms and conditions of exercise.
Exercise Price. The exercise price in each option granted under the 1993
Employee Plan may be not less than 100 percent of the fair market value of
the shares of the optioned stock on the date the option is granted and 110
percent of such fair market value if the optionee owns more than ten percent
of the voting rights of Advanced NMR's outstanding capital stock. The
exercise price must be paid to Advanced NMR in cash or a check to the order
of the Company, or, to the extent provided in the applicable option
agreement, by such other method as specified by the Committee on the date of
the exercise.
Eligible Employees. Subject to selection by the Committee, any employee,
officer or director who also is an employee of, or consultant or advisor to,
Advanced NMR or a majority-owned subsidiary is eligible to be granted one or
more options pursuant to the 1993 Employee Plan. Incentive options may only
be granted to individuals who are employees of the Company.
Maximum Option Term. No option under the 1993 Employee Plan may be made
exercisable after the expiration of ten years from the date of it is granted.
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<PAGE>
Non-Transferability. No option is transferable by the optionee except by will
or the laws of descent or distribution.
Exercise of Options. Options are exercisable in whole or in part at such time
after the date of grant as are set forth in an option agreement as determined
by the Committee. An option is exercisable by the optionee only while he or
she is an employee of Advanced NMR, or within three months after termination
of employment. In the event of an optionee's death or disability, the option,
to the extent exercisable at the date of termination of employment and
unexercised, may be exercised by his or her estate within one year from the
date of death or disability, but in no event may the option be exercised
after its expiration.
Restrictions on Options. Each option granted under the 1993 Employee Plan
will be for a term, and exercisable only in accordance with, option
agreements approved by the Committee. The term of stock options granted under
the 1993 Employee Plan is limited to a period of ten years from the date of
grant. Although the committee reserves the right to establish other terms and
conditions as to any option granted under the 1993 Employee Plan, it is
currently anticipated that the Committee will continue to follow this policy
as to options granted under the 1993 Employee Plan. The exercisability of an
option under the 1993 Employee Plan may be determined upon an individual
basis by the Committee at the time of grant.
The 1993 Employee Plan contains provisions which authorize the Board of
Directors, in the event of a sale or merger of all or substantially all of
Advanced NMR's assets, or a merger or consolidation in which Advanced NMR is
not the surviving corporation, to take certain actions in its discretion.
Under the terms of the 1993 Employee Plan, the aggregate fair market value
(determined at the time an option is granted, which will normally be equal to
the option exercise price per share) of Advanced NMR Common Stock exercisable
under an incentive stock option for the first time in any calendar year may
not exceed $100,000.
The 1993 Employee Plan provides that shares of Advanced NMR Common Stock
acquired upon exercise of options will be paid for in cash or, in the sole
discretion of the Committee, through the delivery of shares of Advanced NMR
Common Stock with a market value equal to the option exercise price. The
ability to pay the exercise price in shares of Advanced NMR Common Stock
would, if permitted by the Committee, enable an optionee to engage in a
series of successive stock for stock exercises of an option (sometimes
referred to as "pyramiding") and thereby fully exercise an option with little
or no cash investment by the optionee.
Amendment. The Board of Directors may amend the 1993 Employee Plan without
the approval of stockholders, except for such amendments that require
stockholder approval under Section 422 of the Code or Rule 16b-3 of the
Exchange Act or applicable Nasdaq rules.
Duration. No option may be granted under the 1993 Employee Plan after
February 10, 2003 but options granted on or before that date will remain
valid in accordance with respective terms.
For additional information about the 1993 Employee Plan, reference is made
to "CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Stock Options."
THE ADVANCED NMR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE 1993 EMPLOYEES PLAN.
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ADVANCED NMR SYSTEMS, INC. PROPOSAL NO. 3 --
INCREASE IN NUMBER OF SHARES ISSUABLE
UNDER THE 1993 DIRECTORS STOCK OPTION PLAN
In 1993, the Board of Directors of Advanced NMR and its stockholders
approved the 1993 Directors Stock Option Plan for Non-Employee Directors (the
"1993 Directors Plan") to issue options to purchase up to 625,000 shares of
Advanced NMR Common Stock. As of October 8, 1997, 180,000 shares of Advanced
NMR Common Stock were reserved for issuance upon exercise of options granted
under the 1993 Directors Plan.
On June 23, 1997, the Board of Directors of Advanced NMR unanimously
approved, subject to stockholder approval, an amendment to the 1993 Directors
Plan to increase the number of shares of Advanced NMR Common Stock available
upon the exercise of options granted thereunder to 200,000 shares on a
post-Reverse Stock Split basis. The Board of Directors of Advanced NMR has
determined that additional shares of Advanced NMR Common Stock should be made
available under the 1993 Directors Plan for the purpose of making grants of
stock options to non-employee directors of Advanced NMR. Management has found
the 1993 Directors Plan to be useful in attracting and retaining non-employee
directors to the Advanced NMR Board of Directors.
The essential features of the 1993 Directors Plan are outlined below:
Shares Subject to 1993 Directors Plan. Up to 625,000 shares of Advanced NMR
Common Stock may be issued under the 1993 Directors Plan, as amended to date.
If this Proposal and the Reverse Stock Split Proposal are approved, then up
to 200,000 shares on a post-Reverse Stock Split will be available for
issuance under the 1993 Directors Plan. The number of shares available for
options and subject to option, and the option exercise price, is to be
adjusted up or downward, as the case may be, in the event of any stock
dividend, recapitalization, reclassification, stock split, reverse stock
split or other similar transaction affecting shares of Advanced NMR Common
Stock. If any option granted under the 1993 Directors Plan terminates or
expires without having been exercised in full, the shares not purchased under
such options will again be available for purposes of the 1993 Directors Plan.
Administration. The 1993 Directors Plan is administered by the Option
Committee (the "Committee") consisting of not less than two members of the
Board of Directors who are not also employees of the Company. The Committee
has sole authority to determine which eligible persons shall receive options
under the 1993 Directors Plan, the times when they are to receive them, the
number of shares to be optioned in each case, the provisions of the option
agreements and the terms and conditions of exercise.
Exercise Price. The exercise price of each option granted under the 1993
Directors Plan may be not less than 100 percent of the fair market value of
the shares of the optioned stock on the date the option is granted. The
exercise price must be paid to Advanced NMR in cash or a check to the order
of the Company, or, to the extent provided in the applicable option
agreement, by such other method as specified by the Committee on the date of
the exercise.
Eligible Persons. Subject to selection by the Committee, any director of the
Company who is not an employee of Advanced NMR is eligible to be granted one
or more options pursuant to the 1993 Directors Plan.
Maximum Option Term. No option under the 1993 Directors Plan may be made
exercisable after the expiration of ten years from the date of it is granted.
Non-Transferability. No option is transferable by the optionee except by will
or the laws of descent or distribution.
Exercise of Options. Options are exercisable in whole or in part at such time
after the date of grant as are set forth in an option agreement as determined
by the Committee.
Termination of Options. An option to the extent not validly exercised will
terminate (i) five years from the time the optionee shall serve as a
director; (ii) one year from the optionee's death or termination of his
directorship by reason of disability; or (iii) immediately upon the removal
of the optionee as a director for cause by the stockholders.
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Restrictions on Options. Each option granted under the 1993 Directors Plan
will be for a term, and exercisable only in accordance with, option
agreements approved by the Committee. The term of stock options granted under
the 1993 Directors Plan is limited to a period of ten years from the date of
grant. Although the Committee reserves the right to establish other terms and
conditions as to any option granted under the 1993 Directors Plan, it is
currently anticipated that the Committee will continue to follow this policy
as to options granted under the 1993 Directors Plan.
Amendment. The Board of Directors may amend the 1993 Directors Plan without
the approval of stockholders, except for such amendments that require
stockholder approval under Section 422 of the Code, or Rule 16b-3 of the
Exchange Act and Nasdaq rules if applicable.
For additional information about the 1993 Directors Plan, reference is
made to "CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Stock Options."
THE ADVANCED NMR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE 1993 DIRECTORS PLAN.
ADVANCED NMR SYSTEMS, INC.
PROPOSAL NO. 4 -- ELECTION OF DIRECTORS
At the Advanced NMR Meeting, the Board of Directors will be increased to
eight persons and eight directors will be elected by the stockholders to
serve until the next Annual Meeting of Stockholders or until their successors
are elected and qualified. The accompanying proxy will be voted for the
election as directors of the nominees listed below, all of whom (except Drs.
Weiner and Estabrook and Susan S. Bailis and Daniel E. Straus) are currently
directors of Advanced NMR. Drs. Weiner and Estabrook are currently directors
of AMS. George Aaron, a current director of Advanced NMR, is not standing for
re-election.
Advanced NMR has no reason to believe that any of the nominees will be
unable to serve as a director. However, in the event that any of the nominees
should become unable to serve as a director, the persons named in the proxy
have advised that they will vote for the election of such person or persons
as shall be designated by management.
ADVANCED NMR NOMINEES
The following sets forth information about each nominee for election to
the Board of Directors.
<TABLE>
<CAPTION>
HAS SERVED AS
NAME DIRECTOR SINCE OTHER POSITIONS WITH ADVANCED NMR
- --------------------------- ------------------ --------------------------------------------------
<S> <C> <C>
Jack Nelson(1) ............. 1991 Chairman, Chief Executive Officer and Treasurer
Enrique Levy ............... 1995 President and Chief Operating Officer
Robert Spira(1)(3) ......... 1992 Vice Chairman
Alison Estabrook, M.D. .... -- --
Susan S. Bailis ............ -- --
Daniel E. Straus ........... -- --
Sol Triebwasser(2) ......... 1984 --
Bernard Weiner, M.D. ....... -- --
</TABLE>
- ------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation/Option Committee
For biographical information with respect to Messrs. Nelson, Levy, Spira
and Triebwasser, see "INFORMATION CONCERNING ADVANCED NMR -- Executive
Officers and Directors." For biographical information with respect to Drs.
Estabrook and Weiner, see "INFORMATION CONCERNING AMS -- Executive Officers
and Directors."
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Susan S. Bailis (52). Ms. Bailis has served since 1985 as President and
Chief Executive Officer of The A-D-S Group, a wholly-owned subsidiary of The
Multicare Companies, Inc. ("Multicare"), a NYSE-listed company that was
acquired by Genesis Health Ventures. Prior to her employment with The A-D-S
Group, Ms. Bailis served as Associate Director (1983-85), and Director of
Social Services (1977-85), of the New England Medical Center. Ms. Bailis
serves as President of the Massachusetts Extended Care Federation and a
Trustee of Simmons College and also serves as a board member of numerous
charitable organizations. She received her B.S. from Brandeis University and
her M.S.W. from Simmons College.
Daniel E. Straus (40). Mr. Straus has served as President, Co-Chief
Executive Officer and Director of Multicare since September 1992. From 1978
to 1984 he was involved in the business of Multicare's predecessors. Mr.
Straus received his B.A. degreee in 1978 from Columbia University and his
J.D. degreee in 1981 from New York University University Law School.
During the fiscal year ended September 30, 1996, there were 14 meetings of
the Advanced NMR Board and at least one formal meeting of each committee. All
directors attended at least 75% of the Advanced NMR Board meetings, and
appropriate committee meetings.
Directors are elected by Advanced NMR's stockholders at each annual
meeting or, in the case of a vacancy, are appointed by the directors then in
office, to serve until the next annual meeting or until their successors are
elected and qualified. Officers are appointed by and serve at the discretion
of the Advanced NMR Board.
Non-Employee Directors receive $10,000 per annum for services to Advanced
NMR, are reimbursed for expenses incurred in connection with attending
meetings of the Board of Directors and any Committees, and receive periodic
options under the Advanced NMR 1993 Non-Employee Directors Stock Option Plan,
including annual options for 2,500 shares of Advanced NMR Common Stock.
The Executive Committee exercises all the powers and authority of the
Board of Directors in the management and affairs of Advanced NMR between
meetings of the Advanced NMR Board, to the extent permitted by law.
The Audit Committee reviews with Advanced NMR's independent accountants
the scope and timing of the accountants' audit services and any other
services they are asked to perform, their report on Advanced NMR's financial
statements following completion of their audit and Advanced NMR'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 Advanced NMR Board
for the appointment of independent public accountants for the ensuing year.
The Compensation/Option Committee reviews and recommends to the Advanced
NMR Board the compensation and benefits of all officers of Advanced NMR,
reviews general policy matters relating to compensation and benefits of
employees of Advanced NMR, and administers Advanced NMR's Stock Option Plans.
For information about compensation paid to the executive officers of
Advanced NMR Systems and the Report of the Compensation Committee, see
"CERTAIN INFORMATION CONCERNING ADVANCED NMR -- Executive Compensation."
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SECURITY OWNERSHIP BY NOMINEES
The following table sets forth as of October 8, 1997, the beneficial
ownership of Advanced NMR Common Stock by each nominee for director:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NOMINEE BENEFICIAL OWNERSHIP PERCENTAGE OF COMMON STOCK
- ----------------------- -------------------- --------------------------
<S> <C> <C>
Jack Nelson ............ 675,000 1.5%
Enrique Levy ........... 166,750 *
Robert Spira, M.D. .... 40,000 *
Alison Estabrook ....... --
Susan S. Bailis ........ --
Daniel E. Straus ....... --
Sol Triebwasser, Ph.D. 95,000 *
Bernard Weiner, M.D. .. --
</TABLE>
- ------------
* Less than 1%.
THE ADVANCED NMR BOARD RECOMMENDS THAT HOLDERS OF ADVANCED NMR COMMON
STOCK VOTE FOR THE NOMINEES LISTED ABOVE.
ADVANCED NMR SYSTEMS, INC.
PROPOSAL NO. 5 -- CHANGE OF CORPORATE NAME
The Advanced NMR Board of Directors has approved an amendment to its
Certificate of Incorporation which would change the name of Advanced NMR. The
proposed name change is from Advanced NMR Systems, Inc. to "Caprius, Inc."
The Advanced NMR Systems name was chosen at the time of incorporation in 1983
and reflects Advanced NMR's previous business in the manufacture, assembly
and sale of MRI machines. The name "Caprius" signifies the dawn of a new
direction. This new name is appropriate because Advanced NMR has discontinued
its InstaScan(Trademark) business operations and through the Merger is
embarking upon a new strategic business direction.
Advanced NMR currently plans to implement the change of name when it would
be most cost efficient with regard to using current supplies of packaging,
stationery, etc. Advanced NMR anticipates that the cost of publicizing the
change of name will not be significant. The change of corporate name is
included in the amendment at Annex D.
THE ADVANCED NMR BOARD RECOMMENDS THAT HOLDERS OF ADVANCED NMR COMMON
STOCK VOTE FOR THE CHANGE OF NAME PROPOSAL.
ADVANCED NMR SYSTEMS, INC.
PROPOSAL NO. 6 -- RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to the approval by the Advanced NMR stockholders, the Advanced NMR
Board, upon the recommendation of its Audit Committee, has appointed the firm
of Richard A. Eisner & Company, LLP, which served as Advanced NMR's
independent public accountants since 1992, to serve as Advanced NMR's
independent public accountants with respect to the consolidated financial
statements of Advanced NMR and its subsidiaries for the current fiscal year.
A representative of Richard A. Eisner & Company, LLP is expected to be
present at the Advanced NMR Meeting and will have the opportunity to make a
statement if he or she desires to do so. The representative is also expected
to be available to respond to appropriate questions of Advanced NMR
stockholders.
THE ADVANCED NMR BOARD RECOMMENDS THAT THE HOLDERS OF ADVANCED NMR COMMON
STOCK VOTE FOR RATIFICATION OF THE SELECTION OF RICHARD A. EISNER & COMPANY,
LLP.
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PROPOSAL RELATING TO OTHER MATTERS
REGARDING THE ADVANCED NMR MEETING
The Advanced NMR Board does not know of any other matters which may be
brought before the Advanced NMR Meeting. However, if any such other matters
are properly presented for action, it is the intention of the persons named
in the accompanying form of proxy to vote the shares represented thereby in
accordance with their judgment on such matters.
PROPOSAL RELATING TO OTHER
MATTERS REGARDING THE AMS MEETING
The AMS Board does not know of any other matters which may be brought
before the AMS Meeting. However, if any such other matters are properly
presented for action, it is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in
accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Proposals of Advanced NMR stockholders to be presented at Advanced NMR's
Annual Meeting of Stockholders in 1998 must be received by July 15, 1998 in
order to be considered for inclusion in Advanced NMR's proxy statement and
form of proxy relating to that meeting. Stockholder proposals should be
directed to Steven J. James, Secretary, at Advanced NMR Systems, Inc., 46
Jonspin Road, Wilmington, Massachusetts 01887.
LEGAL MATTERS
The legality of the Advanced NMR Common Stock to be issued in connection
with the Merger is being passed upon for Advanced NMR by Reid & Priest LLP,
counsel for Advanced NMR. Reid & Priest LLP also provides legal services to
AMS. The federal income tax consequences in connection with the Merger
will be passed upon for Advance NMR and AMS by Reid & Priest LLP.
EXPERTS
The audited consolidated financial statements of Advanced NMR and the
audited financial of statements AMS included in this Joint Proxy
Statement/Prospectus have been examined by Richard A. Eisner & Company, LLP,
independent public accountants, as indicated in their report with respect
thereto which appears elsewhere herein, and are included herein in reliance
upon such report given upon the authority of said firm as experts in
accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
ADVANCED NMR SYSTEMS, INC.
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
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
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Consolidated Balance Sheets as at June 30, 1997 and September 30, 1996 F-21
Unaudited Consolidated Statements of Operations for the nine months ended June 30, 1997 and
1996 F-22
Unaudited Consolidated Statement of Stockholders' Equity for the nine months ended
June 30, 1997 F-23
Unaudited Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and
1996 F-24
Notes to Consolidated Financial Statements (Unaudited) F-25
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
FINANCIAL STATEMENTS:
Independent Auditors' Report F-28
Balance Sheets as at September 30, 1996 and 1995 F-29
Statements of Operations for the year ended September 30, 1996 and nine months ended
September 30, 1995 and September 30, 1994 (unaudited) and the year ended December 31, 1994
and for the period from July 2, 1992 (inception) to September 30, 1996 F-30
Statement of Changes in Stockholders' Equity for the year ended September 30, 1996, the nine
month period ended September 30, 1995, the year ended December 31, 1994 and for the period
from July 2, 1992 (inception) to September 30, 1996 F-31
Statement of Cash Flows for the year ended September 30, 1996 and nine months ended September
30, 1995 and September 30, 1994 (unaudited) and the year ended December 31, 1994 and for the
period from July 2, 1992 (inception) to September 30, 1996 F-32
Notes to Financial Statements F-33
UNAUDITED FINANCIAL STATEMENTS:
Unaudited Balance Sheets as at June 30, 1997 and September 30, 1996 F-38
Unaudited Statements of Operations for the nine months ended June 30, 1997 and 1996 F-39
Unaudited Statements of Cash Flows for the nine months ended June 30, 1997 and 1996 F-40
Notes to Financial Statements (Unaudited) F-41
</TABLE>
F-1
<PAGE>
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 and
March 13, 1997 as
to Note A
F-2
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
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 $ 01,001,130
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 .......................................... 55,392,656 58,246,689
Accumulated deficit ................................................. (31,913,813) (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
=============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------------------ ------------------------------ --------------
1996 1995 1995 1994 1994
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net patient service revenue ..... $25,480,813 $ 1,934,322 $ 1,934,322 $ -- $ --
Management fees and other ........ 653,425 40,220 40,220 -- --
-------------- -------------- -------------- -------------- --------------
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 and development ......... -- 940,141 664,786 717,010 992,365
Selling, general and
administrative .................. 4,254,964 2,449,364 2,002,075 1,135,531 1,582,820
Provision for bad debt and
collection costs ................ 2,126,471 162,377 162,377 -- --
-------------- -------------- -------------- -------------- --------------
Total operating expenses ......... 22,587,396 4,755,379 4,032,735 1,852,541 2,575,185
-------------- -------------- -------------- -------------- --------------
Operating income (loss) from
continuing operations ............ 3,546,842 (2,780,837) (2,058,193) (1,852,541) (2,575,185)
Other income (Note F) ............. 126,263 579,758 579,758 -- --
Interest income ................... 212,814 195,191 265,208 278,497 208,480
Interest expense .................. (1,847,910) (139,020) (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) (1,352,247) (1,574,044) (2,366,705)
Minority interests in net (income)
losses of consolidated entities .. (1,005,831) 783,520 569,354 488,799 702,965
Equity in loss of subsidiary ..... (2,373,580) -- -- -- --
-------------- -------------- -------------- -------------- --------------
Loss from continuing operations
before provision for income
taxes............................. (1,341,402) (1,361,388) (782,893) (1,085,245) (1,663,740)
Provision for income taxes ........ (42,288) -- -- -- --
-------------- -------------- -------------- -------------- --------------
Loss from continuing operations .. (1,383,690) (1,361,388) (782,893) (1,085,245) (1,663,740)
Discontinued operations (Note K)
Loss from operations of
discontinued division............. (3,928,706) (2,521,580) (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........... (3,510,563) -- -- -- --
-------------- -------------- -------------- -------------- --------------
Net loss .......................... $(8,822,959) $(3,882,968) $(1,677,758) $(1,341,788) $(3,546,998)
============== ============== ============== ============== ==============
Loss Per Common Share:
Loss from continuing operations .. $(.05) $ (.06) $ (.03) $ (.05) $ (.07)
Loss from operations of
discontinued division ............ (.13) (.10) (.04) (.01) (.08)
Loss on disposal of discontinued
division ......................... (.11) -- -- -- --
-------------- -------------- -------------- -------------- --------------
Net loss per share ................ $(.29) $ (.16) $ (.07) $ (.06) $ (.15)
============== ============== ============== ============== ==============
Weighted average number of common
shares outstanding ............... 30,583,320 24,020,652 24,243,902 23,543,842 23,603,251
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
COMMON STOCK PREFERRED STOCK ADDITIONAL RECEIVABLE
------------------- ----------------- PAID-IN FOR STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUED DEFICIT
-------- -------- -------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1993 .......... 23,467,030 $234,670 -- $ -- $37,622,653 $ -- $(25,303,235)
EXERCISE OF STOCK OPTIONS .......... 312,509 3,125 -- -- 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 YEAR .............. -- -- -- -- -- -- (3,546,998)
------------ -------- ------- ------ ----------- -------- ------------
BALANCE--DECEMBER 31, 1994 .......... 23,779,539 237,795 -- -- 39,001,112 (687,500) (28,850,233)
EXERCISE OF STOCK OPTIONS .......... 15,125 151 -- -- 9,680 -- --
CANCELLATION OF COMMON STOCK ISSUED
FOR SERVICES (NOTE F).............. (63,000) (630) -- -- (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).............. (250,000) (2,500) -- -- (685,000) 687,500 --
COMMON STOCK ISSUED RELATED TO
SERVICE BUSINESS ACQUISITION
(NOTE J) .......................... 6,670,157 66,702 -- -- 18,543,258 -- --
NET LOSS FOR THE PERIOD............. -- -- -- -- -- -- (1,677,758)
------------ -------- ------- ------ ----------- -------- ------------
BALANCE--SEPTEMBER 30, 1995.......... 30,151,821 301,518 -- -- 58,246,689 -- (30,527,991)
EXERCISE OF STOCK OPTIONS........... 107,487 1,075 -- -- 129,592 -- --
ISSUANCE OF CONVERTIBLE PREFERRED
STOCK (NOTE F)..................... -- -- 3,700 37 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)........................... 3,921,469 39,215 (1,506) (15) (39,200) -- --
DEEMED PREFERRED STOCK DIVIDEND
RELATED TO BENEFICIAL CONVERSION
FEATURE OF CONVERTIBLE PREFERRED
STOCK.............................. 1,233,230 (1,233,230)
INCREASE IN PROPORTIONATE SHARE OF
SUBSIDIARIES CAPITAL............... 542,700
NET LOSS FOR THE PERIOD............. -- -- -- -- -- -- (8,822,959)
------------ -------- ------- ------ ----------- -------- ------------
BALANCE AS RESTATED AT--SEPTEMBER 30,
1996................................ 34,180,777 $341,808 2,194 $ 22 $55,392,656 $ -- $(31,913,813)
============ ======== ======= ====== =========== ======== ============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TREASURY STOCK
---------------
SHARES AMOUNT TOTAL
------------------------------
<S> <C> <C> <C>
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 YEAR .............. -- -- (3,546,998)
------- ------- -----------
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 PERIOD............. -- -- (1,677,758)
------- ------- -----------
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)........................... -- -- --
DEEMED PREFERRED STOCK DIVIDEND
RELATED TO BENEFICIAL CONVERSION
FEATURE OF CONVERTIBLE PREFERRED
STOCK..............................
INCREASE IN PROPORTIONATE SHARE OF
SUBSIDIARIES CAPITAL............... 542,700
NET LOSS FOR THE PERIOD............. -- -- (8,822,959)
------- ------- -----------
BALANCE AS RESTATED AT--SEPTEMBER 30,
1996................................ 225,000 $(2,250) $23,818,423
======= ======= ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1995 1994 1994
------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $(8,822,959) $ (3,882,968) $ (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 . 1,005,831 783,520 (569,353) (488,799) (702,965)
Equity in loss of unconsolidated subsidiary ............. 2,373,580 -- -- -- --
Loss on disposal of discontinued operations ............. 3,510,563 -- -- -- --
Depreciation and amortization ........................... 3,373,278 779,007 633,948 330,859 475,918
Gain on sale of assets .................................. (174,891) -- -- -- --
Common stock and warrant issued (canceled) for services -- (357,250) (392,250) -- 35,000
Changes in assets and liabilities:
Accounts receivable, net ............................... 1,726,809 (667,558) (669,710) (2,082,539) (2,080,387)
Inventories ............................................ (50,949) (1,131,285) (360,735) (154,603) (925,153)
Other assets ........................................... 249,001 (49,174) 25,193 24,312 (50,055)
Accounts payable and accrued expenses .................. (2,375,539) 1,463,931 780,867 (525,314) 157,750
Other liabilities ...................................... -- (1,196,720) -- (712,669) 126,506
-------------- -------------- -------------- ------------- -----------
Net cash provided (used) in operating activities ....... 814,724 (4,258,497) (2,229,798) (4,950,541) (6,510,384)
-------------- -------------- -------------- ------------- -----------
Cash flows from investing activities:
Purchase of imaging and rehabilitation business (Note J) (254,249) (12,055,201) (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) (91,057) (83,465) (129,580)
Purchase of equipment, furniture and leaseholds
improvements............................................ (5,537,275) (254,056) (198,328) (606,573) (662,301)
-------------- -------------- -------------- -------------- ----------
Net cash used in investing activities .................... (7,319,558) (12,446,429) (12,344,586) (690,038) (791,881)
-------------- -------------- -------------- -------------- ----------
Cash flows from financing activities:
Exercise of stock options ............................... 130,667 9,831 9,831 46,921 47,125
Proceeds from issuance of preferred stock (Note F) ..... 3,316,645 -- -- -- --
Proceeds from issuance of long-term debt ................ 3,949,658 13,500,000 13,500,000 -- --
Repayment of long-term debt and capital lease
obligations ............................................ (4,324,764) (219,731) (222,772) (110,948) (107,907)
Distributions to minority interests ..................... (822,000) (37,500) (37,500) -- --
Contributions from minority interests ................... -- 67,593 67,593 -- --
Sale of subsidiary stock ................................ -- 3,909,400 3,199,885 469,060 709,515
Payments received on note receivable (Note F) .......... -- 110,000 -- -- 110,000
-------------- -------------- -------------- -------------- ----------
Net cash provided by financing activities ............... 2,250,206 17,339,593 16,517,037 405,033 758,733
-------------- -------------- -------------- -------------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .... (4,254,628) 634,667 1,942,653 (5,235,546) (6,543,532)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 7,542,508 6,907,841 5,599,855 12,143,387 12,143,387
-------------- -------------- -------------- -------------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................. $ 3,287,880 $ 7,542,508 $ 7,542,508 $ 6,907,841 $5,599,855
============== ============== ============== ============== ==========
Supplemental disclosures of cash flow information:
Interest paid during the period ......................... $ 1,842,591 $ 50,584 $ 47,390 $ -- $ 21,017
Note received in exchange for stock (Note F) ........... 797,500
</TABLE>
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.
See statement of stockholders' equity for amount of non-cash charges related
to conversion features.
The accompanying notes to financial statements are an integral part hereof.
F-6
<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.
The accompanying financial statements have been restated from those
originally issued to reflect a change in accounting for the May 1996 issuance
of the convertible preferred stock and debentures by ANMR and Advanced
Mammography Systems, Inc. ("AMS") described in Notes F and G to the financial
statements. The preferred stock and debentures may be converted at a discount
to the traded market price of the common stock into which the securities are
convertible. Previously, the measurement of the conversion features was
calculated assuming that the estimated fair value of the common stock into
which the securities are convertible was the quoted market price adjusted to
reflect transferability restrictions. Accordingly, no portion of the proceeds
of the issuances was allocated to the intrinsic value of the "fixed
discount." In March 1997, the Securities and Exchange Commission's ("SEC's")
position was announced that a discount should be computed based on the
Company's quoted market price and an allocation of a portion of the proceeds
should be recognized as a deemed dividend in the case of the preferred stock
and as additional interest expense in the case of the debentures. The Company
is restating its financial statements to comply with this accounting
treatment.
This amended Form 10-K should be read in conjunction with all subsequent
filings with the SEC which disclose significant developments including the
sale of an ANMR subsidiary and a proposed merger of ANMR and AMS. The impact
on the financial statements for the year ended September 30, 1996 was to
increase the consolidated net loss by approximately $543,000, to increase
dividends by approximately $1,233,000 and to increase loss per share from
continuing operations and net loss per share by $.02.
[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
F-7
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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 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 PRINCIPLES:
[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. The percentage ownership in the controlled partnerships and
joint ventures range from 49% to 100% and are controlled by the Company
through majority general partnership interests for the partnerships and
through management and clinic licenses for the joint ventures.
[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.
[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.
F-8
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
[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.
<TABLE>
<CAPTION>
ASSET CLASSIFICATION USEFUL LIVES
- ------------------------------------- -----------------
<S> <C>
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
</TABLE>
[6] Patents:
All patent costs have been written off in connection with the 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.
[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
F-9
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Term loan and revolver loan payable to a bank, collateralized by
all the business assets of the Company............................. $11,855,000 $13,500,000
Note payable to a leasing company, interest at 11.5%, monthly
payments of principal and interest of $40,147 payable through
September 2000, collaterized by certain business assets of the
Company............................................................ 1,803,000 --
Note payable to a leasing company, interest at 9.5%, monthly
payments of principal and interest of $55,762 payable through
September 1998, collaterized by certain business assets of the
Company............................................................ 1,214,077 1,698,000
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 assets of the
Company............................................................ 804,061 1,077,440
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
============= =============
</TABLE>
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.
F-10
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Capital Lease Obligations
Future minimum lease payments, under capital leases, for the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------------------------------
<S> <C>
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
============
</TABLE>
Maturities of long-term debt and capital lease obligations over the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------
<S> <C>
1997.......... $14,495,637
1998.......... 2,286,060
1999.......... 1,574,319
2000.......... 1,155,231
2001.......... 667,109
-------------
$20,178,356
=============
</TABLE>
F-11
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
Property and equipment under capital lease at September 30, 1996 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment........... $4,976,000
Less: Accumulated amortization... 1,109,000
------------
$3,867,000
============
</TABLE>
(NOTE D) -- INCOME TAXES:
As of September 30, 1996 and 1995, the components of the net deferred tax
asset and liability are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward ..... $ 10,280,000 $ 9,000,000
Provision for discontinued operations 1,404,000 --
Deferred gains ....................... 13,000 57,000
Stock option compensation ............ -- 322,000
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
================== ==================
</TABLE>
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.
F-12
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1996 1995 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pretax loss ..................... $(8,139,575) $(3,882,968) $(1,677,758) $(1,341,788) $(3,546,998)
Loss attributable to AMS ........ -- 2,414,331 1,684,048 1,772,880 2,503,162
-------------- -------------- -------------- -------------- ---------------
Parent company pretax
income (loss)................... $(8,139,575) $(1,468,637) $ 6,290 $ (431,092) $(1,043,836)
============== ============== ============== ============== ===============
Expected tax (benefit)
at 34%.......................... $(2,767,456) $ (499,337) $ 2,000 $ (147,000) $ (355,000)
Adjustment due to increase
in valuation reserve............ 2,767,456 499,337 -- 147,000 355,000
Other............................ 42,288 -- -- -- --
Utilization of available net
operating loss carryforward .... -- -- (2,000) -- --
-------------- -------------- -------------- -------------- ---------------
Tax provision per financial
statements...................... $ 42,288 $ -- $ -- $ -- $ --
============== ============== ============== ============== ===============
Permanent Difference:
Amortization of discount related
to issuance of convertible
debentures (Note C)............. 542,700 -- 542,700 -- --
============== ============== ============== ============== ===============
</TABLE>
(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.
Future basic rental commitments under operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------
<S> <C>
1997 ......... $1,828,087
1998 ......... 1,426,630
1999 ......... 847,086
2000 ......... 618,138
2001 ......... 172,318
------------
Total ...... $4,892,259
============
</TABLE>
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.
F-13
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
Future rentals under hospital rent agreements are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------
<S> <C>
1997 ......... $ 471,417
1998 ......... 435,581
1999 ......... 249,801
2000 ......... 135,401
2001 ......... 11,167
-----------
Total ...... $1,303,367
===========
</TABLE>
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.
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.
(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,
F-14
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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.
[2] Warrants
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.
F-15
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
Stock option transactions under the above plan for the past three years
are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ---------------
<S> <C> <C>
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, 1995 296,215 $.65 -$4.38
Exercised in 1996 ........... (31,625) $0.65
Canceled in 1996 ............ (112,500) $2.63 -$4.38
----------- ---------------
Balance, September 30, 1996 152,090 $.65 -$4.38
===========
</TABLE>
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:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ---------------
<S> <C> <C>
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, 1995 2,239,042 $.79 -$5.25
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, 1996 1,980,688 $.50 -$5.25
===========
</TABLE>
F-16
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
Stock transactions not covered under the option plans in 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ---------------
<S> <C> <C>
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, 1995 875,318 $.79 - $3.38
Granted in 1996 ............. 130,000 $.50 - $1.41
Canceled in 1996 ............ (150,000) $2.56
-----------
Balance, September 30, 1996 855,318 $.79 - $3.38
===========
</TABLE>
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.
[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.
[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
F-17
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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 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. However, through September
30, 1996, the escrow shares have been treated as if they were outstanding in
determining consolidation policy because those shares have identical rights,
including voting rights, to all other AMS shares.
As disclosed in Note A[1], the Company has significant transactions with
AMS in connection with a Shared Services Agreement. In addition, all of the
executive officers and directors of AMS (except two directors) are also
officers and directors of the Company. Accordingly, the Company is able to
exert significant influence on the operations of AMS regardless of the amount
of AMS shares that it owns.
The investment in and advances to AMS at September 30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Investment .. $ 768,640
Advances ..... 671,551
-----------
Total ...... $1,440,191
===========
</TABLE>
(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
F-18
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
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"). 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.
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 $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:
F-19
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------------- --------------
1996 1995 1995 1994 1994
-------------- -------------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Imaging systems sales and other
revenue............................ $ 4,847,648 $ 6,706,480 $6,643,090 $5,224,810 $ 5,288,200
Operating expenses:
Cost of goods sold.................. 3,914,329 4,581,864 4,124,354 1,956,611 2,414,121
Research and development............ 1,320,044 1,735,022 1,243,159 1,470,281 1,962,144
Selling, general and
administrative..................... 3,541,981 2,911,174 2,170,442 2,054,461 2,795,193
-------------- -------------- ------------ ------------ --------------
Total operating expenses............ 8,776,354 9,228,060 7,537,955 5,481,353 7,171,458
-------------- -------------- ------------ ------------ --------------
Loss from discontinued operations .. $(3,928,706) $(2,521,580) $ (894,865) $ (256,543) $(1,883,258)
============== ============== ============ ============ ==============
</TABLE>
The net assets of discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
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
=============== ===============
</TABLE>
(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 sufficientcash to meet obligations as they come
due through fiscal 1997 (See Note C).
F-20
<PAGE>
ADVANCED NMR SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1996
--------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 5,913,106 $ 3,287,880
Cash, restricted ................................................. 1,722,151 --
Accounts receivable, net of reserve for bad debts of $607,000 at
June 30, 1997 and $2,459,000 at September 30, 1996 .............. 2,779,730 8,015,083
Inventories ...................................................... 481,797 526,597
Other current assets ............................................. 217,511 1,002,846
--------------- ------------------
Total current assets ............................................ 11,114,295 12,832,406
--------------- ------------------
Equipment, building, furniture and leasehold improvements, net ... 955,524 9,581,564
Goodwill, net ..................................................... 2,417,844 26,205,525
Investment in and advances to unconsolidated subsidiary .......... 1,332,132 1,440,191
Other ............................................................. 165,022 664,844
--------------- ------------------
TOTAL.............................................................. $ 15,984,817 $ 50,724,530
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 663,663 $ 01,870,274
Accrued expenses ................................................. 1,271,534 3,143,158
Other current liabilities ........................................ 40,750 59,326
Current portion of long-term debt and capital lease obligations . 675,897 14,495,637
--------------- ------------------
Total current liabilities ....................................... 2,651,844 19,568,395
--------------- ------------------
Long-term debt and capital lease obligations, less current portion 512,610 5,682,719
Minority interest in net assets of consolidated entities ......... -- 1,654,993
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000 shares;
issued, -0- shares at June 30, 1997 and 2,194 shares at
September 30, 1996 .............................................. -- 22
Common stock, $.01 par value; authorized 50,000,000 shares;
issued 43,747,628 at June 30, 1997 and 34,180,777 at
September 30, 1996............................................... 437,476 341,808
Additional paid-in capital........................................ 55,776,542 55,392,656
Accumulated deficit............................................... (43,391,405) (31,913,813)
--------------- ------------------
12,822,613 23,820,673
Less: treasury stock, at cost 225,000 common shares................ 2,250 2,250
--------------- ------------------
Total stockholders' equity....................................... 12,820,363 23,818,423
--------------- ------------------
TOTAL.............................................................. $ 15,984,817 $ 50,724,530
=============== ==================
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-21
<PAGE>
ADVANCED NMR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -------------------------------
1997 1996 1997 1996
------------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue .................... 920,563 6,773,129 11,608,067 19,052,622
Management fees and other ...................... -- 146,254 287,316 531,885
------------ -------------- --------------- --------------
Total revenues ................................. 920,563 6,919,383 11,895,383 19,584,507
------------ -------------- --------------- --------------
Operating expenses:
Cost of service operations ..................... 770,836 4,216,004 8,269,199 11,970,632
Research and development ....................... -- 253,162 -- 750,957
Selling, general and administrative ............ 758,548 1,686,980 3,045,433 4,798,040
Provision for bad debt and collection costs ... 1,810 603,510 849,842 1,576,874
------------ -------------- --------------- --------------
Total operating expenses ....................... 1,531,194 6,759,656 12,164,474 19,096,503
------------ -------------- --------------- --------------
Operating income (loss)from continuing
operations ..................................... (610,631) 159,727 (269,091) 488,004
Other income .................................... 6,541 -- 239,611 126,263
Loss on sale of imaging business ................ (144,922) -- (9,377,283) --
Interest income ................................. 113,848 78,839 149,674 221,378
Interest expense ................................ (34,656) (1,407,686) (950,056) (2,397,189)
------------ -------------- --------------- --------------
Loss from continuing operations before minority
interest, equity in loss of subsidiary and
provision for taxes ............................ (669,820) (1,169,120) (10,207,145) (1,561,544)
Minority interests in net income (loss) of
consolidated entities........................... -- 300,831 (202,234) 360,487
Equity in net loss of unconsolidated subsidiary (232,041) -- (1,190,108) --
------------ -------------- --------------- --------------
Loss from continuing operations before income
taxes........................................... (901,861) (868,289) (11,599,487) (1,201,057)
Provision for income taxes....................... (40,000) (10,000) 63,445 (27,983)
------------ -------------- --------------- --------------
Loss from continuing operations.................. (941,861) (878,289) (11,536,042) (1,229,040)
Income (loss) from operations of discontinued
division........................................ 15,549 (1,358,129) 58,450 (3,327,068)
------------ -------------- --------------- --------------
Net loss......................................... $ (926,312) $(2,236,418) $(11,477,592) $(4,556,108)
============ ============== =============== ==============
Income (loss) per common share:
Income (loss) from continuing operations ........ $ (.02) $ (.03) $ (.28) $ (.04)
Income (loss) from operations of discontinued
division........................................ (--) (.04) (--) (.11)
------------ -------------- --------------- --------------
Net loss per share............................... $ (.02) $ (.07) $ (.28) $ (.15)
============ ============== =============== ==============
Weighted average number of shares outstanding ... 43,747,628 30,207,173 40,429,532 30,186,913
============ ============== =============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-22
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------------ ----------- --------- --------
<S> <C> <C> <C> <C>
Balance--As Restated--
September 30, 1996 ...... 34,180,777 $341,808 2,194 $ 0 022
Conversion of preferred
stock .................. 9,566,851 95,668 (2,194) (22 )
Increase in
proportionate share of
subsidiary's equity
related to sale of
subsidiary's stock...... -- -- -- --
Cumulative effect of
forfeiture of escrow
shares.................. -- -- -- --
Net loss for the nine
months ended June 30,
1997 ................... -- -- -- --
------------ ----------- --------- --------
Balance--June 30, 1997 .. 43,747,628 $437,476 0 $ 0
============ =========== ========= ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED TREASURY STOCK
CAPITAL DEFICIT SHARES AMOUNT TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance--As Restated--
September 30, 1996 ...... $55,392,656 $(31,913,813) 225,000 $(2,250) $ 23,818,423
Conversion of preferred
stock .................. (95,646) -- -- --
Increase in
proportionate share of
subsidiary's equity
related to sale of
subsidiary's stock...... 871,466 -- -- -- 871,466
Cumulative effect of
forfeiture of escrow
shares.................. (391,934) -- -- -- (391,934)
Net loss for the nine
months ended June 30,
1997 ................... -- (11,477,592) -- -- (11,477,592)
------------- --------------- --------- ----------- --------------
Balance--June 30, 1997 .. $55,776,542 $(43,391,405) 225,000 $ (2,250) $ 12,820,363
============= =============== ========= =========== ==============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-23
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
JUNE 30, 1997 JUNE 30, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $(11,477,592) $(4,556,108)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Loss on sale of imaging business ...................................... 9,377,283 --
Minority interest in net income (loss) of consolidated entities ...... 202,234 (360,487)
Equity in loss of unconsolidated subsidiary ........................... 1,190,108 --
Amortization of beneficial conversion feature ......................... -- 883,333
Depreciation and amortization.......................................... 871,047 2,527,343
Changes in assets and liabilities:
Increase in restricted cash .......................................... (1,722,151)
Accounts receivable, net ............................................. 58,271 687,068
Inventories .......................................................... 44,800 (2,479,731)
Other current assets ................................................. 427,223 674,463
Accounts payable and accrued expenses ................................ (1,405,177) 1,431,747
--------------- ---------------
Net cash (used) in operating activities ............................... 2,433,954 (1,192,372)
--------------- ---------------
Cash flows from investing activities:
Purchase of imaging and rehabilitation business ....................... -- (1,650,000)
Proceeds from sale of imaging business ................................ 7,938,917 --
Patent costs .......................................................... -- (36,203)
Advances to unconsolidated subsidiaries ............................... (602,516) --
Purchase of minority interest in Rehabilitation business ............. (1,500,000) --
Purchase of equipment, furniture and leaseholds improvements ......... (2,000,352) (527,184)
Other assets .......................................................... 225,912 (211,310)
--------------- ---------------
Net cash provided (used) in investing activities ...................... 4,061,961 (2,424,697)
--------------- ---------------
Cash flows from financing activities:
Exercise of stock options ............................................. -- 130,667
Proceeds from issuance of convertible debentures and warrants ........ -- 2,751,950
Proceeds from issuance of preferred stock ............................. -- 3,316,645
Proceeds from issuance of long-term debt .............................. 1,842,707 680,000
Financing of purchase of minority interest in Rehabilitation business 1,300,000 --
Repayment of long-term debt and capital lease obligations ............ (1,674,827) (3,452,246)
Distributions to minority interests ................................... (470,661) (759,500)
--------------- ---------------
Net cash provided by financing activities ............................. 997,219 2,667,516
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... 2,625,226 (949,553)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 3,287,880 7,542,508
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 5,913,106 $ 6,592,955
=============== ===============
Supplement disclosures of cash flow information:
Interest paid during the period........................................ $ 924,117 $ 619,744
=============== ===============
Supplemental disclosures of Non-cash Investing and Financing
Activities:
Additions to capital leases............................................ $ -- $ 1,870,874
=============== ===============
See Statement of Stockholders' Equity for amounts of non-cash charges
related to beneficial conversion features
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-24
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying financial statements have been restated to include
adjustments to the September 30, 1996 balances of additional paid in capital
and accumulated deficit to reflect a change in accounting for the May 1996
issuance of certain convertible securities by Advanced NMR and AMS whereby
the beneficial conversion feature of the securities has been recorded as a
dividend in the case of convertible preferred stock and as additional
interest expense in the case of converrible debentures.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The accompanying financial statements do not contain all of the
disclosures required by generally accepted accounting principles and should
be read in conjunction with the financial statements and related notes
included in the Company's annual report on form 10-K and 10-K/A for the year
ended September 30, 1996.
NOTE 2 THE COMPANY
In August, 1996, the Company announced a new strategic direction, whereby
the Company would focus on the development of breast imaging centers and on
its Imaging and Rehabilitation Services business. The Company would also
continue to provide very high field MRI systems for clinical applications and
advanced research through its agreement with GE Medical Systems ("GEMS") (see
Note 3). From its inception through November 1992, the Company engaged
exclusively in research and development activities for its
Instascan(Trademark) ultrafast magnetic resonance imaging system. In 1992,
the Company received FDA clearance and commenced commercial marketing
activities up until August 1996, when the Company discontinued the
manufacture of its InstaScan(Trademark) product.
On February 27, 1997, Medical Diagnostics, Inc., a wholly owned subsidiary
of the Company merged with MDI Acquisition Corporation, a newly formed
wholly-owned subsidiary of US Diagnostic Inc. ("USD") and became a
wholly-owned subsidiary of USD. The Merger was effected pursuant to an
Agreement and Plan of Merger, dated January 20, 1997.
On March 21, 1997, the Company acquired the remaining 25% minority
interest in the Rehabilitation Business for $1.5 million which included a
seller note of $1.3 million, maturing October 1998, payable quarterly with a
balloon payment of $200,000.
NOTE 3 THE PROPOSED MERGER
On June 23, 1997, the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with AMS, whereby AMS will merge (the "AMS Merger") into
AMS Merger Corp. ("Merger Corp."), a wholly owned subsidiary of ANMR, and
become a wholly owned subsidiary of ANMR. As a condition of the AMS Merger,
ANMR will amend its Certificate of Incorporation to effect a one-for-ten
Reverse Stock Split. In consideration for the Merger, AMS shareholders will
receive .4 of a share of ANMR, on a post-Reverse Stock Split basis, in
exchange for each share of AMS stock, and outstanding AMS options and
warrants would be exchanged on a similar basis. The Company expects to
complete the AMS Merger in September, after approval by stockholders of AMS
and ANMR and other customary closing conditions
NOTE 4 THE GEMS AGREEMENT
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
F-25
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
clearance for commercial use, were sold to research institutions throughout
the world through September 1996. A 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 June 30, 1997,
there are twenty-four (24) Instascan systems and seven (7) 3T/4T systems in
the field. The Company's exclusive contract with GEMS to provide engineering
integration of very high field 3T and 4T MRI systems runs through June 1999.
On August 18, 1997, Advanced NMR and GE entered into a purchase agreement
whereby GE purchased from Advanced NMR all inventory, equipment and other
assets, and assumed liabilities relating to the 3T, 4T and InstaScan
business, in exchange for $2,432,580 in cash and the purchase by GE of
$2,700,000 stated value of a newly issued class of Advanced NMR convertible
redeemable preferred stock.
NOTE 5 AMS
In May 1996, AMS closed a private placement (the "AMS Placement") of $3
million principal 4% convertible debentures. Net proceeds from the AMS
Placement were 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
at which time the Company's percentage ownership of AMS was reduced to
approximately 48%. Accordingly, as of September 30, 1996, the Company changed
from consolidation of AMS to the equity method of accounting for its
investment in AMS.
In connection with the AMS January 1993 public offering, the Company,
which was the sole stockholder of AMS, placed in escrow an aggregate of
2,750,000 (the "Escrow Shares") of the 4,000,000 shares of Common Stock it
owned. On May 1, 1997, all the Escrow Shares were forfeited as a result of
AMS' failure to achieve certain financial and market price milestones, which
if achieved would have resulted in the release of the Escrow Shares to the
Company. Upon the forfeiture of the Escrow Shares, the Company's interest in
AMS was reduced to approximately 16% of the outstanding AMS Common Stock.
Because the Company shares common facilities, executive officers and
directors with AMS, the Company can exert significant influence on the
operations of AMS and, accordingly, continues to account for its investment
in AMS by the equity method. The Company's investment in and advances to AMS
were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1996
--------------- ------------------
<S> <C> <C>
Investment .. $ 58,064 $ 768,640
Advances ..... 1,274,068 671,551
--------------- ------------------
$1,332,132 $1,440,191
=============== ==================
</TABLE>
NOTE 6 PRIVATE PLACEMENT OF ANMR CONVERTIBLE PREFERRED STOCK
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"). 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 January 31,
1997, all 3,700 shares of Preferred Stock had been converted into 13,488,320
shares of Common Stock. The net proceeds from the Placement of approximately
$3,320,000, after payment of fees and related expenses, was used for working
capital.
NOTE 7 MDI MERGER WITH USD AND RELATED PRO FORMA FINANCIAL INFORMATION
On February 27, 1997, MDI, a wholly owned subsidiary the Company, merged
with MDI Acquisition Corporation, a newly-formed wholly-owned subsidiary of
USD and became a wholly-owned subsidiary of USD (the "MDI Merger"). The MDI
Merger was effected pursuant to an Agreement and Plan of Merger, dated
January 20, 1997.
F-26
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
At the effective time of the MDI Merger, USD paid the Company $22,000,000
(the "Merger Consideration") as follows: (i) to Chase Manhattan Bank N.A.
(the "Bank"), on behalf of obligations of MDI which were guaranteed by the
Company, an amount sufficient to fully satisfy all of MDI's obligations to
the Bank (approximately $12,000,000) and (ii) the remainder of the Merger
Consideration (approximately $10,000,000) to the Company. As a result of the
MDI Merger, USD assumed approximately $9,000,000 in payment obligations under
MDI's capital leases. The Company paid a financial advisor fee to Leeds Group
Inc. and other expenses related to the MDI Merger.
In addition, the Company maintained letters of credit in the aggregate
amount of $700,000 securing certain of the capital leases assumed by USD, for
which the Company received a $700,000 note from USD repayable on December 31,
1997 in the event the letters of credit are not replaced or removed. USD
agreed to use to its best efforts to replace those letters of credit or to
remove the requirement for them. There are also mutual indemnification's
between the Company and USD whereby the Company has indemnified USD from any
claims arising from the termination of the Key Employment Agreement of John
A. Lynch, MDI's former Chief Executive Officer and from any losses arising
from the lawsuits between MDI and Raytel Medical Corporation, et al,
("Raytel"). In connection with the Raytel litigation $1,000,000 of the Merger
Consideration and all of the Company's unescrowed shares in AMS have been
placed in a blocked account as security until the litigation is settled or
decided by a trial court.
The loss on the sale of the imaging business of $9,377,283 has been
determined based on the sales price less the Company's basis in the MDI
assts, including a reduction of approximately $24,257,000 in goodwill. Costs
or revenues arising from the Lynch Arbitration and the Raytel Litigation
incurred by the Company subsequent to February 27, 1997 will be charged to
loss on sale of imaging business.
The following unaudited pro forma financial information sets forth the
results of the Company as if the MDI Merger had occurred prior to October 1,
1996. The pro forma financial information does not purport to be indicative
of what would have occurred had the acquisition been made as of October 1,
1996 or results that may occur in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 1997
-----------------
<S> <C>
Net revenues .. $ 3,225,000
Net Loss....... $(1,847,000)
Loss per share. $ (0.05)
</TABLE>
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Advanced Mammography Systems, Inc.
We have audited the accompanying balance sheets of Advanced Mammography
Systems, Inc. (a development stage company) as at September 30, 1996 and
September 30, 1995, and the related statements of operations, stockholders'
equity, and cash flows for the year ended September 30, 1996, the nine months
ended September 30, 1995, the year ended December 31, 1994 and for the period
July 2, 1992 (Inception) to September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 financial statements enumerated above present fairly,
in all material respects, the financial position of Advanced Mammography
Systems, Inc. at September 30, 1996 and September 30, 1995, and the results
of its operations and its cash flows for the year ended September 30, 1996,
the nine months ended September 30, 1995, the year ended December 31, 1994
and the period from July 2, 1992 (Inception) to September 30, 1996, 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 to satisfy its
obligations as they become due during fiscal 1997. This matter raises
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 A to the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 22, 1996
March 13, 1997 as to
Note A
F-28
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 1,997,076 $ 1,832,563
Inventory (Note B) ................................................ 1,123,404 969,979
Other current assets .............................................. 27,204 0
--------------- ---------------
TOTAL CURRENT ASSETS............................................. 3,147,684 2,802,542
Equipment--at cost, net of accumulated depreciation of $335,277 and
$190,942 at September 30, 1996 and September 30, 1995,
respectively (Note B) ............................................. 611,432 603,797
Patent--at cost, net of amortization of $7,060 and $1,091 at
September 30, 1996 and September 30, 1995, respectively (Note B) .. 24,661 24,028
Other .............................................................. 0 10,000
Debt issue cost (Note C) ........................................... 200,574 0
--------------- ---------------
TOTAL ASSETS........................................................ $ 3,984,351 $ 3,440,367
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable & accrued expenses ............................... $ 184,785 $ 25,083
Compensation payable .............................................. 52,259 38,509
Accounts payable to related party (Note E) ........................ 671,551 133,428
--------------- ---------------
TOTAL CURRENT LIABILITIES .......................................... 908,595 197,020
--------------- ---------------
Notes Payable (Note C) ............................................. 1,471,751 0
--------------- ---------------
TOTAL LIABILITIES ............................................... 2,380,346 197,020
STOCKHOLDERS' EQUITY (Notes A and C)
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
issued ........................................................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized,
8,346,740 shares issued at September 30, 1996, and 6,598,376
shares issued at September 30, 1995............................... 83,468 65,984
Additional paid-in capital ........................................ 14,368,542 11,847,729
Deficit accumulated during the development stage .................. (12,848,005) (8,670,366)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY ...................................... 1,604,005 3,243,347
--------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ........................... $ 3,984,351 $ 3,440,367
=============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-29
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS NINE MONTHS FROM JULY 2, 1992
YEAR ENDED ENDED ENDED YEAR ENDED (INCEPTION) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 DECEMBER 31, 1994 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
COSTS & EXPENSES:
Acquired Technology
Rights (Note D) ......... $ -- $ -- $ -- $ -- $ 1,720,000
Research & Development
(Note D) ................ 1,007,294 664,786 717,010 992,365 3,726,862
General & Administrative
(Note E) ................ 2,209,736 1,107,326 1,119,138 1,582,820 5,770,296
------------------ ------------------ ------------------ ----------------- ------------------
LOSS FROM OPERATIONS .... (3,217,030) (1,772,112) (1,836,148) (2,575,185) (11,217,158)
Amortization of Debt
Issuance Costs (Note C) . (30,857) -- -- -- (341,819)
Interest Expense (Note C). (1,000,000) -- -- -- (1,599,999)
Interest and Other
Income................... 70,248 88,064 63,268 72,023 310,971
------------------ ------------------ ------------------ ----------------- ------------------
NET LOSS AND DEFICIT
ACCUMULATED DURING
DEVELOPMENT STAGE ....... $(4,177,639) $(1,684,048) $(1,772,880) $(2,503,162) $(12,848,005)
================== ================== ================== ================= ==================
NET LOSS PER SHARE
(Note B) ................ $ (1.03) $ (.44) $ (.64) $ (.89)
================== ================== ================== =================
Weighted average number
of Common Shares
Outstanding ............. 4,046,160 3,830,092 2,765,975 2,801,946
================== ================== ================== =================
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-30
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFICIT ACCUMULATED
---------------------- PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE
----------- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Common stock issued in connection with
the acquisition of technology rights
(Note D) ............................... 4,000,000 $40,000 $ -- $ --
Common stock warrants issued in
connection with notes payable (Note
C[3]) .................................. -- -- 500,000 --
Net loss--July 2, 1992 (inception) to
December 31, 1992 ...................... -- -- -- (2,718,560)
----------- --------- ------------- -------------------
Balance--December 31, 1992 .............. 4,000,000 40,000 500,000 (2,718,560)
Initial public offering of stock, net of
offering costs ......................... 1,483,500 14,835 7,449,677 --
Net loss for the year ended
December 31, 1993 ...................... -- -- -- (1,764,596)
----------- --------- ------------- -------------------
Balance--December 31, 1993 .............. 5,483,500 54,835 7,949,677 (4,483,156)
Warrants exercised ...................... 223,105 2,231 667,084 --
Stock options exercised ................. 5,000 50 39,950 --
Net loss for the year ended
December 31, 1994 ...................... -- -- -- (2,503,162)
----------- --------- ------------- -------------------
Balance--December 31, 1994 .............. 5,711,605 57,116 8,656,711 (6,986,318)
Stock options exercised ................. 114,286 1,143 881,288 --
Warrants exercised ...................... 772,485 7,725 2,309,730 --
Net loss for the nine months ended
September 30, 1995 ..................... -- -- -- (1,684,048)
----------- --------- ------------- -------------------
Balance--September 30, 1995 ............. 6,598,376 $65,984 $11,847,729 $ (8,670,366)
Common stock warrants issued in
connection with notes payable
(Note C[3]) ............................. -- -- 200,000 --
Beneficial conversion feature of
convertible debentures (Note C) ....... 1,000,000 (1,000,000)
Cost of warrants issuance ............... -- -- (16,619) --
Conversion of Notes Payable into Common
Stock (Note C[3]) ....................... 1,748,364 17,484 1,337,432 --
Net loss for the year ended
September 30, 1996 ..................... -- -- -- (3,177,639)
----------- --------- ------------- -------------------
Balance--September 30, 1996 ............. 8,346,740 $83,468 $14,368,542 $(12,848,005)
=========== ========= ============= ===================
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-31
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS NINE MONTHS FROM JULY 2, 1992
YEAR ENDED ENDED ENDED YEAR ENDED (INCEPTION) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 DECEMBER 31, 1994 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net Loss ..................... $(4,177,639) $(1,684,048) $(1,772,880) $(2,503,162) $(12,848,005)
------------------ ------------------ ------------------ ----------------- ------------------
Adjustments to reconcile net
loss to net cash flows from
operating activities:
Depreciation and
amortization................. 148,920 81,485 49,381 76,889 1,100,090
Amortization of debt issuance
cost ........................ 30,857 -- -- -- 82,682
Amortization of discount
related to issuance of
convertible debentures ..... 1,000,000 1,000,000
Common stock issued for
technology rights ........... -- -- -- -- 40,000
Changes in assets and
liabilities:
Inventories ................. (153,425) (702,641) (58,720) (267,338) (1,123,404)
Prepaid expenses & other
assets ...................... (17,204) 58,720 (15,000) (73,720) (27,204)
Accounts payable and other
current liabilities ......... 711,575 (217,103) 334,730 293,424 908,595
------------------ ------------------ ------------------ ----------------- ------------------
Total adjustments ............ 720,723 (779,539) 310,391 29,255 980,759
------------------ ------------------ ------------------ ----------------- ------------------
Net cash used for operating
activities ................... (2,456,916) (2,463,587) (1,462,489) (2,473,907) (10,867,246)
------------------ ------------------ ------------------ ----------------- ------------------
Cash flows from investing
activities:
Capital expenditures ......... (158,571) (94,562) (444,814) (479,095) (978,429)
------------------ ------------------ ------------------ ----------------- ------------------
Net cash used for investing
activities ................... (158,571) (94,562) (444,814) (479,095) (978,429)
------------------ ------------------ ------------------ ----------------- ------------------
Cash flows from financing
activities:
Proceeds from notes payable
and warrants ................ 3,000,000 -- -- -- 5,000,000
Debt issuance costs .......... (220,000) -- -- -- (530,962)
Payment of notes payable .... -- -- -- -- (2,000,000)
Public offering of stock, net -- -- -- -- 8,901,000
Costs of Public Offering .... -- -- -- -- (1,436,617)
Sale of option to purchase
units ....................... -- -- -- -- 129
Proceeds from sale of stock
and exercise of warrants ... -- 3,199,886 469,060 709,315 3,909,201
------------------ ------------------ ----------------- ------------------
Net cash provided by financing
activities 2,780,000 3,199,886 469,060 709,315 13,842,751
------------------ ------------------ ------------------ ----------------- ------------------
Cash and cash equivalents:
Net increase (decrease) ..... 164,513 641,737 (1,438,243) (2,243,687) 1,997,076
Balance, beginning of period 1,832,563 1,190,826 3,434,513 3,434,513 $ --
------------------ ------------------ ------------------ ----------------- ------------------
Balance, end of period ...... $ 1,997,076 $ 1,832,563 $ 1,996,270 $ 1,190,826 $ 1,997,076
================== ================== ================== ================= ==================
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-32
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) THE COMPANY:
Advanced Mammography Systems, Inc. (the "Company") was incorporated on
July 2, 1992 as a wholly owned subsidiary of Advanced NMR Systems, Inc.
("ANMR"). At September 30, 1996, ANMR owns approximately 48% of the
outstanding common stock of the Company. The Company was formed to develop a
dedicated magnetic resonance imaging system for mammography. The Company
obtained its mammography technology and certain rights to other technology
from ANMR (Note D). The Company also intends to pursue other dedicated
imaging systems in the future.
The accompanying financial statements have been restated from those
originally issued to reflect a change in accounting for the May 1996 issuance
of the convertible debentures described in Note 3 to the financial
statements. The debentures may be converted at a discount to the traded
market price of the common stock into which the debentures are convertible.
Previously, the measurement of the conversion feature was calculated assuming
that the estimated fair value of the common stock into which the security is
convertible was the quoted market price adjusted to reflect transferability
restrictions. Accordingly, no portion of the proceeds on the debt issuance
was allocated to the intrinsic value of the "fixed discount." In March 1997,
the Securities and Exchange Commission's ("SEC") position was announced that
a discount should be computed based on the Company's quoted market price and
an allocation of a portion of the proceeds of the offering should be
recognized as additional interest expense on the debentures. The Company is
restating its financial statements to comply with this accounting treatment.
This amended Form 10-K should be read in conjunction with all subsequent
filings with the SEC which disclose significant developments including a
proposed merger of ANMR and AMS. The impact on the results of operations for
the year ended September 30, 1996 was to increase the net loss by
approximately $1,000,000 and to increase net loss per share by $.24.
The Company is in the development stage and its efforts through September
30, 1996 have been principally devoted to organizational activities, raising
capital and research and development efforts. Management anticipates
incurring substantial additional losses as it pursues its research and
development efforts and production and marketing activities.
The Company shares facilities and certain other resources with ANMR and
costs are allocated between the companies based on estimated usage. Certain
of ANMR's officers serve as officers of the Company and the Company obtains
management and administrative support from ANMR's staff.
In August 1996, ANMR's Board of Directors adopted a formal plan to
discontinue its Imaging Systems Business Segment. The Company is
renegotiating its Shared Services agreement based upon this discontinuance of
operations for the upcoming year.
The Company currently has no sources of recurring revenues and has
incurred operating losses since its inception. At September 30, 1996, the
Company has an accumulated deficit of $12,848,005. Such losses have resulted
principally from costs incurred in research and development and from general
and administrative expenses associated with the Company's operations. The
Company expects that operating losses will continue for at least the next few
years as product development, clinical testing and other operations continue.
The Company currently funds its operations principally through the use of
cash obtained from third party financing. The Company is continuing to
actively pursue various funding options, including equity offerings,
commercial and other borrowings, strategic corporate alliances and business
combination transactions, or a combination of these methods for obtaining the
additional financing that would be required to continue the research and
development necessary to complete the development of its product and bring it
to commercial markets. There can be no assurance that these efforts will be
successful.
F-33
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE B) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Fiscal year end:
During 1995, the Company changed its fiscal year from December 31 to
September 30. All references to years in these notes to financial statements
represent fiscal years unless otherwise noted.
[2] Depreciation and amortization:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. When property is retired or otherwise disposed
of, the cost and accumulated depreciation is removed from the accounts, and
any resulting gain or loss is included in expense.
[3] Loss per share of common stock:
The loss per share of common stock for the twelve months ended September
30, 1996 and the nine months ended September 30, 1995 and the nine months
ended September 30, 1994 and the year ended December 31, 1994 is based on the
weighted average number of common shares outstanding during the respective
periods.
Shares held in escrow are not treated as outstanding because their effect
would be antidilutive (Note C[1]).
[4] Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
[5] Inventories:
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Inventory is comprised principally of components to be used in the
production of the mammography imaging systems.
[6] 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.
[7] Recent pronouncements:
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFA
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
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 and for 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 No. 121 will not have a material
impact on its financial statements.
F-34
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) CAPITALIZATION:
[1] Common stock:
As discussed in Note D, the Company has issued 4,000,000 shares of common
stock to ANMR for a purchase price of $40,000. In connection with its initial
public offering, ANMR placed 2,750,000 of the 4,000,000 shares outstanding
into escrow. The escrow shares are to be released based upon the Company
attaining certain levels of pretax income for the years ending December 31,
1995 and/or 1996 and if the market price of the Company's common stock
reaches certain levels during defined periods ending December 31, 1996. If
the shares are released from escrow the Company will incur an expense related
to the value of the shares at the time they are released. The Company
believes that it is highly unlikely that the escrow shares will be released.
[2] Preferred stock:
The Company has authorized the issuance of 5,000,000 shares of preferred
stock, par value $.01 per share. The Board of Directors of the Company has
broad discretion to create one or more series of preferred stock and to
determine the rights, preferences and privileges of any such series.
[3] Notes payable and related warrants:
As of July 30, 1992, the Company issued $2,000,000 of notes, with an
annual interest rate of 10%, originally payable on June 30, 1993. The notes
were issued with detachable warrants to purchase 1,000,000 shares of common
stock at a price equal to one-half the offering price of the initial public
offering which was $6.00 per share. The notes were redeemed, including
accrued interest, on the closing date of the Company's initial public
offering in January 1993. Of the gross proceeds of $2,000,000 from the
issuance of the notes, $500,000 was attributed to the value of the warrants
and accounted for as debt discount and amortized over the term the debt was
outstanding. Expenses incurred in connection with the issuance of the notes,
amounting to $310,962 were amortized on the same basis.
During 1996, pursuant to Regulation S of the Securities act of 1933, the
Company issued $3,000,000 of 4% convertible notes payable. The notes are due
in full on December 1, 1998. The principal amount of the notes 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 three 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
$1,438,000 of the principal amount of the notes payable had been converted
into 1,748,364 shares of common stock of the Company and the principal amount
of the notes outstanding at September 30, 1996, is $1,562,000. In conjunction
with these notes, the Company issued warrants for the purchase of 395,000
shares of its common stock. The warrants are exercisable until May 15, 2001
at a price of $2.50 per share. The value assigned to these warrants,
amounting to $200,000, is accounted for as debt discount and is being
amortized over the period of time the notes are expected to be outstanding.
The effective interest rate on the notes, including the debt discount, is
approximately 201%.
[4] Stock option plans:
The Company has a stock option plan that provides for the granting of
options to purchase up to 1,250,000 shares of common stock. The Plan provides
for the granting of both incentive stock options and nonstatutory stock
options to employees, directors and consultants.
In addition, the Company has a Nonemployee Directors' Stock Option plan
that provides for the granting of options to purchase up to 350,000 shares of
common stock to nonemployee directors of the Company.
F-35
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has had the following option activity through September 30,
1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
----------- ---------------
<S> <C> <C>
Balance--12/31/92 . 0 $ -0-
Granted ............ 100,000 $ 6.00-$9.98
-----------
Balance--12/31/93 . 100,000 $ 6.00-$9.98
Granted ............ 187,500 $4.63-$10.00
Canceled ........... (50,000) $ 10.00
Exercised .......... (5,000) $ 8.00
-----------
Balance--12/31/94 . 232,500 $4.63-$10.00
Granted ............ 232,500 $4.63-$12.81
Canceled ........... (20,000) $ 6.00
Exercised .......... (5,000) $ 6.00
Balance--9/30/95 .. 440,000 $4.63-$12.81
Granted ............ 850,000 $ 1.17-$8.00
Canceled ........... (165,000) $1.17-$12.81
----------- ---------------
Balance--9/30/96 .. 1,125,000 $ 1.17-$8.00
=========== ===============
</TABLE>
Options for 241,250 shares are exercisable as of September 30, 1996, at
various prices ranging from $1.17 to $8.00 per share. The number of shares
available for future options is 300,000 under the Employee Plan and 175,000
under the Directors Plan.
(NOTE D) RESEARCH AND DEVELOPMENT ACTIVITIES:
The Company utilized $1,680,000 of the net proceeds from the issuance of
the notes described in the first paragraph of Note C[3], and issued 4,000,000
shares of common stock, which were assigned a value of $40,000, to purchase
rights to certain technology owned by ANMR. The purchase price was determined
without independent appraisal. The Company charged the cost of the rights to
operations since the technology acquired is still in the development stage.
From inception through September 30, 1996, the Company incurred research
and development expenses totaling $3,726,862. These charges represent costs
associated with the ongoing development of a dedicated mammography system.
(NOTE E) RELATED PARTY TRANSACTIONS:
As mentioned in Notes A, C and D, the Company has entered into significant
transactions with ANMR, including the purchase of certain technology rights
and an agreement to share facilities and reimburse ANMR for allocated general
and administrative expenses. The Company incurred allocated expenses of
approximately $1,600,000 for the year ended September 30, 1996. In addition,
the Company has been granted a sublicense from ANMR to certain patent rights
which may be useful in its research and development efforts. The Company has
assumed certain of ANMR's obligations in connection with this patent license
including a payment of a license fee to the patent holder of $50,000 and
royalties on future sales of products incorporating the technology underlying
the patent. The Company also paid the patent holder a consulting fee of
$52,000 in 1994.
(NOTE F) INCOME TAXES:
Pursuant to the provisions of the Internal Revenue Code, the Company is
deferring all start-up costs and research and development costs until
operations, as defined by the Internal Revenue Code, commence. Accordingly,
through September 30, 1996, only interest income and interest expense have
entered into the determination of taxable income.
F-36
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1996 and September 30, 1995, the Company had no current
tax liability or deferred tax liability. It had deferred tax assets due to
net temporary differences and net operating loss carryforwards amounting to
approximately $4,620,000, all of which had been fully reserved because the
likelihood of the realization of the benefits cannot be established. The
temporary differences principally relate to the deferral of start up and
research and development costs noted above.
At September 30, 1996, the Company's net operating loss carryover for
federal income tax purposes amounts to approximately $400,000 and expires
through 2011.
The following table reconciles the tax benefit per the accompanying
statements of operations with the expected provision obtained by applying
statutory tax rates to the pretax loss:
The Internal Revenue Code contains provisions which may limit the net
operating loss carryforwards available for use in any given year if
significant changes in ownership interest of the Company occur.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 1995 1994 DECEMBER 31, 1994
------------------ -------------- -------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pretax (loss) per accompanying
statements of operations................ $(3,178,000) $(1,684,000) $(1,773,000) $(2,503,000)
Expected tax (benefit) at 39%, including
the net effect of state income taxes ... (1,239,000) (657,000) (691,000) (976,000)
Adjustments due to:
Increase in valuation reserve........... 1,241,000 685,000 691,000 1,000,000
Benefit of net operating loss
carryover............................... (2,000) (28,000) -- (24,000)
Tax provision per financial statements .. $ -0- $ -0- $ -0- $ -0-
Permanent Difference:
Amortization of discount related to
issuance of convertible debentures
(Note C)................................ $ 1,000,000
</TABLE>
F-37
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED) SEPTEMBER 30, 1996
--------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................. $ 832,611 $ 1,997,076
Inventory ............................................. 987,069 1,123,404
Other current assets .................................. 7,610 27,204
--------------- ------------------
TOTAL CURRENT ASSETS ................................. 1,827,290 3,147,684
Equipment--at cost, net of accumulated
depreciation of $438,027 and $335,277
at June 30, 1997 and September 30, 1996, respectively 622,510 611,432
Patent--at cost, net of amortization of $11,698 and
$7,060 at June 30, 1997 and September 30, 1996,
respectively ......................................... 20,022 24,661
Other ................................................. 17,826 --
Debt issue cost ....................................... 27,298 200,574
--------------- ------------------
TOTAL ASSETS .......................................... $ 2,514,946 $ 3,984,351
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES ...................................
Accounts payable & accrued expenses ................... $ 274,310 $ 184,785
Compensation payable .................................. 93,055 52,259
Accounts payable to related party ..................... 1,274,068 671,551
--------------- ------------------
TOTAL CURRENT LIABILITIES ............................ 1,641,433 908,595
Notes Payable ......................................... 519,678 1,471,751
--------------- ------------------
TOTAL LIABILITIES .................................... 2,161,111 2,380,346
STOCKHOLDERS' EQUITY ..................................
Preferred stock, $.01 par value,
5,000,000 shares authorized
none issued .......................................... -- --
Common stock, $.01 par value,
authorized 25,000,000 shares;
issued 7,616,254 and 8,346,740 ....................... 76,163 83,467
Additional paid in capital ............................ 16,564,776 14,368,543
Deficit accumulated during the development stage ..... (16,287,104) (12,848,005)
--------------- ------------------
TOTAL STOCKHOLDERS' EQUITY ........................... 353,835 1,604,005
--------------- ------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .............. $ 2,514,946 $ 3,984,351
=============== ==================
</TABLE>
See notes to financial statements
F-38
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED CUMULATIVE
JUNE 30, JUNE 30, FROM JULY 2, 1992
------------------------------ ------------------------------ (INCEPTION DATE)
1997 1996 1997 1996 TO JUNE 30, 1997
-------------- -------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
System Revenues ........... $ -- $ -- $ 400,000 $ -- $ 400,000
-------------- -------------- -------------- -------------- -----------------
TOTAL REVENUES ............ -- -- 400,000 -- 400,000
OPERATING EXPENSES ........
Acquired technology ....... -- -- -- -- 1,720,000
Manufacturing ............. 155,045 -- 703,571 -- 703,571
Research & development ... 470,315 253,161 1,318,026 750,956 5,044,888
General & administrative . 683,312 551,785 1,833,986 1,571,595 7,604,281
-------------- -------------- -------------- -------------- -----------------
TOTAL OPERATING EXPENSES . 1,308,672 804,946 3,855,583 2,322,551 15,072,740
-------------- -------------- -------------- -------------- -----------------
(LOSS) FROM OPERATIONS ... (1,308,672) (804,946) (3,455,583) (2,322,551) (14,672,740)
Amortization of debt
issuance cost ............ (4,835) -- (51,122) -- (392,941)
Interest expense .......... -- (883,333) -- (883,333) (1,599,999)
Interest & other income .. 21,642 14,314 67,606 42,923 378,576
-------------- -------------- -------------- -------------- -----------------
NET LOSS AND DEFICIT
ACCUMULATED DURING
DEVELOPMENT STAGE......... $(1,291,865) $(1,673,965) $(3,439,099) $(3,162,961) $(16,287,104)
============== ============== ============== ============== =================
NET LOSS PER SHARE ........ $ (.20) $ (.43) $ (.53) $ (.82)
============== ============== ============== ==============
Weighted average number of
common shares outstanding 6,488,513 3,848,376 6,488,513 3,848,376
============== ============== ============== ==============
</TABLE>
See notes to financial statements
F-39
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
NINE MONTHS ENDED JUNE 30, JULY 2, 1992
------------------------------ (INCEPTION DATE)
1997 1996 TO JUNE 30, 1997
-------------- -------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................. $(3,439,099) $(3,162,961) $(16,287,104)
-------------- -------------- ----------------
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization ..................... 135,149 89,884 1,235,240
Amortization of debt issuance cost ................ 51,122 -- 133,804
Amortization of beneficial conversion feature .... -- 883,333 1,000,000
Common stock issued for technology rights ........ -- -- 40,000
Changes in assets and liabilities:
Inventories ....................................... 136,335 (139,586) (987,069)
Other current assets .............................. 1,768 5,000 (25,436)
Accounts payable & accrued expenses ............... 89,525 82,34 274,310
Other current liabilities ......................... 643,313 101,455 1,367,123
-------------- -------------- ----------------
Total adjustments .................................. 1,057,212 1,022,220 3,037,972
-------------- -------------- ----------------
NET CASH (USED) FOR OPERATING ACTIVITIES: 2,381,887 (2,140,741) (13,249,132)
-------------- -------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs ...................................... -- (3,098) (31,720)
Net additions to furniture, equipment, and
leasehold
improvements ..................................... (113,828) (5,758) (1,060,538)
-------------- -------------- ----------------
NET CASH (USED) FOR INVESTING ACTIVITIES: (113,828) (8,856) (1,092,258)
-------------- -------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable .......................... -- -- (2,000,000)
Proceeds from notes payable & warrants ............ -- 3,000,000 5,000,000
Public offering of stock, net ..................... -- -- 8,901,000
Secondary offering of stock ....................... 1,500,000 -- 1,500,000
Debt issuance cost ................................ (168,750) (220,000) (699,712)
Cost of public offering ........................... -- -- (1,436,617)
Sale of option to purchase units .................. -- -- 129
Exercise of stock & warrants ...................... -- -- 3,909,201
-------------- -------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,331,250 2,780,000 15,174,001
-------------- -------------- ----------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) ........................... (1,164,465) 630,403 832,611
Balance, beginning of period ...................... 1,997,076 1,832,563 --
-------------- -------------- ----------------
Balance, end of period ............................ $ 832,611 $ 2,462,966 $ 832,611
============== ============== ================
Supplemental disclosures of cash flow information:
Unamortized debt issuance cost charged to APIC
upon conversion .................................. $ 122,153 -- $ 122,153
</TABLE>
See notes to financial statements.
F-40
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The financial statements for September 30, 1996 have been restated to
include an adjustment to accumulated deficit to reflect a change in
accounting for the May 1996 issuance of the 4% Convertible Debentures (the
"Debentures") whereby the beneficial conversion feature of the Debentures has
been recorded as additional interest expense.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The accompanying financial statements do not contain all of the
disclosures required by generally accepted accounting principles and should
be read in conjunction with the financial statements and related notes
included in the Company's annual report on Form 10-K and 10-K/A for the year
ended September 30, 1996.
NOTE 2 -- THE COMPANY
Advanced Mammography Systems, Inc. ("AMS" or the "Company") is a
development stage company which was organized in Delaware in July 1992 to
acquire and develop proprietary technology from Advanced NMR Systems, Inc.
("ANMR") in order to design, manufacture and commercialize a dedicated (or
partial body) magnetic resonance imaging ("MRI") system for breast imaging
which can be used to detect and characterize breast tissue abnormalities.
In February 1996, the U.S. Food and Drug Administration (the "FDA")
cleared the commercial use of the Company's Aurora (Trade Mark) 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, the Company must develop maximum clinical utility. The
Company 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, a
second System will be installed at the Faulkner-Sagoff Centre for Breast
Health Care in Boston, MA during the fourth fiscal quarter, which center will
be owned and operated by ANMR, and in August 1997 two other systems
installations have been announced at Englewood Hospital and Medical Center in
New Jersey and at the University of Arkansas for Medical Sciences. 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.
The Company intends to market its MRI breast imaging products or
components thereof, either directly to hospitals and clinics or through a
marketing or joint venture arrangement with one or more distributors.
NOTE 3 -- THE PROPOSED MERGER
On June 23, 1997, AMS entered into an Agreement and Plan of Merger
("Merger Agreement") with AMS Merger Corp. ("Merger Corp."), a wholly-owned
subsidiary of ANMR. Pursuant to the Merger Agreement, AMS will merge (the
"Merger") into Merger Corp. and become a wholly-owned subsidiary of ANMR. As
a condition of the Merger, ANMR will amend its Certificate of Incorporation
to effect a one-for-ten Reverse Stock Split. In consideration for the Merger,
AMS shareholders will receive .4 of a share of ANMR, on a post-Reverse Stock
Split basis, in exchange for each share of AMS stock, and outstanding AMS
options and warrants would be exchanged on a similar basis. The Company
expects to complete the Merger in September after approval by stockholders of
both AMS and ANMR and other customary closing conditions.
F-41
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- THE ANMR ESCROW SHARES
In connection with the Company's January 1993 public offering, ANMR, which
was the sole stockholder of the Company, placed in escrow an aggregate of
2,750,000 (the "Escrow Shares") of the 4,000,000 shares of the Common Stock
it owned.
In May 1997, all Escrow Shares were forfeited and contributed to the
capital of the Company as a result of the Company's failure to achieve
certain financial and market price milestones. Upon forfeiture of the Escrow
Shares, ANMR's interest in the Company was reduced to approximately 16% of
the outstanding Common Stock.
NOTE 5 -- THE SHARED SERVICES AGREEMENT
To optimize the Company's and ANMR's operating efficiency, the Company and
ANMR 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 ANMR entered into a new agreement.
NOTE 6 -- THE ANMR LICENSE AGREEMENT
In June 1992, the Company entered into the ANMR License Agreement with
ANMR pursuant to which the Company was granted a perpetual, worldwide
exclusive, royalty-free license to all proprietary technology and related
know-how, including patents owned and/or licensed by ANMR and patent
applications filed or to be filed by ANMR (the "Licensed Technology"), to the
extent, if any, useful in connection with developing a dedicated MRI system
for mammography (the "Field of Use").
NOTE 7 -- PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES
In May 1996, the Company closed a Regulation S private placement (the
"Placement") of $3 million principal amount 4% Convertible Debentures of the
Company (the "Debentures") due December 1, 1998 (the "Maturity Date"). The
Debentures accrue interest at the rate of 4% per annum from the date of
issuance to the Maturity Date, or earlier either upon conversion or
prepayment. Upon conversion, the Company has the option to pay the accrued
interest on the Debentures being converted in shares of its Common Stock at
the then conversion rate. At June 30, 1997, approximately $513,000 of
Debentures was still outstanding after certain conversions. The net proceeds
of the Placement of approximately $2,750,000, after payment of fees and
related expenses, is being used for completion of product development of the
Company's Aurora System, the commercialization and marketing of the Aurora
System and working capital.
In connection with the Placement, the Company issued to the placement
agents for the Debentures, warrants for the purchase of 197,500 shares of the
Company's Common Stock at an exercise price of $2.20 per share for a period
or eighteen months and warrants for an additional 197,500 shares of Common
Stock at an exercise price of $2.50 per share for a period of five years.
NOTE 8 -- PRIVATE PLACEMENT OF STOCK AND WARRANTS
On February 6, 1997, the Company sold an aggregate of 1,219,514 shares of
Common Stock and three year warrants to purchase 1,219,514 shares of Common
Stock at an exercise price of $1.93 per share for $1,500,000. These
placements were in accordance with Regulation S and Regulation D under the
Securities Act of 1933. In connection with the placements, the Company issued
to the placement agent three year warrants for the purchase of 243,902 shares
of Common Stock, one half exercisable immediately and the other half
exercisable proportionately with the exercise of the placement warrants, at
an exercise price of $1.68 per share and paid 11-1/4% in fees and expenses.
F-42
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADVANCED NMR SYSTEMS, INC.,
A DELAWARE CORPORATION,
ANMR/AMS MERGER CORP.,
A DELAWARE CORPORATION, AND
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger...................................................................... A-1
1.2 Effective Date of the Merger.................................................... A-1
1.3 Surviving Corporation; Certificate of Incorporation of Surviving Corporation ... A-2
Merger Consideration; Conversion of AMS Common Stock; Cancellation of
1.4 Acquisition Corp. Common Stock.................................................. A-2
1.5 Exchange of Certificates........................................................ A-2
1.6 No Fractional Shares............................................................ A-3
1.7 Certificates in Other Names..................................................... A-3
1.8 Treatment of AMS Options, AMS Warrants and AMS Debentures....................... A-3
ARTICLE II
CLOSING
2.1 Closing Date.................................................................... A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMS
3.1 Due Incorporation............................................................... A-4
3.2 Due Authorization............................................................... A-4
3.3 Non-Contravention; Consents and Approvals....................................... A-4
3.4 Capitalization.................................................................. A-5
3.5 Financial Statements; Undisclosed Liabilities; Other Documents.................. A-5
3.6 Commission Filings.............................................................. A-6
3.7 No Material Adverse Effects or Changes.......................................... A-6
3.8 Intellectual Property........................................................... A-6
3.9 Tax Returns and Audits.......................................................... A-7
3.10 Litigation...................................................................... A-7
3.11 Compliance with Applicable Laws................................................. A-7
3.12 Medical Devices................................................................. A-7
3.13 Contracts; No Defaults.......................................................... A-7
3.14 Fees of Brokers, Finders and Financial Advisors................................. A-7
3.15 Special Committee Recommendation; Board of Directors Recommendation ............ A-7
3.16 Opinion of Financial Advisor.................................................... A-8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND ADVANCED NMR
4.1 Due Incorporation............................................................... A-8
4.2 Due Authorization............................................................... A-8
4.3 Non-Contravention; Consents and Approvals....................................... A-8
4.4 Capitalization.................................................................. A-9
4.5 Financial Statements; Undisclosed Liabilities; Other Documents.................. A-9
i
<PAGE>
PAGE
--------
4.6 Commission Filings.............................................................. A-10
4.7 No Material Adverse Effects or Changes.......................................... A-10
4.8 Absence of Certain Changes or Events............................................ A-10
4.9 Intellectual Property........................................................... A-11
4.10 Insurance....................................................................... A-11
4.11 Employee Benefit Plans and Employment Agreements................................ A-11
4.12 Labor Matters................................................................... A-11
4.13 Tax Returns and Audits.......................................................... A-12
4.14 Litigation...................................................................... A-12
4.15 Compliance with Applicable Laws................................................. A-12
4.16 Medical Devices................................................................. A-12
4.17 Contracts; No Defaults.......................................................... A-13
4.18 Fees of Brokers, Finders and Investment Bankers................................. A-13
4.19 Opinion of Financial Advisor.................................................... A-13
ARTICLE V
COVENANTS
5.1 Implementing Agreement.......................................................... A-13
5.2 Access to Information and Facilities............................................ A-13
5.3 Preservation of Business........................................................ A-13
5.4 Proxy Materials; AMS and Advanced NMR Stockholder Approval...................... A-13
5.5 Consents and Approvals.......................................................... A-14
5.6 Periodic Reports................................................................ A-15
5.7 Publicity....................................................................... A-15
5.8 Listing of Common Stock......................................................... A-15
5.9 Blue Sky Approvals.............................................................. A-15
5.10 Rule 145 Affiliates............................................................. A-15
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND ADVANCED NMR
6.1 Warranties True as of Closing Date.............................................. A-15
6.2 Compliance With Agreements and Covenants........................................ A-15
6.3 Consents and Approvals.......................................................... A-15
6.4 Actions or Proceedings.......................................................... A-15
6.5 Approval of Merger.............................................................. A-15
6.6 Approval of Recapitalization Transactions....................................... A-16
6.7 Registration Statement. ........................................................ A-16
6.8 Listing of Common Stock......................................................... A-16
6.9 Other Closing Documents......................................................... A-16
6.10 Fairness Opinion................................................................ A-16
6.11 Dissenters' Rights.............................................................. A-16
ii
<PAGE>
PAGE
--------
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF AMS
7.1 Warranties True as of Closing Date.............................................. A-16
7.2 Compliance with Agreements and Covenants........................................ A-16
7.3 Consents and Approvals.......................................................... A-16
7.4 Actions or Proceedings.......................................................... A-16
7.5 Approval of Recapitalization Transactions....................................... A-16
7.6 Approval of Merger.............................................................. A-16
7.7 Registration Statement.......................................................... A-16
7.8 Listing of Common Stock......................................................... A-16
7.9 Other Closing Documents......................................................... A-16
7.10 Board Appointment............................................................... A-17
ARTICLE VIII
TERMINATION AND INDEMNIFICATION
8.1 Termination..................................................................... A-17
8.2 Effect of Termination and Abandonment........................................... A-17
8.3 Termination Payments............................................................ A-18
8.4 Indemnification by Advanced NMR................................................. A-18
ARTICLE IX
MISCELLANEOUS
9.1 Expenses........................................................................ A-18
9.2 Amendment....................................................................... A-18
9.3 Non-Survival of Representations, Warranties, Covenants and Agreements .......... A-18
9.4 Notices......................................................................... A-18
9.5 Waivers......................................................................... A-19
9.6 Interpretation.................................................................. A-19
9.7 Applicable Law.................................................................. A-19
9.8 Assignment...................................................................... A-19
9.9 No Third Party Beneficiaries.................................................... A-19
9.10 Enforcement of the Agreement.................................................... A-20
9.11 Further Assurances.............................................................. A-20
9.12 Severability.................................................................... A-20
9.13 Remedies Cumulative............................................................. A-20
9.14 Entire Understanding............................................................ A-20
9.15 Waiver of Jury Trial............................................................ A-20
9.16 Counterparts.................................................................... A-20
</TABLE>
iii
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ---------- ------------------------------------------------
<S> <C>
1.8 AMS Options, AMS Warrants and AMS Debentures
3.6 AMS Sec Documents
3.7 Material Adverse Effects, Changes--AMS
3.8 Intellectual Property--AMS
3.12 Medical Devices--AMS
3.13 Material Contracts--AMS
4.4 Derivative Securities--Advanced NMR
4.7 Material Adverse Effects--ANMR Companies
4.8 Certain Changes or Events--Advanced NMR
4.9 Intellectual Property--Advanced NMR
4.13 Tax Returns and Audits--Advanced NMR
4.14 Litigation--ANMR Companies
4.15 Compliance Matters--ANMR Companies
4.16 Medical Devices--Advanced NMR
4.17 Material Contracts--ANMR Companies
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated June 23, 1997, by and among ADVANCED
NMR SYSTEMS, INC., a Delaware corporation ("Advanced NMR"), ANMR/AMS MERGER
CORP., a Delaware corporation ("Acquisition Corp."), and ADVANCED MAMMOGRAPHY
SYSTEMS, INC., a Delaware corporation ("AMS").
W I T N E S S E T H:
WHEREAS, Acquisition Corp. is a wholly-owned subsidiary of Advanced NMR;
WHEREAS, Advanced NMR is the owner of 1,250,000 shares (the "AMS Shares")
of common stock, $.01 par value per share ("AMS Common Stock"), of AMS;
WHEREAS, Advanced NMR desires to acquire the shares of AMS Common Stock
not owned by it through the merger of Acquisition Corp. with and into AMS
pursuant to the terms hereinafter set forth (the "Merger");
WHEREAS, the respective Boards of Directors of Advanced NMR and
Acquisition Corp. deem it advisable and in the best interests of Advanced NMR
and Acquisition Corp. that Acquisition Corp. be merged with and into AMS upon
the terms and conditions hereinafter specified;
WHEREAS, the Board of Directors of AMS, upon the recommendation of a
special committee of independent directors ("Special Committee") of AMS,
deems it advisable and in the best interests of AMS that Acquisition Corp. be
merged with and into AMS upon the terms and conditions hereinafter specified;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Acquisition Corp. has an authorized capital stock consisting of
1,000 shares of Common Stock, $.01 par value per share (the "Acquisition
Corp. Common Stock"), of which 100 shares are currently issued and
outstanding and owned by Advanced NMR; and
WHEREAS, AMS has an authorized capital stock consisting of (i) 5,000,000
shares of preferred stock, $.01 par value per share (the "AMS Preferred
Stock"), none of which is issued and outstanding; and (ii) 25,000,000 shares
of AMS Common Stock, of which 7,616,254 shares are currently issued and
outstanding.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2 herein),
in accordance with this Agreement and the relevant provisions of the Delaware
General Corporation Law (the "DGCL"), Acquisition Corp. shall be merged with
and into AMS. AMS shall be the surviving corporation of the Merger and AMS
shall continue, and be deemed to continue, for all purposes after the Merger,
and the existence of Acquisition Corp. shall cease at the Effective Time.
1.2 Effective Date of the Merger. This Agreement shall be submitted to the
stockholders of AMS as provided in Section 5.4 hereof, and to the sole
stockholder of Acquisition Corp., as provided in Section 5.4 hereof, for
approval as soon as practicable after the execution of this Agreement.
Subject to the terms and conditions hereof, upon the authorization, approval
and adoption hereof by (a) the affirmative vote of the holders of at least a
majority of the outstanding shares of each of AMS Common Stock and
Acquisition Corp. Common Stock entitled to vote thereon as provided by the
DGCL, and (b) the affirmative vote of the holders of at least a majority of
the outstanding shares of common stock, $.01 par value per share, of Advanced
NMR ("Advanced NMR Common Stock") of the Recapitalization
A-1
<PAGE>
Transactions (as defined below), a Certificate of Merger (the "Certificate of
Merger") meeting the requirements of Section 251 of the DGCL shall be
executed, verified and acknowledged as required by the provisions of Sections
251 and 103 of the DGCL and be delivered to the Secretary of State of
Delaware for filing (the time of such filing being the "Effective Time" and
the date of such filing being the "Effective Date"). The term
"Recapitalization Transactions" shall mean the following transactions: (w) a
1 for 10 reverse stock split of the outstanding shares of Advanced NMR Common
Stock (the "Reverse Stock Split"); (x) the amendment of Advanced NMR's
Certificate of Incorporation to reflect the Reverse Stock Split; (c) the
election of a new Board of Directors of Advanced NMR; (d) the change of name
of Advanced NMR; and (e) the number of shares of Advanced NMR Common Stock
authorized for grant under its 1993 Employee Stock Option Plan and its 1993
Directors Stock Option Plan for Non-Employee Directors.
1.3 Surviving Corporation; Certificate of Incorporation of Surviving
Corporation. Following the Merger, AMS shall continue to exist under, and be
governed by, the laws of the State of Delaware. The Certificate of
Incorporation of AMS, as in effect on the Closing Date, shall continue in
full force and effect as the Certificate of Incorporation of AMS, except that
upon the Merger the Certificate of Incorporation of AMS shall be amended to
change its authorized capital stock to consist of only 1,000 shares of common
stock, $.01 par value per share.
1.4 Merger Consideration; Conversion of AMS Common Stock; Cancellation of
Acquisition Corp. Common Stock. (a) At the Effective Time, by virtue of the
Merger and without any action on the part of Acquisition Corp., AMS or the
holders of any shares of AMS Common Stock, each share of AMS Common Stock
issued and outstanding immediately prior to the Effective Time (other than
AMS shares owned by Advanced NMR), shall be converted into the right to
receive four-tenths (.40) of one fully paid and nonassessable share of
Advanced NMR Common Stock (the "Conversion Number"). The Conversion Number
has been determined taking into account (a) the Reverse Stock Split; and (b)
the conversion of all AMS Debentures (as defined in Section 1.8) into shares
of AMS Common Stock. The number of shares of Advanced NMR Common Stock to be
received by the AMS stockholders in exchange for each share of AMS Common
Stock pursuant to the Merger is hereinafter referred to as the "Merger
Consideration." All shares of AMS Common Stock to be converted into shares of
Advanced NMR Common Stock pursuant to the Merger are hereinafter referred to
as the "Converted Shares."
(b) At the Effective Time, each share of Acquisition Corp. Common Stock
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Advanced NMR, be
cancelled and cease to exist.
1.5 Exchange of Certificates. (a) Prior to the Effective Time, Advanced
NMR will select an exchange agent (the "Exchange Agent") reasonably
acceptable to AMS to effectuate the delivery of the Merger Consideration
provided for in Section 1.4 to holders of AMS Common Stock (other than AMS
shares owned by Advanced NMR) upon surrender of certificates which
immediately prior to the Effective Time represented shares of AMS Common
Stock ("Certificates").
(b) As of the Effective Time, Advanced NMR shall provide, or shall take
all steps necessary to provide, to the Exchange Agent, the aggregate number
of shares of Advanced NMR Common Stock post-Reverse Stock Split to be issued
in the Merger pursuant to Section 1.4(a) in exchange for the shares of AMS
Common Stock. The Exchange Agent shall, pursuant to irrevocable instructions,
make the deliveries of the Merger Consideration required in respect of the
Merger.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of an outstanding Certificate, determined as of the
Effective Date, a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent),
advising such holder of the terms of the exchange effected by the Merger and
the procedure for surrendering to the Exchange Agent such Certificate in
exchange for the Merger Consideration.
(d) Upon surrender of a Certificate to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger
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Consideration provided for in Section 1.4(a) (consisting of a certificate
representing that whole number of shares of Advanced NMR Common Stock which
such holder has the right to receive hereunder), and the Certificate so
surrendered shall forthwith be canceled. Shares of Advanced NMR Common Stock
shall be delivered to such holder as promptly as practicable and (except as
hereinafter provided) in no event later than twenty (20) days after proper
delivery of the applicable Certificates and letters of transmittal to the
Exchange Agent.
(e) All shares of Advanced NMR Common Stock issued upon conversion of the
shares of AMS Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of AMS Common Stock.
(f) Neither Acquisition Corp., Advanced NMR nor AMS shall be liable to any
holder of shares of AMS Common Stock for any such shares of Advanced NMR
Common Stock delivered to a public official pursuant to any abandoned
property, escheat or similar law. Until surrendered in accordance with the
provisions of Section 1.5, each Certificate representing Converted Shares
shall represent, for all purposes, only the right to receive the Merger
Consideration.
(g) Any shares of Advanced NMR Common Stock which remain undistributed to
holders of AMS Common Stock for six (6) months after the Effective Time shall
be delivered to Advanced NMR, upon demand, and any holder of AMS Common Stock
who has not theretofore complied with this Section 1.5 shall thereafter look
to Advanced NMR for the Merger Consideration to which he is entitled.
1.6 No Fractional Shares. No certificates or scrip for fractional shares
of Advanced NMR Common Stock will be issued and no such fractional share
interest shall entitle the owner thereof to vote or to any rights of or as a
stockholder of Advanced NMR. In lieu of issuing any such fractional shares to
which a holder of AMS Common Stock would otherwise be entitled to receive,
the Exchange Agent shall round up or down to the nearest whole share.
1.7 Certificates in Other Names. If any certificate evidencing shares of
Advanced NMR Common Stock is to be issued in a name other than that in which
the Certificate surrendered in exchange therefore is registered, it shall be
a condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent or to Advanced NMR
acting solely in its corporate capacity, as the case may be, any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Advanced NMR Common Stock in any name other than that of the registered
holder of the Certificate surrendered or otherwise required or establish to
the satisfaction of the Exchange Agent or of Advanced NMR acting solely in
its corporate capacity, as the case may be, that such tax has been paid or is
not payable.
1.8 Treatment of AMS Options, AMS Warrants and AMS Debentures. At the
Effective Time, Advanced NMR shall assume all of the rights and obligations
of AMS pursuant to the (i) AMS Option Plans (as hereinafter defined), (ii)
AMS Warrants (as hereinafter defined) and (iii) AMS Debentures (as
hereinafter defined) except that Advanced NMR shall not be obligated to issue
AMS Common Stock upon the exercise of the Options (as hereinafter defined)
and AMS Warrants and conversion of the AMS Debentures, but, pursuant to the
terms of such Options, AMS Warrants and AMS Debentures as modified in
accordance with this Section 1.8, shall instead be obligated to issue, for
each share of AMS Common Stock that would have been issuable upon the
exercise of such Options and AMS Warrants and conversion of the AMS
Debentures immediately prior to the Effective Time, a number of shares of
Advanced NMR Common Stock equal to the Merger Consideration. (All such
Options, AMS Warrants and AMS Debentures are sometimes hereinafter referred
to as the "Derivative Securities".) At or prior to the Effective Time, AMS
shall make all necessary and appropriate adjustments to the Derivative
Securities to provide that such Derivative Securities shall be amended and
converted as of the Effective Time into an option, warrant or conversion
right to acquire shares of Advanced NMR Common Stock as described in the
first sentence of this Section. No fractional shares of Advanced NMR Common
Stock shall be issued upon the exercise or conversion of such Derivative
Securities, and if the number of shares of Advanced NMR Common Stock issuable
upon exercise or conversion of all or any portion of such Derivative
Securities shall include a fraction of a share, then the number of shares of
Advanced NMR
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Common Stock deliverable upon exercise shall be rounded up or down to the
nearest whole share unless otherwise provided in the instrument governing the
Derivative Security. The term "Options," "AMS Option Plans," "AMS Warrants"
and "AMS Debentures" are defined in Schedule 1.8.
ARTICLE II
CLOSING
2.1 Closing Date. The closing of the Merger (the "Closing") shall take
place at the offices of Reid & Priest LLP, 40 West 57th Street, New York, New
York 10019 at 10:00 a.m., New York time, on that day on which the last of the
conditions set forth in Articles VI and VII shall have been satisfied or, if
permissible, waived (other than those conditions which by their terms are to
occur only at the Closing), or on and at such other date, time and place as
Advanced NMR, Acquisition Corp. and AMS may agree (the date of the Closing
hereinafter being referred to as the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMS
AMS hereby represents and warrants to Advanced NMR and Acquisition Corp.
as follows:
3.1 Due Incorporation. AMS is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with all requisite power and authority to own, lease and
operate its properties and to carry on its business as they are now being
owned, leased, operated and conducted. AMS is qualified to do business and is
in good standing as a foreign corporation in the States of Massachusetts and
New Jersey which are the only jurisdictions where the nature of the
properties owned, leased or operated by it and the business transacted by it
require such qualification. AMS has no direct or indirect subsidiaries,
either wholly or partially owned, and AMS does not hold any voting or
management interest in any corporation, proprietorship, firm, partnership,
limited partnership, limited liability company, trust, association,
individual or other entity (a "Person") or own any security issued by any
Person.
3.2 Due Authorization. AMS has full power and authority to enter into this
Agreement and the Certificate of Merger (the "Related Agreement") and,
subject to obtaining the necessary approval of this Agreement and the Merger
by the stockholders of AMS, to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by AMS of this
Agreement and the Related Agreement have been duly and validly approved and
authorized by the Board of Directors of AMS, and, subject to obtaining the
necessary approval of the Merger by the AMS stockholders, the Related
Agreement and the transactions contemplated hereby and thereby. AMS has duly
and validly executed and delivered this Agreement and will duly and validly
execute and deliver the Related Agreement. Subject to obtaining the necessary
approval of the AMS stockholders, this Agreement constitutes the legal, valid
and binding obligation of AMS and the Related Agreement to which AMS is a
party, will, upon execution thereof by AMS, constitute the legal, valid and
binding obligation of AMS, in each case enforceable in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 Non-Contravention; Consents and Approvals. (a) The execution and
delivery of this Agreement by AMS does not, and the performance by AMS of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any lien upon any of the assets or properties of
AMS under, any of the terms, conditions or provisions of (i) the Certificate
of Incorporation or By-Laws of AMS, or (ii) subject to obtaining the
necessary approval of this Agreement and the Merger by the AMS stockholders
and the taking of the actions described in paragraph (b) of this Section, (x)
any statute, law, rule, regulation or
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ordinance (together, "Laws"), or any judgment, decree, order, writ, permit or
license, of any Governmental Entity (as defined in paragraph (b) below),
applicable to AMS or any of its assets or properties, or (y) any contract,
agreement or commitment to which AMS is a party or by which AMS or any of its
assets or properties is bound, excluding from the foregoing clauses (x) and
(y) conflicts, violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of liens which would not have an
AMS Material Adverse Effect (as defined in Section 3.7) or result in the
inability of AMS to consummate the transactions contemplated by this
Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by AMS in connection with the execution
and delivery of this Agreement and the Related Agreement or the consummation
by AMS or the AMS stockholders of the transactions contemplated hereby and
thereby, the failure to obtain which would have an AMS Material Adverse
Effect or result in the inability of AMS to consummate the transactions
contemplated hereby, except for:
(i) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware in accordance with the requirements of the DGCL
and if applicable, the filing of the appropriate documents with the
relevant authorities of other states in which AMS is qualified to transact
business; and
(ii) the filing of a proxy statement ("Proxy Statement") with the
Securities and Exchange Commission ("Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
Securities Act of 1933, as amended (the "1933 Act") and the declaration of
the effectiveness of the Registration Statement (as hereinafter defined)
by the Commission and filings with various blue sky authorities.
3.4 Capitalization. (a) The authorized capital stock of AMS consists of
5,000,000 shares of AMS Preferred Stock and 25,000,000 shares of AMS Common
Stock. On the date hereof, there are issued and outstanding no shares of AMS
Preferred Stock and 7,616,254 shares of AMS Common Stock. All of the issued
and outstanding shares of AMS Common Stock are validly issued, fully paid and
nonassessable and the issuance thereof was not subject to preemptive rights.
(b) Except for shares of AMS Common Stock issuable pursuant to the
Derivative Securities, there are no shares of AMS Common Stock or other
equity securities (whether or not such securities have voting rights) of AMS
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating AMS to issue, transfer or sell any shares of capital stock or
other securities (whether or not such securities have voting rights) of AMS.
There are no outstanding contractual obligations of AMS which relate to the
purchase, sale, issuance, repurchase, redemption, acquisition, transfer,
disposition, holding or voting of any shares of capital stock or other
securities of AMS.
3.5 Financial Statements; Undisclosed Liabilities; Other Documents. (a)
For purposes of this Agreement, "AMS Financial Statements" shall mean (i) the
audited financial statements of AMS as of September 30, 1996 and September
30, 1995 (including all notes thereto) which are included in the AMS SEC
Documents (as defined in Section 3.6), consisting of the balance sheets at
such dates and the related statements of income, stockholders' equity and
cash flows for the twelve month periods ended September 30, 1996 and 1995;
and (ii) the unaudited financial statements of AMS as of March 31, 1997 and
March 31, 1996 consisting of the balance sheets at such dates and the related
statements of income, and cash flows for the three and six-month periods
ended March 31, 1997 and March 31, 1996. The AMS Financial Statements have
been prepared in accordance with GAAP consistently applied (except as may be
indicated therein or in the notes thereto) and present fairly the
consolidated financial position of AMS as at the dates thereof and the
consolidated results of operations and cash flows of AMS for the periods
covered thereby.
(b) AMS does not have any liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, which individually or in
the aggregate could be reasonably expected to have an
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AMS Material Adverse Effect except (i) as set forth on or reflected in the
AMS Financial Statements as of and for the period ended March 31, 1997 (the
"March 1997 Financials") or (ii) liabilities and obligations incurred since
March 31, 1997 in the ordinary and usual course of its business.
3.6 Commission Filings. AMS has timely filed all required forms, reports
and other documents with the Commission since January 1, 1995, all of which
complied when filed, in all material respects, with all applicable
requirements of the 1933 Act and 1934 Act as applicable. AMS has heretofore
delivered to Acquisition Corp. complete and correct copies of (i) its Annual
Report on Form 10-K for the twelve-month period ended September 30, 1996 and
its Quarterly Report on Form 10-Q for the four-month period ended March 31,
1997, (ii) all proxy statements relating to AMS' meetings of stockholders
(whether annual or special) since January 1, 1995, and (iii) all other
reports, forms and other documents filed by AMS with the Commission since
January 1, 1995 (together, the "AMS SEC Documents"). As of their respective
dates, the AMS SEC Documents (including all exhibits and schedules thereto
and documents incorporated by reference therein) did not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, except as otherwise
set forth on Schedule 3.6. The audited financial statements and the unaudited
interim financial statements of AMS included or incorporated by reference in
the AMS SEC Documents were prepared in accordance with GAAP consistently
applied (except as may be indicated therein or in the notes thereto) and
present fairly the consolidated financial position of AMS as at the dates
thereof and the consolidated results of operations and cash flows of AMS for
the periods covered thereby.
3.7 No Material Adverse Effects or Changes. Except as listed on Schedule
3.7, or as disclosed in or reflected in the March 1977 Financials, or as
contemplated by this Agreement or the Related Agreement, since March 31,
1997, AMS has not (i) suffered any damage, destruction or Loss to any of its
assets or properties (whether or not covered by insurance) which is having or
could reasonably be expected to have an AMS Material Adverse Effect, (ii)
declared, set aside or paid any dividend or other distribution in respect of
its capital stock; (iii) made any direct or indirect redemption, purchase or
other acquisition of any shares (other than purchases in connection with the
exercise of options) of its capital stock or made any payment (other than
dividends) to any of its stockholders (in their capacity as stockholders);
(iv) issued or sold any shares of its capital stock or any options, warrants
or other rights to purchase any such shares or any securities convertible
into or exchangeable for such shares or taken any action to reclassify or
recapitalize or split up its capital stock; (v) mortgaged, pledged or
subjected to any lien, lease, security interest, encumbrance or other
restriction, any of its material properties or assets except in the ordinary
and usual course of its business and consistent with past practice; or (vi)
except in the ordinary and usual course of its business and consistent with
its past practice forgiven or canceled any material debt or claim, or waived
any material right. "Loss" shall mean liabilities, losses, costs, claims,
damages (including consequential damages), penalties and expenses (including
attorneys' fees and expenses and costs of investigation and litigation). An
"AMS Material Adverse Effect" shall mean an effect on or circumstance
involving the business, operations, assets, liabilities, results of
operations, cash flows or condition (financial or otherwise) of AMS which is
materially adverse to AMS.
3.8 Intellectual Property. Schedule 3.8 is a true and complete list of all
of the trademarks, tradenames, service marks, and patents material to AMS'
MRI technology (including any registrations of or pending applications for
any of the foregoing) ("Intellectual Property") used by AMS in the conduct of
its business. Except as disclosed on Schedule 3.8:
(a) all of such Intellectual Property is owned by AMS free and clear of
all liens, and is not subject to any license, royalty or other agreement,
except the License Agreement dated as of July 29, 1992 ("License Agreement")
between AMS and Advanced NMR;
(b) none of such Intellectual Property has been or is the subject of any
pending or, to the best of AMS' knowledge, threatened litigation or claim of
infringement; or
(c) no license or royalty agreement to which AMS is a party is in breach
or default by any party thereto except where such breach or default would not
have an AMS Material Adverse Effect or is the subject of any notice of
termination given or, to AMS' knowledge, threatened.
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3.9 Tax Returns and Audits. AMS has duly filed all federal, state, local
and foreign tax returns, reports and forms required to be filed by it, except
where the failure to so file would not have an AMS Material Adverse Effect.
AMS has duly paid (except for Taxes being contested in good faith) or made
adequate provisions on its books in accordance with GAAP for the payment of
all Taxes which have been incurred or are due and payable, and AMS will on or
before the Effective Time of the Merger make adequate provision on its books
in accordance with GAAP for all Taxes payable for any period through the
Effective Time of the Merger for which no return is required to be filed
prior to the Effective Time. The federal and state income tax returns of AMS
have never been examined by the Internal Revenue Service or state taxing
authority, respectively, nor has AMS granted or given any extensions or
waivers of the statute of limitations with respect to any such federal and
state income tax returns. AMS is not aware of any basis for the assertion of
any deficiency against it for Taxes, which, if adversely determined, would
have an AMS Material Adverse Effect. For purposes of this Agreement, "Taxes"
shall mean all taxes, assessments and governmental charges imposed by any
federal, state, local or foreign government, taxing authority, subdivision or
agency thereof, including, but not limited to, any withholding, payroll,
employment, custom, duty, sales, any other governmental fee or assessment,
and penalties, in addition to any liability to a third party for such
amounts.
3.10 Litigation. There are no actions, suits, arbitrations, regulatory
proceedings or other litigation, proceedings or governmental investigations
pending or, to AMS' knowledge, threatened against or affecting AMS any of its
officers or directors in their capacity as such, or any of its property or
business which could reasonably be expected to have an AMS Material Adverse
Effect. AMS is not subject to any order, judgment, decree, injunction,
stipulation or consent order of or with any court or other Governmental
Entity, other than orders of general applicability.
3.11 Compliance with Applicable Laws. AMS holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
which are required in the operation of its business (the "AMS Permits"),
except for those the failure of which to hold would not have an AMS Material
Adverse Effect. AMS is in compliance with the terms of the AMS Permits,
except where the failure so to comply would not have an AMS Material Adverse
Effect. To AMS' knowledge, AMS is not in violation of any law, ordinance or
regulation of any Governmental Authority, including environmental and labor
laws and regulations, except for possible violations which individually and
in the aggregate do not, and, insofar as reasonably can be foreseen by AMS,
will not in the future have an AMS Material Adverse Effect.
3.12 Medical Devices. Except as set forth on Schedule 3.12, AMS has not
applied for premarket approval of, or 510(k) notification to, the U.S. Food
and Drug Administration (the "FDA") for any products it plans to sell. Except
as set forth on Schedule 3.12, there are no products proposed to be sold by
AMS for which pre-market approval or 510(k) notification is required.
3.13 Contracts; No Defaults. Schedule 3.13 list the material contracts to
which AMS is a party. Except as disclosed in the AMS SEC Documents, neither
AMS, nor to AMS' knowledge any other party thereto, is in breach or violation
of, or in default in the performance or observance of any term or provision
of, and no event has occurred or by reason of the Merger would occur which,
with notice or lapse of time or both, could be reasonably expected to result
in a default under, any contract, agreement or commitment to which AMS is a
party or by which AMS or any of its assets or properties is bound, except for
breaches, violations and defaults which are not having and could not be
reasonably expected to have an AMS Material Adverse Effect. AMS is not is
required to give any notice to any person regarding this Agreement or the
Related Agreement or the transactions contemplated hereby or thereby other
than any notice, the failure of which to give would not have an AMS Material
Adverse Effect.
3.14 Fees of Brokers, Finders and Financial Advisors. Except for the
Special Committee ("Special Committee") of the AMS Board of Directors'
engagement of Valuemetrics, Inc., whose fees and expenses shall be paid by
AMS, neither AMS, nor any officer, director, or employee of AMS, has employed
any broker, finder or investment banker or incurred any liability for any
brokerage or investment banking fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
3.15 Special Committee Recommendation; Board of Directors Recommendation.
The Special Committee of the Board of Directors of AMS has duly adopted at a
special meeting duly held on
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May 26, 1997 resolutions recommending to the Board approval of this
Agreement, the Related Agreement, and the Merger, and the transactions
contemplated hereby on the terms and conditions set forth herein. Upon the
recommendation of the Special Committee, the Board of Directors of AMS has
duly adopted at a special meeting of such Board, resolutions approving this
Agreement, the Related Agreement, and the Merger, and the transactions
contemplated hereby on the terms and conditions set forth herein and has
determined to recommend that the stockholders of AMS approve this Agreement
and the Merger (subject to the fiduciary duty of the AMS Board of Directors
determined by the directors after consultation with legal counsel).
3.16 Opinion of Financial Advisor. AMS has received the opinion of
Valuemetrics, Inc., to the effect that, as of May 26, 1997, the date the
Board of Directors of AMS authorized the Merger, the consideration to be
received in the Merger by the stockholders of AMS was fair from a financial
point of view to the stockholders of AMS, and a true and complete copy of
such opinion has been delivered to Advanced NMR prior to the execution of
this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND ADVANCED NMR
Acquisition Corp. and Advanced NMR, jointly and severally, hereby
represent and warrant to AMS as follows:
4.1 Due Incorporation. Each of Advanced NMR and Acquisition Corp.
(Advanced NMR, each subsidiary of Advanced NMR and Acquisition Corp. are
referred to collectively herein as the "ANMR Companies") is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Each of the ANMR Companies is qualified to do business and is in
good standing as a domestic or foreign corporation in New Jersey and
Massachusetts.
4.2 Due Authorization. Each of Advanced NMR and Acquisition Corp. has full
power and authority to enter into this Agreement and the Related Agreement to
which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Advanced NMR of this
Agreement has been duly and validly approved by the Board of Directors of
Advanced NMR, and no other actions or proceedings on the part of Advanced NMR
are necessary to authorize this Agreement. The execution, delivery and
performance by Acquisition Corp. of this Agreement and the Related Agreement
have been duly and validly approved by the Board of Directors and stockholder
of Acquisition Corp., and no other actions or proceedings on the part of
Acquisition Corp. or its stockholder are necessary to authorize this
Agreement and the Related Agreement. Each of Advanced NMR and Acquisition
Corp. has duly and validly executed and delivered this Agreement and
Acquisition Corp. has duly and validly executed and delivered (or will duly
and validly execute and deliver on or prior to the Closing Date) the Related
Agreement. This Agreement constitutes the legal, valid and binding
obligations of each of Advanced NMR and Acquisition Corp., and the Related
Agreement will, upon execution, constitute the legal, valid and binding
obligation of Acquisition Corp., in each case enforceable in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other laws from time to time in effect which affect
creditors' rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4.3 Non-Contravention; Consents and Approvals. (a) The execution and
delivery of this Agreement by Advanced NMR and Acquisition Corp. does not,
and the performance by Advanced NMR and Acquisition Corp. of their
obligations hereunder and the consummation of the transactions contemplated
hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any lien upon any of the assets or properties of
any of the ANMR Companies under, any of the terms,
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conditions or provisions of (i) the certificate of incorporation or bylaws of
each of the ANMR Companies, or (ii) subject to the taking of the actions
described in paragraph (b) of this Section, (x) any statute, law, rule,
regulation or ordinance (together, "Laws"), or any judgment, decree, order,
writ, permit or license, of any Governmental Entity, or (y) any contract,
agreement or commitment to which any ANMR Company is a party or by which any
ANMR Company or any of their respective assets or properties is bound,
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations and creations
and impositions of liens which would not have an ANMR Material Adverse Effect
or result in the inability of Advanced NMR or Acquisition Corp. to consummate
the transactions contemplated by this Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by Advanced
NMR or Acquisition Corp. in connection with the execution and delivery of
this Agreement and the Related Agreement or the consummation by each of
Advanced NMR and Acquisition Corp. or each of their respective stockholders
of the transactions contemplated hereby and thereby, the failure to obtain
which would have an ANMR Material Adverse Effect or result in the inability
of Advanced NMR or Acquisition Corp. to consummate the transactions
contemplated hereby, except for:
(i) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware in accordance with the requirements of the DGCL;
and
(ii) the filing of the Proxy Statement/Prospectus with the Commission
pursuant to the 1933 Act and the declaration of the effectiveness of the
Registration Statement by the Commission and filings with various blue sky
authorities, which shall contain the registration of the shares of
Advanced NMR Common Stock issuable pursuant to the Merger and the
Recapitalization Transactions for approval by the stockholders of Advanced
NMR.
4.4 Capitalization. (a) The authorized capital stock of Advanced NMR
consists of 1,000,000 shares of Preferred Stock, $.01 par value per share
("Advanced NMR Preferred Stock") and 50,000,000 shares of Advanced NMR Common
Stock. On the date hereof, there are no shares of Advanced NMR Preferred
Stock issued and outstanding and 43,747,623 shares of Advanced NMR Common
Stock issued and outstanding. The authorized capital stock of Acquisition
Corp. consists of 1,000 shares of Acquisition Corp. Common Stock, of which
there are 100 shares issued and outstanding on the date hereof. All of the
issued and outstanding shares of Advanced NMR and Acquisition Corp. Common
Stock are, and all shares of Advanced NMR Common Stock to be issued to AMS
stockholders in the Merger or upon exercise of the Derivative Securities will
be, validly issued, fully paid and nonassessable and the issuances thereof
were not and will not be subject to preemptive rights. As of March 31, 1997,
there are shares of Advanced NMR Common Stock reserved for issuance
under Advanced NMR stock option plans and warrants (the "ANMR Derivative
Securities").
(b) Schedule 4.4 lists all ANMR derivative securities. Except for the ANMR
derivative securities, there are no shares of Advanced NMR Common Stock and
Acquisition Corp. Common Stock or other equity securities (whether or not
such securities have voting rights) of Advanced NMR and Acquisition Corp.
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating Advanced NMR and/or Acquisition Corp. to issue, transfer or sell
any shares of capital stock or other securities (whether or not such
securities have voting rights) of Advanced NMR and Acquisition Corp. There
are no outstanding contractual obligations of Advanced NMR or Acquisition
Corp. which relate to the purchase, sale, issuance, repurchase, redemption,
acquisition, transfer, disposition, holding or voting of any shares of
capital stock or other securities of each of Advanced NMR and Acquisition
Corp. The Advanced NMR Common Stock trades on the NASDAQ small cap system.
4.5 Financial Statements; Undisclosed Liabilities; Other Documents. (a)
For purposes of this Agreement, "Advanced NMR Financial Statements" shall
mean (i) the audited financial statements of Advanced NMR as of September 30,
1996 and September 30, 1995 (including all notes thereto) which are included
in the ANMR SEC Documents (as defined in Section 4.6), consisting of the
balance sheets at such dates and the related statements of operations,
stockholders' equity and cash flows for the
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twelve-month period ended September 30, 1996 and the nine-month period ended
September 30, 1995, and (ii) the unaudited financial statements of Advanced
NMR as of March 31, 1997 and March 31, 1996 which are included in the ANMR
SEC Documents, consisting of the balance sheets at such dates and the related
statements of operations, stockholders' equity and cash flows for the three
and six-month periods ended March 31, 1997 and March 31, 1996. The Advanced
NMR Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position, of Advanced
NMR as at the dates thereof and the results of operations and cash flows of
Advanced NMR for the periods covered thereby.
(b) Advanced NMR does not have any liabilities or obligations of any
nature, whether accrued, contingent, absolute or otherwise, which
individually or in the aggregate could be reasonably expected to have an ANMR
Material Adverse Effect except (i) as set forth in the Advanced NMR Form 10-K
for the fiscal year ended September 30, 1996 and in the March 31, 1997
balance sheet (the "ANMR Balance Sheet") in the Advanced NMR Form 10-Q for
the fiscal quarter ended March 31, 1997 ("AMNR March 1997 Financials") or
(ii) liabilities or obligations incurred since March 31, 1997 in the ordinary
and usual course of its business.
4.6 Commission Filings. Advanced NMR has in a timely manner filed all
required forms, reports and other documents with the Commission since January
1, 1995, all of which complied when filed, in all material respects, with all
applicable requirements of Section 12(g) of the 1934 Act. Advanced NMR has
heretofore delivered to AMS complete and correct copies of (i) its Annual
Report on Form 10-K for the twelve-month period ended September 30, 1996, as
filed with the Commission, (ii) all proxy statements relating to Advanced
NMR's meetings of stockholders (whether annual or special) since January 1,
1995, and (iii) all other reports, forms and other documents filed by
Advanced NMR with the Commission since January 1, 1995 (together, the "ANMR
SEC Documents"). As of their respective dates, the ANMR SEC Documents
(including all exhibits and schedules thereto and documents incorporated by
reference therein) did not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The audited financial statements and the unaudited
interim financial statements of Advanced NMR, included or incorporated by
reference in the ANMR SEC Documents were prepared in accordance with GAAP
consistently applied during the periods involved (except as may be otherwise
indicated in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the Commission), and fairly present
the financial position of Advanced NMR as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject,
in the case of any unaudited interim financial statements, to normal year-end
adjustments).
4.7 No Material Adverse Effects or Changes. Except as listed on Schedule
4.7, or as disclosed in or reflected in the financial statements included in
the ANMR SEC Documents, or as contemplated by this Agreement or the Related
Agreements, since March 31, 1997, none of the ANMR Companies has (i) suffered
any damage, destruction or Loss to any of its assets or properties (whether
or not covered by insurance) which is having or could be expected to have an
ANMR Material Adverse Effect, or (ii) increased the compensation of any
executive officer of any ANMR Company except for increases consistent with
past practices. An "ANMR Material Adverse Effect" shall mean an effect on or
circumstances involving the business, operations, assets, liabilities,
results of operations, cash flows or condition (financial or otherwise) which
is materially adverse to the ANMR Companies, taken as a whole.
4.8 Absence of Certain Changes or Events. Except as disclosed in the ANMR
March 1997 Financials or in Schedule 4.8 hereto, since March 31, 1997
Advanced NMR has not (i) declared, set aside or paid any dividend or other
distribution in respect of its capital stock; (ii) made any direct or
indirect redemption, purchase or other acquisition of any shares (other than
purchases in connection with the exercise of options) of its capital stock or
made any payment (other than dividends) to any of their stockholders (in
their capacity as stockholders); (iii) issued or sold any shares of its
capital stock or any options, warrants or other rights to purchase any such
shares or any securities convertible into or exchangeable for such shares or
taken any action to reclassify or recapitalize or split up their capital
stock; (iv) mortgaged, pledged or subjected to any lien, lease, security
interest, encumbrance or other restriction, any of their material properties
or assets except in the ordinary and usual course of their business and
consistent with
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past practice; (v) except in the ordinary and usual course of its business
and consistent with its past practices forgiven or canceled any material debt
or claim, waived any material right; or (vi) adopted or amended any plan or
arrangement (other than amendments that are not material or that were made to
comply with laws or regulations) for the benefit of any director, officer or
employee or changed the compensation (including bonuses) to be paid to any
director, officer or employee, except for changes made consistent with the
prior practice of Advanced NMR.
4.9 Intellectual Property. Schedule 4.9 is a true and complete list of all
of Intellectual Property used by Advanced NMR in the conduct of its business.
Except as disclosed on Schedule 4.9:
(a) all of the Intellectual Property is owned by Advanced NMR free and
clear of all liens, and is not subject to any license, royalty or other
agreement, other than the License Agreement;
(b) none of the Intellectual Property has been or is the subject of any
pending or, to the best of Advanced NMR's knowledge, threatened litigation or
claim of infringement; or
(c) no license or royalty agreement to which Advanced NMR is a party is in
breach or default by any party thereto or the subject of any notice of
termination given or threatened.
4.10 Insurance. Advanced NMR is insured with reputable insurers against
all risks and in such amounts normally insured against by companies of the
same type and in the same line of business as Advanced NMR.
4.11 Employee Benefit Plans and Employment Agreements. (a) For purposes of
this Agreement, the term "Advanced NMR Employee Plan" shall mean any pension,
profit sharing, retirement, deferred compensation, bonus or other incentive
plan, any other employee program, arrangement, agreement or understanding,
any medical, vision, dental or other health plan, any life insurance plan, or
any other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA to which Advanced NMR
contributes or is a party or is bound or under which it may have a liability
and under which its employees or retirees (or their beneficiaries) are
eligible to participate or derive a benefit.
(b) The only Advanced NMR Employee Plan which is intended to be qualified
under Section 401(a) of the Code is the Advanced NMR Systems, Inc. 401(k)
Retirement Plan (the "Advanced NMR Qualified Plan"). The Advanced NMR
Qualified Plan has received a favorable determination letter from the
Internal Revenue Service. During the six year period preceding the Closing
Date, neither Advanced NMR nor any other entity with which Advanced NMR is in
any way affiliated has sponsored or otherwise had an obligation to contribute
to any "defined benefit plan" (within the meaning of the Section 3(35) of
ERISA).
(c) The Advanced NMR Employee Plan has been maintained in substantial
compliance with its terms and in all material respects with the applicable
requirements of law (including, without limitation, ERISA and the Code) and,
other than claims for benefits submitted by participants or beneficiaries in
the ordinary course, there is no legal action, investigation, claim or
proceeding pending or, to the knowledge of Advanced NMR, threatened against
or affecting any Advanced NMR Employee Plan which would have an ANMR Material
Adverse Effect.
(d) There is no employment contract or agreement covering any employee of
Advanced NMR that could give rise to the payment of any amount that would not
be deductible by reason of Section 280G of the Code.
4.12 Labor Matters. Each of the ANMR Companies has conducted and currently
is conducting, its business in full compliance with all laws relating to
employment and employment practices, terms and conditions of employment,
wages and hours and nondiscrimination in employment except where such failure
to be in compliance would not have an ANMR Material Adverse Effect. The
relationship of the ANMR Companies with its respective employees is generally
satisfactory, and there is, and during the past three years there has been,
no labor strike, dispute, slow-down, work stoppage or other labor difficulty
pending or, to Advanced NMR's knowledge, threatened against or involving the
ANMR Companies. None of the employees of the ANMR Companies are covered by
any collective bargaining agreement, no
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collective bargaining agreement is currently being negotiated by the ANMR
Companies and to Advanced NMR's knowledge, no attempt is currently being made
or during the past three years has been made to organize any employees of the
ANMR Companies to form or enter a labor union or similar organization.
4.13 Tax Returns and Audits. Except as set forth on Schedule 4.13,
Advanced NMR has duly filed all federal, state, local and foreign tax
returns, reports and forms required to be filed by it, except where the
failure to so file would not have an ANMR Material Adverse Effect. Advanced
NMR has duly paid (except for Taxes being contested in good faith) or made
adequate provisions on their books in accordance with GAAP for the payment of
all Taxes which have been incurred or are due and payable, and Advanced NMR
will on or before the Effective Time of the Merger make adequate provision on
its books in accordance with GAAP for all Taxes payable for any period
through the Effective Time of the Merger for which no return is required to
be filed prior to the Effective Time. Except as set forth on Schedule 4.13,
the federal and state income tax returns of Advanced NMR have never been
examined by the Internal Revenue Service or state taxing authority,
respectively, nor has Advanced NMR granted or given any extensions or waivers
of the statute of limitations with respect to any such federal and state
income tax returns. Advanced NMR is not aware of any basis for the assertion
of any deficiency against Advanced NMR for Taxes, which, if adversely
determined, would have an ANMR Material Adverse Effect.
4.14 Litigation. (a) Except as disclosed in Schedule 4.14, there are no
actions, suits, arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to Advanced NMR's
knowledge, threatened against or affecting any ANMR Company or any of its
respective officers or directors in their capacity as such, or any of its
respective properties or businesses which could reasonably be expected to
have an ANMR Material Adverse Effect. Except as set forth on Schedule 4.14,
all of the proceedings pending against any ANMR Company is covered and being
defended by insurers (subject to such deductibles as are set forth in such
Schedule). Except as disclosed in Schedule 4.14, no ANMR Company is subject
to any order, judgment, decree, injunction, stipulation or consent order of
or with any court or other Governmental Entity, other than orders of general
applicability. Since January 1, 1995, none of the ANMR Companies has entered
into any agreement to settle or compromise any proceeding pending or
threatened against it which has involved any obligation other than the
payment of money or for which it has any continuing obligation.
(b) There are no claims, actions, suits, proceedings, or investigations
pending or, to Advanced NMR's knowledge, threatened by or against any of the
ANMR Companies with respect to this Agreement or the Related Agreement, or in
connection with the transactions contemplated hereby or thereby.
(c) Except as set forth on Schedule 4.14, there are no pending or, to
Advanced NMR's knowledge, threatened claims against any director, officer,
employee or agent of any ANMR Company or any other Person which could give
rise to any claim for indemnification against any ANMR Company.
4.15 Compliance with Applicable Laws. Each of the ANMR Companies holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are required in the operation of its respective
business (the "ANMR Permits") except for those the failure of which to hold
would have an ANMR Material Adverse Effect. The ANMR Companies are in
compliance with the terms of the ANMR Permits, except where the failure so to
comply would not have an ANMR Material Adverse Effect. Except as disclosed in
Schedule 4.15, to Advanced NMR's knowledge, none of the ANMR Companies is in
violation of any law, ordinance or regulation of any Governmental Authority,
including environmental laws and regulations, except for possible violations
which individually and in the aggregate do not, and, insofar as reasonably
can be foreseen by Advanced NMR, will not in the future have an ANMR Material
Adverse Effect.
4.16 Medical Devices. Except for the products set forth on Schedule 4.16,
Advanced NMR sells no products for which a premarket approval of, or 510(k)
notification to, the FDA or other Governmental Authority is required, and
Advanced NMR is not, as to any other product, otherwise subject to the
jurisdiction of the FDA or any similar state, local or foreign Governmental
Authority. There are no products sold by Advanced NMR for which a new or
modified pre-market approval or 510(k) notification is required and for which
such approval has not been issued or clearance has not been made by the FDA.
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4.17 Contracts; No Defaults. Schedule 4.17 lists all material contracts
to which any of the ANMR Companies is a party. Except as disclosed in the
ANMR SEC Documents, neither any ANMR Company nor to Advanced NMR's knowledge,
any other party thereto, is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has
occurred or by reason of the Merger would occur which, with notice or lapse
of time or both, could be reasonably expected to result in a default under,
any contract, agreement or commitment to which any ANMR Company is a party or
by which any ANMR Company or any of its assets or properties is bound, except
for breaches, violations and defaults which are not having and could not be
reasonably expected to have an ANMR Material Adverse Effect. Except as
described in Schedule 4.17, none of the ANMR Companies is required to give
any notice to any person regarding this Agreement or the Related Agreement or
the transactions contemplated hereby or thereby.
4.18 Fees of Brokers, Finders and Investment Bankers. Neither Advanced NMR
nor any officer, director, or employee of Advanced NMR has employed any
brokers, finder or investment banker (except for Houlihan Lokey Howard &
Zukin) or incurred any liability for any brokerage or investment banking
fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.19 Opinion of Financial Advisor. Advanced NMR has received the opinion
of Houlihan Lokey Howard & Zukin, to the effect that, as of May 26, 1997, the
date the Board of Directors of Advanced NMR authorized the Merger, the
consideration to be paid in the Merger by Advanced NMR was fair from a
financial point of view to the stockholders of Advanced NMR, and a true and
complete copy of such opinion has been delivered to AMS prior to execution of
this Agreement.
ARTICLE V
COVENANTS
5.1 Implementing Agreement. Subject to the terms and conditions hereof,
each party hereto shall use its best efforts to take all action required of
it to fulfill its obligations under the terms of this Agreement and to
facilitate the consummation of the transactions contemplated hereby.
5.2 Access to Information and Facilities. From and after the date of this
Agreement, AMS shall give Advanced NMR and Acquisition Corp. and their
representatives access during normal business hours and upon reasonable
notice to all of the facilities, properties, books, contracts, commitments
and records of AMS and shall make the officers and employees of AMS available
to Advanced NMR and Acquisition Corp. and their representatives as Advanced
NMR or Acquisition Corp. or their representatives shall from time to time
reasonably request. Advanced NMR and Acquisition Corp. and their
representatives will be furnished with any and all information concerning AMS
which Advanced NMR or Acquisition Corp. or their representatives reasonably
request. The obligations set forth in this Section 5.2 shall also apply to
Advanced NMR and Acquisition Corp., mutatis mutandis.
5.3 Preservation of Business. From the date of this Agreement until the
Closing Date, each of AMS and Advanced NMR shall operate only in the ordinary
and usual course of business consistent with past practice, and shall use
reasonable commercial efforts to (a) preserve intact its respective business
organization, (b) preserve the good will and advantageous relationships with
customers, suppliers, independent contractors, employees and other Persons
material to the operation of its business, and (c) not permit any action or
omission which would cause any of the representations or warranties contained
herein to become inaccurate or any of the covenants to be breached in any
material respect.
5.4 Proxy Materials; AMS and Advanced NMR Stockholder Approval. (a) As
soon as practicable after the date hereof, Advanced NMR and AMS will prepare
and file the Proxy Statement/Prospectus that will be included in the
Registration Statement containing (i) the Proxy Statement relating to the AMS
Stockholders' Meeting at which this Agreement and the Merger will be voted
upon, (ii) a prospectus relating to the shares of Advanced NMR Common Stock
to be issued by Advanced NMR in connection with the Merger, and (iii) the
Proxy Statement relating to the Advanced NMR stockholders' meeting ("Advanced
NMR Stockholders' Meeting") at which the Recapitalization Transactions will
be voted upon, and each of Advanced NMR and AMS shall use all reasonable
efforts to have the Registration Statement declared effective as promptly as
practicable. AMS will convene the AMS Stockholders'
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Meeting as promptly as practicable after the Registration Statement is
declared effective to consider and vote upon the approval of this Agreement
and the Merger. Subject to fiduciary obligations of the AMS Board of
Directors or the members of the Special Committee under applicable law as
determined by such AMS Board members or Special Committee members in good
faith after consultation with legal counsel, the board of directors of AMS
shall recommend such approval to its stockholders and use its best efforts to
obtain such approval. Advanced NMR will convene the Advanced NMR
Stockholders' Meeting as promptly as practicable after the Registration
Statement is declared effective to consider and vote upon the approval of the
Recapitalization Transactions. The board of directors of Advanced NMR shall
recommend such approval to its stockholders and use its best efforts to
obtain such approval.
(b) The information supplied by AMS for inclusion in the Proxy
Statement/Prospectus shall not, at the time the Proxy Statement/Prospectus is
declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The information supplied
by AMS for inclusion in the Proxy Statement/Prospectus to be sent to the
stockholders of AMS in connection with the AMS Stockholders' Meeting shall
not, at the date the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to stockholders, at the time of the AMS
Stockholders' Meeting or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to AMS, or its
officers or directors, should be discovered by AMS which should be set forth
in an amendment to the Proxy Statement/Prospectus, AMS shall promptly inform
Advanced NMR. All documents that AMS is responsible for filing with the
Commission in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the applicable
requirements of the 1933 Act and the rules and regulations thereunder, and
the 1934 Act and the rules and regulations thereunder.
(c) The information supplied by Advanced NMR and Acquisition Corp. for
inclusion in the Proxy Statement/Prospectus shall not, at the time the Proxy
Statement/Prospectus is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
The information supplied by Advanced NMR and Acquisition Corp. for inclusion
in the Proxy Statement/Prospectus to be sent to AMS and Advanced NMR
stockholders in connection with the AMS Stockholders' Meeting and Advanced
NMR Stockholders' Meeting, respectively, shall not at the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is
first mailed to AMS and Advanced NMR stockholders, at the time of the AMS
Stockholders' Meeting and the Advanced NMR Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to Advanced NMR or Acquisition Corp., or to
their respective officers or directors, should be discovered by Advanced NMR
which should be set forth in an amendment to the Proxy Statement/Prospectus
or a supplement thereto, Advanced NMR shall promptly inform AMS. All
documents that Advanced NMR is responsible for filing with the Commission in
connection with the transactions contemplated herein will comply as to form
and substance in all material respects with the applicable requirements of
the 1933 Act and the rules and regulations thereunder and the 1934 Act and
the rules and regulations thereunder.
5.5 Consents and Approvals. Subject to the terms and conditions provided
herein, each of the parties hereto shall use reasonable commercial efforts to
obtain all consents, approvals, certificates and other documents required in
connection with the performance by it of this Agreement and the consummation
of the transactions contemplated hereby. As soon as practicable after the
date hereof, each of the parties hereto shall make all filings, applications,
statements and reports to all Governmental Authorities and other Persons
which are required to be made prior to the Closing Date pursuant to any
applicable law or contract in connection with this Agreement and the
transactions contemplated hereby.
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5.6 Periodic Reports. Until the Effective Time, Advanced NMR and AMS each
will, subject to the requirements of applicable laws, furnish to the other
all filings to be made with the Commission and will solicit comments with
respect thereto from the other, in each case at least 48 hours (or as soon
thereafter as is practicable) prior to the time of such filings and the time
of such mailings.
5.7 Publicity. Prior to issuing any public announcement or statement with
respect to the transactions contemplated hereby and prior to making any
filing with any Federal or state governmental or regulatory agency or with
any securities exchange with respect thereto, Advanced NMR and AMS will,
subject to their respective legal obligations, consult with each other and
will allow each other to review the contents of any such public announcement
or statement and any such filing. Subject to the preceding sentence, Advanced
NMR and AMS each agree to furnish to the other copies of all other public
announcements they may make concerning their respective business and
operations promptly after such public announcements are made.
5.8 Listing of Common Stock. Advanced NMR will use its best efforts to
cause to be prepared and submitted to NASDAQ an application covering the
listing of the shares of Advanced NMR Common Stock on NASDAQ Small Cap or OTC
Bulletin Board issuable in connection with the Merger and will use its
reasonable best efforts to obtain, prior to the Closing, approval for the
listing of such shares.
5.9 Blue Sky Approvals. Advanced NMR and AMS will obtain, prior to the
effective date of the Registration Statement, all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Merger.
5.10 Rule 145 Affiliates. Prior to the Closing Date, AMS shall deliver to
Advanced NMR a letter representing that other than Advanced NMR, and to its
best knowledge AMS has no "affiliates" for purposes of Rule 145 under the
1933 Act.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND ADVANCED NMR
The obligations of Acquisition Corp. and Advanced NMR to consummate the
Merger are subject to the fulfillment at or before the Closing, or waiver
thereof by Advanced NMR, of each of the following conditions:
6.1 Warranties True as of Closing Date. The representations and warranties
of AMS contained herein shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
6.2 Compliance With Agreements and Covenants. AMS shall have performed and
complied with in all material respects all of its covenants, obligations and
agreements contained in this Agreement to be performed and complied with by
AMS on or prior to the Closing Date.
6.3 Consents and Approvals. Advanced NMR shall have received written
evidence satisfactory to it that all consents and approvals required for the
consummation of the transactions contemplated hereby have been obtained, and
all required filings have been made, except where the failure to obtain any
such consent or approval or to make any such filing would not have an AMS
Material Adverse Effect or an ANMR Material Adverse Effect.
6.4 Actions or Proceedings. No preliminary or permanent injunction or
other order by any federal or state court preventing consummation of the
Merger shall have been issued and shall be continuing in effect, and the
Merger and the other transactions contemplated hereby shall not be prohibited
under any applicable federal or state law or regulation.
6.5 Approval of Merger. The stockholders of AMS shall have approved this
Agreement and the Merger contemplated hereby in accordance with its
certificate of incorporation and by-laws and the DGCL.
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6.6 Approval of Recapitalization Transactions. The stockholders of
Advanced NMR shall have approved the Recapitalization Transactions in
accordance with its certificate of incorporation and by-laws and the DGCL.
6.7 Registration Statement. The Registration Statement shall have become
effective, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and remain in effect.
6.8 Listing of Common Stock. NASDAQ shall have approved the listing of all
shares of Advanced NMR Common Stock to be issued in the Merger in accordance
with Section 5.08 hereof.
6.9 Other Closing Documents. Advanced NMR shall have received the
executed Certificate of Merger and such other agreements and instruments as
Advanced NMR shall reasonably request, in each case in form and substance
reasonably satisfactory to Advanced NMR.
6.10 Dissenters' Rights. There shall not be holders of more than three
percent (3%) of the issued and outstanding shares of AMS Common Stock who
exercise dissenters' rights under the DGCL.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF AMS
The obligations of AMS to consummate the Merger are subject to the
satisfaction or waiver by AMS of the following conditions precedent on or
before the Closing Date:
7.1 Warranties True as of Closing Date. The representations and warranties
of Acquisition Corp. and Advanced NMR contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made by Acquisition Corp. and Advanced NMR on and
as of the Closing Date.
7.2 Compliance with Agreements and Covenants. Acquisition Corp. and
Advanced NMR shall have performed and complied with in all material respects
all of their covenants, obligations and agreements contained in this
Agreement, to be performed and complied with by them on or prior to the
Closing Date.
7.3 Consents and Approvals. AMS shall have received written evidence
satisfactory to it that all consents and approvals required for the
consummation of the transactions contemplated hereby have been obtained, and
all required filings have been made, except where the failure to obtain any
such consent or approval or to make any such filing would not have an AMS
Material Adverse Effect or an ANMR Material Adverse Effect.
7.4 Actions or Proceedings. No preliminary or permanent injunction or
other order by any federal or state court preventing consummation of the
Merger shall have been issued and shall be continuing in effect, and the
Merger and the other transactions contemplated hereby shall not be prohibited
under any applicable federal or state law or regulation.
7.5 Approval of Recapitalization Transactions. The stockholders of
Advanced NMR shall have approved the Recapitalization Transactions in
accordance with its certificate of incorporation and by-laws and the DGCL.
7.6 Approval of Merger. The stockholders of AMS shall have approved this
Agreement and the Merger contemplated hereby in accordance with its
certificate of incorporation and by-laws and the DGCL.
7.7 Registration Statement. The Registration Statement shall have become
effective, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and remain in effect.
7.8 Listing of Common Stock. NASDAQ shall have approved the listing of all
shares of Advanced NMR Common Stock to be issued in the Merger.
7.9 Other Closing Documents. AMS shall have received such other agreements
and instruments as AMS shall reasonably request, in each case in form and
substance reasonably satisfactory to AMS.
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7.10 Board Appointment. The Advanced NMR Board shall recommend the
appointment of Bernard Weiner, M.D. to serve on the Advanced NMR Board
subsequent to the Merger.
ARTICLE VIII
TERMINATION AND INDEMNIFICATION
8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval by the stockholders of AMS:
(a) by mutual written consent of the Board of Directors of Advanced NMR
and the Board of Directors of AMS;
(b) by either Advanced NMR or AMS, by written notice to the other, if (i)
the Effective Time shall not have occurred on or before October 31, 1997,
(ii) the requisite vote of the stockholders of AMS to approve this Agreement
shall not be obtained at the AMS Stockholders' Meeting, or any adjournments
or postponements thereof, called therefor, (iii) the requisite vote of the
stockholders of Advanced NMR to approve the Recapitalization Transactions
shall not be obtained at the Advanced NMR Stockholders' Meeting, or any
adjournments or postponements thereof, called therefor, (iv) a bona fide
acquisition proposal is made by a third party to acquire all or substantially
all of the outstanding shares of AMS Common Stock or a similar acquisition
proposal for AMS or its assets is made which in either case the Board of
Directors of AMS determines in good faith is more favorable to the AMS
stockholders from a financial point of view than the Merger; or (v) any court
of competent jurisdiction in the United States or any state shall have issued
an order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment or decree shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement under clause (v) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by Advanced NMR, by written notice to AMS, if:
(i) there shall have been any breach of any representation, warranty,
covenant or agreement of AMS hereunder which, if not remedied prior to the
Closing Date, would have an AMS Material Adverse Effect and such breach
shall not have been remedied, or AMS shall not have provided Advanced NMR
with reasonable assurance that such breach will be remedied prior to the
Closing Date, within ten days after receipt by AMS of notice in writing
from Advanced NMR, specifying the nature of such breach and requesting
that it be remedied; or
(ii) the Special Committee of the Board of Directors and/or the Board of
Directors of AMS shall withdraw or modify in any manner adverse to
Advanced NMR its approval or recommendation of this Agreement or the
Merger.
(d) by AMS, by written notice to Advanced NMR, if:
(i) there shall have been any breach of any representation, warranty,
covenant or agreement of Advanced NMR hereunder which, if not remedied
prior to the Closing Date, would have an ANMR Material Adverse Effect and
such breach shall not have been remedied or Advanced NMR shall not have
provided AMS with reasonable assurance that such breach will be remedied
prior to the Closing Date, within ten days after receipt by Advanced NMR
of notice in writing from AMS, specifying the nature of such breach and
requesting that it be remedied; or
(ii) the Board of Directors of Advanced NMR or any committee thereof
shall withdraw or modify in any manner adverse to AMS its approval or
recommendation of this Agreement or the Merger or the Recapitalization
Transactions.
8.2 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article VIII,
no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except
for the termination payments provided in Section 8.3 and except that nothing
herein will relieve any party from liability for any willful breach of this
Agreement.
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8.3 Termination Payments. If Advanced NMR shall terminate this Agreement
pursuant to Sections 8.1(b)(iv) or 8.1(c)(i), AMS shall pay $500,000 to
Advanced NMR not later than ten days after notice from Advanced NMR to AMS.
If AMS shall terminate this Agreement pursuant to Section 8.1(d)(i), Advanced
NMR shall pay $500,000 to AMS not later than ten days after notice from AMS
to Advanced NMR.
8.4 Indemnification by Advanced NMR.
(a) For a period of six years after the Effective Time, Advanced NMR shall
indemnify, defend and hold harmless the present and former officers,
directors and employees of AMS (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses, obligations, liabilities or
judgments, or amounts that are paid in settlement with the approval of
Advanced NMR (which approval shall not be unreasonably withheld) resulting
from or arising out of actions or omissions occurring on or prior to the
Effective Time (including, without limitation, the transactions contemplated
by this Agreement) to the same extent as presently provided to the officers
and directors of Advanced NMR.
(b) In the event that Advanced NMR or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties and
assets to any person, then and in each such case, proper provisions shall be
made so that the successors and assigns of Advanced NMR shall assume the
obligations set forth in paragraph (a) above.
(c) Advanced NMR shall pay all expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided for in this Section 8.4.
(d) This Section 8.4 is intended for the benefit of and to grant third
party rights to the Indemnified Parties and each of the Indemnified Parties
is entitled to enforce the rights contained herein.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Except as otherwise provided in Section 8.3 of this
Agreement, each party hereto shall bear its own expenses with respect to the
transactions contemplated hereby.
9.2 Amendment. This Agreement may be amended, modified or supplemented but
only in writing signed by Acquisition Corp., Advanced NMR and AMS.
9.3 Non-Survival of Representations, Warranties, Covenants and Agreements.
All representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered in connection herewith shall not
survive the Merger, except as otherwise specifically provided in this
Agreement and except for the agreements contained in this Section 9.3 and in
Articles I and IX and in Sections 8.3 and 8.4.
9.4 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (a) when received if given in person, (b) on the date of
transmission if sent by telex, facsimile or other wire transmission or (c)
three Business Days after being deposited in the U.S. mail, certified or
registered mail, postage prepaid:
(a) If to AMS:
Advanced Mammography Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01187
Attention: Jack Nelson,
Chairman of the Board
Facsimile No.: (508) 658-8876
A-18
<PAGE>
with a copy to:
Noah Klarish, Esq.
Noah Klarish & Associates, P.C.
230 Park Avenue
32nd Floor
New York, New York 10169
Facsimile No.: (212) 973-1112
(b) If to Advanced NMR or Acquisition Corp.:
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887
Attention: Jack Nelson
Chairman of the Board
Facsimile No.: (508) 658-8876
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, NY 10019
Attention: Bruce A. Rich, Esq.
Facsimile No.: (212) 603-2001
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
9.5 Waivers. The failure of a party hereto at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by a party of any condition or of
any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one
or more instances shall be deemed to be a further or continuing waiver of any
such condition or breach in other instances or a waiver of any other
condition or breach of any other term, covenant, representation or warranty.
9.6 Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement and the headings to Schedules attached to
this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of
the masculine, feminine or neuter gender herein shall not limit any provision
of this Agreement. The use of the terms "including" or "include" shall in all
cases herein mean "including, without limitation" or "include, without
limitation," respectively. Underscored references to Articles, Sections,
Paragraphs, Subsections, Subparagraphs, Schedules or Exhibits shall refer to
those portions of this Agreement.
9.7 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
9.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that no assignment of any rights or obligations shall be
made by any party without the prior written consent of all the other parties
hereto.
9.9 No Third Party Beneficiaries. This Agreement is solely for the benefit
of the parties hereto and, to the extent provided herein, and their
respective directors, officers, employees, agents and representatives, and no
provision of this Agreement shall be deemed to confer upon other third
parties any remedy, claim, liability, reimbursement, cause of action or other
right.
9.10 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would result in the event that any provision of this
Agreement is not performed in accordance with specific terms or is otherwise
breached. It is accordingly agreed that the parties hereto will be entitled
to equitable relief including an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof.
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9.11 Further Assurances. Upon the request of Advanced NMR or Acquisition
Corp., AMS will on and after the Closing Date execute and deliver to
Acquisition Corp. such other documents, releases, assignments and other
instruments as may be required to effectuate completely the transactions
contemplated by this Agreement.
9.12 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability
of the other provisions hereof shall not be affected thereby, and there shall
be deemed substituted for the provision at issue a valid, legal and
enforceable provision as similar as possible to the provision at issue.
9.13 Remedies Cumulative. The remedies provided in this Agreement shall be
cumulative and shall not preclude the assertion or exercise of any other
rights or remedies available by law, in equity or otherwise.
9.14 Entire Understanding. This Agreement and the Related Agreements set
forth the entire agreement and understanding of the parties hereto and
supersede all prior agreements, arrangements and understandings among the
parties hereto.
9.15 Waiver of Jury Trial. Each party hereto waives the right to a trial
by jury in any dispute in connection with the transactions contemplated by
this Agreement and the Related Agreements, and agrees to take any and all
action necessary or appropriate to effect such waiver.
9.16 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Jack Nelson
---------------------------------
Name: Jack Nelson
Title: Chairman
ANMR/AMS MERGER CORP.
By: /s/ Jack Nelson
---------------------------------
Name: Jack Nelson
Title: President
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Enrique Levy
---------------------------------
Name: Enrique Levy
Title: President
A-20
<PAGE>
ANNEX B
VALUEMETRICS, INC. LOGO
May 26, 1997
The Special Committee of the
Board of Directors of Advanced Mammography Systems, Inc.
Advanced Mammography Systems, Inc.
2 Executive Drive
Fort Lee, NJ 07024
Board of Directors:
We understand that Advanced Mammography Systems, Inc. (the "Company") and
Advanced NMR Systems, Inc. ("NMR") propose to enter into an Agreement and
Plan of Merger ("Agreement"), whereby, among other things, the Company will
be merged with and into NMR, in a transaction (the "Merger") in which each
share of the Company's common stock will be converted into the right to
receive four-tenths (.40) (the "Conversion Number") of one fully paid and
nonassessable share of NMR common stock (the "Consideration"). Furthermore,
it is our understanding that the Conversion Number has been determined taking
into account a ten for one reverse stock split of NMR common stock and
conversion of currently outstanding AMS debentures into shares of AMS common
stock.
You have requested our opinion, as financial advisors, as to the fairness,
from a financial point of view, to the Company of the Consideration to be
paid in the Merger as calculated based upon a proposed price per share of the
Company's stock of $0.999, assuming the Company's remaining convertible debt
does convert.
In conducting our analysis of the Company and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of the Company that was publicly available; including filings
made with the Securities and Exchange Commission (the "SEC"). Valuemetrics
reviewed the (i) Form of 4% Convertible Debentures; (ii) License Agreement
between the Company and Advanced NMR Systems, Inc.; (iii) Form of Amendment
No. 1 to License Agreement; (iv) Shared Services Agreement; (v) 1992 Stock
Option Plan as Amended August 22, 1996; (vi) 1992 Non-Employee Directors'
Stock Plan as Amended August 22, 1996; and (vii) Form of Offshore Securities
Subscription Agreement. Valuemetrics also reviewed the financial statements
for the years ending December 31, 1992 through September 30, 1996, as well
as, the 10-Qs for December 31, 1996 and March 31, 1997. In addition,
Valuemetrics reviewed available industry and market research.
Valuemetrics, in conducting its analysis of NMR and arriving at the
opinion expressed herein, reviewed and analyzed, certain financial and other
information of the Company that was publicly available, including filings
made with the SEC. Valuemetrics reviewed the (i) Agreement and Plan of Merger
among Advanced NMR, Advanced NMR Acquisition Corp. and Medical Diagnostics,
Inc., dated May 2, 1995; (ii) Escrow Agreement among Advanced NMR, the
Company and American Stock Transfer & Trust Company; (iii) 1993 Employee
Stock Option Plan; (iv) 1993 Director's Stock Option Plan for Non-Employee
Directors; (v) 1994 Agreement between Advanced NMR and General Electric
Company, dated July 29, 1994; (vi) License Agreement between Advanced NMR and
the Company; (vii) Shared Services Agreement between Advanced NMR and the
Company; (viii) Financial Statements for the Years Ended December 31, 1992
through September 30, 1996 as well as, the 10-Qs for December 31, 1996 and
March 31, 1997; and (ix) Advanced NMR Pro Forma Balance Sheet on a Fair
Market Value Basis as of December 31, 1996. In addition, Valuemetrics
reviewed available industry and market research pertaining to NMR's
operations and various assets.
In rendering its opinion, Valuemetrics conducted on site due diligence and
held discussions with certain officers, employees and representatives
(including counsel and independent auditors) of the Company and NMR,
respectively, concerning the business and operations, assets, present
condition and
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<PAGE>
future prospects of the Company and NMR and undertook such other studies,
analyses and investigations as Valuemetrics deemed appropriate. We have
further held discussions with senior management of the Company concerning an
analysis of the strategic and operating benefits anticipated from the Merger.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information supplied to or
otherwise used by us in arriving at our opinion and have not attempted
independently to verify such information. With your consent, we have assumed
that the respective forecasts and projections of the Company and NMR supplied
to us represent the best currently available estimates and judgements of the
respective managements of the Company and NMR as to the expected future
financial condition and results of operations of the Company and NMR. We
assume no responsibility for and express no view as to the accuracy of such
forecasts and projections or the reasonableness of the assumptions on which
they are based. We also assume that the transactions described in the
Agreement would be consummated on the terms set forth therein, without waiver
of any such terms.
We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well
as our experience in securities valuation in general. Our opinion necessarily
is based upon conditions as they exist and can be evaluated on the date
hereof. Subsequent developments may affect this opinion, and we do not have
any obligation to update, revise or reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and
use of the Special Committee of the Board of Directors of the Company in its
consideration of the Merger. The Board of Directors of the Company may rely
upon this opinion in reviewing the recommendation of the Special Committee of
the Board of Directors with respect to the Merger. This letter does not
constitute a recommendation of the Merger over any other alternative
transactions which may be available to the Company and does not address the
underlying business decision of the Board of Directors of the Company to
proceed with or effect the Merger. In addition, in rendering this opinion, we
do not express any view as to the prices at which the Company's securities
may trade prior to or following the Merger. This letter does not constitute a
recommendation by our firm to any particular member of the Board of Directors
or to any stockholder as to how such member or stockholder should vote in
connection with the Merger. This letter and the contents hereof may not be
published, disseminated, referred to, summarized, described or otherwise
used, nor shall any public reference to Valuemetrics, Inc. be made, without
our prior written consent. We understand that this opinion will be filed with
the SEC and distributed to the Company's shareholders as part of the Proxy
Statement related to the proposed Merger. As you are aware, we will receive a
fee for our services to the Special Committee of the Board of Directors in
connection with rendering this opinion, and the Company has indemnified
Valuemetrics for certain liabilities arising out of this engagement including
the rendering of this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be paid is fair, from a financial point of
view, to the holders of the Company's common shares.
Very truly yours,
/s/ Valuemetrics, Inc.
---------------------
VALUEMETRICS, INC.
B-2
<PAGE>
ANNEX C
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
May 16, 1997
To The Board of Directors of
Advanced NMR Systems, Inc.
Gentlemen:
We understand that the Board of Directors of Advanced NMR Systems, Inc.
("ANMR" or the "Company") is considering entering into an agreement and plan
of merger (the "Merger Agreement") whereby ANMR/AMS Merger Corporation
("Acquisition Corp."), a wholly-owned subsidiary of ANMR, shall be merged
(the "Merger") with and into Advanced Mammography Systems, Inc. ("AMS") with
AMS continuing as the surviving corporation in the Merger. By virtue of the
Merger each share of AMS common stock shall be converted into the right to
receive .40 shares of ANMR common stock (assuming a ANMR effectuates a 1 for
10 reverse stock split) (the "Merger Consideration"). Such transaction and
all related transactions are referred to collectively herein as the
"Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business
decision to effect the Transaction. Furthermore, at your request, we have not
advised you with respect to alternatives to the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
1. reviewed the Company's annual reports to shareholders and Form 10-Ks
for the fiscal years ended December 31, 1992, December 31, 1993,
December 31, 1994, September 30, 1995 and September 30, 1996, and
quarterly reports on Form 10-Q for the quarters ended December 31,
1996 and March 31, 1997, which the Company's management has identified
as being the most current financial statements available;
2. reviewed AMS' annual reports to shareholders and Form 10-Ks for the
fiscal years ended December 31, 1993, December 31, 1994, September 30,
1995 and September 30, 1996, and quarterly reports on Form 10-Q for
the quarters ended December 31, 1996 and March 31, 1997, which AMS
management has identified as being the most current financial
statements available;
3. met with certain members of the senior management of the Company and
AMS to discuss the operations, financial condition, future prospects
and projected operations and performance of the Company and AMS
respectively;
4. reviewed certain internal analyses prepared by the Company's
management with respect to the contingent assets and liabilities of
the Company;
5. reviewed the historical market prices and trading volume for the
Company's and AMS' publicly traded securities;
6. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction; and
7. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial information provided to us has been reasonably prepared and
reflects the best currently available estimates of the future financial
results and condition of the Company and AMS, and that there has been no
material
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<PAGE>
change in the assets, financial condition, business or prospects of the
Company and/or AMS since the date of the most recent financial statements
made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and AMS and do not
assume any responsibility with respect to it. We have not made any physical
inspection or independent appraisal of any of the properties or assets of the
Company or AMS. Our opinion is necessarily based on business, economic,
market and other conditions as they exist and can be evaluated by us at the
date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Merger Consideration to be paid by the Company to the stockholders of AMS is
fair to the stockholders of the Company from a financial point of view.
/s/ HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
C-2
<PAGE>
ANNEX D
SECTION 262. APPRAISAL RIGHT.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in
a stock corporation and also a member of record of a nonstock corporation;
the words "stock' and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words 'depository receipt' mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section Section 251, 252, 254, 257, 258, 263 or 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (b) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at
the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to
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<PAGE>
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof, that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided
that, if the notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding
the day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of the their shares have not
been reached by the surviving or resulting corporation. If the petition shall
be filed by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon
D-3
<PAGE>
the surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of Chancery
may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purposes or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
ANNEX E
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED NMR SYSTEMS, INC.
(PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
ADVANCED NMR SYSTEMS, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Corporation duly adopted resolutions
setting forth two proposed amendments ("the Amendments") to the Certificate
of Incorporation of the Corporation, declaring the Amendments to be advisable
and calling for the submission of the Amendments to the stockholders of the
Corporation pursuant to Section 242(b)(2) of the General Corporation Law of
the State of Delaware (the "DGCL"), and stating that the Amendment will be
effective only after approval thereof by the holders of a majority of the
outstanding shares of stock of the Corporation entitled to vote thereon.
SECOND: Thereafter, pursuant to a resolution of the Board of Directors of
the Corporation, the Amendments were submitted to the holders of all of the
outstanding shares of Common Stock of the Corporation at a Special Meeting of
Stockholders, a majority of such holders at that Meeting adopted the
following resolutions to amend the Certificate of Incorporation of the
Corporation:
RESOLVED, that the Certificate of Incorporation be, and it hereby is,
amended by deleting in its entirety the present Article FIRST and
substituting in lieu thereof the following new Article FIRST and by deleting
in its entirety the present Article FOURTH and substituting in lieu thereof
the following new Article FOURTH:
FIRST: Name. The name of the corporation is Caprius, Inc. (the
"Corporation").
FOURTH: Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is fifty-one million (51,000,000)
shares, of which fifty million (50,000,000) shares shall be Common Stock of
the par value of one cent ($.01) per share (hereinafter called "Common
Stock") and one million (1,000,000) shares shall be Preferred Stock of the
par value of one cent ($.01) per share (hereinafter called "Preferred
Stock").
At such time as this Certificate of Amendment to the Certificate of
Incorporation of the Corporation is filed with the Secretary of State of
Delaware (the date of such filing being hereinafter called the "Effective
Date"), the issued (but not the authorized and unissued) shares of Common
Stock of the Corporation, including shares of Common Stock of the Corporation
held by it as treasury shares on the Effective Date, and including shares of
the Corporation's Common Stock reserved for issuance on the Effective Date to
holders of then outstanding options and warrants of the Corporation, will be
changed and split on the basis of one (1) share with a par value of $.01 per
share for each ten (10) shares with a par value of $.01 per share. No
fractional shares will be issued and all fractional shares will be rounded up
or down to the nearest whole share. On the Effective Date, all shares of
Common Stock of the Corporation of the par value of $.01 per share issued and
outstanding or held in the treasury of the Corporation (but not authorized
and unissued shares) or then reserved for issuance to holders of then
outstanding options, warrants, and convertible debentures of the Corporation,
shall at such time, without any action on the part of the holders thereof, be
reclassified, changed and converted into a number of shares of Common Stock
of the Corporation of the par value of $.01 per share equal to 1/10 of the
aggregate number of shares of Common Stock of the Corporation of the par
value of $.01 per share outstanding or held in the treasury or reserved for
issuance to holders of options, warrants, and
E-1
<PAGE>
convertible debentures of the Corporation immediately prior to the Effective
Date, without increasing or decreasing the amount of stated capital or
surplus of the Corporation. As promptly as practicable after the Effective
Date of the reclassification and change in the shares of the Common Stock of
the Corporation in accordance with the foregoing, notice shall be given to
all stockholders of record of the Corporation on the Effective Date to
surrender their certificate or certificates of shares of Common Stock of the
Corporation to the Corporation's Transfer Agent for cancellation and
reissuance in accordance with the terms of the provisions of this Amendment.
A. PROVISIONS RELATING TO PREFERRED STOCK. Shares of Preferred Stock may
be issued from time to time in series, and the Board of Directors of the
Corporation is hereby authorized, subject to the limitations provided by law,
to establish and designate one or more series of the Preferred Stock, to fix
the number of shares constituting each series, and to fix the designations,
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of each
series and the variations and the relative rights, preferences and
limitations as between series, and to increase and to decrease the number of
shares constituting each series. The authority of the Board of Directors of
the Corporation with respect to each series shall include, but shall not be
limited to, the authority to determine the following:
(i) The designation of such series.
(ii) The number of shares initially constituting such series.
(iii) The increase, and the decrease to a number not less than the number
of the outstanding shares of such series, of the number of shares
constituting such series theretofore fixed.
(iv) The rate or rates, and the conditions upon and the times at which
dividends on the shares of such series shall be paid, the preference
or relation which such dividends shall bear to the dividends payable
on any other class or classes or on any other series of stock of the
Corporation, and whether or not such dividends shall be cumulative,
the date or dates from and after which they shall accumulate.
(v) Whether or not the shares of such series shall be redeemable, and, if
such shares shall be redeemable, the terms and conditions of such
redemption, including, but not limited to, the date or dates upon or
after which such shares shall be redeemable and the amount per shares
which shall be payable upon such redemption, which amount may vary
under different conditions and at different redemption dates.
(vi) The rights to which the holders of the shares of such series shall be
entitled upon the voluntary or involuntary liquidation, dissolution
or winding up of, or upon any distribution of the assets of, the
Corporation, which rights may be different in the case of a voluntary
liquidation, dissolution or winding up than in the case of such an
involuntary event.
(vii) Whether or not the shares of such series shall have voting rights,
in addition to the voting rights provided by law, and, if such
shares shall have such voting rights, the terms and conditions
thereof, including, but not limited to, the right of the holders of
such shares to vote as a separate class either alone or with the
holders of shares of one or more other series of Preferred Stock and
the right to have more than one vote per share.
(viii) Whether or not a sinking fund or a purchase fund shall be provided
for the redemption or purchase of the shares of such series, and,
if such a sinking fund or purchase fund shall be provided, the
terms and conditions thereof.
(ix) Whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of
the Corporation, and, if provision be made for conversion or
exchange, the terms and conditions of conversion or exchange,
including, but not limited to, any provision for the adjustment of
the conversion or exchange rate or the conversion or exchange price.
(x) Any other relative rights, preferences and limitations.
E-2
<PAGE>
B. PROVISIONS RELATING TO COMMON STOCK
(i) Subject to the preferential dividend rights applicable to shares of
the Preferred Stock, as determined by the Board of Directors of the
Corporation pursuant to the provisions of part A of the Article
FOURTH, the holders of shares of Common Stock shall be entitled to
receive such dividends as may be declared by the Board of Directors of
the Corporation.
(ii) Subject to the preferential liquidations rights and except as
determined by the Board of Directors of the Corporation pursuant to
the provisions of part A of the Article FOURTH, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of,
or any distribution of the assets of, the Corporation, the holders of
the shares of Common Stock shall be entitled to receive all the
assets of the Corporation available for distribution to its
stockholders ratably in proportion to the number of shares of Common
Stock held by them.
(iii) Except as otherwise determined by the Board of Directors of the
Corporation pursuant to the provisions of part A of the Article
FOURTH, the holders of shares of the Common Stock shall be entitled
to vote on all matters at all meetings of the stockholders of the
Corporation, and shall be entitled to one vote for each share of the
Common Stock entitled to vote at such meeting, voting together with
the holders of the Preferred Stock who are entitled to vote, and not
as a separate class.
THIRD: The Amendments were duly adopted in accordance with the provisions
of Section 242 of the DGCL.
IN WITNESS WHEREOF, said Advanced NMR Systems, Inc. has caused this
certificate to be signed by Jack Nelson, its Chairman of the Board, as of the
day of 1997.
ADVANCED NMR SYSTEMS, INC.
By:
-----------------------------------
Jack Nelson,
Chairman of the Board
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL permits indemnification of officers, directors,
employees and agents in certain circumstances. Section 145 also provides that
a corporation may maintain insurance against liabilities for which
indemnification is not expressly provided by statute.
Article Seventh of the Advanced NMR Charter provides for indemnification
of the directors, officers, employees and agents of Advanced NMR to the full
extent then permitted by the DGCL.
Article V of Advanced NMR's Amended and Restated By-Laws provides for
indemnification by Advanced NMR of any person (and the heirs and legal
representatives of such person) made or threatened to be made a party to any
threatened pending or completed claim, action, suit or proceeding, by reason
of the fact that he is or was a director, officer, employee or agent of
Advanced NMR or any constituent corporation absorbed in a consolidation or
merger, or serves or served with another corporation, partnership, joint
venture, trust or other enterprise at the request of Advanced NMR or any such
constituent corporation. Article V permits Advanced NMR to provide any of the
above described persons advances for expenses incurred in defending any such
action, suit or proceeding, upon receipt of an undertaking to repay such
advances if he is not entitled to indemnification. Article V limits the
personal liability of any such person to the fullest extent permitted by the
DGCL. Article V also provides that Advanced NMR may purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of Advanced NMR, or is or was serving at the
request of Advanced NMR in such capacity for another corporation or other
enterprise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
The exhibits listed below are either filed herewith or incorporated herein
by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger among Advanced NMR, Merger Corp. and AMS dated as of June 23, 1997 (included
as Annex A to the Proxy Statement Prospectus that forms a part of this Registration Statement on Form
S-4).
2.1** 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")).
2.2** Agreement and Plan of Merger dated January 20, 1997 by and among the Registrant, Medical Diagnostics,
Inc., MDI Acquisition Corporation and US Diagnostic, Inc. (incorporated by reference to Exhibit 1
to Registrant's Report on Form 8-K filed February 11, 1997).
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. 2-084785)("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")(File
No. 0-11914)).
- ------------------
* Filed herewith.
** Incorporated by reference.
II-1
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
3.4** Amendment to Certificate of Incorporation of Registrant, filed September 21, 1995 (incorporated by
reference to Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the nine months ended September
30, 1995 (the "ANMR 1995 Form 10-K").
3.5* Amended and Restated By-laws of Registrant (incorporated by reference to Exhibit 3.4 to Registrant's
Registration Statement on Form S-4, declared effective August 3, 1995 (File No. 33-95302)("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 Registrant (incorporated by reference
to Exhibit 4.1 to Registrant's Current Report on Form 8-K for an event of May 30, 1996).
4.6** Certificate of Designations of Series B Convertible Redeemable Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3 to Registrant's Current Report on Form 8-K for an event on
August 18, 1997).
5* Opinion of Reid & Priest LLP as to legality of Advanced NMR Common Stock being registered hereunder.
8* Opinion of Reid & Priest LLP as to certain federal tax matters.
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).
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).
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).
- ------------------
* Filed herewith.
** Incorporated by reference.
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
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).
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 (incorporated by reference to Exhibit 10.6 to the ANMR 1995 Form 10-K).
10.7** Employment Agreement between Registrant and Charles Moche, dated November 22, 1993 (incorporated by
reference to Exhibit 10.7 to the 1994 ANMR Form 10-K).
10.8.1** 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).
10.9** Employment Agreement among Registrant, MDI and John A. Lynch, dated May 2, 1995 (incorporated by reference
to Exhibit 47 to Schedule 14D-9 of Medical Diagnostics, Inc. ("MDI")(Amendment No. 18) filed on May
3, 1995).
10.10** 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)).
10.11** License Agreement between Registrant and AMS, dated July 29, 1992 (incorporated by reference to Exhibit
10.13 to Registrant's Form S-2).
10.12.1** Shared Services Agreement between Registrant and AMS dated October 28, 1992 (incorporated by reference
to Exhibit 10.14 to Registrant's Form S-2).
10.12.2** Letter Agreement, dated July 26, 1993 extending term of Shared Services Agreement between Registrant
and AMS (incorporated by reference to Exhibit 12.2 to Registrant's Form S-4).
10.13** 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).
10.14** 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).
10.15** 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).
10.16** 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).
10.17** 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-l
as amended on October 30, 1991 (File No. 33-42748))(the "MDI Registration Statement").
10.18** 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).
- ------------------
* Filed herewith.
** Incorporated by reference.
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
10.19** 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).
10.20** 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).
10.21** 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).
10.22** 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).
10.23** 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).
10.24** 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)).
10.25** 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).
10.26** 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)).
10.27** 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)).
10.28** Employment Agreement, dated December 1, 1995, between MDI and David Gaynor (incorporated by reference
to Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (File No. 0-11914)).
10.29** Form of Regulation S Securities Subscription Agreement relating to the Registrant's Series A Preferred
Stock (incorporated by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K for
an event of May 30, 1996).
10.30** Employment Agreement dated December 20, 1995 between the Registrant and Jack Nelson (incorporated
by reference to Exhibit 10.47 to Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (File No. 0-11914)).
10.31** Purchase Agreement dated August 18, 1997 between the Registrant and General Electric Company
("GE")(incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K for an
event on August 18, 1997 (the "August '97 8-K)).
10.32** Registration Rights Agreement dated August 18, 1997 between the Registrant and GE (incorporated by
reference to Exhibit 10.2 to Registrant's August '97 8-K).
10.33** Stockholders Agreement dated August 18, 1997 between the Registrant and GE (incorporated by reference
to Exhibit 10.3 to Registrant's August '97 8-K).
10.34** Settlement Agreement dated August 18, 1997 between the Registrant and GE (incorporated by reference
to Exhibit 10.4 to Registrant's August '97 8-K).
21.1* List of all of Advanced NMR's subsidiaries
- ------------------
* Filed herewith.
** Incorporated by reference.
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
23.1* Consents of Richard A. Eisner & Company, LLP, independent public accountants for Advanced NMR and
AMS
23.2* Consent of Reid & Priest LLP (included in Exhibit 5 and Exhibit 8)
23.3* Consent of Houlihan Lokey Howard & Zukin, Inc.
23.4* Consent of Valuemetrics, Inc.
23.5* Consent of Daniel E. Straus
23.6* Consent of Susan S. Bailis
24* Power of Attorney (included a signature page of this Registration Statement on Form S-4)
99.1* Form of Proxy for Special Meeting of Stockholders of AMS
99.2* Form of Proxy for Special Meeting of Stockholders of Advanced NMR
- ------------------
* Filed herewith.
** Incorporated by reference.
</TABLE>
(b) Financial Statement Schedules.
(c) Opinions.
1. Opinion of Valuemetrics, Inc. (included as Annex B to the Joint Proxy
Statement/Prospectus that forms a part of this Registration Statement on
Form S-4).
2. Opinion of Houlihan Lokey Howard & Zukin (included as Annex C to the
Joint Proxy Statement/Propsectus that forms a part of this Registration
Statement on Form S-4).
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Sections
13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(2) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act, the Registrant
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings
by persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This
II-5
<PAGE>
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Advanced NMR
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lee, and the
State of New Jersey on October 7, 1997.
ADVANCED NMR SYSTEMS, INC.
By
/s/ Jack Nelson
----------------------------
Jack Nelson
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned officers and directors of Advanced NMR Systems, Inc.,
hereby severally constitute Jack Nelson and Steven J. James and each of them
singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated
below the Registration Statement filed herewith and any and all amendments to
said Registration Statement, and generally to do all such things in our name
and behalf in our capacities as officers and directors to enable Advanced NMR
Systems, Inc. to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our
said attorneys, or any of them, to said Registration Statement and any and
all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jack Nelson Chairman of the Board October 7, 1997
- ---------------------------
Jack Nelson
/s/ Enrique Levy President, Chief Operating Officer and Director October 7, 1997
- ---------------------------
Enrique Levy
/s/ Robert Spira, M.D. Vice Chairman of the Board October 7, 1997
- ---------------------------
Robert Spira, M.D.
/s/ Steven J. James Chief Financial and Accounting Officer October 7, 1997
- ---------------------------
Steven J. James
/s/ George Aaron Director October 7, 1997
- ---------------------------
George Aaron
/s/ Sol Triebwasser Director October 7, 1997
- ---------------------------
Sol Triebwasser
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
- --------------- ------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger among Advanced NMR, Merger Corp. and AMS dated as of June 23, 1997 (included
as Annex A to the Proxy Statement Prospectus that forms a part of this Registration Statement on Form
S-4).
2.1** 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")).
2.2** Agreement and Plan of Merger dated January 20, 1997 by and among the Registrant, Medical Diagnostics,
Inc., MDI Acquisition Corporation and US Diagnostic, Inc. (incorporated by reference to Exhibit 1
to Registrant's Report on Form 8-K filed February 11, 1997).
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. 2-084785)("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")(File
No. 0-11914)).
3.4** Amendment to Certificate of Incorporation of Registrant, filed September 21, 1995 (incorporated by
reference to Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the nine months ended September
30, 1995 (the "ANMR 1995 Form 10-K").
3.5* Amended and Restated By-laws of Registrant (incorporated by reference to Exhibit 3.4 to Registrant's
Registration Statement on Form S-4, declared effective August 3, 1995 (File No. 33-95302)("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 Registrant (incorporated by reference
to Exhibit 4.1 to Registrant's Current Report on Form 8-K for an event of May 30, 1996).
4.6** Certificate of Designations of Series B Convertible Redeemable Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3 to Registrant's Current Report on Form 8-K for an event on
August 18, 1997).
5* Opinion of Reid & Priest LLP as to legality of Advanced NMR Common Stock being registered hereunder.
8* Opinion of Reid & Priest LLP as to certain federal tax matters.
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).
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).
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).
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).
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 (incorporated by reference to Exhibit 10.6 to the ANMR 1995 Form 10-K).
10.7** Employment Agreement between Registrant and Charles Moche, dated November 22, 1993 (incorporated by
reference to Exhibit 10.7 to the 1994 ANMR Form 10-K).
10.8.1** 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).
10.9** Employment Agreement among Registrant, MDI and John A. Lynch, dated May 2, 1995 (incorporated by reference
to Exhibit 47 to Schedule 14D-9 of Medical Diagnostics, Inc. ("MDI")(Amendment No. 18) filed on May
3, 1995).
10.10** 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)). [Has this been amended?]
10.11** License Agreement between Registrant and AMS, dated July 29, 1992 (incorporated by reference to Exhibit
10.13 to Registrant's Form S-2).
10.12.1** Shared Services Agreement between Registrant and AMS dated October 28, 1992 (incorporated by reference
to Exhibit 10.14 to Registrant's Form S-2).
10.12.2** Letter Agreement, dated July 26, 1993 extending term of Shared Services Agreement between Registrant
and AMS (incorporated by reference to Exhibit 12.2 to Registrant's Form S-4).
10.13** 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).
10.14** 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).
10.15** 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).
10.16** 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).
10.17** 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-l
as amended on October 30, 1991 (File No. 33-42748))(the "MDI Registration Statement").
10.18** 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).
10.19** 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).
10.20** 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).
10.21** 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).
10.22** 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).
10.23** 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).
10.24** 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)).
10.25** 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).
10.26** 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)).
10.27** 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)).
10.28** Employment Agreement, dated December 1, 1995, between MDI and David Gaynor (incorporated by reference
to Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (File No. 0-11914)).
10.29** Form of Regulation S Securities Subscription Agreement relating to the Registrant's Series A Preferred
Stock (incorporated by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K for
an event of May 30, 1996).
10.30** Employment Agreement dated December 20, 1995 between the Registrant and Jack Nelson (incorporated
by reference to Exhibit 10.47 to Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (File No. 0-11914)).
10.31** Purchase Agreement dated August 18, 1997 between the Registrant and General Electric Company
("GE")(incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K for an
event on August 18, 1997 (the "August '97 8-K)).
10.32** Registration Rights Agreement dated August 18, 1997 between the Registrant and GE (incorporated by
reference to Exhibit 10.2 to Registrant's August '97 8-K).
10.33** Stockholders Agreement dated August 18, 1997 between the Registrant and GE (incorporated by reference
to Exhibit 10.3 to Registrant's August '97 8-K).
10.34** Settlement Agreement dated August 18, 1997 between the Registrant and GE (incorporated by reference
to Exhibit 10.4 to Registrant's August '97 8-K).
21.1* List of all of Advanced NMR's subsidiaries
23.1* Consents of Richard A. Eisner & Company, LLP, independent public accountants for Advanced NMR and
AMS
23.2* Consent of Reid & Priest LLP (included in Exhibit 5 and Exhibit 8)
23.3* Consent of Houlihan Lokey Howard & Zukin, Inc.
23.4* Consent of Valuemetrics, Inc.
23.5* Consent of Daniel E. Straus
23.6* Consent of Susan S. Bailis
24* Power of Attorney (included a signature page of this Registration Statement on Form S-4)
99.1* Form of Proxy for Special Meeting of Stockholders of AMS
99.2* Form of Proxy for Special Meeting of Stockholders of Advanced NMR
- ------------------
* Filed herewith.
** Incorporated by reference.
</TABLE>
<PAGE>
EXHIBIT 5
[REID & PRIEST LLP LETTERHEAD]
New York, New York
October 6, 1997
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, MA 01887
Gentlemen:
We are acting as counsel to Advanced NMR Systems, Inc., a Delaware
corporation ("Advanced NMR"), in connection with the proposed merger (the
"Merger") of ANMR/AMS Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Advanced NMR ("Acquisition Corp.") with and into Advanced
Mammography Systems, Inc., a Delaware corporation ("AMS").
The Merger is to be effected pursuant to an Agreement and Plan of Merger
dated as of June 23, 1997 (the "Merger Agreement"), by and among Advanced
NMR, Acquisition Corp. and AMS. Under the terms of the Merger Agreement, the
holders of the outstanding shares of Common Stock, $.01 par value (the "AMS
Common Stock") have the right to receive in exchange for each issued and
outstanding share of AMS Common Stock, .40 of a share of Advanced NMR Common
Stock after consummation by Advanced NMR of a one-for-ten reverse stock split
of the outstanding shares of Advanced NMR Common Stock.
This opinion is being rendered in connection with the filing by Advanced
NMR of a Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the registration of the shares of Advanced NMR Common Stock to be issued
in the Merger.
For purposes of this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Merger
Agreement; (ii) the Registration Statement (including the Joint Proxy
Statement/Prospectus); (iii) the Certificate of Incorporation and By-Laws of
Advanced NMR, as in effect on the date hereof and as to be amended
immediately prior to consummation of the Merger; and (iv) resolutions adopted
by the Board of Directors of Advanced NMR relating to the Merger and the
issuance and delivery of Advanced NMR Common Stock in connection therewith;
and (v) such other documents, certificates or other records as we have deemed
necessary or appropriate.
Based upon the foregoing, and subject to the qualifications hereinafter
expressed, we are of the opinion that:
(1) Advanced NMR is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(2) The Board of Directors of Advanced NMR has taken such action as may
be necessary to authorize the consummation of the Merger and the
issuance and delivery of Advanced NMR Common Stock in connection
therewith.
(3) The shares of Advanced NMR Common Stock included in the Registration
Statement to be issued upon the Merger will be duly authorized and
validly issued, and fully paid and non-assessable when (i) the
Registration Statement shall have become effective under the Act; and
(ii) the Merger shall have been consummated in accordance with the
terms of the Merger Agreement and the laws of the State of Delaware.
<PAGE>
We are members of the Bar of the State of New York and do not hold
ourselves out as experts concerning, or qualified to render opinions with
respect to any laws other than the laws of the State of New York, the Federal
laws of the United States and the General Corporation Law of the State of
Delaware.
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus and to filing of this
opinion with the Securities and Exchange Commission as Exhibit 5 to the
Registration Statement.
Very truly yours,
REID & PRIEST LLP
<PAGE>
EXHIBIT 8
[REID & PRIEST LLP LETTERHEAD]
New York, New York
October 8, 1997
Advanced NMR Systems, Inc.
46 Jospin Road
Wilmington, Massachusetts 01887
Advanced Mammography Systems, Inc.
46 Jospin Road
Wilmington, MA 01887
Re: Agreement and Plan of Merger by and among
Advanced NMR Systems, Inc., ANMR/AMS Merger
Corporation, and Advanced Mammography
Systems, Inc. dated as of June 23, 1997
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the merger (the "Merger") of ANMR/AMS Merger Corporation
("Merger Corp.") with and into Advanced Mammography Systems, Inc. ("AMS")
pursuant to the Agreement and Plan of Merger by and among Advanced NMR
Systems, Inc. ("Advanced NMR "), ANMR/AMS Merger Corporation, and Advanced
Mammography Systems, Inc. dated as of June 23, 1997 (the "Merger Agreement").
In connection with this opinion, we have reviewed the Merger Agreement,
the Registration Statement and Prospectus filed by Advanced NMR on Form S-4
with the Securities and Exchange Commission relating to the shares of
Advanced NMR to be issued pursuant to the Merger (the "Joint
Proxy/Registration Statement"), the most recent audited financial statements
and related documents and such other materials as we have deemed relevant to
the rendering of our opinion. In addition, we have relied upon the facts and
representations made by Advanced NMR and AMS, attached hereto, and upon the
assumption that all documents we have reviewed are true and accurate,
accurately reflect the originals and have been or will be properly executed,
and that the Advanced NMR actions and the AMS actions in connection with the
Merger Agreement and the transaction contemplated thereby have been and will
be conducted in the manner provided in such documents.
The opinions expressed herein are based solely upon current law, including
the Internal Revenue Code of 1986, as amended to date (the "Code"),
applicable Treasury Regulations promulgated thereunder, current positions of
the Internal Revenue Service contained in published Revenue Rulings and
Revenue Procedures, other current administrative positions of the Internal
Revenue Service and existing judicial decisions, all of which are subject to
change or modification at any time, which change may have retroactive effect.
We are members of the bar of the State of New York and are not admitted to
practice law in any other jurisdiction. Accordingly, we express no opinion
with respect to the laws of any other jurisdiction other than the federal
laws of the United States of America in respect of the opinions set forth
herein. Unless otherwise defined herein, capitalized terms shall have the
meanings ascribed to them in the Merger Agreement or the Joint
Proxy/Registration Statement, as applicable.
<PAGE>
Based on and subject to the foregoing, it is our opinion that:
(1) The exchange of AMS Common Stock for Advanced NMR Common Stock
pursuant to the Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code, and Advanced NMR and AMS will each be "a party
to a reorganization" within the meaning of Section 368(b) of the Code.
(2) Pursuant to Sections 361(a) and 1032 of the Code, Advanced NMR will
not recognize any gain or loss as a result of the Merger.
(3) Pursuant to Section 354(a)(1) of the Code, the holders of AMS Common
Stock other than Advanced NMR (the "Public AMS Shareholders") will not
recognize any gain or loss upon the exchange of AMS Common Stock for Advanced
NMR Common Stock pursuant to the Merger.
(4) Pursuant to Section 358(a)(1) of the Code, the aggregate tax basis of
the Advanced NMR Common Stock received by each Public AMS Shareholder
pursuant to the Merger will be the same as the aggregate tax basis of the AMS
Common Stock exchanged therefor.
(5) Pursuant to Section 1223(1) of the Code, the holding period which each
Public AMS Shareholder will have for his Advanced NMR Common Stock received
pursuant to the Merger will include the period for which he held the AMS
Common Stock surrendered pursuant to the Merger, provided that such
shareholder held the AMS Common Stock as a capital asset at the Effective
Time of the Merger.
(6) Holders of AMS Options will recognize no gain or income pursuant to
the assumption by Advanced NMR of the rights and obligations of AMS relating
to such options.
Further, in our opinion the discussion set forth in the Joint
Proxy/Registration Statement entitled "Certain Federal Income Tax
Consequences" constitutes the material United States Federal income tax
consequences of the Merger. This opinion confirms our opinion set forth in the
Joint Proxy/Registration Statement in the section entitled "Certain Federal
Income Tax Consequences." We hereby consent to the inclusion of our name in
such section and to the use of this opinion as an exhibit to the Joint
Proxy/Registration Statement.
Our opinion is limited to the matters addressed above. No opinion is
addressed and none should be inferred as to any other matter. This opinion is
of the date hereof. We disclaim any responsibility to update or supplement this
opinion to reflect any events or state of facts which may hereafter come to our
attention, or any changes in statutes or regulations or any court decisions
which may hereafter occur.
Very truly yours,
REID & PRIEST LLP
<PAGE>
EXHIBIT 21.1
ADVANCED NMR SYSTEMS, INC. -- SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY PERCENTAGE OWED
- ---------------------- -------------------
<S> <C>
ANMR Imaging Corp. .... 100%
Middlesex MRI Inc. .... 100%
MDI Rehab Inc.......... 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated November 22, 1996 (January 13, 1997 as to Note C and March
13, 1997 as to Note A) on our audits of the consolidated financial statements
of Advanced NMR Systems, Inc. and our report dated November 22, 1996 (March
13, 1997 as to Note A) on our audits of the financial statements of Advanced
Mammography Systems, Inc. We also consent to the reference to our firm under
the captions "Selected Financial Information of Advanced NMR", "Selected AMS
Financial Information" and "Experts" included in the Registration Statement.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
October 8, 1997
<PAGE>
EXHIBIT 23.3
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
September 4, 1997
To Whom It May Concern:
We consent to the use of our firm's name and description of our fairness
opinion and analysis, prepared in connection with the proposed merger of
Advanced NMR Systems, Inc. and Advanced Mammography Systems, Inc., in the
Advanced NMR Systems, Inc. and Advanced Mammography Systems, Inc. proxy
statement.
Very truly yours,
/s/ Houlihan, Lokey, Howard & Zukin, Inc.
- -----------------------------------------
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
<PAGE>
EXHIBIT 23.4
[VALUEMETRICS, INC. LETTERHEAD]
CONSENT OF VALUEMETRICS, INC.
We hereby consent to the inclusion in the Joint Proxy Statement of
Advanced NMR Systems, Inc. and Advanced Mammography Systems, Inc. forming
part of this Registration Statement on Form S-4 of Advanced NMR Systems, Inc.
of our opinion attached as Annex B thereto and the reference to such opinion
and to our firm therein. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission issued thereunder, nor do we thereby admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission issued thereunder.
VALUEMETRICS, INC.
By:
---------------------
Title: Vice President
Dated: September 4, 1997
<PAGE>
EXHIBIT 23.5
[MULTICARE LETTERHEAD]
September 3, 1997
To whom it may concern:
Pursuant to rule 438 under the rules and regulations promulgated under the
Securities Act of 1933, as amended, I hereby consent to becoming a Director
of Advanced NMR Systems, Inc. and the use of my name in the Joint Proxy
Statement.
Very truly yours,
/s/ Daniel E. Straus
- --------------------
Daniel E. Straus
<PAGE>
EXHIBIT 23.6
[THE ADS GROUP LETTERHEAD]
September 3, 1997
To whom it may concern:
Pursuant to rule 438 under the rules and regulations promulgated under the
Securities Act of 1933, as amended, I hereby consent to becoming a Director
of Advanced NMR Systems, Inc. and the use of my name in the Joint Proxy
Statement.
Very truly yours,
/s/ Susan S. Bailis
-------------------
Susan S. Bailis
SSB/cap
<PAGE>
PRELIMINARY COPY
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
MEETING TO BE HELD ON NOVEMBER 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ADVANCED MAMMOGRAPHY SYSTEMS, INC., a
Delaware corporation (the "Company"), acknowledges receipt of the Notice of
Special Meeting of Stockholders and Proxy Statement, dated October 10, 1997,
and hereby constitutes and appoints Jack Nelson and Enrique Levy, or either
of them acting singly in the absence of the other, with the power of
substitution in either of them, the proxies of the undersigned to vote with
the same force and effect as the undersigned all shares of Common Stock of
the Company held by the undersigned at the Special Meeting of Stockholders
(the "Meeting") of the Company to be held at Reid & Priest LLP, 40 West 57th
Street, New York, NY, on November 10, 1997 at 9:30 A.M., Local Time, and at
any adjournment or adjournments thereof, hereby revoking any proxy or proxies
heretofore given and ratifying and confirming all that said proxies may do or
cause to be done by virtue thereof with respect to the following matters:
The undersigned hereby instructs said proxies or other substitutes:
1. The adoption of an Agreement and Plan of Merger, dated June 23, 1997,
among the Company, Advanced NMR Systems, Inc. and ANMR/AMS Merger Corp.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Upon such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
The Proxy when properly executed will be voted as directed. if no direction
is indicated, the proxy will be voted FOR the adoption of the Merger
Agreement.
PLEASE SIGN, DATE AND MAIL THIS PROXY
IMMEDIATELY IN THE ENCLOSED ENVELOPE.
Date --------------------------------- 1997
-------------------------------------------
-------------------------------------------
Please sign your name exactly as it appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as it appears hereon.
When signing as joint tenants, all parties in
the joint tenancy must sign. When a proxy is
given by a corporation, it should be signed by
an authorized officer and the corporate seal
affixed. No postage is required if returned in
the enclosed envelope and mailed in the
United States.
<PAGE>
PRELIMINARY COPY
ADVANCED NMR SYSTEMS, INC.
MEETING TO BE HELD ON NOVEMBER 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ADVANCED NMR SYSTEMS, INC., a Delaware
corporation (the "Company"), acknowledges receipt of the Notice of Special
Meeting of Stockholders and Proxy Statement, dated October 10, 1997, and
hereby constitutes and appoints Jack Nelson and Enrique Levy, or either of
them acting singly in the absence of the other, with the power of
substitution in either of them, the proxies of the undersigned to vote with
the same force and effect as the undersigned all shares of Common Stock of
the Company held by the undersigned at the Special Meeting of Stockholders
(the "Meeting") of the Company to be held at Reid & Priest LLP, 40 West 57th
Street, New York, NY, on November 10, 1997 at 11:00 A.M., Local Time, and at
any adjournment or adjournments thereof, hereby revoking any proxy or proxies
heretofore given and ratifying and confirming all that said proxies may do or
cause to be done by virtue thereof with respect to the following matters:
The undersigned hereby instructs said proxies or other substitutes:
1. The amendment to the Company's Certificate of Incorporation to effect a
1-for-10 reverse stock split.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. The amendments to the Company's 1992 Employee Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. The amendments to the Company's 1992 Non-Employee Directors' Stock Option
Plan for Non-Employee Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. The election of eight directors nominated by the Board of Directors:
FOR all nominees listed below WITHHOLD AUTHORITY
[ ] (except as indicated) to vote for all nominees listed below [ ]
NOMINEES: Jack Nelson, Alison Estabrook, Enrique Levy, Robert Spira,
Sol Triebwasser, Susan S. Bailis, Daniel E. Straus and
Bernard Wiener.
<PAGE>
(INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write such nominee's or nominees' name(s) in the space
provided below.)
5. The amendments to the Company's Certificate of Incorporation to change the
corporate name.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. Upon such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
The proxy when properly executed will be voted as directed. If no direction
is indicated, the proxy will be voted FOR the election of the EIGHT named
individuals as directors and FOR the amendments to the Company's Certificate
of Incorporation and Stock Option Plans.
Date --------------------------------- 1997
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Please sign your name exactly as it appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as it appears hereon.
When signing as joint tenants, all parties in
the joint tenancy must sign. When a proxy is
given by a corporation, it should be signed by
an authorized officer and the corporate seal
affixed. No postage is required if returned in
the enclosed envelope and mailed in the
United States.
