As filed with the Securities and Exchange Commission
on August 11, 1995
Registration No. 33-61681
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
- - - - - - - - - - - - - - -
NMR OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
6749
(Primary Standard Industrial Classification Code Number)
22-2468314
(I.R.S. Employer Identification No.)
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
(908) 665-9400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
JOSEPH G. DASTI
President
NMR of America, Inc.
430 Mountain Avenue
Murray Hill, New Jersey 07974-2730
(908) 665-9400
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
_____________________________
Copies to:
PETER S. TWOMBLY, ESQ.
MCCARTER & ENGLISH
4 Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
<PAGE>
_____________________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement
and certain other conditions under the Agreement and Plan of Merger are met
or waived.
_____________________________
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. [ ]
______________________________
CALCULATION OF REGISTRATION FEE
Proposed
Maximum Proposed Amount
Title of Each Class Amount Offering Maximum of
of Securities to be Price Per Aggregate Registration
to be Registered Registered Share (1) Offering Price (1) Fee (2)
- ------------------- ---------- --------- ------------------ ------------
Common Stock, par
value $.01 per share 1,219,985 $4.0342 $4,921,677.80 $895.93
________________________________________________________________________________
(1) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as
amended (the "Act"), based on the average of the bid and asked price
of the securities to be canceled in the transaction as of August 3,
1995, and computed solely for the purpose of calculating the
registration fee.
(2) Pursuant to Rule 457(b) under the Act, the $801.20 filing fee
previously paid by the Registrant upon the filing of a preliminary
version of the proxy materials/prospectus contained in this
Registration Statement has been credited against the amount of the
registration fee which would otherwise be payable in connection with
is filing.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
2
<PAGE>
CROSS REFERENCE SHEET
Form S-4 Item Number Location in Proxy
and Caption Statement/Prospectus
-------------------- --------------------
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus . . Facing Page; Cross Reference
Sheet; Outside Front Cover
Page of Joint Proxy
Statement/Prospectus
2. Inside Front and
Outside Back Cover
Pages of Prospectus . . "Available Information";
"Incorporation of Certain
Documents by Reference";
"Table of Contents"
3. Risk Factors, Ratio of
Earnings to Fixed
Charges, and Other
Information . . . . . . "Summary of Joint Proxy
Statement"; "Risk Factors
Regarding NMR and Morgan";
"Introduction"; "The Merger-
-Background of the Merger;
Negotiations; Fairness
Opinions"; "The Merger--
Terms of the Merger"; "NMR
and Morgan Unaudited Pro
Forma Combined Financial
Statements"
3
<PAGE>
4. Terms of the
Transaction . . . . . . "Summary of Joint Proxy
Statement"; "The Merger--
Background of the Merger;
Negotiations; Fairness
Opinions"; "The Merger--
NMR's Reasons for the
Merger"; "The Merger--
Morgan's Reasons for the
Merger"; "The Merger--Terms
of the Merger"; "The Merger-
-Description of NMR Stock";
"The Merger--Election of
Directors"; "Comparison of
Rights of Holders of Shares
under Colorado and Delaware
Law"
5. Pro Forma Financial
Information . . . . . . "Summary of Joint Proxy
Statement"; "NMR and Morgan
Unaudited Pro Forma Combined
Financial Statements"
6. Material Contacts with
the Company Being
Acquired . . . . . . . "The Merger--Background of
The Merger; Negotiations;
Fairness Opinions"
7. Additional Information
Required for Reoffering
by Persons and Parties
Deemed to be
Underwriters . . . . . *
8. Interests of Named
Experts and Counsel . . "Summary of Joint Proxy
Statement"; "The Merger--
Background of the Merger;
Negotiations; Fairness
Opinions"; "The Merger--
Fairness Opinion of
Fahnestock & Co. Inc."
9. Disclosure of
Commission Position on
Indemnification for
Securities Act
Liabilities . . . . . . "The Merger--NMR--
Indemnification of Officers
and Directors"
4
<PAGE>
10. Information with
Respect to S-3
Registrants . . . . . . *
11. Incorporation of
Certain Information by
Reference . . . . . . . *
12. Information with
Respect to S-2 or
S-3 Registrants . . . . "Summary of Joint Proxy
Statement"; "Comparative Per
Share Information"; "The
Merger--Description of NMR
Stock"; "The Merger--NMR and
Morgan Unaudited Pro Forma
Combined Financial
Statements"; "The Merger--
NMR"
13. Incorporation of
Certain Information by
Reference . . . . . . . "Incorporation of Certain
Documents by Reference"
14. Incorporation with
Respect to Registrants
other than S-3 or S-2
Registrants . . . . . . *
15. Information with
Respect to S-3
Companies . . . . . . . *
16. Information with
Respect to S-2 or
S-3 Companies . . . . . *
5
<PAGE>
17. Information with
Respect to Companies
other than S-3 or S-2
Companies . . . . . . . "Summary of Joint Proxy
Statement"; "Risk Factors
Regarding NMR and Morgan";
"Comparative Per Share
Information"; "NMR and
Morgan Unaudited Pro Forma
Combined Financial
Statements"; "The Merger--
Morgan"; "Government
Regulation of NMR and
Morgan"; Audited
Consolidated Financial
Statements of Morgan at
December 31, 1994 (Appendix
F); Unaudited Consolidated
Financial Statements of
Morgan at March 31, 1995
(Appendix G)
18. Information if Proxies,
Consents or
Authorizations are to
be Solicited . . . . . "Summary of Joint Proxy
Statement"; "Introduction";
"Voting and Proxies"; "The
Merger--Terms of the Merger";
"Morgan--Directors and
Executive Officers; Security
Ownership of Certain
Beneficial Owners and
Management; Certain
Shareholder Matters;
Executive Compensation;
Certain Relationships and
Related Transactions"
19. Information if Proxies,
Consents or
Authorizations are not
to be Solicited, or in
an Exchange Offer . . . *
__________________________
* Item is omitted because answer is negative or Item is inapplicable.
6
<PAGE>
August 11, 1995
Dear Stockholders:
The Annual Meeting of Stockholders of NMR of America, Inc.
("NMR") will be held at The Madison Hotel, One Convent Road and Route 124,
Morristown, NJ, on September 14, 1995 at 9:30 a.m., New York City
Time.
At the Annual Meeting, you will be asked to consider and vote
upon an Agreement and Plan of Merger dated April 11, 1995 (the "Merger
Agreement"), providing for the merger (the "Merger") of a wholly-owned
subsidiary of NMR into Morgan Medical Holdings, Inc. ("Morgan"), pursuant
to which Morgan will become a wholly-owned subsidiary of NMR, and each
outstanding share of Morgan Common Stock will automatically be converted
into .3330886 of a share of NMR Common Stock and each outstanding warrant,
option and other right to acquire shares of Morgan Common Stock will
automatically be deemed exercisable into shares of NMR Common Stock at a
ratio of .3330886 of a share of NMR Common Stock for each share of Morgan
Common Stock which otherwise would have been issuable had such warrants,
options or other rights been exercised in full immediately prior to the
Merger.
After careful consideration, the Board of Directors of NMR has
unanimously approved the Merger Agreement and recommends that you vote FOR
the proposal relating thereto. Approval of the Merger Agreement will also
constitute approval of the election of six (6) directors to the NMR Board
of Directors.
To account for the possibility that the Merger Agreement will not
be approved (either by the stockholders of NMR or the shareholders of
Morgan) or that the Merger will not be consummated for any other reason,
you will also be asked to vote on the election of five (5) directors of NMR
to hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. The vote on this matter
will only be given effect if the Merger Agreement is not approved or the
Merger is not otherwise consummated.
At the Annual Meeting, you will also be asked to vote on an
amendment to the NMR 1986 Incentive Stock Option and Non-Statutory Option
Plan (the "NMR Option Plan") which will increase the number of shares of
NMR Common Stock for which options may be issued pursuant thereto from
600,000 shares to 1,000,000 shares. After careful consideration, the Board
of Directors of NMR has unanimously approved the amendment to the NMR
Option Plan and recommends that you vote FOR the proposal relating thereto.
<PAGE>
In the material accompanying this letter, you will find a Notice
of Annual Meeting of Stockholders, a Joint Proxy Statement relating to the
actions to be taken by NMR stockholders at the Annual Meeting and a proxy
card. The Joint Proxy Statement more fully describes the proposed Merger,
the proposed amendment to the NMR Option Plan and other matters to be
considered at the Annual Meeting and includes certain information
concerning NMR and Morgan. NMR's 1995 Annual Report to Stockholders (which
includes NMR's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1995) provides additional information concerning NMR and has also been
included herewith.
All stockholders are cordially invited to attend the Annual
Meeting in person. However, to assure your representation at the Annual
Meeting, you are urged to complete, sign and return the enclosed proxy card
as promptly as possible in the postage prepaid envelope enclosed for that
purpose. Any stockholder attending the Annual Meeting may revoke his or
her proxy and vote in person even if he or she has returned a proxy card.
It is important that your shares be represented and voted at the Annual
Meeting.
Sincerely,
Joseph G. Dasti
President and Chief
Executive Officer
-2-
<PAGE>
August 11, 1995
To our Shareholders:
The Annual Meeting of the Shareholders of Morgan Medical
Holdings, Inc. ("Morgan") will be held at The Madison Hotel, One Convent Road
and Route 124, Morristown, NJ on September 14, 1995 at 11:00 a.m., New York
City Time.
At the Annual Meeting, you will be asked to consider and vote
upon an Agreement and Plan of Merger dated April 11, 1995 (the "Merger
Agreement") providing for the merger (the "Merger") of a wholly-owned
subsidiary of NMR of America, Inc. ("NMR") into Morgan, pursuant to which
Morgan would become a wholly-owned subsidiary of NMR, and each outstanding
share of Morgan Common Stock would automatically be converted into .3330886
of a share of NMR Common Stock and each outstanding warrant, option and
other right to acquire shares of Morgan Common Stock will automatically be
deemed exercisable into shares of NMR Common Stock at a ratio of .3330886
of a share of NMR Common Stock for each share of Morgan Common Stock which
otherwise would have been issuable had such warrants, options or other
rights been exercised in full immediately prior to the Merger.
The Morgan Board of Directors has unanimously approved the Merger
Agreement and recommends that you vote FOR the Merger Agreement. In
approving the Merger Agreement, certain members of the Board of Directors
of Morgan may be deemed to have certain conflicts of interest. See "The
Merger--Background of the Merger; Negotiations; Fairness Opinions; Terms of
the Merger--Interest of Management of Morgan in the Merger" in the Joint
Proxy Statement accompanying this letter.
To account for the possibility that the Merger Agreement will not
be approved by either the shareholders of Morgan or the stockholders of
NMR, or that the Merger will not be consummated for any other reason, at
the Annual Meeting you will also be asked to vote on the election of five
(5) directors of Morgan to hold office until the next annual meeting of
shareholders and until their successors are duly elected and qualified.
This vote to elect directors will only be given effect if the Merger
Agreement is not approved or the Merger is not otherwise consummated.
In the materials accompanying this letter, you will find a Notice
of Annual Meeting of Shareholders, a Joint Proxy Statement relating to the
actions to be taken by Morgan shareholders at the Annual Meeting and a
proxy card. The Joint Proxy Statement more fully describes the proposed
Merger and other matters to be considered at the Annual Meeting, and
includes certain information concerning Morgan and NMR. Also enclosed
herewith is NMR's 1995 Annual Report to Stockholders (which includes NMR's
Annual Report on Form 10-KSB for the fiscal
<PAGE>
year ended March 31, 1995), which provides additional information
concerning NMR. You are urged to read this material carefully.
All shareholders are cordially invited to attend the Annual
Meeting in person. However, to assure representation at the Annual
Meeting, you are urged to complete, sign and return the enclosed proxy card
as promptly as possible in the postage prepaid envelope enclosed for that
purpose. Any shareholder attending the Annual Meeting may revoke his or
her proxy and vote in person even if he or she has returned a proxy card.
It is important that your shares be represented and voted at the Annual
Meeting.
Sincerely,
J. Mark Strong
President and Chief
Executive Officer
-2-
<PAGE>
NMR OF AMERICA, INC.
_______________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD September 14, 1995
_______________________
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual
Meeting") of Stockholders of NMR of America, Inc., a Delaware corporation
("NMR"), will be held at The Madison Hotel, One Convent Road and Route 124,
Morristown, NJ on September 14, 1995, at 9:30 a.m., New York City Time,
to consider and act upon the following matters:
1. ITEM No. 1 in the attached Joint Proxy Statement. Approval
of an Agreement and Plan of Merger dated April 11, 1995 (the "Merger
Agreement"), providing for the merger (the "Merger") of a wholly-owned
subsidiary of NMR into Morgan Medical Holdings, Inc. ("Morgan"), pursuant
to which Morgan would become a wholly-owned subsidiary of NMR and each
outstanding share of the Common Stock, no par value per share, of Morgan
("Morgan Common Stock"), would automatically be converted into .3330886 of
a share of Common Stock, par value $.01 per share, of NMR ("NMR Common
Stock"), and each outstanding warrant, option and other right to acquire
shares of Morgan Common Stock would automatically be deemed exercisable
into shares of NMR Common Stock at a ratio of .3330886 of a share of NMR
Common Stock for each share of Morgan Common Stock which otherwise would
have been issuable had such warrants, options or other rights been
exercised in full immediately prior to the Merger. Approval of the Merger
Agreement will also constitute approval of the election of six (6)
directors of NMR to hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified.
2. ITEM No. 2 in the attached Joint Proxy Statement. To account
for the possibility that the Merger Agreement will not be approved (either
by the stockholders of NMR or the shareholders of Morgan) or that the
Merger will not be consummated for any other reason, stockholders will also
consider and act upon the election of five (5) directors of NMR to hold
office until the next annual meeting of stockholders and until their
successors are duly elected and qualified.
3. ITEM No. 3 in the attached Joint Proxy Statement. Approval
of an amendment to the NMR 1986 Incentive Stock Option and Non-Statutory
Option Plan, which amendment would increase the number of shares for which
options may be issued pursuant thereto from 600,000 to 1,000,000.
4. Transaction of such other business as may properly come
before the Annual Meeting or any adjournments thereof.
<PAGE>
Stockholders of record as of the close of business on August 7,
1995 are entitled to notice of, and to vote at, the Meeting.
By order of the Board of Directors
John P. O'Malley III, Secretary
Dated: August 11, 1995
-2-
<PAGE>
MORGAN MEDICAL HOLDINGS, INC.
__________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD September 14, 1995
__________
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual
Meeting") of the shareholders of Morgan Medical Holdings, Inc., a Colorado
corporation ("Morgan"), will be held at The Madison Hotel, One Convent Road
and Route 124, Morristown, NJ on September 14, 1995 at 11:00 a.m. New
York City Time, to consider and act upon the following matters:
1. ITEM No. 1 in the attached Joint Proxy Statement. Approval
of an Agreement and Plan of Merger dated April 11, 1995 (the "Merger
Agreement"), providing for the merger (the "Merger") of a wholly-owned
subsidiary of NMR of America, Inc. ("NMR") into Morgan, pursuant to which
Morgan would become a wholly-owned subsidiary of NMR and each outstanding
share of Common Stock, no par value per share, of Morgan ("Morgan Common
Stock") would automatically be converted into .3330886 of a share of Common
Stock, par value $.01 per share, of NMR ("NMR Common Stock"), and each
outstanding warrant, option and other right to acquire Morgan Common Stock
would automatically be deemed exercisable into shares of NMR Common Stock
at a ratio of .3330886 of a share of NMR Common Stock for each share of
Morgan Common Stock which otherwise would have been issuable had such
warrants, options or other rights been exercised in full immediately prior
to the Merger.
2. ITEM No. 4 in the attached Joint Proxy Statement. To
account for the possibility that the Merger Agreement will not be approved
by either the shareholders of Morgan or the stockholders of NMR or that the
Merger will not be consummated for any other reason, shareholders of Morgan
will also consider and act upon the election of five (5) directors of
Morgan to hold office until the next annual meeting of shareholders and
their successors are duly elected and qualified.
3. Transaction of such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
Shareholders of record as of the close of business on August 8,
1995 are entitled to notice of, and to vote at, the Annual Meeting.
Shareholders may be entitled to assert dissenters' rights under
Article 113 of the Colorado Business Corporation Act in connection with the
Merger. Article 113 of the Colorado
<PAGE>
Business Corporation Act is reproduced in full as Appendix D to the
attached Joint Proxy Statement.
By order of the Board of Directors
J. Mark Strong, President
Dated: August 11, 1995
-2-
<PAGE>
PROSPECTUS
- ----------
NMR OF AMERICA, INC.
1,219,985 Shares of Common Stock
To Be Issued in Connection With
A Merger Transaction With
MORGAN MEDICAL HOLDINGS, INC.
------------------------------
NMR OF AMERICA, INC.
and
MORGAN MEDICAL HOLDINGS, INC.
JOINT PROXY STATEMENT
This Joint Proxy Statement is being furnished to stockholders of
NMR of America, Inc., a Delaware corporation ("NMR"), and shareholders of
Morgan Medical Holdings, Inc., a Colorado corporation ("Morgan"), in
connection with the Annual Meeting of Stockholders of NMR and the Annual
Meeting of Shareholders of Morgan, to be held for the purpose of
considering and voting on an Agreement and Plan of Merger, dated April 11,
1995 (the "Merger Agreement"), providing for the merger (the "Merger") of a
wholly-owned subsidiary of NMR into Morgan, pursuant to which (i)
shareholders of Morgan would receive shares of Common Stock, par value $.01
per share, of NMR ("NMR Common Stock") based on a ratio (the "Exchange
Ratio") of .3330886 of a share of NMR Common Stock for each outstanding
share of the Common Stock, no par value per share, of Morgan ("Morgan
Common Stock"), and (ii) each outstanding warrant, option or other right to
acquire shares of Morgan Common Stock ("Morgan Derivative Securities")
would automatically be deemed exercisable into shares of NMR Common Stock
at a ratio of .3330886 of a share of NMR Common Stock for each share of
Morgan Common Stock which otherwise would have been issuable had such
Morgan Derivative Security been exercised in full immediately prior to the
Merger. See "The Merger--Terms of the Merger". The Exchange Ratio was
determined as a result of arm's-length negotiations conducted between the
NMR Board of Directors and the Morgan Board of Directors and their
respective managements, and was supported by fairness opinions furnished
to such boards. See "The Merger--Background of the Merger; Negotiations;
Fairness Opinions". In the event the Merger is consummated, following the
Merger the shareholders of Morgan will hold approximately 19.5% of the
issued and outstanding shares of NMR Common Stock (assuming the exercise
of all outstanding Morgan Derivative Securities prior to the consummation
of the Merger).
<PAGE>
This Joint Proxy Statement also constitutes a Prospectus of NMR
under the Securities Act of 1933, as amended (the "Securities Act"), for
the issuance of, pursuant to the terms of the Merger Agreement, NMR Common
Stock to all holders of Morgan Common Stock who do not assert dissenters'
rights. This Prospectus only covers shares of NMR Common Stock issuable
pursuant to the Merger to holders of Morgan Common Stock as of the date on
which the Merger is consummated (the "Effective Time") and does not cover
the shares of NMR Common Stock which are issued following consummation of
the Merger to holders of Morgan Derivative Securities upon the exercise of
such Morgan Derivative Securities. The issuance by NMR of such shares of
NMR Common Stock upon exercise of any Morgan Derivative Securities
following consummation of the Merger, and the subsequent resale thereof by
the holders, must be covered either by a separate registration statement or
an applicable exemption from the registration requirements under the
Securities Act.
On August 3, 1995, the closing sales price per share on the
NASDAQ - National Market System for NMR Common Stock was $4.125.
SEE "RISK FACTORS REGARDING NMR AND MORGAN" FOR A DISCUSSION OF
CERTAIN MATERIAL RISK FACTORS RELEVANT TO THE BUSINESSES AND OPERATIONS OF
NMR AND MORGAN THAT SHOULD BE CONSIDERED BY THE SHAREHOLDERS OF MORGAN AND
THE STOCKHOLDERS OF NMR. SEE "THE MERGER -- BACKGROUND OF THE MERGER;
NEGOTIATIONS; FAIRNESS OPINIONS; TERMS OF THE MERGER; INTEREST OF
MANAGEMENT OF MORGAN IN THE MERGER" FOR A DISCUSSION OF CERTAIN CONFLICTS
OF INTEREST WHICH CERTAIN MEMBERS OF THE BOARD OF DIRECTORS OF MORGAN MAY
BE DEEMED TO HAVE IN APPROVING THE MERGER AGREEMENT. SEE "THE MERGER --
BACKGROUND OF THE MERGER; NEGOTIATIONS; FAIRNESS OPINIONS; FAIRNESS OPINION
OF FAHNESTOCK & CO. INC." FOR A DISCUSSION OF CERTAIN CONFLICTS OF INTEREST
WHICH THE FINANCIAL ADVISER TO MORGAN MAY BE DEEMED TO HAVE IN RENDERING
ITS FAIRNESS OPINION TO THE BOARD OF DIRECTORS OF MORGAN.
THE SHARES OF NMR COMMON STOCK ISSUABLE IN CONNECTION WITH THE
MERGER 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 JOINT PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Joint Proxy Statement and Prospectus is August 11,
1995. This Joint Proxy Statement and Prospectus is being mailed to
shareholders of Morgan and stockholders of NMR on or about August 11, 1995.
-ii-
<PAGE>
AVAILABLE INFORMATION
NMR is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission ("SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at certain of the SEC's Regional Offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048; 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and 5670 Wilshire
Blvd., Los Angeles, California 90036. Copies of such material can be
obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
NMR has filed with the SEC a Registration Statement pursuant to
the Securities Act with respect to the NMR Common Stock offered by the
Prospectus comprising this Joint Proxy Statement. This Joint Proxy
Statement does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is hereby made to the
Registration Statement and to the exhibits listed therein, which can be
inspected at the public reference facilities of the SEC referenced above,
and copies of which can be obtained from the SEC at prescribed rates as
indicated above. Statements contained in this Joint Proxy Statement or in
any document incorporated in this Joint Proxy Statement by reference as to
the contents of any contract or other document referred to herein or
therein 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 or such document incorporated herein, each such
statement being qualified in all respects by such reference.
No person has been authorized to give any information or make any
representations not contained in this Joint Proxy Statement in connection
with the solicitations made hereby and, if given or made, such information
or representations must not be relied upon as having been authorized by NMR
or any of its subsidiaries or Morgan or any of its subsidiaries. This
Joint Proxy Statement does not constitute an offer to sell any securities
other than the NMR Common Stock covered by this Joint Proxy Statement or an
offer to sell, or a solicitation of an offer to buy, in any jurisdiction
where, or to any person to whom, it is unlawful to make such an offer.
-iii-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are incorporated
herein by reference:
1. NMR's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995, as amended (File No. 1-9367).
2. NMR's Current Report of Form 8-K dated July 31, 1995 (File No.
1-9367).
Copies of NMR's 1995 Annual Report to Stockholders (which
includes NMR's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1995) are being provided to NMR's stockholders and Morgan's
shareholders herewith.
This Joint Proxy Statement incorporates documents by reference
which are not presented herein or delivered herewith. NMR will provide
without charge to each person, including any beneficial owner, to whom a
copy of this Joint Proxy Statement is delivered, upon written or oral
request of such person, a copy of any or all of the documents that have
been incorporated by reference in this Joint Proxy Statement (not including
exhibits to the information that is incorporated by reference into this
Joint Proxy Statement unless such exhibits are specifically incorporated by
reference into the information that this Joint Proxy Statement
incorporates). Such requests should be directed to the Secretary, NMR of
America, Inc., 430 Mountain Avenue, Murray Hill, New Jersey 07974-2732,
telephone: (908) 665-9400. In order to ensure timely delivery of the
documents, any request should be made by September 7, 1995.
-iv-
<PAGE>
JOINT PROXY STATEMENT
NMR OF AMERICA, INC.
Annual Meeting of Stockholders to be Held September 14, 1995
MORGAN MEDICAL HOLDINGS, INC.
Annual Meeting of Shareholders to be Held September 14, 1995
TABLE OF CONTENTS
Page
----
Summary of Joint Proxy Statement . . . . . . . . . . . . . . . . . . viii
Risk Factors Regarding NMR and Morgan . . . . . . . . . . . . . . . . xxiv
Comparative Per Share Information . . . . . . . . . . . . . . . . . xxxix
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
I. THE MERGER (Item No. 1--FOR NMR STOCKHOLDERS AND
MORGAN SHAREHOLDERS) . . . . . . . . . . . . . . . . . . . . . . . . 6
Background of the Merger; Negotiations; Fairness
Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NMR's Reasons for the Merger . . . . . . . . . . . . . . . . . . 11
Fairness Opinion of Janney Montgomery Scott Inc. . . . . . . . . 12
Morgan's Reasons for the Merger . . . . . . . . . . . . . . . . . 17
Fairness Opinion of Fahnestock & Co. Inc. . . . . . . . . . . . . 19
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conversion of Shares; Treatment of Options and
Warrants; Fractional Shares . . . . . . . . . . . . . . . . . . 25
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . 26
Representations, Warranties and Covenants . . . . . . . . . . . . 27
Conditions Precedent to Consummation of the Merger . . . . . . . 28
Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . 29
Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . 30
Strong Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Termination and Amendment . . . . . . . . . . . . . . . . . . . . 31
Board of Directors and Management of NMR
Following the Merger . . . . . . . . . . . . . . . . . . . . . 31
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<PAGE>
Interest of Management of Morgan in
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Federal Income Tax Consequences of the Merger . . . . . . 32
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . 34
Expenses of the Merger . . . . . . . . . . . . . . . . . . . . . 34
Additional Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Restrictions on Resale of NMR Common Stock by Former
Morgan Shareholders . . . . . . . . . . . . . . . . . . . . . . 35
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . 35
Description of NMR Stock . . . . . . . . . . . . . . . . . . . . . . . 39
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . 44
NMR and Morgan Unaudited Pro Forma
Combined Financial Statements . . . . . . . . . . . . . . . . . . . . 46
Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Professional Services Agreements . . . . . . . . . . . . . . . . . 61
Quality Assurance . . . . . . . . . . . . . . . . . . . . . . . . 61
Government Regulation . . . . . . . . . . . . . . . . . . . . . . 62
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 64
Change in Accountants . . . . . . . . . . . . . . . . . . . . . . 72
Directors and Executive Officers . . . . . . . . . . . . . . . . 72
Director Compensation . . . . . . . . . . . . . . . . . . . . . . 74
Executive Compensation . . . . . . . . . . . . . . . . . . . . . 74
Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . 75
Certain Shareholder Matters . . . . . . . . . . . . . . . . . . . 77
Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 77
NMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 80
Board of Directors Meetings and Committees . . . . . . . . . . . . 81
Director Compensation . . . . . . . . . . . . . . . . . . . . . . 82
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 82
Indemnification of Officers and Directors . . . . . . . . . . . . 84
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . 84
Director and Officer Securities Reports . . . . . . . . . . . . . 85
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . 86
Principal and Other Stockholders . . . . . . . . . . . . . . . . . 86
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Government Regulation of NMR and Morgan . . . . . . . . . . . . . . . . 89
Comparison of Rights of Holders of Shares
Under Colorado and Delaware Law . . . . . . . . . . . . . . . . . . . 96
II. ELECTION OF DIRECTORS OF NMR (Item No. 2 -- FOR
NMR STOCKHOLDERS ONLY) . . . . . . . . . . . . . . . . . . . . . 104
III. AMENDMENT TO THE NMR 1986 INCENTIVE STOCK OPTION AND
NON-STATUTORY OPTION PLAN (Item No. 3 -- FOR NMR
STOCKHOLDERS ONLY) . . . . . . . . . . . . . . . . . . . . . . 105
IV. ELECTION OF DIRECTORS OF MORGAN (Item No. 4 -- FOR
MORGAN SHAREHOLDERS ONLY) . . . . . . . . . . . . . . . . . . . 108
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . 109
Stockholder Proposals for 1996 Annual Meeting of
NMR Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Appendices:
A. Agreement and Plan of Merger (excluding Exhibits and Schedules)
B. Opinion of Janney Montgomery Scott Inc.
C. Opinion of Fahnestock & Co. Inc.
D. Colorado Business Corporation Act -- Article 113
E. Amendment to NMR 1986 Incentive Stock Option and Non-Statutory
Option Plan
F. Audited Consolidated Financial Statements of Morgan at December
31, 1994
G. Unaudited Consolidated Financial Statements of Morgan at March
31, 1995
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<PAGE>
SUMMARY OF JOINT PROXY STATEMENT
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement. This summary does not contain a
complete statement of all material features of the matters to be voted upon
and is qualified in its entirety by reference to the more detailed
information and financial statements appearing elsewhere in this Joint
Proxy Statement and the documents incorporated by reference herein,
including the appendices to this Joint Proxy Statement.
The Companies
NMR and Subsidiary. NMR, a Delaware corporation, is engaged,
directly and through limited partnerships, in the business of installing,
managing and maintaining magnetic resonance imaging ("MRI") systems and
other imaging systems used for diagnostic purposes on an outpatient basis
in facilities operated by private physicians not employed by NMR. NMR
purchases or leases the systems, supervises their installation and staffs
the facility with technical and clerical personnel. Medical aspects of
each facility, such as the analysis of diagnostic information and the
preparation of reports to referring physicians, are under the supervision
of professional corporations pursuant to agreements between NMR and such
professional corporations. NMR Sub, Inc., a Delaware corporation
("Subsidiary"), is a wholly-owned subsidiary of NMR formed solely for the
purpose of effecting the Merger.
The principal executive offices of NMR and Subsidiary are located
at 430 Mountain Avenue, Murray Hill, New Jersey 07974 (telephone: (908)
665-9400).
Morgan. Morgan, a Colorado corporation, is involved in the
business of owning, developing and managing diagnostic imaging facilities
offering MRI and other types of non-invasive diagnostic imaging services
for outpatient use. Medical services at each facility are provided by
radiologists not employed by Morgan. In addition, Morgan operates a
physical therapy center.
The principal executive offices of Morgan are located
at 101 East Kennedy Boulevard, Suite 1010, Tampa, Florida 33602 (telephone:
(813) 229-7200).
The Meetings
The Annual Meeting of Stockholders of NMR (the "NMR Meeting")
will be held at The Madison Hotel, One Convent Road and Route 124, Morristown,
NJ on September 14, 1995 at 9:30 a.m., New York City Time. The Annual Meeting
of Shareholders of Morgan (the "Morgan Meeting") will be held at The
Madison Hotel, One Convent Road and Route 124, Morristown, NJ on September 14,
1995 at 11:00 a.m., New York City Time.
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<PAGE>
NMR has fixed the close of business on August 7, 1995 as the
record date for determining holders entitled to notice of and to vote at
the NMR Meeting. Morgan has fixed the close of business on August 8, 1995
as the record date for determining holders entitled to notice of and to
vote at the Morgan Meeting. See "Voting and Proxies".
Purposes of the Meetings
The purpose of the NMR Meeting is to consider and vote upon
proposals (i) to approve the Merger Agreement (a conformed copy of which is
attached as Appendix A to this Joint Proxy Statement), pursuant to which
Subsidiary will be merged with and into Morgan, resulting in Morgan
becoming a wholly-owned subsidiary of NMR (ITEM No. 1), (ii) to account for
the possibility that the Merger Agreement will not be approved (either by
the stockholders of NMR or by the shareholders of Morgan) or that the
Merger will not be consummated for any other reason, to elect five (5)
directors to the NMR Board of Directors (ITEM No. 2), and (iii) to amend
the NMR 1986 Incentive Stock Option and Non-Statutory Option Plan (the "NMR
Option Plan") to increase the authorized shares for which options may be
issued pursuant thereto from 600,000 to 1,000,000 (ITEM NO. 3). THE VOTE
WITH RESPECT TO ITEM NO. 2 -- RELATING TO NMR ONLY -- WILL ONLY BE GIVEN
EFFECT IF THE MERGER AGREEMENT IS NOT APPROVED OR THE MERGER IS NOT
OTHERWISE CONSUMMATED.
Approval of the Merger Agreement (ITEM No. 1) by NMR stockholders
will also constitute approval of the election of six (6) directors to the
NMR Board of Directors.
In the event the Merger is not approved or the Merger is not
otherwise consummated, the election of the six persons identified in the
Merger Agreement as the designated directors of NMR would be of no effect
and instead the NMR Board of Directors would consist of those persons
elected by the stockholders of NMR pursuant to ITEM No. 2 of this Joint
Proxy Statement.
The purpose of the Morgan Meeting is to consider and vote upon
proposals (i) to approve the Merger Agreement (ITEM No. 1) and,
alternatively, (ii) to account for the possibility that the Merger
Agreement will not be approved (by either the shareholders of Morgan or the
stockholders of NMR) or that the proposed Merger will not be consummated
for any other reason, to elect five (5) directors of Morgan to hold office
until the next annual meeting of shareholders and their successors are duly
elected and qualified (ITEM No. 4). THE VOTE WITH RESPECT TO ITEM NO. 4 --
RELATING TO MORGAN ONLY -- WILL ONLY BE GIVEN EFFECT IF THE MERGER
AGREEMENT IS NOT APPROVED OR THE MERGER IS NOT OTHERWISE CONSUMMATED.
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<PAGE>
Votes Required
NMR. The affirmative vote of a majority of the shares of NMR
Common Stock present in person or represented by proxy and entitled to vote
at the NMR Meeting is required to approve the Merger Agreement (ITEM No.
1). As of the date hereof, directors and executive officers of NMR
beneficially own approximately 6.5% of the outstanding shares of NMR Common
Stock (excluding shares issuable upon exercise of outstanding NMR options
and warrants held by such persons). See "The Merger--NMR--Principal and
Other Stockholders".
With respect to ITEM No. 2, which will only be given effect if
the Merger Agreement is not approved (by the stockholders of NMR or the
shareholders of Morgan) or if the Merger is not otherwise consummated, the
directors of NMR will be elected by a plurality of the votes cast by
stockholders of NMR present at the NMR Meeting in person or represented by
proxy.
With respect to ITEM NO. 3, the affirmative vote of the holders
of a majority of the shares of NMR Common Stock present at the NMR Meeting
in person or represented by proxy and entitled to vote thereon is required
to approve the amendment to the NMR Option Plan (ITEM NO. 3).
Morgan. The affirmative vote of the holders of a majority of the
outstanding shares of Morgan Common Stock entitled to vote at the Morgan
Meeting is required to approve the Merger Agreement (ITEM No. 1). As of
the date hereof, directors and executive officers of Morgan beneficially
own approximately 50.2% of the outstanding shares of Morgan Common Stock
(excluding shares issuable upon exercise of Morgan Derivative Securities
held by such persons), including J. Mark Strong, a director and the
President and Chief Executive Officer of Morgan, who beneficially owns
approximately 42% of the outstanding shares of Morgan Common Stock and has
indicated that he will vote his shares of Morgan Common Stock in favor of
the Merger, subject to his fiduciary duty as a director of Morgan, and Dr.
James E. Cooke, a director of Morgan, who beneficially owns approximately
7% of the outstanding shares of Morgan Common Stock and has agreed to vote
such shares in favor of the Merger. In addition, certain other
shareholders of Morgan who together, as of the date hereof, beneficially
own approximately 20% of the outstanding shares of Morgan Common Stock
(excluding shares issuable upon exercise of Morgan Derivative Securities
held by such persons), have agreed to vote their shares in favor of the
Merger Agreement. Assuming they are voted in favor of the Merger
Agreement, the shares of Morgan Common Stock beneficially owned by Messrs.
Strong and Cooke and these other Morgan shareholders constitute a
sufficient percentage of the issued and outstanding shares of Morgan Common
Stock to approve the Merger Agreement.
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<PAGE>
ITEM No. 4 will only be given effect if the Merger Agreement is
not approved (either by the shareholders of Morgan or the stockholders of
NMR) or if the Merger is not otherwise consummated. The directors of
Morgan will be elected by a plurality of the votes cast by shareholders of
Morgan present at the Morgan Meeting in person or represented by proxy.
Mr. Strong has indicated to Morgan that he will vote for management's
nominees for directors.
See "Voting and Proxies" and "The Merger--Terms of the Merger--
Dissenters' Rights".
The remainder of this summary of the Joint Proxy Statement
summarizes certain information concerning the Merger and sets forth certain
selected financial information with respect to NMR and Morgan.
Recommendations of Board of Directors
The Board of Directors of NMR has unanimously approved the Merger
Agreement, and has adopted resolutions recommending that the stockholders
of NMR vote FOR approval of the Merger Agreement. The Board of Directors
of Morgan has unanimously approved the Merger Agreement, and has adopted
resolutions recommending that the shareholders of Morgan vote FOR approval
of the Merger Agreement.
The respective directors of NMR and Morgan believe that the
Merger is in the best interests of the stockholders of NMR and the
shareholders of Morgan, respectively. The actions and recommendations of
the Boards of Directors of NMR and Morgan in connection with the Merger are
based upon a number of factors discussed in this Joint Proxy Statement.
See "The Merger--Background of the Merger; Negotiations; Fairness Opinions"
and "The Merger--NMR's Reasons for the Merger; Morgan's Reasons for the
Merger". In approving the Merger Agreement, certain members of the Board
of Directors of Morgan may be deemed to have certain conflicts of interest.
See "The Merger--Background of the Merger; Negotiations; Fairness Opinions;
Fairness Opinion of Fahnestock & Co. Inc."; and "The Merger--Terms of the
Merger--Interest of Management of Morgan in the Merger".
In the event the Merger Agreement is not approved by the
stockholders of NMR or the shareholders of Morgan, or the Merger is not
otherwise consummated, the Board of Directors of NMR has also unanimously
nominated for election as directors of NMR the five (5) nominees listed in
ITEM No. 2.
The Board of Directors of NMR has also unanimously approved the
amendment to the NMR Option Plan (ITEM NO. 3) and recommends a vote FOR
approval of this amendment.
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<PAGE>
In the event the Merger Agreement is not approved by the
shareholders of Morgan or the stockholders of NMR, or the Merger is not
otherwise consummated, the Board of Directors of Morgan has also
unanimously nominated for election as directors of Morgan the five (5)
nominees listed in ITEM No. 4.
Conflicts of Interest
In approving the Merger Agreement, certain members of the Board
of Directors of Morgan may be deemed to have certain conflicts of interest.
J. Mark Strong, a director and the President and Chief Executive Officer of
Morgan, James E. Cooke, a director of Morgan, Thomas Acey, Jr., a director
of Morgan, and Sandra G. Garrison, a director and the Vice President of
Morgan, are each shareholders of Morgan and will receive shares of NMR
Common Stock upon completion of the Merger. Ms. Garrison also holds
certain options to acquire Morgan Common Stock which, to the extent they
are not exercised prior to the Effective Time, will become exercisable
following the Merger for shares of NMR Common Stock. Following the Merger,
Mr. Strong would own up to 7.4% of the issued and outstanding shares of NMR
Common Stock (assuming no outstanding options, warrants or convertible
securities of NMR or Morgan are exercised or converted prior to the
Effective Time (as defined below)) and would be the largest stockholder of
NMR. See "The Merger--Morgan--Security Ownership of Certain Beneficial
Owners and Management".
In addition, Mr. Strong is a nominee to serve as a director of
NMR following the Merger. It is also anticipated that in connection with
the Merger, Ms. Garrison will enter into an employment agreement with NMR
at an annual salary of $75,000 per year. See "The Merger--Terms of the
Merger--Employment Agreement".
In rendering its fairness opinion to the Morgan Board of
Directors, Morgan's financial adviser, Fahnestock & Co. Inc.
("Fahnestock"), may be deemed to have certain conflicts of interest. If
the Merger is consummated, Fahnestock will receive a cash fee of $200,000
from Morgan pursuant to an investment banking agreement with Morgan (which
fee will be in addition to the fees and expense reimbursement it will
receive for rendering its fairness opinion to Morgan's Board of Directors).
In addition, as part of its fee arrangement with Morgan, Fahnestock has
agreed to purchase from Morgan, prior to the consummation of the Merger,
shares of Morgan Common Stock for an aggregate purchase price of $90,000
and, accordingly, would receive shares of NMR Common Stock in exchange for
its shares of Morgan Common
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<PAGE>
Stock if the Merger is completed. See "The Merger--Fairness Opinion of
Fahnestock & Co. Inc."
Fairness Opinions
Janney Montgomery Scott Inc. ("Janney Montgomery Scott") has
rendered its written opinion to the Board of Directors of NMR to the effect
that the Exchange Ratio to be paid to the shareholders of Morgan pursuant
to the Merger Agreement is fair, from a financial point of view, to the NMR
stockholders. A copy of such opinion is attached as Appendix B to this
Joint Proxy Statement. Fahnestock has rendered its written opinion to the
Board of Directors of Morgan to the effect that the Exchange Ratio to be
paid to the shareholders of Morgan pursuant to the Merger Agreement is
fair, from a financial point of view, to the Morgan shareholders. A copy
of such opinion is attached as Appendix C to this Joint Proxy Statement.
See "The Merger--Fairness Opinion of Janney Montgomery Scott Inc.; Fairness
Opinion of Fahnestock & Co. Inc.".
Risk Factors
In connection with the proposed Merger, holders of shares of NMR
Common Stock and Morgan Common Stock should consider certain risk factors
relevant to the businesses and operations of NMR and Morgan. Such risk
factors include (i) the substantial indebtedness of NMR and Morgan and the
possible need for additional financing, (ii) NMR's need for additional
liquidity, (iii) the possibility of operating losses following the Merger,
(iv) certain reimbursement and collection risks relating to the healthcare
industry, (v) extensive government regulation (including the effects of
possible federal and state healthcare cost containment legislation), (vi)
the possibility of technological change and equipment obsolescence, (vii)
reliance on key personnel and certain physicians, (viii) extensive industry
competition, (ix) the potential sale of a center presently operated by
Morgan, (x) the absence of cash dividends paid by either NMR or Morgan,
(xi) the effects of certain anti-takeover measures adopted by NMR, (xii)
and the absence of an active trading market for the NMR Common Stock. See
"Risk Factors Regarding NMR and Morgan".
Principal Terms of the Merger
The Merger Agreement, a conformed copy of which (without exhibits
and schedules) is attached hereto as Appendix A, provides that, upon
consummation of the Merger (the "Effective Time"), Subsidiary will be
merged with and into Morgan, Subsidiary's corporate existence will
terminate, and Morgan, the surviving corporation, will become a wholly-
owned subsidiary of NMR. Upon consummation of the Merger, holders of
shares of Morgan Common Stock, except those shareholders who properly
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<PAGE>
assert dissenters' rights under Article 113 of the Colorado Business
Corporation Act ("CBCA"), will receive shares of NMR Common Stock based on
the Exchange Ratio of .3330886 of a share of NMR Common Stock for each
issued and outstanding share of Morgan Common Stock. The Exchange Ratio
was determined as a result of arm's-length negotiations conducted between
the NMR Board of Directors and the Morgan Board of Directors, and was
supported by the written financial fairness opinions of Janney Montgomery
Scott and Fahnestock. See "The Merger--Terms of the Merger--Conversion of
Shares; Treatment of Options and Warrants; Fractional Shares" and "The
Merger--Background of the Merger; Negotiations; Fairness Opinions".
The Merger Agreement provides that each outstanding warrant,
option or other right to purchase shares of Morgan Common Stock will remain
outstanding and will be exercisable for that number of shares of NMR Common
Stock the holder thereof would have received in the Merger had such holder
exercised such right in full immediately prior to the Effective Time, and
that the exercise price thereof shall be appropriately adjusted. See "The
Merger--Terms of the Merger--Conversion of Shares; Treatment of Options and
Warrants; Fractional Shares".
The Merger Agreement provides that consummation of the Merger is
subject to certain terms and conditions, including the approval of the
Merger Agreement by the stockholders of NMR and by the shareholders of
Morgan. Additionally, it is a condition to the consummation of the Merger
that holders of not more than 10% of the outstanding shares of Morgan
Common Stock exercise shareholder dissenters' rights. The Merger Agreement
also provides that consummation of the Merger is conditioned upon the
cash sale by Morgan of its subsidiary, Morgan HealthWorks, Inc., prior to
the Merger, and upon Morgan, NMR and Subsidiary obtaining all necessary
consents and approvals to the consummation of the Merger. See "The Merger-
- -Terms of the Merger--Conditions Precedent to Consummation of the Merger."
No Federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the Merger.
The Merger Agreement provides that the obligations of NMR and
Morgan are subject to the performance in all material respects, unless
otherwise waived, of their respective covenants and agreements set forth in
the Merger Agreement and the continued truth in all material respects of
their respective representations and warranties set forth in the Merger
Agreement. There are no agreements or undertakings in the Merger Agreement
on the part of either Morgan or NMR to indemnify the other following
consummation of the Merger in the event any representation or warranty made
by either party to the other in the Merger Agreement was not accurate at
the time made.
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<PAGE>
It is anticipated that in connection with the Merger, J. Mark
Strong, a director, the President and Chief Executive Officer and the principal
stockholder of Morgan, will enter into a five-year non-competition
agreement with NMR. Mr. Strong has also agreed to grant, as a condition to
the Merger and if requested by NMR, an irrevocable proxy to the President
and Executive Vice President-Finance of NMR authorizing them to vote the
shares of NMR Common Stock received by Mr. Strong pursuant to the Merger in
any contested election of directors. In addition, it is anticipated that
Sandra G. Garrison, a director and the Vice President of Morgan, will enter
into a three-year employment agreement with NMR upon the closing of the
Merger. See "The Merger--Terms of the Merger--Non-Competition Agreement;
Employment Agreement; Strong Proxy".
In connection with the Merger, Morgan will assign to NMR certain
indebtedness of Mr. Strong and Ms. Garrison owing to Morgan, which
indebtedness will be evidenced by notes executed in favor of NMR and
collateralized by shares of NMR Common Stock to be received by Mr. Strong
and Ms. Garrison, respectively, pursuant to the Merger. See "The Merger--
Terms of the Merger--Notes".
The Merger Agreement may be terminated by the mutual written
consent of the Boards of Directors of NMR and Morgan at any time prior to
the Effective Time of the Merger and by either party if (i) its board of
directors receives a written proposal to effect a merger, sale of
substantially all of its assets or similar transaction and its board
determines that such transaction is more favorable to its stockholders or
shareholders, as the case may be, than the Merger, (ii) the Merger is
enjoined or prohibited by a court or governmental entity, (iii) the Merger
Agreement is not approved by the stockholders of NMR at the NMR Meeting or
by the shareholders of Morgan at the Morgan Meeting or (iv) the Effective
Time has not occurred on or before October 31, 1995 through no fault of
the terminating party. The Merger Agreement may also be terminated by
Morgan if the closing sale price of the NMR Common Stock is less than $3.25
per share for any five consecutive trading days between the date of the
Merger Agreement and the Effective Time, or by NMR if the closing sale
price of the NMR Common Stock for any five consecutive trading days between
the date of the Merger Agreement and the Effective Time exceeds $6.75 per
share. See "The Merger--Terms of the Merger--Termination and Amendment".
In certain instances, the party terminating the Merger Agreement is
entitled to be reimbursed for expenses incurred in connection with the
Merger, or to reimbursement of expenses and a termination fee. See "The
Merger--Terms of the Merger--Expenses of the Merger; Additional Fee".
The Merger Agreement provides that, as soon as practicable
following the fulfillment of all conditions to the
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<PAGE>
Merger, including the approval of the Merger Agreement by the stockholders
of NMR and by the shareholders of Morgan, Certificates of Merger will be
filed with the Delaware Secretary of State and the Colorado Secretary of
State. The Merger will become effective upon filing Certificates of Merger
with the Delaware Secretary of State and the Colorado Secretary of State.
Board of Directors of NMR Following the Merger
The Merger Agreement provides that immediately following the
Effective Time, the Board of Directors of NMR shall be comprised of Joseph
G. Dasti, a director and the President and Chief Executive Officer of NMR,
Donald W. Arthur, a director of NMR, David L. Bloom, a director of NMR,
John A. Faraone, a director of NMR, Joseph T. Zappala, a director of NMR,
and J. Mark Strong, a director, the President and Chief Executive Officer
and the principal shareholder of Morgan. Stockholders of NMR and
shareholders of Morgan voting in favor of the Merger Agreement will be
deemed to have voted in favor of the above individuals to serve as
directors of NMR in the event the Merger is consummated. See "The Merger--
Terms of the Merger--Board of Directors and Management of NMR Following the
Merger; Interest of Management of Morgan in the Merger".
Description of Securities to be Issued
The rights of the holders of NMR Common Stock are set forth in
NMR's Certificate of Incorporation and Bylaws, and in the Delaware General
Corporation Law. See "The Merger--Description of NMR Stock" and "The
Merger--Comparison of Rights of Holders of Shares under Colorado and
Delaware Law".
Certain Federal Income Tax Consequences
As a condition to the consummation of the Merger, Morgan is to
receive, at the closing under the Merger Agreement, an opinion of Annis,
Mitchell, Cockey, Edwards & Roehn, tax counsel to Morgan, to the effect
that no gain or loss for U.S. Federal income tax purposes will be
recognized by shareholders of Morgan with respect to their receipt of
shares of NMR Common Stock in exchange for their shares of Morgan Common
Stock (other than with respect to cash received in lieu of fractional
shares of NMR Common Stock or pursuant to the exercise of dissenters'
rights). Morgan shareholders who receive cash in lieu of fractional shares
or pursuant to the assertion of dissenters' rights may be subject to U.S.
Federal income tax. MORGAN SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISERS REGARDING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT TO THEIR
OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY OF VARIOUS STATE
AND LOCAL TAX LAWS, AND THE TAX LAWS OF ANY FOREIGN JURISDICTIONS. See
"The Merger--Terms of the Merger--Certain Federal Income Tax Consequences
of the Merger".
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<PAGE>
Accounting Treatment
It is intended that the Merger will be accounted for under the
purchase method, as such term is used under generally accepted accounting
principles, for accounting and financial reporting purposes. See "The
Merger--Terms of the Merger--Accounting Treatment".
Dissenters' Rights
Holders of shares of Morgan Common Stock who do not vote in favor
of the Merger and who comply with the requirements of Article 113 of the
CBCA will be entitled to assert dissenters' rights with respect to their
shares and to receive their "fair value" in cash. FAILURE TO TAKE ANY STEP
IN CONNECTION WITH THE EXERCISE OF SUCH RIGHTS MAY RESULT IN TERMINATION OR
WAIVER OF DISSENTERS' RIGHTS. See "The Merger--Terms of the Merger--
Dissenters' Rights" and Appendix D, which sets forth the text of Article
113 of the CBCA. Appraisal rights are not available to NMR stockholders in
connection with the Merger.
-xvii-
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
I. Selected historical financial data
A. NMR.
----
The following selected historical financial data of NMR, insofar
as it relates to each of the fiscal years ended March 31, 1991-
1995, has been derived from NMR's financial statements which have
been audited by Coopers & Lybrand L.L.P., independent
accountants. NMR's consolidated balance sheets at March 31, 1995
and 1994, respectively, and its related statements of operations
and of cash flows for the three years ended March 31, 1995 and
notes thereto have been incorporated herein by reference.
B. Morgan.
-------
The following selected historical financial data of Morgan,
insofar as it relates to each of the years ended December 31,
1993 and 1994, has been derived from Morgan's financial
statements which have been audited by Garcia & Ortiz, P.A.,
independent accountants. The selected historical financial data
of Morgan, insofar as it relates to the years ended December 31,
1990-1992 has been derived from Morgan's financial statements
which have been audited by Copeland & Company, independent
accountants. Morgan's consolidated balance sheets at December
31, 1994 and 1993, respectively, and its related statements of
operations and of cash flows for the three years ended December
31, 1994 and notes thereto appear in Appendix F hereto. The
report of Copeland & Company relating to Morgan's consolidated
statements of income, stockholders' equity and cash flows for the
year ended December 31, 1992 appears in Appendix F to this Joint
Proxy Statement.
The selected historical financial data for the three months ended
March 31, 1995 and 1994 has been derived from unaudited financial
statements of Morgan which appear in Appendix G hereto and which,
in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods.
-xviii-
<PAGE>
II. Selected unaudited pro forma financial data
NMR and Morgan.
---------------
The following selected unaudited pro forma combined financial
data as of March 31, 1995 and for the fiscal year ended March 31,
1995 has been derived from the historical and unaudited pro forma
combined financial information. See "NMR and Morgan Unaudited
Pro Forma Combined Financial Statements". Such unaudited pro
forma combined financial data reflects the pro forma effects on
each company's corresponding historical cost balance sheet and
statement of operations of the proposed Merger.
For additional information with respect to the following selected
unaudited pro forma combined financial data, see "NMR and Morgan
Unaudited Pro Forma Combined Financial Statements."
The following selected unaudited pro forma combined financial
data should be read in conjunction with the unaudited historical
and pro forma combined financial information. See "NMR and
Morgan Unaudited Pro Forma Combined Financial Statements."
The following selected unaudited historical and pro forma
financial information should also be read in conjunction with the
financial statements and notes thereto of NMR and Morgan included
elsewhere in this Joint Proxy Statement or in the Appendices
hereto, or incorporated herein by reference. Such pro forma data
are not necessarily indicative of the results that would have
occurred if the proposed Merger had occurred as of March 31, 1995
or as of the beginning of NMR's fiscal year ended March 31, 1995.
-xix-
<PAGE>
<TABLE><CAPTION>
A. NMR of America, Inc., and Subsidiaries
Selected Historical Financial Data
(Amounts in thousands except per share data)
Fiscal Years ended March 31,
-------------------------------------------------------------------------
1995 (1)(2) 1994 (3) 1993 (4) 1992(5) 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue, net $17,988 $15,597 $14,830 $15,175 $16,790
Operating expenses (14,894) (12,379) (13,835) (11,414) (12,073)
Other expenses (1,162) (693) (607) 30 (1,502)
Minority interest (528) (1,049) (982) (1,766) (1,676)
Income taxes 1,030 (108) -- (669) (618)
-------------------------------------------------------------------------
Income (loss) before
extraordinary item $2,434 $1,368 ($594) $1,356 $921
=========================================================================
Fully diluted per share data:
Income (loss) before
extraordinary item $0.47 $0.29 ($0.12) $0.36 $0.24
=========================================================================
March 31,
-------------------------------------------------------------------------
1995 (1)(2) 1994 (3) 1993 (4) 1992(5) 1991
-------------------------------------------------------------------------
Total assets $35,329 $28,973 $24,651 $27,201 $16,399
=========================================================================
Obligations under capital
leases, less current
installments $482 $768 $595 -- --
=========================================================================
Convertible subordinated
debt, net $2,056 $2,126 $2,084 $2,125 $3,068
=========================================================================
Notes and mortgage
payable, less current
installments $10,451 $8,684 $5,931 $6,770 $929
=========================================================================
Shareholders' equity $14,030 $10,902 $9,059 $10,749 $3,660
=========================================================================
(1) Includes non-recurring adjustments to (i) write-down the carrying value of assets
($560,000) and (ii) recognize the Company's net deferred tax asset totaling $1,099,000.
(2) Includes the operations of the Company's acquired centers in Libertyville and Des Plaines,
Illinois as of January 1, 1995, the effective date of such acquisitions.
(3) Reflects the impact of the acquisition of additional limited partner interests in seven of
NMR's MRI facilities as of the effective date of January 1, 1994, and includes the results
of operations of the Company's acquired Oak Lawn Imaging Center as of January 21, 1994, the
date of such acquisition.
(4) Includes the operations of OPEN MRI of Chicago and Airlite Imaging Center from their June 13,
1992 and May 15, 1992 opening dates, respectively.
(5) Includes the operations of the Colonnade Imaging Center from its November 21, 1991 opening date.
</TABLE>
--XX--
<PAGE>
<TABLE><CAPTION>
B. Morgan Medical Holdings, Inc.
Selected Historical Financial Data
(Amounts in thousands except per share data)
Three Months Ended
March 31,
Years ended December 31, (Unaudited)
-----------------------------------------------------------------------------------
1994(1) 1993 1992(2) 1991(3) 1990(4) 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net $5,132 $4,698 $3,582 $1,892 $674 $1,770 $1,193
Operating expenses (3,981) (3,212) (2,486) (1,328) (826) (1,341) (919)
Other expenses (804) (607) (449) (226) (62) (233) (91)
Minority interest -- (5) (59) (6) (7)
Income taxes (132) (335) (233) (120) -- (72) (67)
-----------------------------------------------------------------------------------
Income (loss) before
extraordinary item
and cumulative effect
of accounting change $215 $539 $355 $212 ($221) $124 $116
===================================================================================
Fully diluted per share data:
Income (loss) before
extraordinary item
and cumulative effect
of accounting change $0.06 $0.17 $0.12 $0.08 ($0.08) $0.04 $0.03
===================================================================================
</TABLE>
<TABLE><CAPTION>
December 31, March 31,
------------------------------------------------------------ 1995
1994(1) 1993 1992(2) 1991(3) 1990(4) (Unaudited)
-------------------------------------------------------------------------------
Total assets $8,720 $6,569 $5,836 $4,029 $2,152 $8,656
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
Obligations under capital
leases, less current
installments $1,486 -- $2,531 $2,319 $1,231 $1,398
===============================================================================
Notes payable,
less current installments $3,606 $3,514 $526 $101 $130 $3,258
===============================================================================
Shareholders' equity
(deficit) $1,363 $1,131 $547 $163 ($211) $1,529
===============================================================================
(1 ) Includes the operations of the Sarasota Outpatient MRI and Diagnostic Center from the center's
opening date on June 6, 1994. Includes the operations of HealthWorks of Albany physical therapy
center from the center's opening date of November 21, 1994. HealthWorks of Albany will be sold
in conjunction with the Merger.
(2) Includes the operations of the Company's acquired MRI of North Brevard as of September 18, 1992,
the date of such acquisition.
(3) Includes the operations of the Naples MRI Center from the center's opening date on August 28, 1991.
(4) Includes the operations of the Cape Coral MRI Center from the center's opening date on August 27,
1990.
</TABLE>
-xxi-
<PAGE>
II. NMR and Morgan
Selected Pro Forma Combined Financial Data
(Amounts in thousands except per share data)
Fiscal Year
Ended
March 31,
1995 (1)(2)
-----------
Revenue, net $23,243
Operating expenses (18,450)
Other expenses (1,600)
Minority interest (528)
Income taxes 859
-----------
Income before extraordinary item
and cumulative effect of accounting
change $3,524
===========
Income before extraordinary item
and cumulative effect of accounting
change per fully diluted share $0.55
===========
March 31,
1995
-----------
Total assets $47,167
===========
Obligations under capital
leases, less current
installments $1,968
===========
Convertible subordinated
debt, net $2,056
===========
Notes and mortgage
payable, less current
installments $13,942
===========
Shareholders' equity $19,350
===========
(1) NMR's fiscal year end is March 31, while Morgan's fiscal year ends on
December 31. Accordingly, the selected unaudited pro forma combined
financial data for the fiscal year ended March 31, 1995 includes the
operating results of Morgan for the year ended December 31, 1994.
(2) Includes non-recurring adjustments to (i) write-down the carrying value
of certain NMR fixed assets ($560,000) and (ii) recognize NMR's net
deferred tax assets totaling $1,099,000.
-xxii-
<PAGE>
Dividends
No cash dividends have been paid on either NMR Common Stock or
Morgan Common Stock since the organization of each respective company. NMR
has no present plans to pay cash dividends to its stockholders and, for the
foreseeable future, intends to retain all of its earnings, if any, for use
in its business. The declaration of any future dividends by NMR is within
the discretion of its Board of Directors and will be dependent on the
earnings, financial condition and capital requirements of NMR, as well as
any other factors deemed relevant by its Board of Directors.
Market Price Data
Morgan Common Stock is traded in the over-the-counter market and
is quoted on the OTC Bulletin Board operated by the National Association of
Securities Dealers, Inc. under the symbol "MGMH". NMR Common Stock is
traded in the over-the-counter market and is quoted on the National Market
System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the NASDAQ symbol "NMRR". The following
table sets forth, for the calendar quarters indicated, the range of high
and low sale prices for shares of NMR Common Stock and the high and low bid
quotations for shares of Morgan Common Stock. The quotations for Morgan
Common Stock set forth below are based upon information provided by
National Quotation Bureau, Inc., and represent inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not represent actual
transactions:
NMR Morgan
High Low High Low
---- --- ---- ---
1995
Third Quarter (through
August 3, 1995)................ $4 5/8 $4 $1 9/16 $7/8
Second Quarter.................. 5 1/2 4 1/8 1 3/16 3/8
First Quarter................... 5 1/4 3 7/8 1 1/2 3/4
1994
Fourth Quarter.................. 5 1/8 3 3/8 1 3/16 1/4
Third Quarter................... 4 1/2 3 2 5/8
Second Quarter.................. 4 3/8 2 1/2 1 7/8 1 1/2
First Quarter................... 3 3/8 2 1/4 2 3/4 1 1/2
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<PAGE>
1993
Fourth Quarter.................. 4 2 1 3/4 3/4
Third Quarter................... 2 15/16 2 1/8 1 5/8
Second Quarter.................. 2 5/9 1 9/16 N/A N/A
First Quarter................... 2 9/16 2 N/A N/A
N/A = Not available
On March 10, 1995, the last full trading day prior to the
announcement of the proposed Merger, the closing sales price per share on
the NASDAQ - National Market System for NMR Common Stock was $4 3/4. On
August 3, 1995, the closing sales price per share on the NASDAQ - National
Market System for NMR Common Stock was $4 1/8. NMR stockholders and Morgan
shareholders are urged to obtain current quotations for the market prices
of NMR Common Stock.
As of March 10, 1995, there were 729 record holders of NMR Common
Stock. As of such date, there were 90 record holders of Morgan Common
Stock. As of August 3, 1995, there were 755 and 93 record holders of NMR
Common Stock and Morgan Common Stock, respectively.
RISK FACTORS REGARDING NMR AND MORGAN
In addition to the other information contained in this Joint
Proxy Statement, holders of shares of Morgan Common Stock and NMR Common
Stock should carefully consider the factors set forth below which relate to
Morgan and NMR (collectively, the "Companies") before voting with respect
to the Merger.
Possible Adverse Effect of Indebtedness and Repayment
Obligations. The diagnostic imaging business is capital intensive. NMR
and Morgan have financed the acquisition of substantially all their
respective diagnostic imaging equipment through capital leases and
equipment installment loans, and substantially all of their respective
assets have been pledged as collateral for their respective obligations.
At March 31, 1995, NMR had approximately $16,044,000 of outstanding debt
obligations and its ratio of total liabilities to stockholders' equity was
approximately 1.62 to 1.00. At December 31, 1994, Morgan had approximately
$6,124,000 of outstanding debt obligations and its ratio of total
liabilities to shareholders' equity was approximately 5.39 to 1.00. At
March 31, 1995, after giving effect to the Merger on a pro forma combined
basis as of March 31, 1995, the ratio of NMR's total liabilities to
stockholders' equity would have been 1.38 to 1.00. On a pro forma combined
basis as of March 31, 1995, debt obligations would have been approximately
$22,024,000, of which capitalized lease
-xxiv-
<PAGE>
indebtedness would have been approximately $2,585,000 and convertible
subordinated debt would have been approximately $2,056,000.
In addition, following the Merger, NMR may incur additional
indebtedness for future expansion and equipment replacements. NMR is
subject to the risks associated with such indebtedness, including the risk
that its cash flow may not be adequate to make required payments on
indebtedness. A decrease in reimbursements for diagnostic imaging services
or in equipment utilization arising from, among other things, cancellation
or non-renewal of provider contracts, equipment malfunctions, the inability
to effect prompt and timely repairs to equipment or a reduction in demand
for NMR's or Morgan's equipment or services could materially and adversely
effect NMR's ability to service its indebtedness following the Merger. In
addition, the high ratio of indebtedness to shareholders' equity to which
the Companies are subject may restrict or impair NMR's ability to make
additional acquisitions or exploit future business opportunities. See "NMR
and Morgan Unaudited Pro Forma Combined Financial Statements"; "Risk
Factors Regarding NMR and Morgan -- Need for Additional Liquidity; Future
Acquisitions and Development; Reimbursement Risks".
Adverse Effect of Increasing Principal Repayments of Certain Note
Payable Obligations. The terms of certain note payable obligations of NMR
and Morgan require increases in principal repayments during their
respective terms, and have the effect of decreasing available working
capital during the later years of such notes. There can be no assurance
that, following the Merger, NMR's cash flows will be sufficient to enable
it to satisfy the scheduled increased payments or to extend maturities.
Need for Additional Liquidity. Due to the nature of the
collection cycle for NMR and its affiliated professional corporations, NMR
is subject to significant fluctuations in its levels of aggregate cash and
short-term investments, current assets and working capital. As of March
31, 1995, NMR had aggregate cash, short-term investments and marketable
securities of approximately $5,980,000, current assets of approximately
$16,381,000 and working capital of approximately $10,227,000. On a pro
forma combined basis giving effect to the Merger, as of March 31, 1995, NMR
would have had aggregate cash, short-term investments and marketable
securities of approximately $5,896,000, current assets of approximately
$18,063,000 and working capital of approximately $10,368,000. After giving
pro forma effect to the Merger, NMR's aggregate cash, short-term
investments and marketable securities would be reduced. As a result, NMR
may find it necessary in the future to seek a line of credit or other
financing collateralized by assets of NMR which are not otherwise pledged.
There can be no assurance such a line of credit would be available or, if
available, would be on terms
-xxv-
<PAGE>
acceptable to NMR. See "Risk Factors Regarding NMR and Morgan --
Reimbursement Risks; Collection Risks."
Risk of Failure to Consolidate Administrative Functions. Morgan
leases corporate office space in two locations in Florida. These lease
obligations continue through 1999. Although it is the intention of NMR
following the Merger to consolidate the Morgan administrative functions at
NMR's headquarters in New Jersey and attempt to sublease the office space
in Florida, there is no assurance that suitable sublease arrangements will
be achieved. In addition, following the Merger, NMR's inability to
consolidate certain redundant administrative functions and realize
operating efficiencies in connection with the Merger could have a material
adverse effect on NMR's results of operations and liquidity. See "NMR and
Morgan Unaudited Pro Forma Combined Financial Statements".
Effect of Seasonality of Morgan Business on Results of
Operations. Morgan's business is seasonal due to the nature of the Florida
market. Historically, Morgan has realized its highest procedure volume
during the fiscal quarters ended March 31 and December 31. Accordingly,
following the Merger, NMR may experience fluctuations in its net revenue,
results of operations and liquidity due to the seasonal nature of Morgan's
business. On a pro forma basis for the fiscal year ended March 31, 1995,
Morgan would have contributed $5,255,000 or 22.6% of NMR's pro forma
combined revenue, net, $1,881,000 or 24.1% of NMR's pro forma combined
operating cash flow (net income adjusted for minority interests,
depreciation and amortization), and $1,090,000 or 30.9% of NMR's pro forma
combined net income.
No Assurance of Continued Profitability. Both NMR and Morgan
were profitable during their last fiscal year. However, NMR obtains a
substantial portion of its business from patients who are members or
enrollees of various managed care health plans. Morgan also obtains
business from patients in such plans, and it is anticipated that this
portion of Morgan's business will increase in the future. Due to the
ability of these third-party payers to obtain substantial discounts from
healthcare providers such as NMR and Morgan, the continued growth in both
the size and number of managed care entities will increase competition and
may have a negative impact on the revenues, operating margins and
profitability of companies operating in the diagnostic imaging industry.
In addition, in recent years, many of the public companies operating in the
diagnostic imaging business have reported substantial operating losses.
Accordingly, there can be no assurance that NMR will continue to operate
profitably following the Merger. See also "Risk Factors Regarding NMR and
Morgan -- Anticipated Losses from Certain Centers."
Anticipated Losses from Certain Centers. In November 1991 and
May 1992, NMR commenced operations of centers in Bel
-xxvi-
<PAGE>
Air, Maryland and Elgin, Illinois, respectively. To date, these centers
have generated significant losses. For the year ended March 31, 1995, NMR
incurred net losses amounting to approximately $718,000 and $931,000,
respectively, relating to the operations of the Bel Air, Maryland and
Elgin, Illinois centers, including a non-recurring adjustment in the amount
of $560,000 recorded during the year ended March 31, 1995 to write-down the
carrying value of the Elgin center's fixed assets. In addition to NMR's
initial capital contributions, NMR has made and continues to advance
working capital to fund the operations of these centers and cannot
determine if or when these centers will become profitable, or if or when
these advances will be repaid. As of March 31, 1995, the amount of working
capital advances, including accrued but unpaid interest thereon, made to
each of the Bel Air, Maryland and Elgin, Illinois centers amounted to
approximately $2,415,000 and $1,518,000, respectively. Although NMR
believes these centers may become profitable in the future, the inability
of these centers, or any other centers, to operate profitably in the future
or produce cash flows sufficient to repay advances made by NMR could have a
material adverse effect on NMR's results of operations, cash flows and
financial condition.
Reimbursement Risks. When patients are billed directly by
physician corporations for professional services, most healthcare insurers,
including, for example, Blue Cross and Blue Shield, reimburse the provider
for a portion or all of the physician's charge for diagnostic imaging
services based upon the insurer's determination, in its discretion, of what
constitutes a "reasonable and customary" fee for that area. NMR believes
that its affiliated physician corporations will experience increasing
pressure from healthcare insurers to reduce the amount of such fees.
NMR and Morgan have also been pursuing agreements with health
maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and others to provide services to these organizations and their
members. These organizations typically negotiate for and receive an
allowance deducted from standard fees for diagnostic imaging services,
thereby reducing the provider's net revenue per procedure performed. In
addition, certain managed care organizations have negotiated capitated
payment arrangements for imaging services. Under capitation, diagnostic
imaging service providers are compensated using a fixed rate per member
regardless of the total cost of rendering diagnostic services to the
members. Services provided under these contracts are expected to become an
increasingly significant part of the Companies' business. Further changes
in reimbursement regulations and reductions in payments to physicians and
other healthcare providers by other third-party payers could have a
material adverse effect on NMR's results of operations, liquidity and
financial condition.
-xxvii-
<PAGE>
Collection Risks. NMR's affiliated physician corporations and
Morgan utilize independent billing companies to bill patients and third-
party payers for substantially all of their respective diagnostic imaging
services. Payment for diagnostic imaging services from patients covered by
private insurance and other third-party payers is dependent in large part
on each Company's ability to obtain timely and correct insurance
information from patients and process claim form submissions in accordance
with the varying requirements of different entities. Determining the
procedures necessary for each entity may cause delays in billing. Such
time delays may have a material and adverse affect on NMR's and Morgan's
working capital and liquidity. In addition, NMR's affiliated physician
corporations and Morgan are required to seek payment from a large number of
payers. Accordingly, NMR and Morgan have less control over the
creditworthiness of their debtors, and as a result, the percentage of
receivables which eventually become uncollectible may be substantial.
Although the Companies believe that adequate allowances for amounts which
are uncollectible from affiliated physician corporations and patients have
been made, if the amount of receivables which eventually become
uncollectible exceeds such allowance, the business of the Companies could
be materially and adversely effected.
Adverse Utilization Trends for Certain Diagnostic Imaging
Procedures. Following the Merger, NMR's operation of magnetic resonance
imaging ("MRI"), computerized axial tomography ("CT") and other diagnostic
imaging equipment may be affected by perceived overutilization trends for
such equipment. In some instances, Federal and state governments, the
insurance industry and third-party payers have determined that such imaging
procedures are overutilized by referring physicians and may be medically
unnecessary. As a result, certain payers have been denying and/or delaying
payment for these procedures based on the diagnosis and the number of
diagnostic procedures performed on the patient. The denial of or delays in
payment by the foregoing payers could have a material adverse effect on the
Companies' liquidity and working capital.
Extensive Government Regulation. Various Federal and state
statutes and regulations affect virtually all aspects of diagnostic imaging
operations. These include statutes which place limitations on the purchase
of medical equipment and other capital expenditures and seek to contain
healthcare costs within the various Federal healthcare reimbursement
programs. Certain statutes also seek to prohibit or limit referrals of
patients to facilities in which the referring physician has an ownership
interest. Current statutes limiting referrals of patients to facilities in
which the referring physician has an ownership interest would have no
material impact on the revenues of Morgan since Morgan's centers have no
physician ownership, and would have an immaterial impact on the revenues of
NMR since its
-xxviii-
<PAGE>
centers receive an insignificant portion of their volume through referrals
from physician investors.
Statutes and regulations relating to the acquisition of
healthcare equipment, the reimbursement policies of the various state and
Federal government programs and other aspects of government regulation of
the healthcare industry are subject to amendment, revision and further
interpretation from time to time. These amendments, revisions and
interpretations could change the regulatory environment relating to NMR's
and Morgan's operations, patient referrals and the programs under which
physicians and others are reimbursed for diagnostic imaging procedures, and
thereby have a material effect on NMR's and Morgan's business activities.
See "Governmental Regulation of NMR and Morgan".
Potential Adverse Effect of Restrictions on Unlicensed Practice
of Medicine. Diagnostic imaging centers are subject to laws prohibiting
the practice of medicine by non-physicians and the rebate or division of
fees between physicians and non-physicians. Professional radiology
services are performed at NMR's and Morgan's centers by licensed physicians
under contract with a medical professional corporation, while NMR and
Morgan provide the imaging equipment and technical employees. There can be
no assurance that state authorities or others may not challenge this
structure as involving NMR or Morgan in the unlawful practice of medicine.
See "Government Regulation of NMR and Morgan -- Practice of Medicine".
Adverse Effects of Healthcare Cost Containment. Federal and
state agencies have adopted or are considering medical cost containment
legislation which has restricted or may restrict prices charged by
hospitals and other healthcare providers. Such legislation, together with
cost constraints imposed by insurance companies and other third-party
payers, has reduced, and can be expected to continue to reduce, the fees
which NMR collects for the use of its diagnostic imaging equipment. See
"Government Regulation of NMR and Morgan -- Healthcare Cost Containment
Legislation".
Possible Adverse Effect of Florida Fee Cap Legislation. The
State of Florida has enacted a law which imposes certain limitations on the
fees charged by providers of designated health services, including
diagnostic imaging services. Because this statute was recently invalidated
by a court and is still the subject of pending litigation, it is unclear
whether, or in what form, this statute will ultimately be applied. If the
fee cap provisions of this statute are ultimately upheld and enforced
retroactively, Morgan may become subject to financial penalties and claims
for refunds of any charges collected by Morgan that exceeded the amount
permitted under the Florida fee cap law. Thus, depending on how or whether
the fee cap is implemented, this statute could have a material adverse
effect on NMR's and
-xxix-
<PAGE>
Morgan's operations in Florida following the Merger. See "The Merger--
Government Regulation of NMR and Morgan--Healthcare Cost Containment
Legislation".
Potential Adverse Effects of National Healthcare Reform. Many
aspects of the medical industry in the United States are presently subject
to extensive Federal and state governmental regulation, including
reimbursement rates and policies imposed by Medicare and other third-party
reimbursement programs from which NMR and Morgan receive a substantial
portion of their revenue. Although healthcare reform, if enacted following
the Merger, may have the beneficial effect of increasing the number of
persons who will have access to services provided by NMR and Morgan, such
reform may also reduce the fees that may be charged for such services. In
particular, there is a possibility that a significant portion of healthcare
services will be rendered and administered through a system which could
force price concessions from service providers such as NMR and Morgan.
Moreover, healthcare reform could cause greater analysis of each patient's
need for diagnostic testing, with the aim of eliminating unnecessary tests
and reducing the volume and cost of medical care. Depending on the nature
and extent of any new laws and/or regulations, or possible changes in the
interpretation of existing laws and/or regulations, the foregoing may have
a material adverse effect on NMR's and Morgan's revenues, operating margins
and profitability.
Risk of Technological Change and Obsolescence. Diagnostic
imaging operations require the use of state-of-the-art diagnostic imaging
equipment that has been characterized by rapid technological advances.
Although NMR and Morgan believe that their equipment can be upgraded to
maintain its state-of-the-art character, the development of new
technologies or refinements of existing ones might make existing equipment
technologically or economically obsolete, or cause a reduction in the value
of, or reduce the need for, such equipment. Although NMR and Morgan are
not aware of any substantial technological change, should such change occur
following the Merger, there can be no assurance that the Companies will be
able to acquire any new or improved equipment, or upgrade their existing
equipment, to the extent required to service their customers. In addition,
certain NMR and Morgan centers compete against other centers which operate
more advanced imaging equipment. Purchasing new equipment could have a
material adverse effect on NMR's future earnings and cash flow.
Dependence on Equipment Maintenance by Manufacturer; Risk of
Damage; Delay in Replacement. NMR and Morgan rely upon diagnostic imaging
equipment manufacturers to provide maintenance services on a prompt and
timely basis. Because diagnostic imaging equipment is technologically
sophisticated and complex, it is uncertain whether and how quickly or
effectively other
-xxx-
<PAGE>
companies could provide these maintenance services if the equipment
manufacturers were unable or unwilling to do so. Consequently, the
Companies' business might be adversely affected if, following the Merger,
diagnostic imaging manufacturers cease providing maintenance services. In
addition, although NMR's and Morgan's major equipment is insured against
the risks of damage in an accident, and the Companies are insured for
business interruptions resulting from any damage to such equipment for the
period required to repair or replace the equipment, it may not be possible
to repair damaged equipment to its original level of performance.
Furthermore, substitute or replacement equipment may be unavailable and the
quality of the potential replacement equipment may be unknown. Moreover,
there is no assurance that the Companies would receive sufficient insurance
proceeds following any damage to their equipment to fully repair or replace
a unit or to compensate them for lost business.
When new MRI equipment is installed, NMR anticipates a five to
eight week transition period for the new equipment to become fully
operational. Although, in some instances, the Companies believe that they
can utilize mobile MRI units during such a transition period, there is no
assurance that there will not be a decrease in revenues resulting from the
replacement of such equipment. Although NMR's and Morgan's equipment has
experienced no damage and is in good working order, NMR may replace or
upgrade the equipment in certain centers following the Merger.
No Assurance of Equipment Financing. To date, NMR and Morgan
have been able to obtain financing for diagnostic imaging equipment through
equipment manufacturers, equipment financing companies and banks. However,
there can be no assurance that such financing will be available following
the Merger from such lending sources or any other party on terms that will
be favorable to NMR, in which event NMR would need to seek alternative
sources of funding, such as equity financing or utilization of its existing
working capital to the extent available, to fund such purchases. If NMR is
unable to obtain such financing, NMR's ability to expand its operations and
upgrade its equipment would be materially adversely affected.
Possible Lack of Adequate Insurance. NMR and Morgan provide
technical services and are not engaged in the practice of medicine.
Accordingly, the Companies carry liability insurance relating to the
provision of technical services, but are unable to obtain medical
malpractice insurance. Any liability of the Companies for an injury
arising from diagnosis or treatment at a center could have a material
adverse effect on its financial condition. Morgan's patient services
agreements with its interpreting radiologists require that such physicians
possess medical malpractice insurance. NMR maintains agreements with
interpreting physicians and Dr. David L. Bloom, a director of
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NMR, which require that the physicians possess medical malpractice
liability insurance with a limit of at least $1,000,000 per occurrence and
$3,000,000 in the aggregate. Following the Merger, there can be no
assurance that claims will not exceed the amounts of insurance coverage
held by the Companies or the interpreting physicians and Dr. Bloom, that
the cost for such coverage will not increase to the extent that the
Companies or physicians will be forced to self-insure a substantial portion
of this risk, or that such coverage will not be reduced or become
unavailable.
Future Acquisitions and Development. NMR's external growth
strategy following the Merger focuses primarily on acquiring and
integrating existing imaging centers into NMR's operations. There can be
no assurance, however, that suitable acquisition candidates can be found,
that acquisitions can be negotiated on acceptable terms, that necessary
financing can be obtained or that the operations of acquired centers can be
effectively or profitably integrated into NMR's existing operations.
Competition for suitable acquisition candidates is expected to be intense
and, in addition to local hospital and physician groups, is expected to
include regional and national diagnostic imaging service companies, many of
which have greater financial resources than NMR. NMR will also continue to
pursue the development of new centers, although there can be no assurance
that suitable locations can be found, that necessary financing can be
arranged or that the centers can be profitably operated. In addition, new
centers may incur significant operating losses during their development
stages, and could materially adversely effect the operating results and
financial condition of NMR.
Reliance on Key Personnel. Following the Merger, NMR's success
depends in large part upon the services of Joseph G. Dasti, NMR's Chairman
of the Board of Directors, President and Chief Executive Officer, and John
P. O'Malley III, NMR's Executive Vice President-Finance and Chief Financial
Officer. The loss or interruption of the services of Mr. Dasti or Mr.
O'Malley following the Merger could have a material adverse effect on NMR.
NMR carries "key-man" life insurance on each of these individuals on which
NMR is named beneficiary in the amount of $1,000,000.
In addition, all medical aspects of NMR's diagnostic imaging
facilities, including fee structures, office leasing, medical diagnosis,
patient care and managed care contracts, are under the direction of Dr.
David L. Bloom or medical professional corporations owned by Dr. Bloom with
which NMR enters into agreements. Dr. Bloom also serves as Senior Medical
Advisor to NMR pursuant to a one-year consulting contract which expires in
December 1995, subject to renewal by the parties. See "The Merger--NMR--
Director Compensation". The loss or interruption of
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<PAGE>
the services of Dr. Bloom could have a material adverse effect on NMR.
The ability of NMR and Morgan to attract and retain qualified
technicians to operate their diagnostic imaging equipment is crucial to the
operations of the Companies. To date, the Companies have been able to
attract a sufficient number of qualified diagnostic imaging technicians.
However, there can be no assurance that qualified technicians will continue
to be available in the future. If, following the Merger, NMR is unable to
attract and retain a sufficient number of qualified technicians, the
Companies' business would be materially and adversely affected.
Dependence on Referring Physicians. At each of NMR's and
Morgan's centers, certain physicians in private practice or affiliated with
managed care organizations, refer a significant percentage of such center's
patients. Although, on a consolidated basis, neither NMR nor Morgan rely
on patient referrals from any one physician practice or organization for a
significant percentage of its revenues, a significant reduction by existing
referring physicians in the number of patients referred to any NMR or
Morgan center following the Merger could have a material adverse effect on
the financial condition and operating results of such center.
Dependence on Qualified Interpreting Physicians. NMR's and
Morgan's strategy of maintaining the high quality of their services is
dependent upon their ability to obtain and maintain arrangements with
qualified interpreting physicians at each of their centers. Following the
Merger, no assurance can be given that the Companies' contractual
arrangements with interpreting physician groups at each of the Companies'
centers can be maintained on terms advantageous to the Companies. No
assurance can be given that the interpreting physicians with whom NMR or
Morgan has contracts will perform satisfactorily or continue to practice in
the markets served by their imaging centers. In addition, with respect to
new centers, there can be no assurance that arrangements can be entered
into with interpreting physicians on acceptable terms or that such
physicians will be successful in such centers. The Companies' success is
significantly dependent on the ability of these physicians to attract
patient referrals, thereby enabling their centers to operate profitably.
The inability of these physicians to attract sufficient referrals could
have a material adverse effect on the Companies' financial condition and
operating results.
Competition. The healthcare industry in general, and the market
for diagnostic imaging services in particular, are highly competitive.
Principal competitors in each of the Companies' respective markets are
hospitals, independent or management company-owned imaging centers, some of
which are owned
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by physician investors, and mobile units. Certain of these competitors
have financial resources substantially greater than those of NMR and
Morgan, which may give them advantages in negotiating equipment
acquisitions and responding quickly to new demands or new technology. The
Companies believe that principal competitive factors include quality and
timeliness of test results, ability to develop and maintain relationships
with referring physicians, type and quality of equipment, facility
location, convenience of scheduling and availability of patient appointment
times. Competition for physician referrals can also be effected by the
ownership or affiliation of competing centers, and certain competitors have
historically derived a significant amount of their revenues from referrals
by physicians who are also investors or who have financial interests in
such competitors. The Companies also compete with companies providing less
expensive diagnostic imaging devices and procedures which may provide
similar information to the physician.
Potential Adverse Effect of Sale of Cape Coral Facility.
Morgan's ground lease relating to its Cape Coral facility (the "Lease")
contains provisions granting the landlord, Cape Coral Hospital ("CCH"), the
right to purchase the business and equipment of the Cape Coral facility
during the first two months of each calendar year in which the Lease is in
effect, subject to certain conditions. The Lease provides that any
purchase by CCH must be for cash consideration which exceeds the amount of
the facility's then outstanding debt obligations. The Lease further
provides for an appraisal process to establish the fair market value for
the business and equipment of the facility in the event the parties to the
Lease cannot mutually agree upon a purchase price. CCH has waived its
right to purchase the business and equipment of the facility for the year
1995. However, CCH may choose to exercise its option in the future. The
Cape Coral center accounted for approximately 31% of Morgan's revenue, net
for each of the fiscal years ended December 31, 1994 and 1993,
respectively. On a pro forma combined basis for the fiscal year ended
March 31, 1995, the loss of this center would have the impact of reducing
revenue, net by $1,630,000 or 7.0%, and reducing operating income by
$677,000 or 14.4%. Although the exercise by CCH of its option to purchase
the Cape Coral facility following the Merger in accordance with the terms
of the Lease would have a positive impact on NMR's liquidity and financial
condition, it would have a material adverse impact on NMR's net revenue and
operating results.
Potential Conflict of Interest Resulting from Fiduciary and
Contractual Duties Owed by NMR to Limited Partnerships. As a managing
general partner in twelve limited partnerships which own and operate
diagnostic imaging systems, NMR or one of its wholly-owned subsidiaries is
subject to certain fiduciary and contractual duties owing to the other
partners in these limited partnerships, the breach of which would expose
NMR or such
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<PAGE>
subsidiary to the risk of litigation and significant financial liabilities.
Generally, as general partner, NMR owes fiduciary duties of care and
loyalty to the other partners in these partnerships. The interests of NMR
and its stockholders may not always coincide with the interests of NMR's
partners in such partnerships, and NMR's fiduciary duties may prevent NMR
from taking certain acts with respect to these partnerships which, while
beneficial to NMR, would be detrimental to other partners. The duty of
loyalty may also prevent NMR from taking advantage of business
opportunities which may be available to one of its partnerships.
In addition, a general partner is generally responsible for all
financial obligations of a limited partnership. Such partnerships may be
capitalized by borrowings, which borrowings may be with recourse to the
assets of NMR. Although no partnership is currently in default under any
financial obligation, to the extent that any of the partnerships default on
any such borrowings, NMR, as general partner of such partnership, could be
required to continue to fund such obligations and, as such, could be
materially and adversely affected.
NMR's contractual duties include obligations to obtain partners'
consents to perform various acts, such as obtaining financing for upgrades
and equipment replacements and sales of significant partnership assets.
Accordingly, other partners besides NMR may prevent these partnerships from
taking certain actions which NMR may deem beneficial to NMR and its
stockholders.
Possible Conflict of Interest of Director. Dr. David L. Bloom, a
director of NMR, is also a shareholder and director of and consultant to
another company engaged in providing diagnostic imaging services in markets
which currently do not compete directly with any of NMR's centers. There
may be certain business and investment opportunities which will come to Dr.
Bloom's attention in his capacity with the other company which might be
suitable for NMR.
Litigation. Management and legal counsel of NMR and Morgan
believe that the Companies are not presently engaged in any litigation
which, if adversely determined, will have a material adverse effect on the
Companies' results of operations or financial condition. As such, no
provision for anticipated losses has been accrued in the Companies'
respective financial statements. NMR's affiliated professional
corporations are presently involved in certain litigation relating to
medical services provided at NMR's centers. NMR has not been named a party
in these lawsuits and believes that these affiliated professional
corporations will be dismissed from the lawsuits on the basis that they do
not provide medical services. The affiliated professional corporations are
insured under technical
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<PAGE>
services liability coverage for judgements in amounts of up to $1,000,000
per occurrence and $3,000,000 in the aggregate. Accordingly, NMR has made
no provisions for anticipated losses in excess of insurance coverage in its
financial statements. While NMR has not been named a party in any of the
lawsuits currently pending against its affiliated professional
corporations, no assurances can be given that NMR will not be named in
future litigation, or that if so named, will not be exposed to material
liabilities as a result of the suits brought against its affiliated
professional corporations, despite NMR's belief that it does not provide
medical services. See "The Merger--Government Regulation of NMR and
Morgan--Practice of Medicine".
Possible Adverse Effect of Outstanding Options, Warrants and
Convertible Debentures. As of the date hereof, (i) 364,625 shares of NMR
Common Stock were issuable upon exercise of outstanding options (151,225 of
which are currently exercisable) at exercise prices ranging from $2.25 to
$6.38 per share, and a weighted average exercise price of $3.52 per share,
(ii) 1,057,000 shares of NMR Common Stock were issuable upon exercise of
outstanding warrants (all of which are currently exercisable) at exercise
prices ranging from $3.00 to $10.00 per share, and a weighted average
exercise price of $5.93 per share, and (iii) 481,556 shares of NMR Common
Stock were issuable upon exercise of outstanding convertible debentures of
NMR (all of which are currently exercisable) at a conversion price of $4.50
per share. Following the Merger, approximately 100,000 additional shares
of NMR Common Stock will be issuable upon exercise of the Morgan Derivative
Securities (assuming all the Morgan Derivative Securities outstanding as of
the date hereof remain unexercised as of the Effective Time) at exercise
prices ranging from approximately $1.50 to $3.00 per share, and a weighted
average exercise price of $2.50 per share. The exercise or conversion of a
substantial amount of these securities could adversely affect the market
price of NMR Common Stock due to the large number of shares issuable upon
exercise or conversion of such securities. In addition, so long as such
securities remain outstanding, the market price of NMR Common Stock and the
terms under which NMR might obtain additional equity capital may be
materially and adversely affected. Furthermore, the holders of such
securities may exercise or convert them at a time when NMR would otherwise
be able to obtain additional equity capital on terms more favorable to NMR.
Holders of 150,000 shares of NMR Common Stock, and holders of
warrants and options for an aggregate of 730,000 shares of NMR Common
Stock, have certain rights to have the resale of such shares registered
under the Securities Act of 1933, as amended (the "Securities Act").
Exercise of any such registration rights will require NMR to incur the
expense of registering such securities and may hinder efforts by NMR to
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<PAGE>
arrange future financing and have a material adverse effect on the market
for the NMR Common Stock.
Shares Available for Future Sale. Following the Merger, there
will be approximately 5,889,378 shares of NMR Common Stock held by members
of the public that are able to trade without restriction (assuming no
exercise or conversion of outstanding options, warrants or convertible
securities of NMR or Morgan prior to the Effective Time). Any sales of
substantial amounts of NMR Common Stock in the open market could have a
material adverse effect on the market price of the NMR Common Stock. No
prediction can be made as to the effect, if any, that the issuance of
shares of NMR Common Stock in the Merger or sales of shares of NMR Common
Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. The possibility that substantial
amounts of NMR Common Stock may be sold in the public market may adversely
affect prevailing market prices and, therefore, could impair NMR's ability
to raise capital through the sale of its equity securities. See "The
Merger -- Description of NMR Stock -- Shares Eligible for Future Sale".
Absence of Dividends. NMR has not paid any cash dividends on the
NMR Common Stock, and does not anticipate paying any cash dividends in the
foreseeable future.
Possible Adverse Effects of Preferred Stock Issuances. NMR's
Certificate of Incorporation authorizes the issuance of 500,000 shares of
preferred stock with such rights, preferences and privileges as may be
determined by the Board of Directors of NMR. Accordingly, the Board of
Directors has the power, without prior stockholder approval, to issue
series of preferred stock with such dividend rights, redemption provisions,
liquidation preferences, voting rights, conversion privileges and other
characteristics as the NMR Board may deem appropriate. The issuance of the
preferred stock could have a material adverse effect on the rights of
holders of NMR Common Stock. In addition, the preferred stock could be
issued to discourage, delay or prevent an attempted takeover of NMR, and
could enhance the ability of directors of NMR to retain their positions.
See "The Merger -- Description of NMR Stock -- Preferred Stock."
Possible Adverse Effects of Anti-Takeover Provisions. NMR has
adopted a stockholder rights plan, pursuant to which each outstanding share
of NMR Common Stock has attached to it one stock purchase right. Upon the
happening of certain takeover-related events, each right will become
exercisable to purchase NMR Common Stock, and also certain preferred stock
of NMR having greater voting and dividend rights than the NMR Common Stock.
In addition, under the plan, NMR stockholders may have the right to acquire
common stock of any company acquiring NMR through a merger or sale of
assets. The NMR stockholder rights plan could
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<PAGE>
discourage, delay or prevent an attempted takeover of NMR, and could
enhance the ability of directors of NMR to retain their positions. See
"The Merger -- Description of NMR Stock -- Rights Plan".
Additionally, NMR is subject to provisions of Delaware law
regulating business combinations and restricting voting rights of certain
persons acquiring shares of NMR, which may also discourage or delay a
change of control of NMR. See "Comparison of Rights of Holders of Shares
Under Colorado and Delaware Law -- Anti-Takeover Measures".
Absence of Active Public Market; Possible Volatility of Stock
Price. Although NMR Common Stock is listed on the NASDAQ - National Market
System, there can be no assurance that a trading market in such stock will
continue following the Merger or that it will be maintained. In addition,
financial markets have experienced extreme price and volume fluctuations in
recent years. As a result, the market prices of NMR Common Stock have been
subject to substantial fluctuations without regard to the operating
performance of NMR.
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COMPARATIVE PER SHARE INFORMATION
The following table sets forth (1) the historical income before
extraordinary items and cumulative effect of accounting change per fully
diluted common share and the historical book value per common share of NMR
Common Stock; (2) the historical income before extraordinary items and
cumulative effect of accounting change per fully diluted common share and
the historical book value per common share of Morgan Common Stock; (3) the
unaudited pro forma combined income before extraordinary items and
cumulative effect of accounting change per fully diluted common share and
the unaudited pro forma combined book value per common share after giving
effect to the proposed Merger using the purchase method of accounting for
the Merger; and (4) the unaudited Morgan equivalent pro forma combined
income before extraordinary items and cumulative effect of accounting
change per fully diluted common share and the unaudited Morgan equivalent
pro forma combined book value per common share based on the Exchange Ratio
of .3330886 of a share of MNR Common Stock for each share of Morgan Common
Stock. The information presented in the table should be read in
conjunction with the separate historical consolidated financial statements
of NMR and Morgan and the notes thereto incorporated by reference or
appearing elsewhere herein, as applicable. Also, see "NMR and Morgan
Unaudited Pro Forma Combined Financial Statements" appearing elsewhere
herein.
(3) (4)
Pro Forma Morgan
Combined Equivalent
(1) (2) NMR Pro Forma
Historical and Combined
NMR Morgan Morgan NMR and Morgan
--- ------ ------ --------------
Income Before Extraordinary
Items and Cumulative Effect
of Accounting Change Per
Fully Diluted Common Share:
Fiscal Year ended
March 31, 1995* $0.47 $0.06 $0.54 $0.18
===== ===== ===== =====
Book value per common
share as of
March 31, 1995* $2.78 $0.43 $3.14 $1.05
===== ===== ===== =====
* NMR's fiscal year-end is March 31, while Morgan's fiscal year-end is
December 31. Accordingly, the combined income before extraordinary items
and cumulative effect of accounting change per common share for the fiscal
year ended March 31, 1995 includes the operating results of Morgan for the
year ended December 31, 1994. The book value per common share reflects the
combined balance sheets of NMR as of March 31, 1995 and Morgan as of
December 31, 1994.
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NMR OF AMERICA, INC.
MORGAN MEDICAL HOLDINGS, INC.
------------
JOINT PROXY STATEMENT
------------
INTRODUCTION
This Joint Proxy Statement is being furnished to stockholders of NMR
of America, Inc., a Delaware corporation ("NMR"), in connection with the
solicitation by the Board of Directors of NMR of proxies to be voted at the
Annual Meeting of Stockholders of NMR (the "NMR Meeting"). This Joint
Proxy Statement is also being furnished to shareholders of Morgan Medical
Holdings, Inc., a Colorado corporation ("Morgan"), in connection with the
solicitation by the Board of Directors of Morgan of proxies to be voted at
the Annual Meeting of Shareholders of Morgan (the "Morgan Meeting").
NMR, Morgan and NMR Sub, Inc., a Delaware corporation which is a
wholly-owned subsidiary of NMR ("Subsidiary"), have entered into an
Agreement and Plan of Merger dated April 11, 1995 (the "Merger Agreement").
A conformed copy of the Merger Agreement (without the Exhibits or Schedules
thereto) is attached to this Joint Proxy Statement as Appendix A. Under
the terms of the Merger Agreement, Morgan will become a wholly-owned
subsidiary of NMR through the merger of Subsidiary into Morgan (the
"Merger"), and each outstanding share of Common Stock, no par value per
share, of Morgan ("Morgan Common Stock") will automatically convert into
.3330886 of a share of Common Stock, par value $.01 per share, of NMR ("NMR
Common Stock") and each outstanding warrant or option to acquire shares of
Morgan Common Stock ("Morgan Derivative Securities") outstanding
immediately prior to the Merger will automatically be deemed exercisable
into shares of NMR Common Stock at a ratio of .3330886 of a share of NMR
Common Stock for each share of Morgan Common Stock which otherwise would
have been issuable upon the exercise of such Morgan Derivative Security had
such Morgan Derivative Security been exercised in full immediately prior to
the Merger (collectively, the "Exchange Ratio").
The purpose of the NMR Meeting is to consider and vote upon proposals
(i) to approve the Merger Agreement (ITEM No. 1), (ii) to account for the
possibility that the Merger Agreement will not be approved (by the
stockholders of NMR or by the shareholders of Morgan) or that the Merger
will not be consummated for any other reason, to elect five (5) directors
to the NMR Board of Directors (ITEM No. 2) and (iii) to amend NMR's 1986
Incentive Stock Option and Non-Statutory Option Plan (the "NMR Option
Plan") to increase the number of shares of NMR Common Stock for which
options may be granted pursuant to the NMR Option Plan from 600,000 shares
to 1,000,000 shares (ITEM No. 3). THE VOTE WITH RESPECT TO ITEM NO. 2 WILL
ONLY BE GIVEN EFFECT IF THE MERGER AGREEMENT IS NOT APPROVED OR THE MERGER
IS NOT OTHERWISE CONSUMMATED.
Approval of the Merger Agreement (ITEM No. 1) by NMR stockholders will
also constitute approval of the election of six (6) directors to the
<PAGE>
NMR Board of Directors. In the event the Merger is not approved or the
Merger is not otherwise consummated, the election of the six persons
identified in the Merger Agreement as the designated directors of NMR would
be of no effect and instead the NMR Board would consist of those persons
elected by the stockholders of NMR pursuant to ITEM No. 3 of this Joint
Proxy Statement.
The purpose of the Morgan Meeting is to consider and vote upon
proposals (i) to approve the Merger Agreement (ITEM No. 1), and,
alternatively, (ii) to account for the possibility that the Merger
Agreement will not be approved by either the shareholders of Morgan or the
stockholders of NMR, or that the Merger will not be consummated for any
other reason, to elect five (5) directors to the Morgan Board of Directors
(ITEM No. 4). THE VOTE REGARDING ITEM NO. 4 WILL ONLY BE GIVEN EFFECT IF
THE MERGER AGREEMENT IS NOT APPROVED OR THE MERGER IS NOT OTHERWISE
CONSUMMATED.
This Joint Proxy Statement is being mailed or given to stockholders of
NMR and shareholders of Morgan on or about August 11, 1995. The information
set forth in this Joint Proxy Statement concerning NMR and Subsidiary has
been furnished by NMR and the information concerning Morgan has been
furnished by Morgan.
NMR has filed a registration statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC")
registering the shares of NMR Common Stock to be issued to shareholders of
Morgan upon consummation of the Merger. This Joint Proxy Statement
constitutes the prospectus of NMR included as part of the Registration
Statement. The principal executive offices of NMR and Subsidiary are
located at 430 Mountain Avenue, Murray Hill, New Jersey 07940 (telephone:
(908) 665-9400). The principal executive offices of Morgan are located at
101 East Kennedy Boulevard, Suite 1010, Tampa, Florida 33602 (telephone:
(813) 229-7200).
VOTING AND PROXIES
Date, Time and Place of Meetings
The NMR Meeting will be held on September 14, 1995 at 9:30 a.m., New
York City Time, at The Madison Hotel, One Convent Road and Route 124,
Morristown, NJ. The Morgan Meeting will be held on September 14, 1995
at 11:00 a.m., New York City Time, at The Madison Hotel, One Convent
Road and Route 124, Morristown, NJ.
Record Date and Outstanding Shares
NMR
Holders of record of NMR Common Stock at the close of business on
August 7, 1995 (the "NMR Record Date") are entitled to notice of and to
vote at the NMR Meeting. As of August 7, 1995, 5,054,320 shares of NMR
Common Stock were issued and outstanding. Each share of NMR Common Stock
entitles the holder thereof to one vote. Other than Dr. Donald A.
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Tobias, NMR does not know of any person who, as of such date, owned
beneficially more than 5% of the issued and outstanding shares of NMR
Common Stock. See "The Merger--NMR--Principal and Other Stockholders".
Morgan
Shareholders of record of Morgan Common Stock at the close of business
on August 8, 1995 (the "Morgan Record Date") are entitled to notice of and
to vote at the Morgan Meeting. As of August 8, 1995, 3,239,310 shares of
Morgan Common Stock were issued and outstanding. Each share of Morgan
Common Stock entitles the holder thereof to one vote. Other than J. Mark
Strong, William C. Callari, Dr. James E. Cooke and Carl Anderson, Morgan
does not know of any person who, as of such date, owned beneficially more
than 5% of the issued and outstanding shares of Morgan Common Stock. See
"The Merger--Morgan--Security Ownership of Certain Beneficial Owners and
Management".
Proxies and Votes Required
NMR
The affirmative vote of a majority of the shares of NMR Common Stock
present in person or represented by proxy and entitled to vote at the NMR
Meeting is required to approve the Merger Agreement (ITEM No. 1). As of
the date hereof, directors and executive officers of NMR beneficially own
approximately 6.5% of the outstanding shares of NMR Common Stock (excluding
shares issuable upon exercise of NMR options and warrants held by such
persons). See "The Merger--NMR--Principal and Other Stockholders".
With respect to ITEM No. 2, directors of NMR will be elected by a
plurality of the votes cast by stockholders of NMR present at the NMR
Meeting in person or represented by proxy. ITEM No. 2 will only be given
effect if the Merger Agreement is not approved (by the stockholders of NMR
or the shareholders of Morgan) or if the Merger is otherwise not
consummated.
The affirmative vote of the holders of a majority of the shares of NMR
Common Stock present at the NMR Meeting in person or represented by proxy
and entitled to vote thereon is required to approve the amendment to the
NMR Option Plan (ITEM No. 3).
If no indication to the contrary is provided on a proxy in connection
with the NMR Meeting, the shares subject to the proxy will be voted in
favor of the Merger Agreement (ITEM No. 1), the election of the five (5)
directors nominated for election (ITEM No. 2), and the amendment to the NMR
Option Plan (ITEM No. 3).
If a signed proxy card is returned by an NMR stockholder and expressly
reflects an abstention upon any proposal, or if a signed proxy card is
returned by a broker with no indication of how shares are to be voted (a
"broker non-vote"), the shares of NMR Common Stock evidenced
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thereby will be counted towards the quorum necessary to convene the NMR
Meeting.
With respect to the vote on the approval of the Merger Agreement (ITEM
No. 1), abstentions will have the same effect as votes against the approval
of the Merger Agreement. Broker non-votes, however, will have no effect on
the outcome of the vote on ITEM No. 1. With respect to the election of
directors (ITEM No. 2), votes may be cast in favor of or withheld from the
nominees for director. Votes that are withheld will be excluded from the
vote and will have no effect. With respect to the vote on the approval of
the amendment to NMR Option Plan (ITEM No. 3) or any other matter brought
before the NMR Meeting which requires the affirmative vote of the holders
of a majority of the shares of NMR Common Stock present in person or
represented by proxy and entitled to vote on such matter at the NMR
Meeting, abstentions will have the same effect as votes against any such
matter. Broker non-votes, however, will have no effect on the outcome of
the vote on any such matter.
Morgan
The affirmative vote of the holders of a majority of the outstanding
shares of Morgan Common Stock entitled to vote at the Morgan Meeting is
required to approve the Merger Agreement (ITEM No. 1). J. Mark Strong, the
President and a director of Morgan, beneficially owns approximately 42% of
the outstanding shares of Morgan Common Stock and has indicated to Morgan
that he will vote his shares of Morgan Common Stock in favor of the Merger
Agreement (subject to his fiduciary duty as director of Morgan). In
addition, Carl Anderson, James E. Cooke (a director of Morgan), William C.
Hurtt, Philip Michener, John Morris, Donna Trainor, and Realty Development
& Management, Inc., a corporation owned by William C. Callari (collectively
the "Morgan Shareholder Group"), who, as of the date hereof, beneficially
own approximately 5.5%, 7.0%, 0.9%, 0.4%, 2.7%, 1.1% and 9.3%, respectively
(and approximately 27% as a group), of the outstanding shares of Morgan
Common Stock (excluding shares issuable upon exercise of Morgan Derivative
Securities held by such persons), have agreed to vote their shares in favor
of the Merger Agreement. See "The Merger--Background of the Merger;
Negotiations; Fairness Opinions". Assuming they are voted in favor of the
Merger Agreement, the shares of Morgan Common Stock beneficially owned by
Mr. Strong and the Morgan Shareholder Group constitute a sufficient
percentage of the issued and outstanding shares of Morgan Common Stock to
approve the Merger Agreement.
ITEM No. 4 will only be given effect if the Merger Agreement is not
approved by the shareholders of Morgan or the stockholders of NMR, or if
the Merger is not otherwise consummated. Directors will be elected by a
plurality of the votes cast by shareholders of Morgan present at the Morgan
Meeting in person or represented by proxy. J. Mark Strong has indicated
that he will vote his shares of Morgan Common Stock for the management
nominees for directors of Morgan.
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If no indication to the contrary is provided on a proxy in connection
with the Morgan Meeting, the shares subject to the proxy will be voted in
favor of the Merger Agreement (ITEM No. 1) and the election of the five (5)
directors nominated for election (ITEM No. 4).
Abstentions and broker non-votes will be counted towards the quorum
necessary to convene the Morgan Meeting. With respect to the vote on the
approval of the Merger Agreement (ITEM No. 1), abstentions and broker non-
votes will have the same effect as votes against the approval of the Merger
Agreement. With respect to the election of directors (ITEM No. 4), votes
may be cast in favor of or withheld from the nominees for director. Votes
that are withheld will be excluded from the vote and will have no effect.
At each of the Meetings, shares represented by properly executed
proxies will be voted in the discretion of the persons named in the
relevant proxy in connection with any other business not specified above
that may properly come before each of such Meetings. A holder of NMR
Common Stock or of Morgan Common Stock who has given a proxy may revoke it
at any time before it is voted at a Meeting by delivering to the Secretary
of the relevant company a written notice stating that the proxy is revoked,
by delivering to such Secretary a duly executed proxy bearing a later date
or by voting in person at the respective Meeting, unless the proxy states
that it is irrevocable and the grant of the proxy is coupled with an
interest sufficient under applicable law to support an irrevocable power.
Solicitation of Proxies
NMR will pay the costs of solicitation of proxies in connection with
the NMR Meeting. In addition to solicitation by mail, directors, officers
and regular employees of NMR may solicit proxies by telephone, telegram,
fax or personal contact. NMR has no current intention to retain a proxy
solicitation firm to assist it in the solicitation of proxies. However,
NMR may elect at a later date to retain such a firm, at an estimated cost
of approximately $20,000. Such firm will not receive any incremental
compensation based on the number or percentage of votes cast in favor of
any of the matters to be voted upon. Brokers, nominees, fiduciaries and
other custodians will be instructed to forward soliciting material to the
beneficial owners of shares held of record by them, and such custodians
will be reimbursed for their expenses.
Morgan will bear the costs of solicitation of proxies in connection
with the Morgan Meeting. In addition to solicitation by mail, directors,
officers and regular employees of Morgan may solicit proxies by telephone,
telegram, fax or personal contact. Morgan has no current intention to
retain a proxy solicitation firm to assist it in the solicitation of
proxies. However, Morgan may elect at a later date to retain such a firm,
at an estimated cost of approximately $10,000. Such firm will not receive
any incremental compensation based on the number or percentage of votes
cast in favor of any of the matters to be voted upon. Brokers, nominees,
fiduciaries and other custodians will be instructed to
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forward soliciting material to the beneficial owners of shares held of
record by them, and such custodians will be reimbursed for their expenses.
THE MERGER (ITEM NO.1)
Background of the Merger; Negotiations; Fairness Opinions
For several years prior to the commencement of discussions with Morgan
leading to the Merger Agreement, management of NMR had been exploring
various acquisition opportunities to expand its network of diagnostic
imaging centers in order to complement its existing multiple center
provider networks in New Jersey, Illinois, Pennsylvania and Maryland, or to
enter new markets. Management believed such expansion would enable NMR to
compete more effectively and efficiently in the current healthcare
environment by leveraging NMR's existing overhead and offering greater
geographical coverage to managed care and other entities which desired to
use NMR's services for their members or enrollees. As part of this
expansion effort, during 1994 and early 1995, NMR acquired three imaging
centers in Illinois. Through its search for acquisition opportunities, NMR
also became aware of Morgan's diagnostic imaging center network in Florida.
Joseph G. Dasti, the President and Chief Executive Officer of NMR,
informally contacted J. Mark Strong, the President and Chief Executive
Officer of Morgan, in July 1994. At this time, Mr. Dasti and Mr. Strong
engaged in a general discussion of the business of the respective companies
and agreed to exchange certain publicly available financial information.
Prior to the commencement of negotiations with NMR, management of
Morgan had entered into a series of preliminary discussions with certain
other groups pertaining to possible business combinations involving Morgan
or the potential sale of the company. These discussions were the result of
a strategic decision made by Morgan in early 1994. Management of Morgan
believed that, because of the consolidation taking place in the industry
and the regulatory and competitive market forces affecting reimbursement
rates and other aspects of Morgan's business, Morgan had to expand its
business in order to effectively compete in its market and to mitigate its
reliance on any single center. Beyond its new MRI center in Sarasota,
Morgan's management did not believe that it could fund its expansion
through internal cash flow because substantially all of its cash flow was
used to pay interest and make principal repayments on its existing debt.
As an alternative, Morgan explored raising funds through the capital
markets. However, due to its highly leveraged capital structure, raising
debt was not a viable option. In addition, raising equity capital on a
cost effective basis appeared difficult since the capital markets, at the
time, were unreceptive to equity offerings by small companies in the
healthcare industry, especially those in medical imaging.
Therefore, management of Morgan believed that it was in the company's
interest to explore a merger or other business combination. In
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March 1994, Morgan retained Fahnestock & Co. Inc. ("Fahnestock"), an
investment banking firm, to assist management in identifying potential
strategic partners and other opportunities to maximize shareholder value.
Pursuant to its engagement, Fahnestock identified, contacted and/or
distributed information about Morgan to approximately twenty qualified
potential acquirors.
Based on NMR's review of financial information concerning Morgan, Mr.
Dasti visited the Morgan centers in Florida, and on October 16-18, 1994,
revisited the centers accompanied by John P. O'Malley III, the Executive
Vice President-Finance and Chief Financial Officer of NMR. During their
visit, Mr. Dasti and Mr. O'Malley met with Mr. Strong, Sandra G. Garrison,
the Vice President of Morgan, and a representative of Fahnestock to discuss
the operations of each of Morgan's centers and competitive factors within
the Florida market. Based upon the meeting, NMR's management determined
that it was interested in exploring further a possible acquisition of
Morgan's imaging centers.
Following this meeting, the respective Boards of Directors of NMR and
Morgan began considering the possibility of a merger or other business
combination involving the two companies. At the time, management of Morgan
and NMR considered a possible merger of Morgan with NMR, and alternatively,
the sale of Morgan's subsidiary, Morgan Medical Corporation, which
consisted of Morgan's four diagnostic imaging centers only, for a
combination of cash, preferred stock and notes payable. NMR's management
concluded that acquiring the Morgan Medical Corporation subsidiary was less
advantageous to NMR than the Merger since the subsidiary would be acquired
using cash and notes payable, which would have an adverse effect on NMR's
liquidity. Morgan's management ultimately concluded that the sale of
Morgan Medical Corporation was less advantageous to Morgan than the Merger
since it would result in a taxable transaction, effectively reducing the
amount to be received by Morgan shareholders, and would not provide to
Morgan shareholders the ability to participate in the growth of the
combined company as they would in the case of the Merger.
The preliminary discussions between management of NMR and Morgan led
to more serious interest on both sides. In late November 1994, Messrs.
Dasti, O'Malley and Strong and a representative of Fahnestock met again at
which time discussions focused on the NMR and Morgan merger transaction and
the negotiation of an acceptable exchange ratio, although no agreement was
reached at this meeting with regard to a definitive exchange ratio.
On December 5, 1994, management of NMR and Morgan, after having met on
several occasions during the previous week, reached a preliminary
understanding as to a proposed merger of the two companies and the amount
of shares of NMR Common Stock which would be issued to Morgan shareholders
in exchange for all of the issued and outstanding shares of Morgan Common
Stock pursuant to the proposed merger. In addition, the parties discussed
management issues relating to Mr. Strong's position in the merged company,
the sale of Morgan's physical therapy business and
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Mr. Strong granting to NMR's management a proxy to vote the shares of NMR
Common Stock he would receive in the proposed merger with respect to
elections of directors. At this time, it was agreed that Mr. Strong would
be employed as Director of Florida Operations of the merged company
pursuant to the terms of a three-year employment contract and serve on the
Board of Directors of the merged company. It was also agreed that the sale
of the physical therapy business conducted by Morgan's subsidiary, Morgan
HealthWorks, Inc. ("HealthWorks"), and the granting of such proxy by Mr.
Strong would be conditions to NMR's obligations under the Merger Agreement.
See "The Merger--Terms of the Merger--Conditions Precedent to Consummation
of the Merger".
Following the December 5, 1994 meeting, NMR's accounting staff
continued its due diligence review of Morgan in Florida during the week of
December 11, 1994, while Mr. Strong and accounting personnel from Morgan
performed a due diligence review of NMR at NMR's corporate offices in New
Jersey during the week of December 18, 1994. NMR also focused on
completing its acquisitions of two privately-owned diagnostic imaging
centers in Illinois. These acquisitions were announced on January 9, 1995
and February 13, 1995, respectively.
Meanwhile, on January 20, 1995, the Morgan Shareholder Group filed a
Schedule 13D with the SEC with respect to its shares of Morgan Common
Stock. Following this filing, Morgan's senior management and Board of
Directors met with the Morgan Shareholder Group to discuss the issues
raised by them. In its filing, the Morgan Shareholder Group indicated that
it would seek board representation and an expansion of the size of Morgan's
Board. At the time of the filing of the Schedule 13D, Morgan's Board of
Directors consisted of only four persons, two of whom, Mr. Strong and Ms.
Garrison, were also employees of Morgan. The Morgan Shareholder Group
indicated to Morgan's management that they believed that the Morgan Board
was not sufficiently independent of executive management and that the
number of independent board members should be increased. In response to
this, Dr. James E. Cooke was added as a member of the Morgan Board to serve
as a representative of the Morgan Shareholder Group. Dr. Cooke had
previously served as a director of Morgan and is a member of the Morgan
Shareholder Group. In addition, Mr. Robert T. Hamilton was subsequently
added to Morgan's Board as an independent director. Mr. Hamilton is not a
member of the Morgan Shareholder Group. The Morgan Shareholder Group has
indicated that these additions to the Morgan Board have adequately
addressed their concerns regarding the composition of Morgan's Board of
Directors.
The Morgan Shareholder Group also indicated in its Schedule 13D that
it sought to explore merger possibilities for Morgan and might seek to
remove Morgan's existing management. These issues were resolved once the
Morgan Shareholder Group was advised of management's on-going efforts to
locate a potential partner, including NMR, for a merger or other business
combination in order to enhance shareholder value. In addition, in
response to the Morgan Shareholder Group's opinion that Mr. Strong's
performance as President and Chief Executive Officer of Morgan was not
satisfactory, it was determined by NMR and Morgan that, if the Merger were
to proceed, Mr. Strong would serve as a consultant and not an employee of
the combined company. The Morgan Shareholder Group, in
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discussions with Morgan's management, also expressed concern over the size
and terms of loans made by Morgan to Mr. Strong and Ms. Garrison. This
issue was resolved by the respective commitments of Mr. Strong and Ms.
Garrison to collateralize their borrowings with Morgan Common Stock held by
them.
The issues raised by the Morgan Shareholder Group were resolved in
early March 1995. As part of this resolution, Morgan agreed to pay $30,000
in legal fees incurred by the Morgan Shareholder Group in connection with
filing its Schedule 13D, since, through its filing, the Morgan Shareholder
Group had identified certain management issues that Morgan's Board of
Directors believed were resolved to the benefit of Morgan. As part of the
resolution, the Morgan Shareholder Group also agreed to vote its shares of
Morgan Common Stock in favor of the Merger. Discussions between Morgan and
NMR concerning the Merger had begun prior to the filing of the Schedule 13D
by the Morgan Shareholder Group, and accordingly, the proposed Merger did
not result from any pressure exerted by the Morgan Shareholder Group.
If the Merger is consummated, the Morgan Shareholder Group would own
288,232 shares of NMR Common Stock or approximately 4.7% of the issued and
outstanding shares of NMR Common Stock (assuming no additional shares of
NMR Common Stock are issued, and no Morgan Derivative Securities are
exercised, prior to the Effective Time), exclusive of the Morgan warrants
owned by two members of the group, John Morris and Carl Anderson, which if
exercised, would increase the number of shares of NMR Common Stock owned by
the Morgan Shareholder Group to 354,612, or approximately 5.7% of the
issued and outstanding shares of NMR Common Stock.
Following the completion of NMR's Illinois acquisitions and the
discussions with the Morgan Shareholder Group, officers and directors of
NMR and Morgan renewed their discussions on the specific terms of the
proposed merger. The Board of Directors of NMR believed that a combination
with Morgan would enhance NMR stockholder value by enabling NMR to enter a
new market and add additional profitable operations to NMR's existing
network of centers without requiring NMR to incur significant increases in
administrative overhead expenses. The Board of Directors of Morgan
similarly believed that a combination with NMR would enhance value to the
Morgan shareholders by, among other things, consolidating redundant
administrative costs, reducing certain operating expenses, providing
additional capital for growth, expanding the number of markets and centers
and possibly attracting new customers, including managed healthcare
providers, and creating greater operating efficiency in a changing
healthcare environment. It was also recognized by Morgan's Board of
Directors that a merger on a share-for-share basis would not only provide a
tax-free exchange, but would provide Morgan shareholders greater liquidity
through a more actively traded market since NMR Common Stock is currently
traded on the NASDAQ - National Market System.
During the time that discussions were being held between NMR and
Morgan regarding a possible business combination, five other potential
acquirors entered into negotiations with Morgan's management to acquire
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Morgan. Two of the potential acquirors offered a stock-for-stock exchange
to acquire Morgan, and one bidder offered to acquire substantially all of
the assets of Morgan for cash. However, discussions with these bidders
never resulted in any firm offers setting forth the actual consideration to
be received by Morgan's shareholders, and Morgan's management decided to
pursue the bid made by NMR. The other two bidders offered to acquire
Morgan in exchange for a combination of cash, preferred stock and
promissory notes, and a combination of cash and common stock, respectively.
Negotiations with these bidders were ultimately terminated by Morgan
because the aggregate consideration to be received by Morgan would be less
than that offered by NMR (either because the face amount of the offer was
less, the amount of the offer was contingent upon Morgan reaching certain
performance targets which Morgan's management believed would be difficult
to achieve, or the transaction would have been taxable to the shareholders
of Morgan, thereby reducing the effective amount of consideration
received). Morgan's management also believed that a transaction involving
cash, preferred stock and notes would be less advantageous to Morgan's
shareholders since it would not afford them the opportunity to participate
in the future growth of the combined company.
On March 13, 1995, NMR and Morgan announced that their respective
Boards of Directors had approved an agreement for the acquisition of Morgan
by NMR, pursuant to which Morgan shareholders would receive approximately
1,200,000 shares of NMR Common Stock in the transaction, including
approximately 100,000 shares reserved for issuance upon exercise of
Morgan's outstanding stock options and warrants, at a proposed exchange
ratio of approximately .34 of a share of NMR Common Stock for each
outstanding share of Morgan Common Stock. It was also agreed that Mr.
Strong would be retained as a consultant to NMR following the Merger.
Following the announcement on March 13, 1995, the NMR Board of Directors
retained Janney Montgomery Scott Inc. ("Janney Montgomery Scott") to advise
the NMR Board of Directors and NMR on the fairness, from a financial point
of view, to the NMR stockholders of the terms of the Merger negotiated by NMR.
Morgan's Board of Directors also retained Fahnestock to similarly advise the
Morgan Board of Directors and Morgan on the fairness, from a financial point
of view, to the Morgan stockholders of the terms of the Merger negotiated by
Morgan.
On April 11, 1995, NMR, Subsidiary and Morgan executed and delivered
the Merger Agreement, which included the Exchange Ratio of .3330886 of a
share of NMR Common Stock for each outstanding share of Morgan Common
Stock. On May 31, 1995, Fahnestock delivered its written opinion to
Morgan's Board of Directors to the effect that the terms of the Merger,
including the Exchange Ratio, are fair from a financial point of view to
Morgan's shareholders. On June 9, 1995, Janney Montgomery Scott delivered
its written opinion to NMR's Board of Directors to the effect that the
Exchange Ratio was fair from a financial point of view to NMR's
stockholders.
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The Board of Directors of NMR and Morgan each determined to approve
and execute the Merger Agreement prior to receipt of a fairness opinion
from their respective financial advisors since management of each company
had performed extensive due diligence which each Board believed supported
its conclusion to approve the Merger Agreement. In addition, management of
each company consulted with its legal and accounting advisors.
Each Board sought a fairness opinion as a means of confirming its own
conclusions with respect to the fairness of the Exchange Ratio. In
addition, the Merger Agreement requires the receipt of fairness opinions as
a condition to each party's obligation to close the Merger, thereby giving
each Board the right to terminate the Merger Agreement in the event its
financial advisor determined that the Exchange Ratio was not fair from a
financial point of view to the shareholders of its respective company.
As previously discussed, over the course of negotiations
between NMR and Morgan concerning the Merger, it was determined
that the sale of Morgan's subsidiary, HealthWorks, would be a
condition precedent to NMR's obligations to complete the Merger.
See "The Merger - Conditions Precedent to Consummation of the
Merger". Accordingly, the Merger Agreement executed and
delivered by NMR and Morgan on April 11, 1995 provided that NMR's
obligation to consummate the Merger would be conditioned upon the
sale by Morgan of HealthWorks for a cash consideration of not
less than the greater of (i) the appraised value of the business
and (ii) the total amount of capital contributed to HealthWorks
by Morgan between the time of its formation and the Effective
Time under the Merger Agreement.
As of the date of the Merger Agreement, it was believed that
HealthWorks' business would become profitable and, therefore,
that the sale price for HealthWorks fixed in the Merger
Agreement would attract potential purchasers. However, following
the execution of the Merger Agreement, HealthWorks continued to
operate at a loss and generate cash flow deficits resulting in a
significant increase in the purchase price of HealthWorks required by
the Merger Agreement. As such, through July 31, 1995, Morgan had
received no offers to purchase HealthWorks from potential purchasers.
Based on the amount of capital contributed by Morgan to
HealthWorks, the purchase price for HealthWorks required under
the Merger Agreement exceeded $550,000 by July 31, 1995. In view of
the lack of potential purchasers and HealthWorks' continued poor
operating results, Morgan concluded that the purchase price for
HealthWorks required under the Merger Agreement exceeded market
value and, therefore, that Morgan would continue to be unable to
sell HealthWorks at that price. Additionally, despite earlier
indications of his intention to purchase HealthWorks, J. Mark
Strong became unable to undertake the acquisition due to
HealthWorks' escalating purchase price.
In early August, 1995, a prospective purchaser offered to
acquire HealthWorks from Morgan for $250,000 in cash. In
light of this offer, Morgan requested that the Merger
Agreement be revised to permit the sale of HealthWorks for a
cash purchase price of $250,000. The sale of HealthWorks at the proposed
price of $250,000 would have resulted in an approximately $250,000
reduction in cash available to the combined companies following the Merger
as compared to the cash consideration which would have been derived from
the sale of HealthWorks for the purchase price set by the Merger Agreement.
In order to provide the combined companies off-setting cost savings
following the Merger and facilitate the possible sale of HealthWorks for a
purchase price less than that set forth in the Merger Agreement, NMR's
executive officers and J. Mark Strong, during the first week of August,
discussed the possibility of eliminating as a condition to the Merger the
engagement of Mr. Strong as a consultant to NMR, while retaining that
portion of the proposed consulting agreement which would have prohibited
Mr. Strong from competing with the business of the combined companies.
See "Terms of the Merger - Non-Competition Agreement". On August 7,
following these discussions and after receiving the verbal advice of
Janney Montgomery Scott that the proposed reduction of the HealthWorks
purchase price would not impact on their opinion as to the fairness of the
Exchange Ratio, NMR's executive officers verbally summarized to NMR's Board
their discussions with Mr. Strong. On August 8, Mr. Strong similarly
discussed with Morgan's Board the proposed modifications to the HealthWorks
transaction following his discussions with Fahnestock and Fahnestock's verbal
advice that such modifications would not alter their advice previously given to
Morgan's Board as to the fairness of the Exchange Ratio. After these
discussions, the respective Boards of NMR and Morgan each concluded that any
difference between the reduction in cash available to the combined companies
resulting from the reduced sale price of HealthWorks and the cost savings
to be realized from eliminating the consulting agreement would be
immaterial to the overall Merger based upon the aggregate consideration
pursuant to the Merger and the anticipated pro forma operating results of
---------
the combined companies following the Merger. NMR and Morgan amended the
Merger Agreement as of August 8, 1995 to establish a maximum purchase price
of $250,000 for the sale of HealthWorks. In conjunction with this amendment,
it was agreed that J. Mark Strong's proposed consulting agreement would be
eliminated and, instead, Mr. Strong's execution and delivery of a non-
competition agreement would be a condition to NMR's obligations to complete
the Merger. See "The Merger - Non-Competition Agreement." The parties
also agreed to extend until October 31, 1995 the date by which the Merger
was required to be effective and Morgan agreed to indemnify NMR for up to
$125,000 of its expenses incurred in connection with the Merger if the
Merger did not become effective by October 31, 1995 due to the failure
of HealthWorks to be sold by that date.
Although the prospective purchaser of HealthWorks has indicated
its interest in pursuing the acquisition, a formal purchase agreement has
not been entered into and there can be no assurance that HealthWorks will
be sold prior to October 31, 1995.
NMR's Reasons for the Merger
The Board of Directors of NMR has unanimously approved the Merger, and
believes that the Merger is in the best interests of NMR and its
stockholders due to the complementary nature of the businesses to be
combined as a result of the Merger. The Board of Directors of NMR views
the Merger as a further step towards fulfillment of one aspect of NMR's
strategic development plan, which is based upon leveraging NMR's existing
overhead through expansion of NMR's network of centers into states with
entities possessing a multi-center presence in desirable geographical
markets. The Board of Directors of NMR views expansion of NMR's operations
into Florida to be a natural extension of its current operations which may
provide substantial opportunities for additional growth through
consolidation in the future.
In the course of its deliberations, NMR's Board of Directors reviewed
information and documentation, including a number of additional factors
relevant to the Merger, with NMR's management, which consulted with its
legal and accounting advisors. In connection with its review of the
proposed Merger, the NMR Board of Directors reviewed in detail the
following factors which it considered material in reaching its conclusion
to approve the Merger:
1. Information provided by Morgan concerning the financial
condition, results of operations and business of Morgan, both on a
historical and prospective basis, together with current industry, economic
and market conditions applicable to Morgan's business. The historical
financial information provided by Morgan included historical audited
balance sheets, income statements and statements of cash flows for the
years ended December 31, 1993 and 1994, respectively. Such financial
information indicated that Morgan had been profitable on a historical basis
and that there were significant potential savings to be realized through
the sale of HealthWorks and the elimination of certain redundant
administrative personnel, office, professional and related expenditures
in a consolidation of NMR and Morgan. At the time, NMR management believed
that the aggregate pro forma annual savings related to the foregoing could
exceed $750,000 based upon Morgan's results of operations for the year ended
December 31, 1994.
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2. The fact that it was a condition to the Merger that NMR receive a
written opinion of Janney Montgomery Scott with respect to the fairness to
NMR's stockholders, from a financial point of view, of the Exchange Ratio
to be paid to shareholders of Morgan pursuant to the Merger Agreement. See
"The Merger--Background of the Merger; Negotiations; Fairness Opinion;
Fairness Opinion of Janney Montgomery Scott Inc." Receipt of such an
opinion would provide independent verification of the conclusion of NMR's
Board that the Merger was in the best interests of NMR's stockholders.
3. The compatibility of the management and operations of NMR and
Morgan, which provided the Board of Directors of NMR with a substantial
basis for its assessment that the potential synergies and efficiencies
related to the sale of HealthWorks and the elimination of certain redundant
administrative personnel, office, professional and related expenditures
could be achieved through the combination of the businesses. At the time,
NMR management believed that the aggregate pro forma annual savings related
to the foregoing could exceed $750,000 based upon Morgan's results of
operations for the year ended December 31, 1994.
4. Information available to the NMR Board of Directors relating to
the risk factors of Morgan. See "Risk Factors Regarding NMR and Morgan."
The NMR Board determined that the inherent risks of Morgan's business were
outweighed by the potential benefits of the transaction.
5. NMR's prior attempts to expand its base of centers in order to
leverage its existing overhead. NMR's Board considered alternative
opportunities for growth and diversification that might be available to NMR
and its stockholders and determined the Merger to be in the best interests
of NMR stockholders.
After taking into consideration all of the factors set forth above,
the NMR Board determined that the Merger is in the best interests of the
stockholders of NMR and that NMR should proceed with the Merger at this
time. In view of the wide variety of factors considered in connection with
its evaluation of the Merger, NMR's Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching its decisions.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF NMR COMMON STOCK
PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE NMR
MEETING WILL BE REQUIRED TO APPROVE THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT. SEE "VOTING AND PROXIES" ABOVE. THE BOARD OF DIRECTORS OF NMR
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Fairness Opinion of Janney Montgomery Scott Inc.
The Board of Directors of NMR retained Janney Montgomery Scott to
advise it as to the fairness, from a financial point of view, to NMR's
stockholders of the terms of the Merger. NMR's Board of Directors decision
to retain Janney Montgomery Scott was based upon its favorable evaluation
of Janney Montgomery Scott's experience and expertise. Janney Montgomery
Scott is a nationally recognized investment banking firm and is continually
engaged in the valuation of businesses and securities in
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connection with mergers and acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private
placements, and valuations for corporate and other purposes. Janney
Montgomery Scott has not provided investment banking services to NMR prior
to its engagement in connection with the Merger. Janney Montgomery Scott
does not make a market in either NMR Common Stock or Morgan Common Stock,
however, as a full-service securities firm, Janney Montgomery Scott may
from time-to-time effect transactions for its own account or the accounts
of customers and hold positions in securities of NMR and Morgan.
Janney Montgomery Scott will be paid a fee of $60,000 for services
rendered in connection with the preparation of its fairness opinion, plus
reimbursement of its out-of-pocket expenses. Janney Montgomery Scott's fee
was not contingent on the conclusion reached in its opinion or the
consummation of the Merger.
On June 9, 1995, Janney Montgomery Scott advised NMR's Board of
Directors (the "NMR Board") by delivery of a written opinion dated June 9,
1995, that, as of such date, the Exchange Ratio was fair, from a financial
point-of-view, to the holders of outstanding shares of NMR Common Stock. A
copy of Janney Montgomery Scott's opinion is attached hereto as Exhibit B.
NMR stockholders are urged to read the opinion carefully and in its
entirety for assumptions made, matters considered, procedures followed and
limits of the review undertaken by Janney Montgomery Scott. The summary of
Janney Montgomery Scott's opinion set forth in this joint Proxy Statement
is qualified in its entirety by reference to the full text of such opinion.
The opinion is directed only to the fairness to NMR's stockholders as of
June 9, 1995, from a financial point-of-view, of the Exchange Ratio
pursuant to the Merger Agreement and does not constitute a recommendation
to any stockholder as to how to vote at the NMR Meeting. Additionally,
Janney Montgomery Scott's opinion does not express an opinion as to the
price or trading range at which NMR Common Stock or Morgan Common Stock
will trade subsequent to the date of the opinion.
The text of the opinion and the summary set forth below does not
purport to be a complete description of the analyses performed by Janney
Montgomery Scott in arriving at its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Janney Montgomery Scott believes that its
analysis and the summary set forth below must be considered as a whole and
that selecting portions of its analysis or the following summary, without
considering all factors and analyses, could create an incomplete view of
the process underlying the analyses performed by Janney Montgomery Scott in
connection with the preparation of its opinion letter. In performing its
analyses, Janney Montgomery Scott made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NMR and Morgan. The
analyses performed by Janney Montgomery Scott are not necessarily
indications of actual values or actual future results, which may be
significantly more or less
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favorable than suggested by such analyses. In addition, analyses relating
to value of a business do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
In rendering its opinion, Janney Montgomery Scott (i) reviewed the
Merger Agreement; (ii) reviewed and analyzed certain publicly-available
information concerning NMR and Morgan; (iii) reviewed and analyzed certain
internal financial and operating information with respect to the business,
operations and prospects of NMR furnished to it by NMR; (iv) reviewed and
analyzed certain internal financial and operating information with respect
to the business, operations and prospects of Morgan furnished to it by
Morgan; (v) reviewed and analyzed certain financial forecasts of NMR and
Morgan prepared by their respective managements; (vi) discussed the past
and current operations and financial condition and the prospects of NMR
with senior management of NMR; (vii) discussed with senior management of
NMR the strategic and operating benefits anticipated from the Merger;
(viii) reviewed the price and trading histories of NMR Common Stock and
Morgan Common Stock; (ix) compared the financial positions and operating
results of NMR and Morgan with those of publicly- traded companies it
deemed relevant; (x) compared certain financial terms of the Merger to
certain financial terms of selected other business combinations it deemed
relevant; (xi) analyzed the pro forma financial statements of Morgan giving
effect to the anticipated expense eliminations and divestiture of HealthWorks,
which operates Morgan's physical therapy business; (xii) analyzed the combined
unaudited pro forma financial statements of NMR and Morgan; (xiii) visited all
Morgan facilities in Florida and met with Morgan's senior management and
certified public accountants; and (xiv) conducted such other financial
studies, analyses and investigations, and reviewed such other factors, as it
deemed relevant.
Janney Montgomery Scott assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by
it for purposes of its opinion. With respect to financial projections,
Janney Montgomery Scott assumed that they had been reasonably prepared on
bases reflecting the best currently available information and judgments of
the future financial performance of NMR and Morgan. Janney Montgomery
Scott did not make any independent valuation or appraisal of the assets,
liabilities or internal financial controls of Morgan, with the exception of
fair market appraisal of Morgan's diagnostic equipment and leasehold
improvements. In its analysis, Janney Montgomery Scott also assumed the
Merger would be accounted for as a purchase transaction. Janney Montgomery
Scott's opinion was necessarily based on financial, economic, market and
other conditions as they existed on, and information made available to it
as of, the date of its opinion.
Following is a brief summary of certain of the financial analyses
utilized by Janney Montgomery Scott in connection with providing its
opinion to NMR's Board of Directors.
Comparative Stock Price Performance. As part of its analysis, Janney
Montgomery Scott reviewed the history of the trading prices and
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their relative relationships for both NMR Common Stock and Morgan Common
Stock since April 1, 1993. The review indicated that NMR Common Stock
traded between $2.50 and $5.13 and averaged approximately $3.84 in the
twelve months ended March 10, 1995, while Morgan Common Stock traded
between $0.56 and $2.25 and averaged approximately $1.35 in the twelve
months ended March 10, 1995. This stock price study revealed that the
average per share price of Morgan Common Stock during the period reviewed
was approximately .35193 times the average per share price of NMR Common
Stock during the same period, compared to the Exchange Ratio under the
Merger Agreement.
Pro Forma Contribution Analysis. Janney Montgomery Scott analyzed
certain pro forma effects of the Merger on the combined companies' earnings
per share, consolidated capitalization and financial ratios. Certain of
those analyses were based on forecasts provided by the managements of NMR
and Morgan, including potential synergies estimated by the managements of
NMR and Morgan. Janney Montgomery Scott assumed that the forecasts were
prepared in good faith and reflected all known conditions which would effect
their outcome. The pro forma financial statements included the following items:
- The expenditure of professional fees relating to the Merger
- The purchase of Morgan Common Stock by Fahnestock
- The sale of certain fixed assets utilized at Morgan's corporate
offices
- A reclassification of amounts due to Morgan from related parties
- A reclassification of Morgan's fixed assets at their estimated
fair value, based upon independent appraisals
- The elimination of Morgan's historical goodwill
- The estimated goodwill relating to the Merger
- An adjustment relating to the relocation of Morgan's
administrative functions to NMR's corporate office in Murray
Hill, New Jersey
- The impact of an increase in rent expenses and consulting fees
Janney Montgomery Scott analyzed the pro forma contribution of each of
NMR and Morgan to the combined company assuming consummation of the Merger
in accordance with the Merger Agreement. The pro forma figures presented
elsewhere in this Joint Proxy Statement were utilized by Janney Montgomery
Scott and reflect the adjusted contribution levels of NMR at March 31, 1995
and of Morgan at December 31, 1994. See "NMR and Morgan Unaudited Pro
Forma Combined Financial Statements". Janney Montgomery Scott calculated
that each of NMR and Morgan contribute, respectively,
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77% and 23% to pro forma revenues, 66% and 34% to pro forma operating
income, 54% and 46% to pro forma pre-tax income, 71% and 29% to pro forma
net income and 73% and 27% to book value. This contribution analysis was
then compared to the 83% pro forma ownership percentage of NMR stockholders
in the combined company. The results of these contribution analyses are
not necessarily indicative of the future contributions of each company.
Selected Companies Analysis. Janney Montgomery Scott compared certain
financial information of Morgan with a group of publicly-traded companies
in the diagnostic imaging services industry that, in Janney Montgomery
Scott's judgment, were comparable to Morgan (the "Morgan Comparable
Companies"). The Morgan Comparable Companies were chosen by Janney
Montgomery Scott as companies that possess general business, operating and
financial characteristics representative of companies in the diagnostic
imaging business, although Janney Montgomery Scott recognized that each of
the Morgan Comparable Companies was distinguishable from Morgan in certain
respects. The Morgan Comparable Companies consisted of SMT Health
Services, Inc., Alliance Imaging, Inc., Health Images, Inc., Health Care
Imaging Services, Inc., Medical Diagnostics, Inc., Modern Medical
Modalities Corporation, Medical Resources, Inc. and NMR.
The financial information considered by Janney Montgomery Scott
included, among other items, selected balance sheet and operating statement
data, as well as earnings per share estimates made by research analysts.
Janney Montgomery Scott calculated several market capitalization multiples
for the Morgan Comparable Companies which include ranges of 0.31 to 1.62
times sales, 2.82 to 11.65 times operating income, 8.30 to 27.10 times
earnings and 0.73 to 2.18 times book value. These figures were then used
to calculate an implied common stock price range for Morgan of $1.40 to
$7.29 based on Morgan's sales, $3.92 to $16.20 based on operating income,
$7.21 to $23.54 based on earnings and $3.33 to $9.93 based on book value.
Janney Montgomery Scott found that the price per share of Morgan Common
Stock contemplated by the Exchange Ratio is within this range of values.
Comparable Transaction Analysis. Janney Montgomery Scott examined
certain completed and pending merger and acquisition transactions involving
diagnostic imaging related companies. In particular, two recent
transactions in the diagnostic imaging industry were reviewed. In the
first transaction, which closed on April 17, 1995, MedAlliance, Inc.
(formerly ImageAmerica) sold 15 diagnostic centers to Health Images, Inc.
for an estimated purchase price of $65.2 million. However, MedAlliance's
centers differed significantly from those of Morgan in both size and
nature, in that each MedAlliance center generated more than twice the
amount of revenue generated at each of Morgan's centers and substantially
all of MedAlliance's centers were multi-modality and substantially all
Morgan's centers offer only magnetic resonance imaging. In addition, due
to the unprofitable nature of MedAlliance's imaging centers, which
therefore did not provide meaningful data for comparative analysis, Janney
Montgomery Scott concluded that a comparable transaction analysis
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based upon the Health Images acquisition was less relevant to the
evaluation of the Morgan transaction than other analyses. In the second
transaction, announced on May 3, 1995, Advanced NMR Systems, Inc. proposed
to merge with Medical Diagnostics, Inc. in a transaction valued at $33.3
million, including the assumption of debt. Publicly available information
at the time indicated that the transaction was valued at 1.6 times revenue,
10.1 times operating income, 20.3 times earnings and 6.1 times EBITDA.
This compared with a transaction value for the Merger based upon the
Exchange Ratio of 2.4 times pro forma revenue, 7.3 times pro forma
operating income, 12.4 times pro forma earnings and 5.3 times pro forma
EBITDA.
Discounted Cash Flow Analysis. Janney Montgomery Scott performed a
discounted cash flow analysis of Morgan based on fiscal 1995 and 1996
projections provided by the management of Morgan. In performing its
analysis, Janney Montgomery Scott applied discount rates ranging from 15%
to 25% on projected free cash flow, and terminal value multiples of 8 to 15
times net income. The range of discount rates was determined by estimating
required rates of return which Janney Montgomery Scott deemed appropriate
for Morgan. The terminal value multiples Janney Montgomery Scott believed
to be appropriate were based on those of comparable companies. The
resulting range of values, from $2.29 to $4.33 per share, was then compared
to the implied purchase price per share of Morgan. The implied purchase
price compared favorably to this range of values.
Morgan's Reasons for the Merger
The Board of Directors of Morgan has unanimously approved the Merger,
and believes that the Merger is in the best interests of Morgan and its
shareholders. The Morgan Board believes that the increased size,
capabilities and financial strength of the combined entity resulting from
the Merger will enhance its ability to compete in a changing healthcare
environment. In addition, the Morgan Board believes that the Merger
enhances shareholder value and that shareholders of Morgan will gain
greater liquidity for their investment through an exchange of Morgan Common
Stock for shares of NMR Common Stock which trade on the NASDAQ - National
Market System.
Prior to reaching its conclusion, Morgan's Board reviewed and
considered the results of a comprehensive due diligence process and
reviewed the terms of the Merger with Morgan management and its legal,
accounting and financial advisers. During the course of its deliberations,
the Morgan Board reviewed, in detail, the following factors which it
considered to be material in reaching its conclusion:
1. Information provided by NMR concerning the financial condition,
results of operations and business of NMR on a historical and prospective
basis, together with current industry, economic and market conditions
applicable to NMR's business. This information showed, to the satisfaction
of Morgan's Board of Directors, that NMR is a well-managed, geographically
diversified company, and that Morgan was well-positioned, and would benefit
strategically, to be part of NMR's expansion into
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Florida. Morgan's Board of Directors determined that NMR was well managed
based on a number of factors. First, NMR's results of operations on a
historical basis indicated that the management of NMR had been successful
in increasing revenues in 1994 while reducing payroll and related costs, as
well as other general and administrative costs. Second, NMR's results of
operations for the fiscal year 1994 showed strong improvement in
profitability as compared to the prior year. Thirdly, NMR's operating
history reflected the fact that NMR's management has had extensive
experience in managing a complex, geographically diversified network of
medical diagnostic imaging centers and should have the management skills to
integrate successfully the addition of Morgan's network of centers.
2. The compatibility of the management and operations of NMR and
Morgan. Morgan's Board of Directors determined, based on meetings with
NMR's management, that potential efficiencies and other advantages could be
achieved through the Merger, and that the combined management of NMR and
Morgan would be able to guide the combined company to meet the objectives
of the Merger. Morgan's Board of Directors believed that the following
particular efficiencies and other advantages would be achieved through the
Merger. First, the Merger would reduce Morgan's administrative and
overhead expenses by sharing the necessary administrative expenses with NMR
and eliminating overlapping administrative functions. The percentage of
administrative expenses to revenue would thereby be reduced, improving the
performance of the combined company. Secondly, the combined company would
be better able to compete for business from large health care management
companies because the reduced administrative costs of the combined
company's operations would permit it to provide more cost competitive
services. Further, the increased resources of the combined company would
enhance its ability to increase revenues and profitability. Lastly, the
large health care providers would be attracted to the combined company
because the providers could negotiate imaging contracts covering a larger
portion of the United States, thereby reducing their costs.
3. The requirement that consummation of the Merger be conditioned
upon the written opinion of Fahnestock with respect to the fairness to
Morgan's shareholders, from a financial point of view, of the Exchange
Ratio to be paid to the shareholders of Morgan pursuant to the Merger
Agreement, which would provide independent verification of the Morgan
Board's conclusion that the Merger is in the best interests of Morgan
shareholders. See "The Merger--Background of the Merger; Negotiations;
Fairness Opinions; Fairness Opinion of Fahnestock & Co. Inc.".
4. Alternative opportunities for growth and diversification that
might be available to Morgan and its shareholders. The alternatives to the
Merger were rejected because NMR presented the best proposal given the
objective of enhancing shareholder value, as discussed above.
5. Information available to Morgan's Board relating to the risk
factors of NMR. See "Risk Factors Regarding NMR and Morgan". The Morgan
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Board determined that the inherent risks of NMR's business were outweighed
by the potential benefits of the transaction.
6. The fact that NMR Common Stock is listed on the NASDAQ -
National Market System and has a more active trading market than the Morgan
Common Stock, which led Morgan's Board to conclude that the Merger would
provide greater liquidity to Morgan's shareholders.
After taking into consideration all of the factors set forth above,
the Morgan Board determined that the Merger was in the best interests of
the shareholders of Morgan. In view of the various factors considered in
connection with its evaluation of the Merger, and the fact that NMR
presented the best proposal to Morgan, Morgan's Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
decision.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF MORGAN
COMMON STOCK WILL BE NECESSARY TO APPROVE THE MERGER AGREEMENT. SEE
"VOTING AND PROXIES" ABOVE. THE BOARD OF DIRECTORS OF MORGAN RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
J. MARK STRONG, THE LARGEST SHAREHOLDER OF MORGAN, BENEFICIALLY OWNS
AS OF THE DATE HEREOF 1,367,500 SHARES (APPROXIMATELY 42%) OF THE ISSUED
AND OUTSTANDING MORGAN COMMON STOCK, AND HAS INDICATED TO MORGAN THAT HE
WILL VOTE IN FAVOR OF THE MERGER AGREEMENT (SUBJECT TO HIS FIDUCIARY DUTIES
AS A DIRECTOR OF MORGAN). MEMBERS OF THE MORGAN SHAREHOLDER GROUP, AS OF
THE DATE HEREOF, TOGETHER BENEFICIALLY OWN APPROXIMATELY 27% OF THE
OUTSTANDING MORGAN COMMON STOCK, AND HAVE AGREED WITH MORGAN TO VOTE THEIR
SHARES IN FAVOR OF THE MERGER AGREEMENT. ASSUMING THEY ARE VOTED IN FAVOR
OF THE MERGER, THE SHARES OF MORGAN COMMON STOCK BENEFICIALLY OWNED BY MR.
STRONG AND THE MORGAN SHAREHOLDER GROUP CONSTITUTE A SUFFICIENT PERCENTAGE
OF THE ISSUED AND OUTSTANDING SHARES OF MORGAN COMMON STOCK TO APPROVE THE
MERGER AGREEMENT.
IN APPROVING THE MERGER AGREEMENT, CERTAIN MEMBERS OF THE BOARD OF
DIRECTORS OF MORGAN MAY BE DEEMED TO HAVE CERTAIN CONFLICTS OF INTEREST.
SEE "THE MERGER--BACKGROUND OF THE MERGER; NEGOTIATIONS; FAIRNESS OPINIONS"
AND "THE MERGER--TERMS OF THE MERGER--INTEREST OF MANAGEMENT OF MORGAN IN
THE MERGER".
IN RENDERING ITS FAIRNESS OPINION TO THE MORGAN BOARD OF DIRECTORS,
FAHNESTOCK MAY BE DEEMED TO HAVE CERTAIN CONFLICTS OF INTEREST. SEE "THE
MERGER--BACKGROUND OF THE MERGER; NEGOTIATIONS; FAIRNESS OPINIONS; FAIRNESS
OPINION OF FAHNESTOCK & CO. INC.".
Fairness Opinion of Fahnestock & Co. Inc.
In March 1994, prior to making contact with NMR, Morgan's management
had retained Fahnestock to solicit interest from third parties with respect
to a possible strategic alliance or acquisition of Morgan. See "The Merger
- -- Background of the Merger; Negotiations; Fairness
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Opinions". In connection with its consideration of the Merger, Morgan's
Board of Directors retained Fahnestock to advise it as to the fairness of
the terms of the Merger. The decision to retain Fahnestock was based upon
the favorable evaluation by Morgan's Board of Fahnestock's experience and
expertise. As part of its investment banking business, Fahnestock, a New
York Stock Exchange member firm, is engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporations and other purposes. In
the ordinary course of its business, Fahnestock has periodically made a
market in NMR Common Stock for the accounts of its customers.
Fahnestock has delivered to Morgan's Board of Directors its written
opinion, dated as of May 31, 1995, to the effect that, as of March 10,
1995, the consideration to be received by the shareholders of Morgan
pursuant to the terms of the Merger was fair from a financial point of
view. While an oral presentation of its conclusions was delivered by
Fahnestock to the Morgan Board of Directors, no written report of
Fahnestock's analyses was presented. The full text of the opinion,
which sets forth the assumptions made, matters considered and the limits
of the review undertaken, is attached as Exhibit C to this Joint Proxy
Statement, and the summary of the opinion set forth below is qualified
in its entirety by reference to the opinion. Morgan shareholders are
urged to read the Fahnestock opinion in its entirety. Fahnestock's
opinion is directed only to the fairness of the consideration to be
received by Morgan's shareholders and does not constitute a recommendation
to any Morgan shareholder as to how such shareholder should vote on the
Merger.
Background
In arriving at its opinion, Fahnestock reviewed drafts of the Merger
Agreement, certain publicly available business and financial information
relating to Morgan and NMR, as well as certain other information, including
financial projections, provided to Fahnestock by Morgan and NMR.
Fahnestock discussed the recent past and current operations and financial
conditions and prospects of Morgan and NMR with their respective senior
managements. In addition, Fahnestock visited certain facilities of both
Morgan and NMR. Fahnestock also considered such other information which it
deemed relevant.
In connection with its review, Fahnestock did not independently verify
any of the foregoing information and relied on such information being
complete and accurate in all material respects. With respect to the
financial projections, Fahnestock assumed that they reasonably reflected
the current estimates and judgments of management as to future financial
performance. Also, Fahnestock did not make any independent evaluation or
appraisal of the assets of Morgan or NMR, nor was Fahnestock furnished with
any such appraisals. Fahnestock's opinion was based upon business, market,
economic and other conditions as they existed on, and could be evaluated as
of March 10, 1995, and did not address Morgan's underlying business reasons
to effect the proposed Merger.
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Methods of Valuation
In rendering its opinion, Fahnestock conducted four valuation
methodologies: (i) a discounted cash flow analysis, (ii) an analysis of
selected comparable publicly traded companies, (iii) an analysis of recent
merger/acquisition transactions in the medical imaging industry and (iv) an
exchange ratio analysis. Each of these valuation methodologies is briefly
discussed below.
Discounted Cash Flow Analysis. Fahnestock conducted a discounted cash
flow analysis of Morgan based on projected operations of Morgan as a stand-
alone business for the years 1995 through 1997. In preparing this
analysis, Fahnestock calculated the present value of Morgan's projected
free cash flows based upon financial projections prepared by the management
of Morgan. The free cash flows and an estimated terminal enterprise value,
based upon a range of four to five times estimated 1997 EBITDA, were
discounted to present values, using a discount rate of 38%. The range of
terminal multiples was chosen by Fahnestock based upon the mean EBITDA
multiple for companies in the medical imaging services industry of 5X on
the high end and 4X on the low end, a discount to the industry multiple.
Fahnestock deemed this range to be reasonable for Morgan due to its small
size in terms of revenue and number of centers. Also, the discount rate
was chosen by Fahnestock based upon an estimate of the risk-adjusted cost
of equity capital of Morgan, to determine an implied present value per
share of Morgan Common Stock. Based upon this analysis, the implied range
of value of Morgan on a per share basis was $1.38 to $1.68, which
approximated the Exchange Ratio under the Merger.
Analysis of Selected Comparable Publicly Traded Companies. In order
to determine relative value, Fahnestock compared certain financial
information of Morgan to corresponding publicly available financial
information of the following eight publicly-traded medical imaging
companies which Fahnestock deemed to be reasonably similar to Morgan (the
"Comparable Companies"): Alliance Imaging, Inc., Health Images, Inc.,
Healthcare Imaging Services, Inc., Medical Diagnostics, Inc., Medical
Imaging Centers of America, Inc., Medical Resources, Inc., SMT Health
Services, Inc. and NMR. The Comparable Companies were chosen from a larger
group of companies in the medical imaging industry. Fahnestock calculated
ratios for Morgan and each Comparable Company of (i) the ratio of
enterprise value ("EV"), which for purposes of Fahnestock's analysis was
the sum of total market equity capitalization plus funded debt, minority
interest and preferred stock, to the company's latest twelve months'
("LTM") revenues (the mean of this ratio was 1.5 and the median of this
ratio was 1.4), (ii) the ratio of EV to LTM earnings before interest and
taxes ("EBIT") (mean of 14.5 and median of 12.6), and (iii) the ratio of EV
to LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") (mean of 5.0 and median of 5.3). Fahnestock also calculated
ratios for Morgan and each Comparable Company of (i) current stock price to
LTM earnings per share ("EPS") (mean of 13.4 and median of 12.5), (ii)
current stock price to projected 1995 EPS, if available (mean of 9.5 and
median of 10.5), and (iii) equity market capitalization to total
stockholders' equity (mean of 1.6 and median of 1.9). Fahnestock applied
the median and mean ratios calculated for the Comparable Companies
to the appropriate financial information of Morgan to determine an implied
price per share of Morgan if it were to trade at the same respective
multiples as do the Comparable Companies. Depending upon the ratio, the
resulting implied price per share of Morgan ranged from $0.44 to $1.30,
with $0.75 per share (the result of the EV-to-LTM EBITDA ratio) being
deemed by Fahnestock to be the more appropriate measure of value in the
industry because this ratio values a company based upon the cash flow of
the business without regard to the varying capital structures (most are
highly leveraged), depreciation and amortization schedules and effective
tax rates (due to tax-loss carryforwards) which are prevalent in this
industry. In addition, using LTM data as opposed to projected data is a
more reliable measure of value due to the historical earnings
disappointments and the lack of reliability of earnings projections that
have prevailed in the industry over the past several years.
While Fahnestock applied significant weight to this analysis and the
resulting valuation, it should be noted that because none of the Comparable
Companies are identical to Morgan, the foregoing analysis was not conducted
on a purely mathematical basis. Instead, the analysis required Fahnestock
to consider differences between Morgan and each of the Comparable Companies
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including (i) the size of each company in terms of number of imaging
centers and revenue base, (ii) the type of services provided, (iii)
geographic concentration, (iv) other lines of business distinct from
medical imaging services, and (v) other factors that could affect the
public trading value of Morgan and the Comparable Companies.
Analysis of Mergers and Acquisitions in the Medical Imaging Industry.
Fahnestock examined recent transactions involving medical imaging companies
with respect to the equity value received for the target company in
relation to its financial and operating characteristics. Fahnestock also
evaluated the type of consideration received by such targets.
Fahnestock analyzed nine completed transactions and one pending
transaction and separated these transactions into three groups: 1) Single-
center Private Transactions ("Group 1"), 2) Other recent NMR Transactions
("Group 2") and 3) Multi-center Transactions ("Group 3").
Group 1 consisted of: (i) Consolidated Technology Ltd.'s ("COTG")
acquisition of The Magnetic Resonance Institute of Arlington in February
1995, (ii) MediTek Health Corporation's ("MediTek"), a unit of Heico
Corporation, acquisition of Premier Imaging Associates, L.P. in October
1993, (iii) MediTek's acquisition of Premier Imaging Associates No. 2, L.P.
in February 1994, (iv) Prime Medical Services, Inc.,'s ("Prime") sale of
Shasta Diagnostic Center, J.V. in September 1994, (v) Prime's sale of Tower
Diagnostic Center in August 1994 and (v) Prime's sale of Grove Diagnostic
Imaging in January 1995.
Group 2 consisted of: (i) NMR's acquisition of a center in
Libertyville, Illinois in January 1995 and (ii) NMR's acquisition of 75% of
two related centers in Des Plaines, Illinois in February 1995.
Group 3 consisted of: (i) COTG's acquisition of nine private centers
in September 1994 and (ii) Raytel Medical Corp.'s hostile tender offer for
Medical Diagnostics, Inc. which was pending as of March 10, 1995. In
addition, Health Images, Inc.'s acquisition of 15 centers from MedAlliance,
Inc. was pending as of March 10, 1995; however, as no specific information
was publicly available, this transaction was not included in Fahnestock's
analysis.
Fahnestock then calculated certain financial ratios for each of the
ten transactions based upon available information. The ratios calculated
for Group 1 were: (i) EV-to-LTM Revenue (mean of 0.6x and median of 0.7x),
(ii) Equity Value-to-LTM Pre-tax Income (mean of 2.6x and median of 2.2x),
(iii) Equity Value-to-LTM Net Income (mean of 4.0x and median of 2.7x),
(iv) Equity Value-to-Stockholders' Equity (mean and median of 2.8x), and
(v) Purchase Price per Center (mean and median of $2.3 million). The
ratios calculated for Group 2 were: (i) EV-to-LTM Revenue (mean of 0.7x),
(ii) EV-to-LTM EBIT (mean of 10.7x), (iii) EV-to-LTM EBITDA (mean of 7.3x),
(iv) Equity Value-to-LTM Pre-tax Income (mean of 52.9x), (v) Equity Value-
to-LTM Net Income (mean of 52.9x), (vi) Equity Value-to-Stockholders'
Equity (mean of 1.9x) and (vii) Purchase Price per Center (mean of $863,000).
The ratios calculated for Group 3 were: (i) EV-to-LTM Revenue
(mean of 1.4x), (ii) EV-to-LTM EBIT (mean of 11.1x), (iii) EV-to-LTM EBITDA
(mean of 5.7x), (iv) Equity Value-to-LTM Pre-tax Income (mean of 12.3x), (v)
Equity Value-to-LTM Net Income (mean of 11.6x), (vi) Equity Value-to-
Stockholders' Equity (mean of 1.4x), and (vii) Purchase Price per Center (mean
of $3.1 million).
Fahnestock then applied the mean of each of the ratios calculated (as
well as the median where appropriate) for each Group to the corresponding
financial information of Morgan to determine an implied price per share of
Morgan specifically related to each Group. The implied price per share of
Morgan based upon the mean (and the median where appropriate) of the ratios
calculated for each Group was: Group 1 - $0.48, Group 2 - $1.73, and Group
3 - $0.99. Fahnestock then applied a weighting to the results of each
Group as it deemed appropriate. Group 3 was attributed the greatest
weighting and Group 1 was attributed the least weighting. Based upon this
analysis, Fahnestock determined an implied price per share of Morgan of
$1.22.
However, Fahnestock believes that this methodology, in this instance,
was unreliable due to both insufficient financial data on the various
transactions and the lack of comparability of these transactions to the
Merger. Therefore, this valuation methodology was deemed immaterial by
Fahnestock in arriving at its opinion.
Exchange Ratio Analysis. Fahnestock reviewed the historical ratio of
the closing prices of Morgan Common Stock to NMR Common Stock over the time
period beginning six months prior to March 10, 1995. Fahnestock observed
that (i) for the six month period ending March 10, 1995, the ratio of the
weekly closing prices of Morgan Common Stock to NMR Common
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Stock was .2666, and (ii) for the last 20 trading days prior to March 10,
1995, the ratio of the daily closing prices of Morgan Common Stock to NMR
Common Stock was .2549. Fahnestock compared these ratios to the Exchange
Ratio of .3330886. Based upon the Exchange Ratio and the closing price of
NMR Common Stock on March 10, 1995 of $4-3/4, the implied value of the
Merger to Morgan shareholders was $1.58 per share of Morgan Common Stock,
which reflects a 26% premium over the last closing price of Morgan Common
Stock on March 6, 1995 of $1.25.
Because the consideration to be received by the Morgan
shareholders is NMR Common Stock, Fahnestock deemed it necessary
to perform two analyses which are meant to supplement the
valuation methodologies described above: a pro forma analysis of
projected earnings of NMR and an analysis of the relative
valuation of NMR compared to the medical imaging industry. While
these analyses were not performed by Fahnestock to determine a
valuation of Morgan, they were deemed by Fahnestock to be
necessary to review as supplements. The two supplemental
analyses are briefly discussed below.
Pro Forma Analysis. Fahnestock conducted a pro forma business review
in which it analyzed the impact of the Merger with Morgan on NMR.
Fahnestock calculated projected pro forma earnings per share of the
combined companies on a fully-diluted basis (after taking into account the
additional shares of NMR Common Stock to be issued pursuant to the terms of
the Merger) by combining the income statement projections prepared by the
respective managements of Morgan and NMR and making certain pro forma
adjustments to reflect the potential synergies resulting from the Merger
estimated by the respective managements of NMR and Morgan. Pro forma
adjustments included the elimination of projected revenue and expenses
of Healthworks and the potential synergies from the Merger resulting
from the net elimination of Morgan's projected corporate overhead
expenses aggregating $426,000 for the fiscal year ending March 31,
1996. Fahnestock relied on Morgan and NMR management estimates of
projected savings and did not independently verify the amounts of such
projected savings. Based upon this analysis, Fahnestock determined that
the pro forma impact on NMR on a projected EPS basis was additive to NMR's
projected EPS. The fact that the pro forma impact on NMR was additive to
NMR's projected earnings would benefit Morgan's shareholders following
the Merger since they would be receiving NMR Common Stock pursuant to the
Merger. Accordingly, Fahnestock believed this supplemental analysis
supported its conclusion as to the fairness of the Merger to Morgan's
shareholders.
Analysis of Relative Valuation of NMR Versus Comparable Companies.
Fahnestock compared the financial ratios of the Comparable Companies as
calculated under the section "Analysis of Selected Comparable Publicly
Traded Companies" to the corresponding ratios of NMR to determine the
relative value of NMR to the Comparable Companies. The ratios of NMR as
calculated by Fahnestock compare to the respective mean and median ratios
of the Comparable Companies as follows: (i) EV-to-LTM Revenue: 2.3
compared to 1.5 and 1.4, respectively, (ii) EV-to-LTM EBIT: 10.7 compared
to 14.5 and 12.6, respectively, (iii) EV-to-LTM EBITDA: 6.0 compared to
5.0 and 5.3, respectively, (iv) Price-to-LTM EPS: 12.1 compared to 13.4
and 12.5, respectively, (v) Price-to-Projected EPS: 7.2 compared to 9.5
and 10.5, respectively, and (vi) Equity Market Capitalization-to-Stockholders'
Equity: 1.9 compared to 1.6 and 1.9, respectively. Based upon this comparison,
Fahnestock determined that NMR Common Stock traded at a premium to many of
the mean and median financial ratios of the Comparable Companies, including
the EV-to-LTM EBITDA ratio. However, Fahnestock believes that this is
justified due to NMR being one of the few profitable companies in the
industry, thereby resulting in a nominal premium. This supplemental analysis
neither supported nor negatively effected Fahnestock's conclusion as to the
fairness of the Merger to Morgan's shareholders.
Based upon the foregoing valuation methodologies in which Fahnestock
calculated per share valuations of Morgan ranging from a low of $0.44 (see
"Analysis of Selected Comparable Publicly Traded Companies") to a high of
$1.68 (see "Discounted Cash Flow Analysis") and the supplemental analyses
described herein, Fahnestock formed its opinion that, as of March 10, 1995,
the consideration to be received by the shareholders of Morgan pursuant to
the terms of the Merger was fair from a financial point of view.
The summary of the Fahnestock opinion set forth above does not purport
to be a complete description of the analyses prepared by Fahnestock. The
preparation of a fairness opinion involves various determinations as to the
appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances. Fahnestock believes that
its analyses and the summaries set forth above must be considered as a
whole and that selecting portions
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of its analyses, without considering all analyses, could create an
incomplete view of the process involved in rendering its opinion.
Pursuant to its initial retention by Morgan to act as Morgan's
financial advisor, Fahnestock is entitled to receive from Morgan a cash fee
in the event Morgan consummates a merger or other business combination
during the term of Fahnestock's engagement. In the event the Merger is
consummated, Fahnestock will receive from Morgan a cash fee of $200,000 in
addition to the fee of $40,000 and expense reimbursement of up to $8,500
Fahnestock will receive for rendering its fairness opinion. The fee and
expense reimbursement relating to Fahnestock's fairness opinion are not
contingent on the conclusion reached in its opinion or the consummation of
the Merger. In addition, Fahnestock has agreed to purchase from Morgan
shares of Morgan Common Stock prior to the Effective Time. The number of
shares Fahnestock would purchase is equal to $90,000 divided by the average
closing price of the Morgan Common Stock for the twenty-day trading period
prior to the Effective Time. The shares of Morgan Common Stock acquired by
Fahnestock would be exchanged for shares of NMR Common Stock upon
consummation of the Merger.
The delivery and continued effectiveness of Fahnestock's fairness
opinion is a condition to the consummation of the Merger. Since Fahnestock
will be entitled to receive its $200,000 advisory fee only if it has
delivered and not rescinded its fairness opinion and the Merger is
consummated, Fahnestock may be deemed to have a conflict of interest in
rendering its fairness opinion to the Morgan Board of Directors.
TERMS OF THE MERGER
The following is a discussion of the material terms of the Merger
Agreement. This section of the Joint Proxy Statement does not contain a
complete explanation or description of the Merger Agreement and is
qualified in its entirety by reference to the terms of the Merger
Agreement, a conformed copy of which (without the exhibits or schedules
thereto) is attached to this Joint Proxy Statement as Appendix A and
incorporated herein by reference.
General
The Merger Agreement provides that, upon effectiveness of the Merger,
Subsidiary will be merged with and into Morgan, the separate existence of
Subsidiary will cease, and Morgan, the surviving corporation, will become a
wholly-owned subsidiary of NMR. As a consequence of the Merger, title to
all of the property and assets of Subsidiary and Morgan will be vested or
continue to be vested in Morgan, and Morgan will be subject to all of the
liabilities of Subsidiary and Morgan. Subsidiary has been formed solely
for the purpose of effecting the Merger, and has conducted no business and
has no material assets or obligations other than as contemplated by the
Merger Agreement.
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The Merger Agreement further provides that upon consummation of the
Merger, holders of shares of Morgan Common Stock, except for those
shareholders who properly assert dissenters' rights under Article 113 of
the Colorado Business Corporation Act ("CBCA") (see "The Merger--Terms of
the Merger--Dissenters' Rights"), will receive shares of NMR Common Stock
at an Exchange Ratio of .3330886 of a share of NMR Common Stock for each
issued and outstanding share of Morgan Common Stock. See "The Merger--
Background of the Merger; Negotiations; Fairness Opinions".
As of the date hereof, the shares of NMR Common Stock issuable in
connection with the Merger constitute approximately 22.2% of the issued and
outstanding shares of NMR Common Stock, without giving effect to the
exercise or conversion of any of NMR's or Morgan's warrants, options or
convertible securities outstanding as of the date hereof and assuming
Fahnestock purchases 60,000 shares of Morgan Common Stock from Morgan prior
to the Effective Time. See "The Merger -- Fairness Opinion of Fahnestock &
Co. Inc.".
The Merger Agreement provides that, as soon as practicable following
satisfaction of all conditions to the Merger, including the approval of the
Merger Agreement by the stockholders of NMR and by the shareholders of
Morgan, Certificates of Merger will be filed with the Secretary of State of
Delaware and the Secretary of State of Colorado. The Merger will become
effective upon the acceptance for filing of such Certificates of Merger by
the Secretary of State of Delaware and the Secretary of State of Colorado
(the "Effective Time"). It is currently expected that the Merger will
occur on or shortly before September 21, 1995. Either party may terminate the
Merger Agreement if the Effective Time has not occurred on or before
October 31, 1995, provided that the failure of the Effective Time to
occur on or before such date does not result from a breach of the Merger
Agreement by the terminating party. See "The Merger--Terms of the Merger--
Termination and Amendment".
Conversion of Shares; Treatment of Options and Warrants; Fractional Shares
At the Effective Time, each issued and outstanding share of Morgan
Common Stock (other than shares as to which dissenters' rights are asserted
under Article 113 of the CBCA) will automatically convert into .3330886 of
a share of NMR Common Stock. As of the date hereof, there are 3,239,310
issued and outstanding shares of Morgan Common Stock. Under the terms of
the Merger Agreement, Morgan is prohibited from issuing any additional
shares of its capital stock prior to consummation of the Merger, other than
(i) upon the exercise of any options ("Morgan Options") or warrants
("Morgan Warrants") to purchase Morgan Common Stock, which are outstanding
as of the date of the Merger Agreement (the Morgan Options and Morgan
Warrants are referred to collectively herein as the "Morgan Derivative
Securities"), (ii) the issuance of up to 40,000 shares of Morgan Common
Stock to directors of Morgan as compensation for attendance at meetings of
the Morgan Board of Directors, (iii) the issuance of up to 37,917 shares of
Morgan Common Stock to certain employees of Morgan, and (iv) pursuant to
the agreement Morgan has
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entered into with Fahnestock with respect to the sale of Morgan Common
Stock to Fahnestock prior to the Effective Time. It is estimated that
approximately 60,000 shares of Morgan Common Stock will be sold to
Fahnestock under this agreement, although the actual number of shares will
depend on the market price of the Morgan Common Stock at the time of
purchase. See "The Merger -- Fairness Opinion of Fahnestock & Co. Inc."
There are presently issued and outstanding Morgan Options to purchase
100,000 shares of Morgan Common Stock and Morgan Warrants to purchase
200,000 shares of Morgan Common Stock. Except for the foregoing, no shares
of Morgan Common Stock or Morgan Derivative Securities or other rights to
purchase Morgan Common Stock are currently outstanding or, under the terms
of the Merger Agreement, will be permitted to be issued or granted by
Morgan prior to the Effective Time. The maximum number of shares of Morgan
Common Stock which might be outstanding at the Effective Time is 3,602,644,
excluding the shares issuable to Fahnestock.
On August 3, 1995, the closing sales price quoted on the NASDAQ -
National Market System for NMR Common Stock was $4.125 per share. If the
Merger had occurred on that date, the equivalent market value for each
share of Morgan Common Stock would have been approximately $1.37 per share
of Morgan Common Stock.
Under the terms of the Merger Agreement, each Morgan Derivative
Security outstanding and unexercised at the Effective Time shall, at the
Effective Time, remain outstanding and automatically be deemed to be
exercisable for that number of shares of NMR Common Stock the holder of
such Morgan Derivative Security would have received in the Merger had such
holder exercised such Morgan Derivative Security in full immediately prior
to the Effective Time, and the exercise price of such Morgan Derivative
Security shall be appropriately adjusted. With respect to Morgan Options,
any term or condition respecting the vesting of the right to exercise such
option shall remain unaffected by the Merger, but any period during which
the holder of such option shall have served as an employee or a consultant,
as the case may be, of Morgan shall be counted toward determining the
vesting of the right to exercise such option after the Effective Time.
No fractional shares of NMR Common Stock will be issued in connection
with the Merger. In lieu of any fractional share of NMR Common Stock which
any Morgan shareholder would otherwise be entitled to receive pursuant to
the Merger or any holder of a Morgan Derivative Security would otherwise be
entitled to receive upon exercise of such Morgan Derivative Security, NMR
shall pay a cash adjustment in respect of such fraction in an amount equal
to the same fraction of the last reported sales price per share of NMR
Common Stock on the NASDAQ - National Market System.
Exchange of Certificates
As promptly as is practicable after the Effective Time, NMR shall
designate a bank or trust company (the "Exchange Agent") to act as exchange
agent in effecting the exchange of certificates representing
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Morgan Common Stock (other than Morgan Common Stock held by shareholders
who properly exercise dissenters' rights in connection with the Merger) for
certificates representing the shares of NMR Common Stock into which such
shares of Morgan Common Stock have been converted. The Exchange Agent
shall send a letter of transmittal to the holders of Morgan Common Stock
offering to exchange the certificates representing such Morgan Common Stock
for certificates representing shares of NMR Common Stock. From and after
the Effective Time, each certificate or instrument which, prior to the
Effective Time, represented shares of Morgan Common Stock or Morgan
Derivative Securities will be deemed to represent, as applicable, only the
right to receive certificates for shares of NMR Common Stock or the right
to acquire shares of NMR Common Stock in accordance with the terms of the
Merger Agreement, and the holder of each such certificate or instrument
will cease to have any rights with respect to the shares of Morgan Common
Stock formerly represented thereby (in the case of certificates formerly
representing shares of Morgan Common Stock) or with respect to the shares
of Morgan Common Stock issuable upon exercise thereof (in the case of
instruments formerly representing Morgan Derivative Securities), except as
otherwise provided in the Merger Agreement or by law.
Representations, Warranties and Covenants
The Merger Agreement contains representations and warranties by NMR,
Subsidiary and Morgan, and also contains covenants of the parties with
respect to the conduct of their respective businesses pending the closing
under the Merger Agreement, including agreements (subject to certain
exceptions) not to issue any equity securities, not to pay any dividends
and not to sell any material amount of their respective assets outside of
the ordinary course of business. In addition, each of the parties has
agreed to carry on its respective business only in the ordinary course and
consistent with past practice and to use all reasonable efforts to preserve
intact its present business organization and relationships with clients and
others having business dealings with it.
There are no agreements or undertakings in the Merger Agreement on the
part of either Morgan or NMR to indemnify the other following the Effective
Time in the event any representation or warranty made by either party to
the other in the Merger Agreement was not accurate at the time made.
However, in the event the Merger becomes effective, NMR and Morgan each
agree to indemnify any person who prior to the Effective Time is or was an
officer, director, employee or agent of NMR or Morgan or Subsidiary against
liability, claims or amounts paid in settlement of any claim, suit or
proceeding, including any liabilities arising under or out of any state or
Federal securities laws to the fullest extent permitted by law, based in
whole or in part on the fact that such person is or was an officer,
director, employee or agent of NMR or Morgan or the transactions
contemplated by the Merger Agreement.
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Conditions Precedent to Consummation of the Merger
The obligation of the respective parties to the Merger Agreement to
consummate the Merger is subject to the approval of the Merger Agreement by
the stockholders of NMR (which shall constitute approval of the election of
certain nominated directors), and approval of the Merger Agreement by the
shareholders of Morgan. See "The Merger--Election of Directors".
In the event the Merger Agreement is not approved (either by the
stockholders of NMR or the shareholders of Morgan), or is not consummated
for any other reason, the provisions in the Merger Agreement designating
certain individuals to serve as directors of NMR would be ineffective and
the Board of Directors of NMR would instead consist of those individuals
elected by the stockholders of NMR pursuant to ITEM No. 2 of this Joint
Proxy Statement.
The obligations of the parties to consummate the Merger are also
subject to a number of other conditions, including the accuracy as of the
closing date in all material respects of the representations and warranties
of the parties contained in the Merger Agreement; the performance in all
material respects of all covenants of the parties contained in the Merger
Agreement which are to be performed on or before the closing date; the
absence of any statute, rule, regulation or governmental or judicial action
which prohibits or restrains the transactions contemplated by the Merger
Agreement and the absence of certain suits or investigations which would
have a material adverse effect on the transactions contemplated by the
Merger Agreement; the delivery of certain certificates and agreements by
the parties and their respective officers and directors, including the
Non-Competition Agreement, the Employment Agreement, the Strong Proxy and
the Notes (as such terms are defined below); and the delivery of certain
opinions by counsel to the parties. Additionally, NMR is not obligated to
consummate the Merger if holders of more than 10% of the outstanding shares
of Morgan Common Stock exercise shareholder dissenters' rights.
The Merger Agreement also provides that NMR's obligation to consummate
the Merger is conditioned upon the sale by Morgan of its subsidiary,
HealthWorks, including the assumption of the assets and liabilities
relating to the operations of HealthWorks, for a cash consideration (not to
exceed $250,000) of not less than the greater of (i) the appraised value of
the business, and (ii) the total amount that has been contributed to
HealthWorks by Morgan between the time of its formation and the Effective
Time. NMR and Morgan currently anticipate that the sales price of HealthWorks
will be established using the amount of capital contributed by Morgan. NMR is
requiring that HealthWorks be excluded from the Merger because it operates in
the physical therapy business, which is not within NMR's core business, and
because its physical therapy center is located in the State of Georgia, where
NMR has no other facilities.
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The parties may waive compliance with any of the conditions to their
respective obligations to consummate the Merger.
Non-Competition Agreement
It is a condition to NMR's obligation to consummate the
Merger that J. Mark Strong execute and deliver to NMR a non-
competition agreement (the "Non-Competition Agreement").
Pursuant to the Non-Competition Agreement, Mr. Strong would agree
that during the five-year period immediately following the
Effective Time, he will not, in any state in which NMR or its
subsidiaries (including Morgan) operates diagnostic imaging
centers, participate as an owner, investor, manager, consultant,
advisor or otherwise in the establishment, construction or
operation of any facility, or be employed by or serve as an
independent contractor to, any facility which provides diagnostic
imaging procedures, including magnetic resonance imaging or any
of the other services performed at NMR's centers. Pursuant to
the Non-Competition Agreement, Mr. Strong would also agree that
during this five-year period, he will not in any way attempt to
obtain referral patients or customers from any doctor or hospital
who has previously referred patients to NMR.
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Employment Agreement
It is also anticipated that in connection with the Merger, Sandra G.
Garrison, a director and the Vice President of Morgan, will enter into an
employment agreement with NMR (the "Employment Agreement"), pursuant to
which Ms. Garrison would be engaged to serve as NMR's Manager of Florida
Operations. The Employment Agreement would have an initial term of three
years, which could be extended upon the mutual agreement of the parties.
Pursuant to the Employment Agreement, Ms. Garrison would receive an annual
salary of $75,000 per year, which may be increased at NMR's discretion. In
the event the Employment Agreement is terminated by NMR other than for
cause, Ms. Garrison would be entitled to receive six months severance pay.
Strong Proxy
It is a condition to NMR's obligation to consummate the Merger that,
if requested by NMR, J. Mark Strong grant an irrevocable proxy (the "Strong
Proxy") to Joseph G. Dasti, the President and Chief Executive Officer of
NMR, and John P. O'Malley III, the Executive Vice President-Finance and
Chief Financial Officer of NMR, authorizing either of them, or their
respective successors as President and Chief Executive Officer or Executive
Vice President-Finance and Chief Financial Officer, for a period of three
years immediately following the Effective Time, to vote the shares of NMR
Common Stock beneficially owned by Mr. Strong following the Merger with
respect to any election of directors of NMR for which any nominees for
director are presented in opposition to the persons nominated by NMR's
Board of Directors. If the Merger is consummated, Mr. Strong would own
approximately 7.4% of the issued and outstanding shares of NMR Common Stock
(assuming the purchase of 60,000 shares of Morgan Common Stock by
Fahnestock and no exercise or conversion of outstanding NMR or Morgan
options, warrants or convertible securities prior to the Effective Time)
and would become the largest stockholder of NMR. NMR presently intends to
request the Strong Proxy from Mr. Strong.
Notes
In connection with the Merger, Morgan will assign to NMR all of
Morgan's right to payment of any and all amounts owed to Morgan as of the
Effective Time by J. Mark Strong and Sandra G. Garrison. The indebtedness
of Mr. Strong and Ms. Garrison will be evidenced by notes (the "Notes")
executed by them in favor of NMR which will bear interest at the prime rate
of Chemical Bank of New York, and which will be collateralized by a pledge
of shares of NMR Common Stock to be received by them pursuant to the
Merger. As of June 30, 1995, Mr. Strong was indebted to Morgan in the
amount of $324,348, and Ms. Garrison was indebted to Morgan in the amount
of $39,353. See "The Merger--Morgan--Certain Relationships and Related
Transactions".
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Termination and Amendment
The Merger Agreement may be terminated at any time prior to the
Effective Time: (i) by mutual written consent of the Boards of Directors of
Morgan and NMR; (ii) by either Morgan or NMR if (A) any court or
governmental body takes any action restraining, enjoining or otherwise
prohibiting the transactions contemplated thereby and all appeals and means
of appeal therefrom have been reasonably exhausted, (B) the Effective Time
shall not have occurred on or before October 31, 1995, provided the
failure of the Effective Time to occur on or before such date does not
result from a breach of the Merger Agreement by the terminating party, (C)
the stockholders of NMR or the shareholders of Morgan shall fail to approve
the Merger at their respective meetings or (D) it receives a written
proposal from a third party to effect a merger, consolidation or other
business combination with such third party, or to sell substantially all of
its assets or more than 25% of its equity capital to such third party (an
"Acquisition Proposal"), and its board of directors or any committee
thereof determines in good faith that such transaction is more favorable to
it than the Merger; (iii) by either Morgan or NMR, if any condition to its
obligation to effect the Merger shall not be met in all material respects
or waived prior to the earlier of October 31 or such time as such condition
can no longer be satisfied; (iv) by Morgan if the last reported sales price
per share of NMR Common Stock on the primary exchange or market (including
the NASDAQ - National Market System) on which the NMR Common Stock is listed
or traded (the "Closing Price") shall be less than $3.25 for any five
consecutive trading days between the date of the Merger Agreement and the
Effective Time (a "Morgan Share Price Termination Event"); and (v) by NMR
if the Closing Price shall be greater than $6.75 for any five consecutive
trading days between the date of the Merger Agreement and the Effective
Time (an "NMR Share Price Termination Event"). In the event either Morgan
or NMR shall fail to terminate the Merger Agreement within five (5) business
days following the occurrence of a Morgan Share Price Termination Event or an
NMR Share Price Termination Event, as applicable, such party shall be
deemed to have waived its right to terminate the Merger Agreement, and
shall have no further right to terminate the Merger Agreement based upon
the market price of NMR Common Stock at any time prior to the Effective
Time.
The Merger Agreement may be amended by Morgan and NMR prior to the
Effective Time, whether prior to or after approval thereof by the
stockholders of NMR or by the shareholders of Morgan, provided that after
any such approval, no amendment may be made which changes the Exchange
Ratio without the further approval of such stockholders and shareholders,
respectively.
Board of Directors and Management of NMR Following the Merger
The Merger Agreement provides that immediately following the Effective
Time, the Board of Directors of NMR shall be comprised of Joseph G. Dasti,
a director and the President and Chief Executive Officer of NMR, Donald W.
Arthur, a director of NMR, David L. Bloom, a director of NMR, John A.
Faraone, a director of NMR, Joseph T. Zappala, a director
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of NMR, and J. Mark Strong, a director, the President and Chief Executive
Officer and the principal shareholder of Morgan. See "The Merger--Election
of Directors". The Merger Agreement also provides that immediately
following the Effective Time, Mr. Dasti shall serve as President and Chief
Executive Officer of NMR and John P. O'Malley III shall serve as the
Executive Vice President-Finance and Chief Financial Officer of NMR.
Interest of Management of Morgan in the Merger
As of the date hereof, executive officers and directors of Morgan, as
a group, beneficially own an aggregate of 1,617,710 shares of Morgan Common
Stock (excluding shares such persons have the right to acquire upon
exercise of outstanding Morgan Options). J. Mark Strong and Sandra G.
Garrison will also be issued an additional 10,000 and 33,334 shares of
Morgan Common Stock prior to the Effective Time, respectively. See "The
Merger -- Morgan -- Security Ownership of Certain Beneficial Owners and
Management". All such shares shall be treated in the Merger in the same
manner as shares of Morgan Common Stock held by other shareholders of
Morgan. In addition, as of the date hereof, Ms. Garrison holds Morgan
Options to purchase an aggregate of 100,000 shares of Morgan Stock, which,
to the extent they are not exercised prior to the Effective Time, shall be
exercisable after the Effective Time for shares of NMR Common Stock. See
"The Merger -- Terms of the Merger -- Conversion of Shares; Treatment of
Options and Warrants; Fractional Shares".
J. Mark Strong is also a nominee to serve as a director of NMR
following the Merger. In addition, in connection with the Merger, Ms.
Garrison will enter into the Employment Agreement. See "The Merger--Terms
of the Merger--Employment Agreement" above.
Certain Federal Income Tax Consequences of the Merger
The following is a discussion of the material U.S. Federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the
"Code"), of the Merger to holders of Morgan Common Stock. This discussion
does not deal with all the tax consequences of the Merger that may be
relevant to the particular circumstances of individual Morgan shareholders
or employees, such as holders of shares acquired upon exercise of Morgan
Options or in other compensatory transactions.
Morgan will receive, at the closing under the Merger Agreement, an
opinion of Morgan's tax counsel, Annis, Mitchell, Cockey, Edwards & Roehn,
with respect to the following Federal income tax consequences of the Merger
to the shareholders of Morgan. This opinion, which is referred to herein
as the "Tax Opinion", will not be binding on the Internal Revenue Service
("IRS"). In rendering the Tax Opinion, such counsel will rely on certain
representations of principal shareholders of Morgan and officers of Morgan,
NMR and Subsidiary, including representations that (i) there is no plan or
intention on the part of Morgan's shareholders to engage in a sale,
exchange, transfer or any type
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of disposition of shares of NMR Common Stock to be received by them in the
Merger that would reduce the aggregate value of such NMR Common Stock held
by the Morgan shareholders to less than 50% of the aggregate value of the
outstanding Morgan Common Stock immediately preceding the Merger, (ii) no
shareholder of Morgan will directly or indirectly receive from NMR any
consideration in the Merger in respect of such shareholder's Morgan Common
Stock other than NMR Common Stock, excluding payments of cash to Morgan
shareholders in lieu of fractional shares of NMR Common Stock or payments
of cash to Morgan shareholders exercising dissenters' rights, (iii) NMR has
no plan or intention to reacquire any of the shares of NMR Common Stock to
be issued to the shareholders of Morgan pursuant to the Merger and NMR is
under no contractual obligation and has no contractual right to acquire any
of such shares of NMR Common Stock, (iv) NMR has no plan or intention to
sell or otherwise dispose of Morgan's stock, to liquidate Morgan or to
issue additional shares of Morgan capital stock, (v) NMR and Morgan intend
to continue the historic business of Morgan after the Merger in a
substantially unchanged manner and have no plan or intention to dispose of
any of Morgan or Subsidiary's assets after the Merger other than in the
ordinary course of business, (vi) none of the compensation for services
rendered to be received by any employee of Morgan who is also a shareholder
of Morgan is consideration for, or allocable to, such employee's shares of
Morgan Common Stock exchanged in the Merger, (vii) there is no
intercorporate indebtedness existing between Morgan and NMR or Subsidiary
that was issued, acquired or will be settled at a discount in connection
with the Merger, (viii) the Merger is based upon valid business purposes
unrelated to the avoidance of Federal income taxes and will comply in all
respects with the laws of the states of incorporation of the corporations
involved in the Merger, and (ix) in the Merger, the shareholders of Morgan
will exchange for voting stock of NMR an amount of voting stock of Morgan
which constitutes control of Morgan under Section 368(c) of the Code.
The Tax Opinion, which will be limited to U.S. Federal income tax
consequences, shall be as follows:
1. The Merger will be a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and Subsidiary, NMR and
Morgan will be parties to the reorganization within the meaning of Section
368(b) of the Code;
2. No gain or loss will be recognized to Subsidiary, NMR or Morgan;
3. No gain or loss will be recognized by the shareholders of Morgan
whose Morgan Common Stock is converted solely into NMR Common Stock in
connection with the Merger;
4. The tax basis of the NMR Common Stock received by the
shareholders of Morgan will be equal, in each instance, to the tax basis of
the Morgan Common Stock surrendered in exchange therefor; and
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5. The holding period of the NMR Common Stock received by the
shareholders of Morgan will include, in each instance, the period during
which the Morgan Common Stock surrendered therefor was held, provided that,
in each instance, the Morgan Common Stock was a capital asset in the hands
of the shareholders on the effective date of the Merger.
A successful IRS challenge to the status of the Merger as a
reorganization within the meaning of Section 368 of the Code would result
in a Morgan shareholder recognizing gain or loss with respect to each share
of Morgan Common Stock surrendered equal to the difference between the
shareholder's tax basis in such share and the fair market value, as of the
time of the Merger, of the NMR Common Stock received in exchange therefor.
Even if the Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code, a recipient of
shares of NMR Common Stock may recognize income to the extent such shares
are considered to have been received in exchange for services or property
(other than solely Morgan Common Stock). The receipt of all or a portion
of such shares in exchange for services or property (other than solely
Morgan common Stock) may be taxable as ordinary income. Gain may also be
recognized to the extent a Morgan shareholder was treated as receiving
consideration (in addition to NMR Common Stock) in exchange for such
shareholder's Morgan Common Stock.
THE FOREGOING IS A SUMMARY OF THE MATERIAL INCOME TAX CONSEQUENCES OF
THE MERGER. MORGAN SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS
REGARDING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT TO THEIR OWN
PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY OF VARIOUS FOREIGN,
STATE AND LOCAL LAWS.
Accounting Treatment
NMR intends to treat the Merger as a purchase, as such term is used
under generally accepted accounting principles, for accounting and
financial reporting purposes. Under the purchase method of accounting,
assets and liabilities of Morgan would be recorded at their fair value at
the Effective Time, with the excess of the consideration to be paid by NMR
pursuant to the Merger over Morgan's net tangible and identifiable
intangible assets being recorded as goodwill. See "NMR and Morgan
Unaudited Pro Forma Combined Financial Statements".
Expenses of the Merger
NMR and Morgan will pay their respective costs and expenses in
connection with the Merger, except under certain circumstances. The Merger
Agreement provides that if either Morgan or NMR terminates the Merger
Agreement to pursue an Acquisition Proposal that its Board of Directors or
a committee thereof determines to be more favorable to its stockholders
than the transactions contemplated by the Merger Agreement, it shall
reimburse the other party for all reasonable expenses incurred in
connection with the Merger Agreement and the transactions contemplated
thereby. In addition, if either Morgan or NMR shall terminate the Merger
Agreement as a result of the failure of the stockholders of the other
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party to approve the Merger, or the failure of certain conditions to its
obligations to be satisfied on or prior to the Effective Time, the other
party shall reimburse the terminating party for its reasonable expenses.
The foregoing expense reimbursement obligations of NMR and Morgan are
limited under the Merger Agreement to $100,000, plus interest from the date
of termination.
If, due to the failure of Morgan to complete the sale of
HealthWorks by October 31, 1995, either Morgan or NMR shall
terminate the Merger Agreement or the Effective Time shall not
occur on or before October 31, 1995, Morgan shall be required to
reimburse NMR for its reasonable expenses up to $125,000, plus
interest from the date the Merger Agreement is terminated.
It is anticipated that the costs and expenses of NMR and Morgan in
connection with the Merger (including blue sky fees and fees payable to
Janney Montgomery Scott by NMR and to Fahnestock by Morgan) will be
approximately $160,000 and $340,000, respectively. See "The Merger--
Background of the Merger; Negotiations; Fairness Opinions".
Additional Fee
In addition to any expense reimbursement obligations that may arise
under the Merger Agreement, in the event either Morgan or NMR terminates
the Merger Agreement to pursue an Acquisition Proposal, the terminating
party shall be required to pay to the other party a fee of $150,000, plus
interest from the date of termination.
Restrictions on Resale of NMR Common Stock by Former Morgan Shareholders
NMR has registered under the Securities Act the shares of NMR Common
Stock which holders of outstanding shares of Morgan Common Stock will be
entitled to receive upon consummation of the Merger. Those shareholders of
Morgan who are not deemed to be "affiliates" of Morgan at the time of the
Merger may freely sell the shares of NMR Common Stock they receive in the
Merger. An "affiliate" includes any person who, directly or indirectly,
controls, is controlled by, or is under common control with, Morgan at the
time the Merger is submitted to a vote of the shareholders of Morgan.
Shareholders of Morgan who are deemed to be "affiliates" of Morgan may
resell the shares of NMR Common Stock received upon consummation of the
Merger in compliance with Rule 145 promulgated under the Securities Act,
pursuant to an effective registration statement under the Securities Act or
in transactions exempt from registration, and may not use this
Prospectus/Joint Proxy Statement to effect resales of the shares of NMR
Common Stock they receive. Rule 145, as currently in effect, imposes
restrictions on the manner in which such affiliates may make resales and
also on the volume of resales which such affiliates, and others with whom
they may act in concert, may make in any three month period.
Dissenters' Rights
NMR Stockholders. Appraisal rights are not available under Delaware
law to NMR stockholders in connection with the Merger.
Morgan Shareholders. The rights of dissenting holders of shares of
Morgan Common Stock are governed by Article 113 ("Article 113") of the
CBCA. The following summary of the applicable provisions of Article 113
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<PAGE>
is not intended to be a complete statement of such provisions and is
qualified in its entirety by reference to the full text of Article 113
which is set forth in Appendix D to this Joint Proxy Statement.
A holder of shares of Morgan Common Stock as of the Morgan Record Date
who objects to the Merger and who has not voted in favor of the Merger, nor
consented thereto in writing, is entitled under the provisions of Article
113, as an alternative to receiving the consideration offered in the Merger
for his shares of Morgan Common Stock, to a judicial determination of the
fair value in cash of his shares of Morgan Common Stock. The following is
a summary of the procedural steps which must be taken if the right of
appraisal is to be validly exercised.
Any holder of shares of Morgan Common Stock who elects to exercise
dissenters' rights with respect to the Merger must file with Morgan, at the
address set forth below, before the vote on the Merger is taken at the
Morgan Meeting, a written notice of such holder's intention to demand
payment for his shares of Morgan Common Stock if the Merger is effectuated.
The written notice of such holders intent to demand payment is in addition
to and separate from any proxy or vote against the Merger. Neither voting
against, nor failing to vote for, the Merger will constitute the written
notice required to be filed by a dissenting shareholder. Failure to vote
against the Merger, however, will not constitute a waiver of rights under
Article 113, provided that a written notice has been properly filed. A
shareholder voting for the Merger will be deemed to have waived his
dissenters' rights. A signed proxy that is returned but which does not
contain instructions as to how it should be voted will be voted in favor of
adoption and approval of the Merger and as a result, will be deemed a
waiver of dissenters' rights unless such proxy is revoked prior to or at
the Morgan Meeting. Any proxy may be revoked before it is voted by filing
with the Secretary of Morgan a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the Morgan Meeting and
voting in person. See "Voting and Proxies -- Proxies and Votes Required".
ALL NOTICES OF INTENTION TO DEMAND PAYMENT SHOULD BE ADDRESSED TO
MORGAN MEDICAL HOLDINGS, INC., 101 EAST KENNEDY BOULEVARD, SUITE 1010,
TAMPA, FLORIDA 33602, ATTENTION: MR. J. MARK STRONG, AND MUST BE RECEIVED
BEFORE PRIOR TO THE VOTE ON THE MERGER AT THE MORGAN MEETING.
A shareholder may not dissent as to less than all the shares of Morgan
Common Stock of which he is the record and beneficial owner and as to which
he has a right of dissent. A nominee or fiduciary may not dissent on
behalf of any beneficial owner as to less than all the shares of such
beneficial owner held of record by such nominee or fiduciary and as to
which such nominee or fiduciary has a right to dissent. Any nominee or
fiduciary asserting dissenter' rights as to fewer than all the shares held
of record for beneficial owners must provide Morgan with written notice of
the name, address and Federal taxpayer identification number, if any, of
each person on whose behalf such nominee or fiduciary is asserting
dissenters' rights. Furthermore, if the shares are owned of
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record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the demand should be made in such capacity, and if the shares
are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be made by or for all owners of
record. An authorized agent, including one of two or more joint owners,
may execute the demand for appraisal for a holder of record; however, such
agent must identify the record owner or owners and expressly state, in such
demand, that the agent is acting as agent for the record owner or owners of
such shares.
A record holder, such as a broker, who holds Morgan Common stock as a
nominee for beneficial owners, some of whom desire to demand appraisal,
must exercise dissenters' rights on behalf of such beneficial owners with
respect to the shares held for such beneficial owners. Accordingly,
persons whose shares are not owned of record by them and who desire to
dissent must promptly contact the holder of record. No beneficial owner
may assert dissenters' rights as to the shares held on such shareholder's
behalf unless such shareholder causes Morgan to receive the written consent
of such shareholder's nominee to the dissent not later than the time such
shareholder asserts dissenters' rights, and such shareholder dissents with
respect to all shares beneficially owned by such shareholder.
In the event the Merger is approved at the Morgan Meeting, Morgan is
required to give, not later than 10 days after the Effective Time, written
notice (the "Dissenter's Notice") of the approval of the Merger and the
Effective Time, or proposed Effective Time , to each holder of shares of
Morgan Common Stock who timely filed a written notice of intention to
demand payment, and who did not vote in favor of approving of the Merger.
The Dissenters' Notice shall state, among other things, the address at
which Morgan will receive demands for payment and the address where
certificates representing Morgan Common Stock must be deposited, and the
date by which Morgan must receive such demands and certificates, which date
may not be less than 30 days after the date the Dissenters' Notice is
given. Any shareholder to whom the Dissenters' Notice is given and who
wishes to assert dissenters' rights shall, in accordance with the terms of
the Dissenters' Notice, provide Morgan with a written demand for payment
and deposit the certificates for such holder's Morgan Common Stock. Except
as provided below, the demand for payment and deposit of certificates shall
be irrevocable. Any shareholder who has filed a notice of election to
dissent will not, after the Effective Time, have any of the rights of a
shareholder with respect to his shares of Morgan Common Stock other than
the right to be paid the fair value of his shares and any other rights
under Article 113.
If the Effective Time shall not occur within sixty days after the date
set by Morgan for the receipt of the payment demand, Morgan is required to
return the deposited certificates and send a new Dissenters' Notice. Any
shareholder receiving the new Dissenters' Notice and who wishes to assert
dissenters' rights shall provide Morgan with a written demand for payment
and deposit the certificates for such holder's shares
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of Morgan Common Stock in accordance with the terms of the new Dissenters'
Notice.
Upon receipt of a payment demand and deposit of certificates from a
dissenting shareholder or the Effective Time, whichever is later, Morgan is
required to pay, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address of such shareholder
as shown on Morgan's current record of shareholders, the amount Morgan
estimates to be the fair value of the dissenter's shares, plus accrued
interest. If Morgan shall fail to make such payment within sixty days
after the date set by Morgan for the receipt of the payment demand and
deposit of certificates in the Dissenters' Notice, a dissenting shareholder
may give notice to Morgan in writing of such shareholder's estimate of the
fair value of the his shares and of the interest due, and demand payment of
such amount. If Morgan shall make such payment, any dissenting shareholder
who is not satisfied with the amount of the payment made by Morgan may,
within 30 days after such payment is made, give notice to Morgan in writing
of such shareholder's estimate of the fair value of his shares and of the
interest due, and demand payment of such amount, less any payment made by
Morgan. If Morgan and any dissenting shareholder do not agree upon the
price to be paid for such shareholder's shares of Morgan Common Stock,
Morgan may, within 60 days after receipt of such notice, commence a
proceeding and petition a court to determine the fair value of such shares
and the accrued interest due. All dissenting shareholders whose demands
for payment remain unresolved at the time the proceeding is instituted will
be made parties to the proceeding. If Morgan does not commence a
proceeding within this 60-day period, it is required to pay to each
dissenting shareholder whose demand remains unresolved the amount so
demanded. It is the current intention of Morgan to institute such a
proceeding within the 60-day period if required to do so. Morgan will bear
the costs of the proceeding, including the compensation of appraisers
appointed by the court, although the court may assess costs against all or
some of the dissenters to the extent the court determines such dissenters
acted arbitrarily, vexatiously or in bad faith in rejected the payment
tendered by Morgan. The court may also assess the fees and expenses of
counsel and experts against Morgan if Morgan did not substantially comply
with Article 113, or against Morgan or any of the dissenters if the court
determines such party acted arbitrarily, vexatiously or in bad faith.
ANY MORGAN SHAREHOLDER CONTEMPLATING THE EXERCISE OF DISSENTERS'
RIGHTS IS URGED TO REVIEW CAREFULLY THE PROVISIONS OF ARTICLE 113 ATTACHED
HERETO AS APPENDIX D. FAILURE BY A MORGAN SHAREHOLDER TO FOLLOW PRECISELY
THE STATUTORY PROCEDURES FOR PERFECTING DISSENTERS' RIGHTS MAY RESULT IN
THE TERMINATION OR WAIVER OF DISSENTERS' RIGHTS. IN VIEW OF THE COMPLEXITY
OF THESE PROVISIONS OF COLORADO LAW, ANY MORGAN SHAREHOLDER WHO IS
CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT WITH A LEGAL ADVISER.
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DESCRIPTION OF NMR STOCK
NMR's authorized capital stock currently consists of 30,500,000
shares, of which 30,000,000 shares are Common Stock, par value $0.01 per
share; and 500,000 shares of Preferred Stock, par value $0.05 per share
("Preferred Stock"). No shares of Preferred Stock have been issued. As of
the date hereof, there were 5,054,320 shares of NMR Common Stock
outstanding, all of which are legally issued, fully paid and nonassessable.
In addition, 285,050 and 79,575 shares of NMR Common Stock are issuable
upon the exercise of issued and outstanding incentive stock options and
non-qualified stock options ("NMR Options"), respectively. NMR is also
currently obligated to issue up to an additional 1,057,000 shares of NMR
Common Stock upon the exercise of currently outstanding warrants ("NMR
Warrants"), and to issue up to an additional 481,556 shares upon the
conversion of its outstanding 8% Convertible Subordinated Debentures due
2001 (the "NMR Debentures"). No shares of any other class of capital stock
of NMR are currently outstanding. At the NMR Meeting, NMR Stockholders
will also vote on approving an increase in the number of shares of NMR
Common Stock available for the issuance of options under the NMR Option
Plan from 600,000 to 1,000,000.
NMR Common Stock
The holders of NMR Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders.
Holders of NMR Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of NMR,
holders of NMR Common Stock share ratably in all assets of NMR remaining
after payment of liabilities and preferences. Holders of NMR Common Stock
have no preemptive rights and have no right to convert their shares of NMR
Common Stock into any other securities.
The issuance of Preferred Stock having preferences over the NMR Common
Stock with respect to voting, dividends, or amounts paid on liquidation may
limit certain rights of, or amounts payable to, holders of NMR Common
Stock.
Preferred Stock
NMR is authorized to issue up to 500,000 shares of Preferred Stock,
par value $.05 per share, none of which has been issued. The Certificate
of Incorporation of NMR provides that the Board of Directors is authorized
to issue, without the necessity of further action or authorization by the
stockholders, shares of Preferred Stock from time to time in one or more
series and fix, as to each such series, the designations, powers and
rights, and the qualifications, limitations or restrictions pertaining
thereto, including, without limitation, voting rights, preferences as to
dividends and liquidation and conversion rights.
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The Board of Directors has authorized 100,000 shares of Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") in
connection with the establishment of the Rights Plan (as such term is
herein defined). See "Description of NMR Stock -- Rights Plan" below.
Other than the possible issuance of the Series A Preferred Stock pursuant
to the Rights Plan, NMR has no present plans for the issuance of any shares
of Preferred Stock.
It is not possible to state the actual effect of the issuance of the
Preferred Stock upon the rights of holders of NMR Common Stock until the
Board determines the specific rights thereof. However, such effects might
include (a) restrictions on dividends on the NMR Common Stock if dividends
on Preferred Stock have not been paid; (b) dilution of the voting power of
the NMR Common Stock to the extent that the Preferred Stock has voting
rights; (c) dilution of the equity interest of the NMR Common Stock to the
extent that the Preferred Stock is convertible into NMR Common Stock; or
(d) the NMR Common Stock not being entitled to share in NMR's assets upon
liquidation, dissolution or winding up until satisfaction of any
liquidation preference granted to holders of Preferred Stock.
Issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisition and other corporate purposes, could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock of NMR. Shares of Preferred Stock with voting or
conversion privileges, or rights to purchase such shares of Preferred
Stock, could be issued to increase the difficulty or cost to persons
seeking to effect a takeover or otherwise to gain control of NMR.
Accordingly, the issuance of Preferred Stock may be used as an anti-
takeover device without further action on the part of the stockholders of
NMR, which could have the effect of depriving stockholders of benefits that
could result from any transaction that might be proposed, such as the
realization of a premium over the market price of their shares in a tender
offer or the temporary increase in market price that such an attempt could
cause, and could enhance the ability of directors of NMR to retain their
positions.
Shares Eligible for Future Sale
On June 30, 1995, an aggregate 1,689,781 shares of NMR Common Stock
were issuable upon exercise or conversion of the presently exercisable NMR
Options, NMR Warrants and NMR Debentures. Exercise or conversion of a
substantial amount of the NMR Options, NMR Warrants or NMR Debentures could
adversely affect the market price of the NMR Common Stock due to the large
number of shares issuable upon exercise or conversion of such securities in
comparison to the number of shares of NMR Common Stock presently
outstanding.
Upon completion of the Merger, there will be approximately 6,174,378
outstanding shares of NMR Common Stock (assuming Fahnestock purchases
60,000 shares of Morgan Common Stock prior to the Effective Time pursuant
to its agreement with Morgan, and assuming no exercise of NMR Options or
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<PAGE>
NMR Warrants, conversion of NMR Debentures or exercise of outstanding
Morgan Derivative Securities, prior to the Effective Time). Of these
shares, 5,889,378 are freely transferable and tradable without restriction
or further registration under the Securities Act, except for any shares
acquired by any affiliates of NMR, or by affiliates of Morgan pursuant to
the Merger, which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act. In general, under Rule 144 as
currently in effect, affiliates of NMR would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of
one percent of the number of shares of NMR Common Stock then outstanding or
the average weekly trading volume of the NMR Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current
public information about NMR. NMR is unable to estimate accurately the
number of shares that will be sold under Rule 144 since this will depend in
part on the market price for the NMR Common Stock, the personal
circumstances of the sellers and other factors.
NMR has also granted to holders of 150,000 shares of NMR Common Stock
and to holders of NMR Warrants and NMR Options exercisable for an aggregate
730,000 shares of NMR Common Stock, certain rights to have the resale of
such shares registered under the Securities Act. In the event these
registration rights are exercised, these shares and the shares issued upon
exercise of such NMR Warrants would become freely tradable and transferable
without restriction. In addition, NMR has registered NMR Common Stock
under the Securities Act for issuance pursuant to the NMR Option Plan.
Shares issued pursuant to the NMR Option Plan and upon conversion of the
NMR Debentures generally will be available for sale in the open market
(except that such shares held by affiliates of NMR will be subject to
compliance with the volume restrictions of Rule 144 under the Securities
Act).
Rights Plan
On December 23, 1988, the Board of Directors of NMR adopted a
stockholder rights plan (as amended, the "Rights Plan"). Pursuant to the
Rights Plan, each outstanding share of NMR Common Stock has attached to it
one Right. Each Right entitles the holder thereof to purchase one one-
hundredth (1/100) of a share of Series A Preferred Stock at a price of
$15.00 (the "Purchase Price"), subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between NMR and American Stock Transfer & Trust Company. The
Rights Plan expires December 31, 1995. NMR intends to extend the Rights
Plan beyond its expiration date.
The Rights are presently evidenced by the certificates representing
the outstanding shares of NMR Common Stock to which they are attached, and
not by separate certificates, and are transferable only in connection with
the transfer of such certificates. Any transfer of certificates
representing NMR Common Stock will also constitute the transfer of the
Rights represented by such certificate. The Rights separate from the NMR
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<PAGE>
Common Stock and a distribution date (the "Distribution Date") will occur
upon the earlier of (i) ten days following the date of a public
announcement that any person has become an Acquiring Person (as such term
is defined below), and (ii) ten days after the date of the commencement of,
or first public announcement of the intention of any person to commence, a
tender or exchange offer which would result in such person becoming an
Acquiring Person. As soon as practicable after the Distribution Date,
Rights Certificates will be sent to holders of record of the NMR Common
Stock as of the close of business on the Distribution Date, and thereafter,
the Rights will be evidenced solely by such Rights Certificates and will be
separately tradeable.
An "Acquiring Person" means any person (or group of affiliated
persons) who, without the prior approval of NMR, beneficially owns 20% or
more of the outstanding shares of NMR Common Stock. The term "Acquiring
Person" does not include NMR, any subsidiaries of NMR, any employee benefit
plan of NMR or any of its subsidiaries and certain other entities. The
date upon which a person becomes an Acquiring Person is the "Stock
Acquisition Date".
The Rights are not exercisable until the Distribution Date and expire
at the close of business on December 23, 1995, unless earlier redeemed by
NMR as described below. Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of NMR.
In the event that following the Stock Acquisition Date, NMR shall
consolidate or merge with any person, or NMR and/or one or more of its
subsidiaries shall sell, mortgage or otherwise transfer, in one or more
transactions, more than 50% of the assets or earning power of NMR and its
subsidiaries, taken as a whole, to any person or group of affiliated
persons (each such event referred to herein as a "Transaction"), each
holder of a Right shall have the right to receive upon exercise thereof
shares of common stock of the acquiring company having a market value equal
to two times the Purchase Price.
In the event that any person shall become an Acquiring Person (other
than pursuant to a tender or exchange offer for all of the outstanding
shares of NMR Common Stock which the Board of Directors determines to be
fair), each holder of a Right (other than the Acquiring Person) shall have
the right, for a period of sixty days, to receive upon exercise shares of
NMR Common Stock having a market value equal to two times the Purchase
Price.
The Board of Directors of NMR may redeem all, but not less than all,
of the Rights (i) at any time prior to the time any person becomes an
Acquiring Person, (ii) following the Stock Acquisition Date but prior to
any Transaction not involving an Acquiring Person, or (iii) after the
sixty-day exercise period referred in the preceding paragraph if the
Acquiring Person shall cease to beneficially own 20% or more of the
outstanding shares of NMR Common Stock and there are no other Acquiring
Persons. The price at which Rights may be redeemed is $.01 per Right.
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The Purchase Price, the number of shares of Series A Preferred Stock
or other securities issuable upon exercise of a Right and the number of
Rights outstanding are subject to adjustment from time to time for certain
events, including (i) stock dividends on, or a subdivisions, combinations
or reclassifications of, the Series A Preferred Stock, (ii) the granting to
holders of Series A Preferred Stock options, warrants or other rights to
subscribe for shares of Series A Preferred Stock at less than the market
price (as defined) of the Series A Preferred Stock, or (iii) the
distribution to holders of Series A Preferred Stock of evidences of
indebtedness or assets (other than regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The Rights Agreement may be amended or supplemented at any time prior
to the Distribution Date. After the Distribution Date, the Rights
Agreement may be amended or supplemented in any manner which does not
adversely affect the interests of the holders of Rights.
Holders of Series A Preferred Stock are entitled to receive quarterly
cash dividends in an amount equal to the greater of $1.00 per share or 100
times (subject to adjustment) the amount of non-cash dividends (other than
dividends payable in shares of NMR Common Stock) paid on the NMR Common
Stock since the last quarterly dividend payment. Dividends on the Series A
Preferred Stock are cumulative and generally accrue from the date of
issuance. No dividends may be paid on the NMR Common Stock if any
dividends payable with respect to the Series A Preferred Stock shall be in
arrears. Each share of Series A Preferred Stock entitles the holder
thereof to 100 votes (subject to adjustment) on all matters submitted to a
vote of the NMR stockholders, and holders of Series A Preferred Stock shall
vote as one class. If dividends on the Series A Preferred Stock are in
arrears in an amount equal to ten quarterly dividends thereon (a "Dividend
Default"), the holders of Series A Preferred Stock shall be entitled to
elect one member of the NMR Board of Directors to serve until the Dividend
Default is cured. Upon any liquidation, dissolution or winding up of NMR,
holders of Series A Preferred Stock shall be entitled to receive per share
(subject to adjustment) the greater of $800 or 100 times the payment made
per share of NMR Common stock, plus accrued and unpaid dividends (the
"Liquidation Preference"). Holders of NMR Common Stock shall be entitled
to receive one one-hundredth of the amount of the Liquidation Preference,
and holders of Series A Preferred Stock shall be entitled to participate in
the distribution of any assets remaining after such payment to the holders
of NMR Common Stock.
The Rights Plan is an anti-takeover device which would make it more
difficult for a third party to acquire a majority of the outstanding voting
stock of NMR, and could enhance the ability of directors of NMR to retain
their positions.
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Requirement of Stockholder Meetings
The Delaware General Corporation Law provides that, unless otherwise
provided in a corporation's certificate of incorporation, any action
required or permitted to be taken at any meeting of stockholders may be
taken without a meeting if a written consent setting forth the action so
taken is signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. NMR's Certificate of Incorporation provides that no
action required or permitted to be taken by the stockholders of NMR may be
taken without a meeting of stockholders. This provision prevents a
stockholder or group of stockholders holding or controlling a large block
of NMR Common Stock from using the written consent procedure to take
stockholder action unilaterally. Accordingly, this provision could be an
impediment to efforts to acquire control of NMR.
Transfer Agent
The transfer agent and registrar of NMR's Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
ELECTION OF DIRECTORS
Approval of the Merger Agreement by NMR stockholders will also
constitute approval of the election of six (6) directors to the Board of
Directors of NMR to hold office until the next annual meeting of the
stockholders and until their successors have been duly elected and
qualified.
The following persons have been designated by the Merger Agreement to
comprise the NMR Board of Directors following the Merger:
Joseph G. Dasti, a director and the President and Chief Executive Officer
of NMR, Donald W. Arthur, a director of NMR, David L. Bloom, a director of
NMR, John A. Faraone, a director of NMR, Joseph T. Zappala, a director of
NMR, and J. Mark Strong, a director, the President and Chief Executive
Officer and the principal shareholder of Morgan. For biographical
information as to Messrs. Dasti, Arthur, Bloom, Faraone and Zappala, and
their holdings of NMR securities, see "The Merger--NMR". For biographical
information as to Mr. Strong and his holdings of Morgan securities, see
"The Merger--Morgan".
Unless contrary instructions are given, properly executed proxies will
be voted in favor of the proposal to approve the Merger Agreement.
AT THE NMR MEETING, THE STOCKHOLDERS OF NMR WILL BE REQUESTED TO
APPROVE THE MERGER AGREEMENT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES OF NMR COMMON STOCK PRESENT IN PERSON OR REPRESENTED
BY PROXY AND ENTITLED TO VOTE AT THE NMR MEETING WILL BE REQUIRED TO
APPROVE SUCH PROPOSAL. APPROVAL OF THE MERGER AGREEMENT WILL ALSO
CONSTITUTE APPROVAL TO ELECT THE SIX PERSONS LISTED ABOVE AS
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DIRECTORS OF NMR. THE NMR BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE
MERGER AGREEMENT.
AT THE MORGAN MEETING, THE SHAREHOLDERS OF MORGAN WILL BE REQUESTED TO
APPROVE THE MERGER AGREEMENT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE OUTSTANDING SHARES OF MORGAN COMMON STOCK WILL BE REQUIRED
TO APPROVE THE MERGER AGREEMENT. THE MORGAN BOARD OF DIRECTORS RECOMMENDS
APPROVAL OF THE MERGER AGREEMENT.
IN RECOMMENDING APPROVAL OF THE MERGER AGREEMENT, CERTAIN MEMBERS OF
THE BOARDS OF DIRECTORS OF MORGAN MAY BE DEEMED TO HAVE CERTAIN CONFLICTS
OF INTEREST. SEE "THE MERGER--BACKGROUND OF THE MERGER; NEGOTIATIONS;
FAIRNESS OPINIONS; TERMS OF THE MERGER--INTEREST OF MANAGEMENT OF MORGAN IN
THE MERGER".
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NMR AND MORGAN UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
Following is an unaudited pro forma combined balance sheet of NMR (the
"Unaudited Pro Forma Balance Sheet") as of March 31, 1995, an unaudited pro
forma combined statement of income for the fiscal year ended March 31, 1995
(collectively, the "Unaudited Pro Forma Statements of Income"). Such unaudited
pro forma combined financial statements include historical amounts for NMR and
Morgan adjusted to reflect the Merger and historical acquisitions of NMR.
Reference is made to the notes to the unaudited pro forma combined financial
statements for a discussion of the Merger and the related pro forma adjustments.
For purposes of presenting the Unaudited Pro Forma Balance Sheet, the Merger is
considered to have occurred on March 31, 1995. The Unaudited Pro Forma
Statements of Income have been prepared on the basis that the Merger and
historical acquisitions of NMR occurred as of April 1, 1994. Under the terms of
the Merger Agreement, NMR will, by virtue of the Strong Proxy, exercise control
over the voting rights of Mr. Strong, Morgan's largest shareholder, for a period
of three years. As such, the Merger will be accounted for using the purchase
method of accounting. NMR's fiscal year-end is March 31 and Morgan's year-end is
December 31. Accordingly, the unaudited pro forma combined financial statements
reflect the results of Morgan's operations for the year ended December 31, 1994
and Morgan's balance sheet as of December 31, 1994.
These unaudited pro forma combined financial statements do not purport to be
indicative of the actual financial position or results of operations that would
have been achieved had the transactions presented been consummated as of April
1, 1994 or that may be achieved in the future.
Certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The accompanying unaudited pro forma combined financial statements and
notes should be read in conjunction with the historical consolidated financial
statements and related notes thereto of NMR and Morgan incorporated herein by
reference or included elsewhere in this Joint Proxy Statement. Reference should
also be made to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for both NMR and Morgan.
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NMR OF AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
(000'S)
<TABLE>
<CAPTION>
COMBINED
NMR AND
NMR MORGAN* MORGAN
MARCH 31, DECEMBER 31, PRO FORMA PRO FORMA
1995(1) 1994 ADJUSTMENTS BASIS
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 3,967 $ 106 ($ 500)(A) $ 3,883
90(B)
30(C)
190(D)
Marketable securities.............................. 1,126 1,126
Short-term investments............................. 887 887
Due from affiliated physician associations, net.... 9,498 1,652 11,150
Due from related parties........................... 136 (43)(E) 93
Other current assets............................... 903 31 (10)(F) 924
--------- ------ ----------- ---------
Total current assets........................... 16,381 1,925 (243) 18,063
--------- ------ ----------- ---------
Land buildings and equipment, net.................... 11,780 6,226 (30)(C) 16,042
(180)(F)
(1,754)(G)
Cost in excess of net assets acquired................ 4,498 209 (209)(H) 10,056
5,558(I)
Deferred income taxes................................ 1,099 (53)(J) 1,046
Other assets......................................... 1,571 361 (15)(F) 1,960
43(E)
--------- ------ ----------- ---------
Total assets................................... $35,329 $8,721 $ 3,117 $47,167
--------- ------ ---------
--------- ------ ----------- ---------
-----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 3,099 $ 488 $ 50(K) $ 3,637
Current installments on capital lease
obligations.......................................... 286 331 617
Current installments on notes payable.............. 2,769 701 (29)(F) 3,441
Deferred income taxes.............................. 470 (470)(J)
--------- ------ ----------- ---------
Total current liabilities...................... 6,154 1,990 (449) 7,695
Convertible subordinated debt, net................... 2,056 2,056
Capital lease obligations, less current portion...... 482 1,486 1,968
Notes and mortgage payable, less current
installments......................................... 10,451 3,606 (115)(F) 13,942
Deferred income taxes and other long term
liabilities.......................................... 275 (275)(J)
Minority interest in limited partnerships 2,156 2,156
Commitments and contingencies
Shareholders' equity:
Common stock....................................... 54 346 (346)(L) 65
11(M)
Additional paid-in capital (deficit)............... 11,571 (18) 18(L) 16,880
5,309(M)
Unrealized gains and (losses)...................... 14 14
Retained earnings.................................. 3,854 1,036 (1,036)(L) 3,854
Treasury stock..................................... (1,463) (1,463)
--------- ------ ----------- ---------
Shareholders' equity................................. 14,030 1,364 3,956 19,350
--------- ------ ----------- ---------
Total liabilities and shareholders' equity..... $35,329 $8,721 $ 3,117 $47,167
--------- ------ ---------
--------- ------ ----------- ---------
-----------
</TABLE>
- ------------
* Reclassified to conform to NMR presentation.
(1) Includes Golf MRI and Diagnostic Imaging Center and Libertyville Imaging
Center, which were acquired effective January 1, 1995.
See Notes to Pro Forma Combined Financial Statements and
Notes to Consolidated Financial Statements.
-47-
<PAGE>
NMR OF AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEARS ENDED
(000'S EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NMR AND NMR, MORGAN AND
NMR MORGAN* MORGAN IMPACT OF NMR NMR HISTORICAL
MARCH 31, DECEMBER 31, PRO FORMA PRO FORMA HISTORICAL ACQUISITIONS PRO
1995(1)(2) 1994(3) ADJUSTMENTS COMBINED ACQUISITIONS(4) FORMA COMBINED
---------- ------------ ----------- ---------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue, net.................. $ 17,988 $ 5,259 (4)(N) $ 23,243 $ 2,719 $ 25,962
---------- ------------ ----------- ---------- --------------- ----------
Costs and Expenses:
Payroll and related costs.... 4,780 1,014 (53)(N) 5,392 451 5,843
(349)(O)
Depreciation and
amortization.................. 2,951 897 (363)(P) 3,742 270 4,012
(16)(Q)
273(R)
Medical supplies and other
operating costs............... 6,049 2,282 (59)(N) 8,109 1,091 9,200
(177)(O)
14(S)
Other general and
administrative................ 554 281 (10)(N) 647 364 1,011
(178)(O)
Non-recurring write-down of
center equipment........... 560 560 560
---------- ------------ ----------- ---------- --------------- ----------
14,894 4,474 (918) 18,450 2,176 20,626
---------- ------------ ----------- ---------- --------------- ----------
Operating income.............. 3,094 785 914 4,793 543 5,336
Interest expense.............. 1,187 483 1,670 203 1,873
Other income, net............. 25 45 70 14 84
---------- ------------ ----------- ---------- --------------- ----------
Income before minority
interest and income taxes.... 1,932 347 914 3,193 354 3,547
Minority interest in income of
limited partnerships......... 528 528 85 613
---------- ------------ ----------- ---------- --------------- ----------
Income before income taxes.... 1,404 347 914 2,665 269 2,934
(Benefit from) provision for
income taxes................. (1,030) 132 39(T) (859) (13) (872)
---------- ------------ ----------- ---------- --------------- ----------
Net income.................... $ 2,434 $ 215 $ 875 $ 3,524 $ 282 $ 3,806
---------- ------------ ---------- --------------- ----------
---------- ------------ ----------- ---------- --------------- ----------
-----------
Weighted average number of
shares:
Primary...................... 5,017,952 3,399,682 1,156,707 6,174,659(U) 125,000 6,299,659
---------- ------------ ---------- --------------- ----------
---------- ------------ ----------- ---------- --------------- ----------
-----------
Fully diluted................ 5,589,900 3,399,682 1,167,392 6,757,292(U,V) 125,000 6,882,292
---------- ------------ ---------- --------------- ----------
---------- ------------ ----------- ---------- --------------- ----------
-----------
Net income per share:
Primary...................... $ 0.49 $ 0.06 $ 0.57 $ .60
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
Fully diluted................ $ 0.47 $ 0.06 $ 0.55 $ .58
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
</TABLE>
- ------------
* Reclassified to conform to NMR presentation.
(1) Includes non-recurring adjustments to (i) write-down the carrying value of
certain fixed assets ($560,000) and (ii) recognize the Company's net
deferred tax assets totaling $1,099,000.
(2) Includes the operations of the Company's acquired Golf MRI and Diagnostic
Imaging Center and Libertyville Imaging Center from January 1, 1995, the
effective date of such acquisitions.
(3) Includes the operations of Morgan's Sarasota Outpatient MRI and Diagnostic
Center from the center's opening date on June 6, 1994. Includes the
operations of HealthWorks of Albany physical therapy center from the
center's opening date on November 21,1994. HealthWorks of Albany will be
sold in conjunction with the Merger.
(4) Reflects the pro forma impact of NMR's January 1, 1995 acquisitions of Golf
MRI and Diagnostic Imaging Center and Libertyville Imaging Center as if such
acquisitions had occurred on April 1, 1994 (See Note 5 to the Pro Forma
Combined Financial Statements for additional information).
See Notes to Pro Forma Combined Financial Statements and
Notes to Consolidated Financial Statements.
-48-
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
The Historical Financial Statements
The Merger--
The unaudited pro forma combined financial statements are presented for
illustrative purposes only, giving effect to the Merger and historical
acquisitions of NMR, and, therefore, are not necessarily indicative of
the financial position or financial results that might have been achieved
had the Merger occurred as of an earlier date, nor are they necessarily
indicative of the financial position or financial results which may
occur in the future. The Unaudited Pro Forma Balance Sheet has been
presented assuming the Merger occurred on March 31, 1995. The Unaudited Pro
Forma Statement of Income for the fiscal year ended March 31, 1995 assumed
that the Merger and historical acquisitions of NMR occurred on April 1,
1994. The unaudited pro forma combined financial statements give effect to
the Merger using the purchase method of accounting, whereby the respective
assets and liabilities of Morgan are recorded at their estimated fair
values. The total purchase cost of the transaction is estimated to be
approximately $5,480,000 and the excess of the purchase cost over the
estimated fair value of net assets acquired is estimated to be
approximately $5,558,000.
2. Revenue Recognition
For centers which NMR has developed, it has entered into agreements with
physicians engaging in business as professional associations ("Physicians")
pursuant to which NMR maintains and operates imaging systems in offices
operated by the Physicians. The agreements have terms of up to six years
and are renewable at NMR's option. The Physicians' principal, Dr. David L.
Bloom, is a director of NMR. Under the agreements, Physicians have agreed
to be obligated to contract for radiological services at the centers and to
sublease each facility. NMR is obligated to make necessary leasehold
improvements, provide furniture and fixtures and perform certain
administrative functions relating to the provisions of technical aspects of
the centers' operations for which Physicians pay a quarterly fee composed
of a fixed sum based on the cost of the respective imaging system
installed, including the related financing costs, a charge per invoice
processed and a charge based upon system usage for each NMR-installed
imaging system in operation. These fees, net of a contractual allowance
based upon Physicians' ability to pay after Physicians have fulfilled
their obligations under facility subleases and radiological service
contracts as set forth above, constitute NMR's revenue, net for sites
developed by NMR.
For the Morgan centers and centers which NMR has acquired, subsidiaries of
the Companies have entered into agreements with unaffiliated professional
corporations to provide radiological services. Accordingly, revenue, net
for such centers consists of patient billings adjusted for contractual
reductions which have been negotiated with various third-
-49-
<PAGE>
party payers. Fees paid to radiologists at these centers are reflected as
a component of medical supplies and other operating costs in the pro forma
combined statements of operations.
3. Earnings per Share
Earnings per share has been calculated by dividing net income by the
weighted average shares outstanding during the period, including the
estimated 1,120,058 shares of NMR Common Stock to be issued in the
transaction and approximately 100,000 shares of NMR Common Stock reserved
for issuance upon exercise of outstanding Morgan Derivative Securities as
though the shares and Morgan Derivative Securities were issued on April 1,
1993.
4. Pro Forma Adjustments
Unaudited Pro Forma Balance Sheet--
(A) To reflect expenditure of professional fees to be expended by NMR and
Morgan relating to the Merger, including Fahnestock transaction fee
($200,000), fairness opinions ($110,000), and legal, accounting and
appraisal fees ($190,000).
(B) To reflect Fahnestock purchase of an estimated 60,000 shares of Morgan
Common Stock for $90,000 or $1.50 per share.
(C) To reflect the sale of certain fixed assets utilized at Morgan's
corporate offices which will be closed in conjunction with the Merger.
(D) To reflect the sale of HealthWorks, in accordance with the terms of
the Merger, based upon the amount of capital contributed by Morgan
through December 31, 1994 (approximately $190,000).
(E) To reclassify due from related parties. In conjunction with the
Merger, amounts due from related parties of Morgan will be converted
into promissory notes payable to NMR over a four-year period.
(F) To reflect the elimination of the assets and liabilities of
HealthWorks to be assumed by its purchaser in conjunction with the
terms of the Merger.
(G) To reflect Morgan's fixed assets at their estimated fair value, based
upon independent appraisals which were prepared in conjunction with
the Merger.
(H) To reflect elimination of Morgan's historical goodwill.
-50-
<PAGE>
(I) To reflect the estimated goodwill relating to the Merger, based upon
the estimated purchase price of approximately $5,480,000, which
includes an estimated $160,000 of professional fees (a component of
the expenses reflected in (A) above) to be expended by NMR in
connection with the Merger, and the adjusted net book value of Morgan:
As of December 31, 1994
(Unaudited) (000's)
------------------------
Morgan historical net book value $1,364
Adjustments:
To reflect the expenditure of
professional fees relating to the Merger (340) (A)
To reflect fixed assets at estimated
fair value (1,754) (G)
To eliminate historical goodwill (209) (H)
To adjust deferred income taxes 692 (J)
To adjust accrued liabilities ( 50) (K)
To reflect Fahnestock purchase of
Morgan Common Stock 90 (B)
To reflect the sale of HealthWorks (190) (D)
To reflect the assumption of HealthWorks
net assets by purchaser ( 61) (F)
-----
Adjusted net book value of Morgan $ ( 78)
=======
-51-
<PAGE>
(J) To reflect the adjustment of proforma combined deferred income tax
assets and liabilities based upon the tax effect of adjustments (F),
(G) and (K) as follows:
In 000's
----------------------------------------
NMR Morgan Pro
March December Pro Forma Forma
31, 1995 31, 1994 Adjustments Combined
-------- -------- ----------- --------
Assets:
Deferred Income
taxes $ 1,099 $ (745)(a) $ 1,046
(11)(b)
684 (c)
19 (d)
Liabilities:
Deferred income
taxes - current $ 470 (470)(a)
Deferred income
taxes 275 (275)(a)
----- ----- -----
Net deferred tax
asset (liability) $ 1,099 $ (745) $ 1,046
======= ======== =======
(a) To reclassify Morgan's net deferred tax liabilities to offset NMR's
net deferred tax assets.
(b) To adjust Morgan's deferred tax liabilities relating to Cash Basis
Accounting for the tax effected impact, using 39%, of pro forma
adjustment (F), which reflects the assumption of the net assets of
HealthWorks, totalling $29,000, by its purchaser.
(c) To adjust Morgan's deferred tax liabilities relating to Fixed Assets
for the tax effected impact, using 39%, of pro forma adjustment (G) to
write-down Morgan's fixed assets by approximately $1,754,000.
(d) To adjust Morgan's deferred tax liabilities relating to Cash Basis
Accounting for the tax effected impact, using 39%, of pro forma
adjustment (K) to accrue $50,000 of liabilities relating to the
consolidation of Morgan's administrative functions.
For purposes of pro forma presentation, as of March 31, 1995, the tax
effect of the combined Companies' future deductible amounts exceeds
future (taxable) amounts, as defined under Statement of
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<PAGE>
Financial Accounting Standards No. 109, by approximately $1,046,000,
as follows:
(000's)
-------
Deferred tax liabilities:
Fixed assets ($1,348)
Purchase option (273)
Cash basis accounting (462)
--------
Total deferred tax
liabilities ( 2,083)
Deferred tax assets:
Net operating losses 2,141
Tax credits 491
Partnership losses 466
Other 31
-------
Total deferred tax
assets 3,129
-------
Excess deferred tax
assets 1,046
Valuation allowance ---
-------
Net deferred tax asset $ 1,046
========
During the fiscal year ended March 31, 1995, NMR reduced its valuation
allowance on its net deferred tax assets to zero based upon
management's belief that it is more likely than not that NMR's tax
benefits will be realized in the future. In the event NMR is unable
to generate sufficient taxable income in the future, recognition of a
valuation allowance will be required and charged to expense.
During fiscal 1995 and beyond, NMR will record its provision for
Federal and state income taxes at a substantially higher effective tax
rate than that reflected in the Unaudited Pro Forma Statements of
Income.
(K) To adjust accrued liabilities accounts to reflect costs to be incurred
relating to the consolidation of Morgan's administrative functions at
NMR's corporate office in Murray Hill, New Jersey.
(L) To reflect the elimination of Morgan's shareholders' equity.
(M) To reflect the issuance of an estimated 1,120,058 shares of NMR Common
Stock in exchange for the outstanding capital stock of Morgan. For
purposes of pro forma presentation, NMR Common Stock was valued at
$4.75 per share which was the closing market price on March 31, 1995.
Fluctuations in market price of NMR Common Stock prior to the
Effective Time of the Merger, or other factors
-53-
<PAGE>
impacting the valuation of NMR Common Stock to be issued in connection
with the Merger, could have a significant impact on the amount of
additional paid-in-capital, costs in excess of net assets acquired and
amortization expense which are recorded in conjunction with the
Merger.
Unaudited Pro Forma Statements of Income
(N) To eliminate the operations of HealthWorks, which will be sold in
conjunction with the Merger from Morgan's results of operations for
the year ended December 31, 1994. (See Note (D)). HealthWorks'
operations consist primarily of payroll and related costs ($53,000)
and medical supplies and other operating costs ($39,000).
(O) To reflect reductions in Morgan's operating expenses relating to the
elimination of J. Mark Strong as President and Chief Executive Officer
and the consolidation of administrative functions at NMR's corporate
office in Murray Hill, New Jersey, offset by incremental expenses to
be incurred as follows:
For the Year
Ended
March 31, 1995
(000's)
--------------
Rent(1) $ 32
Professional fees(2) 247
Salaries and benefits(3) 363
Travel and entertainment(4) 47
Communication(5) 51
Insurance(6) 23
Other(7) 23
-------
Total Reductions 786
Incremental expenses(8) (90)
-------
Net Reductions $ 696
=======
(1) Represents the rental expenses incurred at Morgan's two
administrative offices which will be closed in conjunction
with the Merger. For purposes of pro forma presentation,
NMR has assumed that it will sublet Morgan's two
administrative offices for the remainder of their respective
lease terms at current market rental rates.
(2) Third party legal, accounting, consulting and temporary
personnel engaged at Morgan's corporate offices or
performing tasks relating to corporate finance and functions
such as financial statements preparation and review which
will not be incurred following the Merger.
-54-
<PAGE>
(3) Salaries and benefits expense relating to J. Mark Strong and
administrative personnel who will not be retained by the
combined Companies following the Merger.
(4) Travel and entertainment expenses relating to J. Mark
Strong's function as President and Chief Executive Officer
of Morgan which would not have been reimbursable under NMR's
policies.
(5) Costs relating to J. Mark Strong's use of mobile cellular
and other communications which would not be reimbursable
under NMR's policies.
(6) Cost of redundant insurance coverage and which will be
terminated upon consummation of the Merger and will no
longer be incurred following the Merger.
(7) Miscellaneous expenses relating to operation of Morgan's two
corporate offices which will be closed following the Merger.
(8) Cost of one additional employee ($50,000) to be hired by NMR
plus estimated additional annual cost for legal, accounting
and professional expense to be incurred by NMR following the
Merger ($40,000).
-55-
<PAGE>
(P) To reflect the reduction in depreciation expense based upon the
estimated fair value adjustment of Morgan's fixed assets and the
estimated remaining useful economic lives of such assets as of April
1, 1994 as follows:
Annual
Depreciation
Expense
------------
Morgan historical depreciation expense relating to
fixed assets $773,000 (1)
Appraised fair values as of the acquisition date
(remaining useful lives):
Sarasota
Equipment and related $1,575,000 (7-10 years) (159,000)
Leasehold Improvements and other $210,000 (13 years) (16,000)
Sarasota center depreciation expense adjustment due to
June 1994 opening date 43,000
Cape Coral
Equipment and related $668,000 (6-9 years) (76,000)
Leasehold Improvements and other $4,000 (10 years) (400)
Naples
Equipment and related $1,013,000 (7-9 years) (113,000)
Leasehold Improvements and other $110,000 (11 years) (10,000)
Titusville
Equipment and related $507,000 (7-8 years) (64,000)
Leasehold Improvements and other $175,000 (12 years) (14,600)
--------
Adjustment to Morgan historical depreciation expense 363,000
-------
Pro Forma Morgan depreciation expense $410,000
========
(1) Does not include $124,000 of amortization expense related to
Morgan's historical goodwill and a covenant not to compete.
(Q) To eliminate the amortization expense relating to Morgan's
historical goodwill.
(R) To reflect the amortization of goodwill relating to the Merger over 20
years using the straight-line method. A significant component of the
Merger is Morgan's Sarasota facility which commenced operations in
June 1994. For purposes of the Unaudited Pro Forma Statement of
Income, management has estimated that portion of cost in excess of net
assets acquired attributable to the Sarasota center based upon the
operating profit of Morgan's centers for the three months ended
-56-
<PAGE>
March 31, 1995. Accordingly, the Unaudited Pro Forma Statement of
Income for the year ended March 31, 1995 assumes goodwill amortization
expense relating to Morgan's Sarasota facility commenced as of the
June 1994 opening date of the facility.
(S) To reflect an increase in Morgan's Cape Coral center rent. In
conjunction with the Merger, Morgan sought a waiver of any potential
prior defaults under its ground lease with Cape Coral Hospital. In
obtaining such waiver, the parties to the ground lease agreed that
future fixed annual rental payments under the ground lease would
increase by approximately $14,000.
(T) To reflect the income tax provision on the pro forma combined income
before income taxes. For purposes of pro forma presentation, income
taxes were provided assuming that NMR utilized net operating loss
carryforwards and investment and alternative minimum tax credits which
were available to it during such periods and which served to offset
substantially all of the current Federal income tax liability of
Morgan based on its historical earnings and the pro forma adjustments
reflected herein. During the fiscal year ended March 31, 1995, NMR
reduced its valuation allowance on its net deferred tax assets to zero
based upon management's belief that it is more likely than not that
NMR's tax benefits will be realized in the future. During fiscal 1995
and beyond, NMR will record its provision for Federal and state income
taxes at a substantially higher effective tax rate than that reflected
in the Unaudited Pro Forma Statements of Income.
(U) Includes an estimated 1,120,058 shares to be issued in connection with
the Merger. For purposes of pro forma presentation, such shares were
assumed to be outstanding during the entire period.
(V) Includes the net dilutive impact of outstanding Morgan Derivative
Securities which will be repriced in connection with the Merger and
are assumed to be outstanding during the entire period as follows:
Number of shares after Exercise price after
giving effect to the giving effect to the
Name Merger Merger
------------------------ ---------------------- --------------------
Employee Stock Options:
Sandra G. Garrison 33,309 $3.00
Stock purchase warrants:
John Morris 33,309 $3.00
John Morris 16,655 $1.50
Carl Anderson 16,654 $1.50
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<PAGE>
The foregoing options and warrants had a dilutive impact on the pro
forma combined earnings per share for the fiscal year ended March 31,
1995.
5. Supplemental pro forma information
The Unaudited Pro Forma Statement of Income for the year ended March
31, 1995 includes the results of operations of NMR's diagnostic
imaging centers located in Libertyville and Des Plaines, Illinois from
the January 1, 1995 effective date of such acquisitions. Such
acquisitions did not require shareholder approval. The following
summarizes the unaudited condensed pro forma combined results of
operations for the year ended March 31, 1995, assuming the foregoing
acquisitions and the Merger had occurred on April 1, 1994 (in
thousands, except per share data):
Fiscal 1995 (unaudited)(1)
---------------------------------------------
NMR Including NMR Including
Historical Historical Acquisitions
Acquisitions and Morgan
----------- -----------------------
Revenue, net $20,707 $25,962
Operating income $ 3,637 $ 5,336
Income before income taxes $ 1,673 $ 2,934
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 2,716 $ 3,806
Fully diluted income before
extraordinary item and
cumulative effect of change in
accounting principle per share $ .51 $ .58
(1) NMR's results of operations for the year ended March 31, 1995
include non-recurring adjustments to (i) write down the carrying value
of certain fixed assets ($560,000) and (ii) recognize NMR's net
deferred tax assets in the amount of $1,099,000.
-58-
<PAGE>
MORGAN
Introduction
Morgan Medical Holdings, Inc. (with its subsidiaries, "Morgan")
operates and manages four diagnostic imaging centers in Florida and one
physical therapy center in Georgia. Morgan was formed under the laws of
the State of Colorado on May 17, 1988, for the purpose of creating a
vehicle to seek and acquire a business opportunity. Morgan completed its
initial public offering of Morgan Common Stock in April 1989. On June 23,
1989, pursuant to an Agreement and Plan of Reorganization among Morgan,
Morgan Medical Corporation ("MCC") and MMC's shareholders, Morgan issued
3,000,000 shares of Morgan Common Stock to MMC's shareholders in a share
exchange, in which MMC became a wholly-owned subsidiary of Morgan. The
shares of Morgan Common Stock issued to the shareholders of MMC represented
approximately 67.5% of the Morgan Common Stock outstanding immediately
after the completion of the transaction.
From 1987 to 1989, MMC provided consulting and project management
services to physicians interested in developing and operating MRI,
lithotripsy and ambulatory surgery centers. In 1989, MMC began developing
and managing its own non-invasive diagnostic centers. MMC participated as
a 50% joint venture partner in the establishment of an MRI center in
Virginia Beach, Virginia, which commenced operations in April 1990. MMC
subsequently sold its interest in the project to its joint venture partner
in June 1990.
In 1991, Morgan, through MMC as general partner, formed a limited
partnership to develop and operate an outpatient MRI diagnostic facility in
Naples, Florida. The center began operations in August 1991. In 1993, the
limited partnership interests of the limited partnership were assigned to
MMC, and all ownership interests in the center were subsequently
transferred to MMC.
Morgan purchased its MRI facility in Titusville, Florida in 1992.
Morgan developed and opened its Cape Coral MRI and Sarasota multi-modality
facilities in 1990 and 1994, respectively.
In August 1994, Morgan formed HealthWorks as a wholly-owned subsidiary
under the laws of Florida to hold the outstanding stock of a company formed
by Morgan to operate a physical therapy center in Albany, Georgia. This
center became operational in November 1994.
Services
It is a condition to the Merger that Morgan's physical therapy
business be sold in conjunction with the Merger. See "The Merger -- Terms
of the Merger -- Conditions Precedent to Consummation of the Merger". The
following is a description of the diagnostic services provided by Morgan's
other centers.
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<PAGE>
Magnetic Resonance Imaging
Morgan provides MRI services at each of its Cape Coral, Naples,
Titusville and Sarasota facilities. MRI is a non-invasive procedure for
observing anatomic structures. It uses magnetic fields and radio signals
to image the density and distribution of the body's hydrogen nuclei. It is
particularly useful for imaging soft tissues, such as parts of the brain,
muscle, fat, blood vessels, the spinal cord and other parts of the nervous
system, with very high resolution and clarity. MRI provides diagnostic
information about possible structural damage or evidence of disease.
Furthermore, the images that are produced can be computer-enhanced to view
images three dimensionally at many angles for more precise diagnosis.
Because of its unique abilities, MRI greatly reduces the need for many
types of exploratory surgeries. MRI is used in the specialties of oncology
for cancer diagnosis and tumor localization; neurosurgery and neurology for
diagnosis of many brain and spinal cord disorders and diseases; orthopedics
for diagnosing possible tears in ligaments and tendons; internal medicine;
cardiology; and many new specialties and applications like oral surgery for
temporomandibular joint imaging (TMI). Specific applications include
evaluating a range of diseases from brain tumors to multiple sclerosis. It
is also being used to evaluate other organs of the body such as the liver
and kidneys.
Traditionally, diagnostic imaging services have been provided in
hospitals or in radiologists' offices. However, because of the high cost
of purchasing and operating MRI systems, and for other reasons, outpatient
centers have been the most efficient and most frequently used method of
providing MRI services to patients. Since the mid-1980's, MRI outpatient
centers have proliferated. Most are owned through limited partnerships or
corporations involving physicians and hospitals or management companies.
Generally, radiologists hired by or affiliated with the center provide
professional medical services, including medical supervision of the center,
supervision and administration of diagnostic procedures and interpretation
of the results of procedures.
The installation of an MRI system and related equipment ranges in cost
from $850,000 to more than $2,000,000, depending upon the nature of the
imaging system. The magnetic field strength of the imaging system and
other operational attributes dictate cost. The higher field strengths are
generally more expensive and usually provide superior image quality and
faster patient throughput. Financing affiliates of major MRI
manufacturers, equipment financing companies and banks may lease or lend
the entire cost of the system and often will include in such financing the
costs of construction and other equipment, fixtures and furnishings.
Computerized Axial Tomography
Morgan provides computerized axial tomography ("CT") services at its
Sarasota facility. CT utilizes multiple x-ray beams and detectors to
derive information which is then synthesized by computers to produce
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<PAGE>
cross-sectional images of organs or other areas of the body. CT can be
used to perform examinations of any part of the human anatomy and provides
a delineation of tissue not possible with conventional x-ray. CT
eliminates the problem of overlapping structures such as bone and soft
tissue inherent in images produced by conventional x-ray. The most
commonly performed CT examinations are of the brain, abdomen, and lumbo-
sacral spine, although examination of the chest, pelvis and extremities is
also performed.
The installation of a CT system and related equipment ranges in cost
from $150,000 to $800,000, depending upon the nature of the system. The
imaging speed of the CT system and its operational attributes dictate cost.
Professional Services Agreements
Morgan has entered into professional services agreements with board
certified or board eligible radiologists providing services at its Naples
and Cape Coral centers. Morgan is currently engaged in the negotiation of
formal agreements with similarly qualified radiologists providing services
at its Titusville and Sarasota centers. It is anticipated that such
negotiations will be completed in the near future. Under Morgan's
professional services agreements, the radiologists are engaged to provide
medical services at the center, including administering diagnostic
procedures and interpreting test results. In the Cape Coral and Sarasota
centers, the radiologists bill patients separately for their professional
fees, which are established as a percentage of procedure fees established
between the radiologists and Morgan and adjusted from time to time, except
for Medicare and certain other government programs, for which the
prescribed professional fee is billed. The agreements carry terms of five
years and are automatically renewable for additional five-year terms unless
canceled by either party on notice given at least six months before
expiration.
For services provided at the Naples and Titusville centers, Morgan
bills globally (for both the technical and professional components of the
services) and compensates the interpreting physician based upon a fixed fee
per scan or as a percentage of collected fees. At the Naples center, in
addition to radiologists, certain qualified neurologists interpret the
results of MRI procedures at the request of the referring clinician.
Morgan has also entered into a service agreement with Jess Parrish
Memorial Hospital with respect to its Titusville center to provide MRI
procedures to the hospital's Medicare patients. The Titusville center
receives approximately 50% of its standard technical fees for providing
such services.
Quality Assurance
In consultation with healthcare professionals, Morgan has developed
and implemented a quality assurance program to ensure that established
standards of care for all patients served by each center are maintained.
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At the Cape Coral MRI center, quality assurance issues are addressed in
conjunction with the Cape Coral Hospital administration and medical staff.
At the Naples MRI center, a medical advisory committee composed primarily
of referring physicians advises Morgan in patient care, planning and
assessment. The Titusville center has a quality assurance program which is
overseen by the Chief of Radiology at Jess Parrish Memorial Hospital. The
Sarasota center also has a quality assurance program which is overseen by
an on-sight Medical Director, Dr. Richard Goldberg.
Government Regulation
Various Federal and state statutes and regulations affect virtually
all aspects of Morgan's operations. See "The Merger--Government Regulation
of NMR and Morgan".
Competition
Numerous other entities exist which own and manage MRI and other
diagnostic centers, many of which have greater financial resources than
Morgan. Morgan also competes with hospitals which operate their own MRI
centers. MRI systems also compete with other scanning technologies which
are available in physicians offices, hospitals and other diagnostic imaging
centers.
Employees
Morgan has thirty-two full-time employees, including its President and
Chief Executive Officer, J. Mark Strong, and its Vice President and
Secretary, Sandra G. Garrison, and one part-time employee. Twenty of the
full-time employees work at Morgan's four diagnostic imaging centers.
Eight of the full-time and Morgan's one part-time employee work at Morgan's
physical therapy center. None of Morgan's employees are members of a union
or parties to a collective bargaining agreement.
Properties
Tampa. Morgan's principal executive offices located at 101 East
Kennedy Boulevard, Suite 1010, Tampa, Florida are situated in a leased
facility. The lease for the premises, which covers 2,452 square feet of
office space, commenced August 15, 1994 and has a five-year term. Rent
under the lease is $2,452 per month for the first twelve months of the term
of the lease, and for each year thereafter, monthly rent increases by
approximately $200. Monthly rent payable during the final twelve months of
the lease is $3,269. NMR will close and attempt to sublet this office if
the Merger is consummated.
Cape Coral Center. Morgan leases a 2,450 square foot building from
Cape Coral Hospital within which Morgan's Cape Coral MRI center is
operated. Rent payable under the lease is $3,800 per month. The lease
commenced in June 1990, and terminates December 31, 1999, subject to being
renewed at Morgan's option for two additional five-year terms.
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Under the terms of the lease, Cape Coral Hospital has the right to purchase
Morgan's imaging business conducted at the leased premises and the related
equipment for a specified period during each year the lease is in effect.
The hospital agreed to unconditionally waive its option to acquire this
imaging business for the year 1995, although it retained the right to
exercise its option in the future. See "Risk Factors--Potential Adverse
Effect of Sale of Cape Coral Facility".
Naples Center. The Naples MRI center is operated in a 2,329 square
foot building which is leased by Morgan through March 1996 at a base
monthly rent of $2,799 (subject to cost of living increases). Under the
lease, Morgan also has the option to renew the term of the lease for two
additional five-year periods. The lease also requires Morgan to pay a
percentage of the common area charges including maintenance, utility
charges and real estate taxes associated with the premises. These charges,
combined with the current base monthly rent, were $4,104 per month at
December 31, 1994.
Titusville Center. Morgan's Titusville MRI center is operated in a
3,200 square foot building which is leased by Morgan through September 1,
1997 at a monthly rate of $3,675 (subject to cost of living increases).
Morgan also has the option to renew the lease for two additional five-year
periods.
Sarasota Center. Morgan leases a 3,303 square foot facility within
which its Sarasota center is operated. The lease's initial term commenced
in June 1994 and continues until May 2004. Morgan has an option to renew
the lease for two additional five-year periods. The monthly lease payments
are $6,332 and are subject to change based upon changes in the Consumer
Price Index. The lease requires Morgan to pay all insurance, utilities,
repairs, maintenance, replacement, sales and use taxes, property taxes, and
other charges relative to the premises. In addition, the lease requires
Morgan to pay operating costs of the common area associated with the
premises beginning on January 1, 1995.
Albany, Georgia. Morgan leases an approximately 5,100 square foot
facility within which its Albany, Georgia physical therapy center is
operated. The term of the lease commenced in November 1994 and continues
until November 1997. Morgan has the option to renew the lease for an
unlimited number of additional three-year periods. Monthly rent under the
lease is $4,711. The lease requires Morgan to pay all insurance, repairs,
maintenance, taxes and other charges relative to the premises. This lease
is required to be assumed by the purchaser of HealthWorks in conjunction
with the Merger.
Naples. Morgan leases 1,189 square feet of office space at 300 Fifth
Avenue South, Suite 20, Naples, Florida. The lease commenced in January
1994, and expires March 31, 1997. Monthly rent under the lease is $1,628.
Monthly rent is subject to annual adjustment based on the Consumer Price
Index. The lease is renewable at Morgan's option for an additional three-
year period following expiration of the initial term.
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NMR will close and attempt to sublet this office if the Merger is
consummated.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of Operations
Three months ended March 31, 1995 compared to the three months ended
March 31, 1994
Revenue consists of imaging and physical therapy revenue reduced by
contractual allowances related to discount arrangements with third party
payers. For the three months ended March 31, 1995, revenue was $1,770,128
versus $1,193,063 for the same period in the prior year, a 48% increase.
The increase in revenue resulted primarily from operations of the Sarasota
MRI center which opened in June 1994. Revenue for the three months ended
March 31, 1995 for the Sarasota MRI center was $416,591. In addition,
Morgan realized revenue of $84,433 during the three months ended March 31,
1995 from its physical therapy operations which commenced in November 1994.
Revenue for the three months ended March 31, 1995 for the Cape Coral,
Naples and Titusville MRI centers increased (decreased) by (9%), 37% and
1%, respectively, compared to the three months ended March 31, 1994. The
increase (decrease) in revenue at these centers resulted from changes in
patient volume.
Payroll and related expenses included in other operating, general and
administrative for the three months ended March 31, 1995 increased by
$196,762 (111%) to $373,127 from $176,365 for the three months ended March
31, 1994. This increase was due to the commencement of operations at the
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Sarasota MRI center and the Albany center. Morgan does not have any plans
to add additional centers or additional employees in 1995 or in the
foreseeable future and accordingly does not anticipate that there will be
any increase in the gross amount of payroll and related expense for the
remainder of 1995. Payroll and related expense as a percentage of revenues
is expected to decrease during the remainder of 1995 as the new MRI center
in Sarasota and the new physical therapy center in Albany, Georgia,
complete their start-up phases and begin to contribute net revenue to
Morgan's financial results. If such anticipated revenues do not
materialize from the new centers, Morgan's management will consider
reductions in staff or other potential means of reduction in payroll and
related expenses.
In addition, Morgan accrued $44,850 as additional compensation for
certain employees, officers and directors who will receive shares of
Morgan's Common Stock as compensation for their services. Morgan, as a
policy, compensates its executive officers and directors through a
combination of cash compensation and grants of restricted stock. The grant
of restricted stock serves the dual purpose of reducing Morgan's cash
expense and linking the compensation of officers and directors to Morgan's
performance, thereby encouraging increased commitment and loyalty. In
keeping with this policy, Morgan's Board of Directors authorized in
December 1994 the issuance of 68,334 shares of Morgan Common Stock to
executive officers and directors. The value of these shares, $41,098, was
determined based upon the average high and low bid quotations for shares of
Morgan Common Stock during the period in which the shares were earned,
adjusted for a discount associated with the restrictive nature of the shares.
Depreciation and amortization expense included in other operating,
general and administrative for the three months ended March 31, 1995
increased by $74,637 (40%) to $260,496 from $185,859 for the three months
ended March 31, 1994. The increase resulted from the acquisition of
capital equipment for the Sarasota MRI center and the Albany physical
therapy center.
Medical supplies and other operating costs for the three months ended
March 31, 1995 increased by $194,610 (46%) to $616,739 from $422,129 for the
three months ended March 31, 1994. The increase was primarily due to the
operating expenses associated with the Sarasota MRI center and the Albany
physical therapy center. The increase in operating expenses resulting from
the Sarasota and Albany centers was partially offset by a reduction in
operating expenses incurred at the Cape Coral, Naples and Titusville MRI
centers.
Other general and administrative expenses for the three months ended
March 31, 1995 decreased $5,015 (6%) to $77,366 from $82,381 for the three
months ended March 31, 1994. The decrease was generally due to a reduction
in marketing related expenditures.
Bad debt expense for the three months ended March 31, 1995 decreased
$45,717 (88%) to $6,092 from $51,809. The decrease resulted from the
collection of amounts due from patients and insurance providers which had
previously been determined to be uncollectible.
Interest expense for the three months ended March 31, 1995 increased
$38,728 (38%) to $140,620 from $101,892 for the three months ended March
31, 1994. The increase in interest expense resulted primarily from the
financing of equipment installed at the Sarasota MRI center and the Albany
physical therapy center. The interest expense associated with additional
equipment acquired was partially offset by lower interest expense incurred
on existing obligations which were amortized throughout 1994 and 1995.
Other income (expenses) for the three months ended March 31, 1995
included $101,843 of legal and professional fees related to the Merger
Agreement and the Schedule 13D filed by the Morgan Shareholder Group. See
"The Merger--Background of the Merger; Negotiations; Fairness Opinions."
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Year ended December 31, 1994 compared to the year ended December 31,
1993
For the year ended December 31, 1994, revenue was $5,131,571 versus
$4,697,942 (including $26,552 in revenue from fees from Morgan's former
laser treatment operations) in the prior year, a 9% increase. The increase
in revenue resulted primarily from the commencement of operations of the
Sarasota MRI center in June 1994. Revenue for the six months of operation
of the Sarasota MRI center was $798,189. For the year ended December 31,
1994, revenue from the Cape Coral Center increased by 3%, while revenue
from the Naples and Titusville centers decreased by 13% and 12%,
respectively. The decrease in revenue at both the Naples and Titusville
MRI centers resulted primarily from reductions in patient volume.
Morgan did not realize any revenue in the year ended December 31, 1994
from laser fees as a result of management's decision to divest itself of
its laser operations in 1993. Revenue from laser fees for the year ended
December 31, 1993 were $26,552.
Payroll and related expenses for the year ended December 31, 1994
increased by $345,219 (52%) to $1,013,560 from $668,341 for the year ended
December 31, 1993. This increase was due to the commencement of operations
at Morgan's Sarasota MRI center and the Albany, Georgia physical therapy
center, as well as additional administrative staffing required at Morgan's
corporate offices relating to such expansion. The increase in payroll and
related expenses resulting from the commencement of operations of the
Sarasota and Albany centers and the increased administrative staffing was
partially offset by reductions in payroll and related expenses at the
Naples and Titusville MRI centers resulting from reductions in patient
volume.
Payroll and related expenses for the year ended December 31, 1994
reflect the disproportionate relationship of other operating, general and
administrative to revenue generated by entities during their start-up
phase. It is anticipated that, although the amount of payroll and related
expenses will increase during 1995 due to the fact that the Sarasota
imaging center and Albany, Georgia physical therapy center commenced
operations late in 1994, payroll and related expenses as a percentage of
revenues will decrease as such centers generate their anticipated volume of
business.
Medical supplies and other operating costs for the year ended December
31, 1994 increased by $385,851 (25%) to $1,908,003 from $1,522,152 for the
year ended December 31, 1993. The increase was primarily due to the
commencement of operations of the Sarasota MRI center and the Albany,
Georgia physical therapy center. The increase in operating expenses
resulting from the Sarasota center and the Albany center was partially
offset by a reduction in operating costs incurred at both the Naples and
Titusville MRI centers resulting from reductions in patient volume.
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Depreciation and amortization expense for the year ended December 31,
1994 increased by $354,726 (65%) to $897,549 from $542,823 for the year
ended December 31, 1993. The increase resulted from the acquisition of
capital equipment for the Sarasota MRI center. In addition, during 1994
Morgan reduced its estimate of the useful lives of certain medical
diagnostic equipment to reflect technological changes. This change
resulted in additional depreciation expense in 1994 in the amount of
$219,000.
Bad debt expense for the year ended December 31, 1994 decreased
$26,507 (10%) to $246,927 from $273,435 for the year ended December 31,
1993. The decrease resulted from a decrease in bad debt write-offs
primarily at the Titusville center. The decrease in write-offs generally
resulted from improved collection efforts on patient accounts.
Rent expense included in medical supplies and other operating costs
for the year ended December 31, 1994 increased $39,419 (23%) to $209,273
from $169,854 for the year ended December 31, 1993. The increase in rent
resulted primarily from the lease of the Sarasota center entered into in
June 1994 and the lease of the professional office in Naples entered into
in January 1994. The increase in rent expense associated with the Sarasota
center and the Naples office was partially offset by the reduction in rent
expense for the Cape Coral center arising from the discontinuance, in July
1993, of the payment of a percentage of net cash flows as a portion of the
center lease payments.
Other general and administrative expenses for the year ended December
31, 1994 increased $68,566 (32%) to $281,014 from $212,448 for the year
ended December 31, 1993. The increase was generally due to legal and
professional fees, including professional fees incurred in conjunction with
investment banking services provided to Morgan. In addition, Morgan
incurred certain promotional costs during 1994 relating to its increased
marketing efforts.
Interest expense for the year ended December 31, 1994 increased $9,216
(2%) to $483,078 from $473,862 for the year ended December 31, 1993. In
December 1993, Morgan refinanced certain obligations incurred in connection
with the acquisition of equipment at its Cape Coral center. The increase
in interest expense during 1994 resulted primarily from the financing of
equipment installed at the Sarasota and Albany centers, as well as upgrades
of equipment at the Naples and Titusville centers. The interest expense
associated with additional equipment acquired in 1994 was partially offset
by lower interest expense incurred on existing obligations which were
amortized in 1994.
Morgan's provision for income taxes of $132,372 for the year ended
December 31, 1994 consists of state and Federal income taxes.
Morgan records the provision for income taxes in accordance with SFAS
109. Accordingly, income taxes are provided for under the liability
method, whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax
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liabilities are recognized for taxable temporary differences between the
reported amounts of assets and liabilities and their tax basis. Morgan's
deferred tax assets includes the future benefit of net operating loss
carryforwards of $1,632,753. These benefits require the generation of
future taxable income in order to be realized. Morgan anticipates that
future taxable income will exist to fully utilize the net operating loss
carryforwards.
Net operating loss carryforward increased in 1994 as compared to 1993
due to the fact that Morgan incurred a net loss for tax purposes in 1994.
The net loss for tax purposes resulted from the fact that Morgan uses
accelerated depreciation methods for tax purposes, which resulted in higher
depreciation expense for tax purposes than for accounting purposes. In
addition, Morgan reports revenues and expenses on a cash basis for tax
purposes as opposed to the accrual basis for accounting purposes. The
reporting of income on the cash basis rather than the accrual basis results
in less taxable income.
The Cape Coral center accounted for approximately 31% of Morgan's
revenue, net for each of the fiscal years ended December 31, 1994 and 1993,
respectively. During fiscal year 1994, this center accounted for revenue,
net of $1,630,000 and operating income of $677,000. Cape Coral Hospital
has waived its right to purchase the business and equipment of Morgan's
Cape Coral facility for the year 1995. However, the hospital may choose to
exercise its option in the future. Although the exercise by the hospital
of its option to purchase the Cape Coral facility in accordance with the
terms of the facility lease would have a positive impact on Morgan's
liquidity and financial condition, it would have a material adverse impact
on Morgan's net revenue and operating results.
Year Ended December 31, 1993 compared to the year ended December 31,
1992
Patient service revenue from MRI fees increased significantly from the
year ended December 31, 1992 to the year ended December 31, 1993, primarily
due to the fact the Titusville MRI center, which was acquired on September
1, 1992, was in operation during all of 1993, as compared to only four
months of operations in 1992. Revenue from the Naples MRI center in 1993
increased approximately 9% from the revenue from that same center in 1992.
Revenue from the Cape Coral MRI center in 1993 decreased approximately 5%
from the revenue from that same center in 1992.
Laser fees of $26,552 for the year ended December 31, 1993 were
significantly lower than in the prior years. The fees were generated by
both a partnership formed by Morgan, Morgan Laser Ltd., which purchased and
installed Morgan's first Candela pulsed dye laser at a treatment center in
Palm Harbor, Florida, and Morgan's second Candela laser, purchased in June
1990 and placed into service in April 1991 for use as a mobile unit
transportable to various geographic locations. The mobile laser remained
at Cape Coral Hospital in 1993 and has derived all of its revenues
therefrom.
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In 1993, management determined that in order to develop the laser
business, additional investment and further marketing efforts would be
required. Due to their desire to continue to focus Morgan's efforts and
capital on the MRI business, a decision was made for Morgan to divest
itself from the laser business.
On December 31, 1993, Morgan dissolved Morgan Laser Ltd. and
consolidated the assets and liabilities of the entity into Morgan. Morgan
took a charge to earnings of $127,700 in 1993 to adjust the net book value
of the two lasers to the manufacturer's suggested current market value of
approximately $40,000 each.
Payroll and related costs increased by $256,210, or 62%, in 1993
compared to 1992. This increase can be attributed to the fact that 1993
reflects a full year of employment for the Titusville MRI center employees
added in September 1992. Also, in 1993, Morgan paid bonuses of $65,850,
including bonuses to officers of $54,650. The remaining increase can be
attributed to salary increases and conversion of part-time employees to
full-time. Salaries earned by the officers of Morgan totaled $154,500 and
$139,500 for the years ended December 31, 1993 and 1992, respectively.
Rent expense included in medical supplies and other operating costs
for the year ended December 31, 1993 decreased from the prior year by
approximately $101,000, despite the fact that in 1992 there were only four
rent payments for the Titusville MRI center versus twelve in 1993. This
decrease in rent expense during 1993 is attributable to the fact that
certain rental expenses were incurred in 1992 that were not incurred in
1993. In particular, in 1992, rent expenses included a $50,000 rental fee
for a mobile MRI unit for the Titusville facility which was used during a
two-month period while the fixed MRI system was upgraded and improved. In
1992, Morgan was also paying a percentage of net cash flows from the Cape
Coral MRI center as rent. In 1993, the lease for the Cape Coral center was
revised to provide for a lower, fixed monthly rent.
Other general and administrative expense increased $33,227 (19%) over
that of the prior year due primarily to the expansion and increased
marketing and promotion activity of Morgan.
Depreciation and amortization expense increased approximately 47% in
1993 compared to 1992. This increase was caused by the fixed assets of the
Titusville MRI center being depreciated an entire year in 1993 versus four
months in 1992, and an increase of 17% in the balance of fixed assets being
depreciated in 1993 compared to 1992.
Medical supplies and other operating costs for the year ended December
31, 1993, increased $263,928 (21%) from December 31, 1992. This increase
can be attributed in part to the fact that four months of maintenance
expense on the Titusville MRI system were included in 1992 versus twelve
months expenses in 1993 at approximately $13,000 per month. In addition,
the Naples MRI system manufacturer's warranty/service contract expired in
the third quarter of 1992. This contract was renewed
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at a cost of approximately $10,000 per month and 1993 operating expenses
included twelve payments versus only four in 1992. The Titusville MRI
Center was also operational for only four months in 1992 versus the entire
year in 1993 and accordingly required additional operating costs.
Bad debt expense for the year ended December 31, 1993 increased 5%
over 1992. However, the allowance for doubtful accounts receivable at
December 31, 1993 decreased 44% from the allowance at December 31, 1992.
This decrease can be attributed to management's review of the prior year's
reserve, which revealed that the December 31, 1992 reserve was
approximately 89% of bad debt expense for 1993. This ratio which was
considered excessive. At December 31, 1993, the reserve was calculated
using actual historical percentage write-offs of accounts receivable by the
various payers. These calculated bad debt percentages were then applied by
payer to the accounts receivable balances at December 31, 1993 to calculate
an estimated reserve. This reserve, although lower than 1992, is based on
actual historical write-offs and management believes it to be adequate.
Interest expense for the year ended December 31, 1993 increased $5,011
from the year ended December 31, 1992, due to additional financing incurred
in 1993 and interest on obligations related to the acquisition of the
Titusville MRI center, which include a capital lease and note payable to
finance the purchase of the MRI system, equipment, furniture, and building
improvements for the center.
Major financing activities during 1993 included an upgrade to the
Picker Vista 1.0T Superconductive MRI system at the Titusville MRI center
at a cost of $438,442 financed initially through a capital lease with U.S.
Concord in January 1993; and an upgrade in the Philips Gyroscan T5 MRI
systems at the Cape Coral and Naples MRI centers in December 1993 at a cost
of $174,900 each, financed with loans from Medical Equipment Finance
Company at 9.5% interest per annum. Also, in December 1993, all existing
U.S. Concord capital leases and notes were refinanced with Medical
Equipment Finance Company at 9.5% per annum. Morgan was required to pay a
3% prepayment penalty of $136,000 to U.S. Concord to complete the
refinancing.
Morgan's provision for income taxes of $335,028 for the year ended
December 31, 1993 consists of state and Federal income taxes.
Morgan records the provision for income taxes in accordance with SFAS
109. Accordingly, income taxes are provided for under the liability
method, whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable temporary differences between the reported
amounts of assets and liabilities and their tax basis. Morgan's deferred
tax assets includes the future benefit of net operating loss carryforwards
of $1,070,063. These benefits require the generation of future taxable
income in order to be realized.
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Liquidity
Morgan had deficit working capital of $64,377 at December 31, 1994 and
positive working capital of $155,412 at December 31, 1993, representing a
decrease of $219,789. The decrease resulted primarily from the fact that
Morgan has incurred current maturities of lease obligations to finance the
acquisition of equipment at its Sarasota and Albany centers. In addition,
currently payable operating expenses included in accrued expenses increased
in 1994 by $193,966 as a result of the increased activities resulting from
the commencement of operations at both Sarasota and Albany. Also the
current portion of amounts due from related parties decreased by $120,432
in 1994, primarily as a result of Morgan receiving a promissory note from
J. Mark Strong, a director and the President and Chief Executive Officer of
Morgan, payable over a five-year period which evidences certain loans made
by Morgan to Mr. Strong.
Patient accounts receivable at December 31, 1994 increased $584,904
(55%) to $1,652,167 from $1,067,263 at December 31, 1993, although revenues
increased 9% during 1993. The increase in accounts receivable resulted
from slow cash collections in 1994 at the Sarasota enter caused by delays
Morgan experienced in obtaining its Medicare provider identification
number. Morgan subsequently obtained its Medicare provider number. Morgan
has also worked with its billing service company to increase the service's
collection efforts on behalf of Morgan, which management anticipates will
result in improved cash collections in the future.
Cash collections at the Naples and Titusville MRI centers during 1994
decreased $361,489 (22%) and $271,314 (14%), respectively, from the prior
year. Management attributes the decrease to a reduction in patient volume
as well as a decline in the net patient revenue received for each scan
resulting from a decline in reimbursement rates for Medicare patients.
Investing activities utilized $486,048 of cash during the year ended
December 31, 1994, predominantly for the acquisition of equipment and
leasehold improvements for the Sarasota and Albany centers.
Financing activities used $793,217 of cash during the year ended
December 1994, primarily for the principal payments on long-term debt and
capital lease obligations as well as repayments of amounts due to former
affiliates.
During the year ended December 31, 1994, Morgan incurred capital lease
obligations for equipment installed at the Sarasota center ($1,808,131) and
the Albany center ($144,312). At December 31, 1994, Morgan had $1,817,534
in obligations under capital leases. Morgan did not have any capital lease
obligations at December 31, 1993.
During the year ended December 31, 1994, Morgan borrowed $420,954 to
upgrade its MRI equipment at the Naples center, purchase additional MRI
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equipment for the Titusville center, purchase several automobiles and
provide working capital for the start up of the Sarasota center.
Capital Resources
Morgan believes that based upon scheduled increases in the principal
repayments of its long-term debt obligations and trends towards lower
reimbursements for diagnostic imaging procedures, its existing cash, and
cash generated from operating activities, may not be sufficient to meet the
needs of its current operations. Therefore, management began discussions
in 1994 with other MRI companies about possible business combinations,
which has resulted in the Morgan Board of Director's approval of the Merger
Agreement. If the Merger is not consummated, it is anticipated that Morgan
would seek a suitable business partner for a strategic combination or
Morgan may be required to seek additional funding for working capital
requirements through debt financing, such as a bank line of credit, or
equity financing through an offering of Morgan Common Stock. There can be
no assurances, however, that Morgan would be successful in identifying or
negotiating with a transaction partner on terms which would be favorable to
Morgan, nor can there by any assurances that Morgan would be successful in
obtaining additional working capital on favorable terms.
Changes in Accountants
The 1992 consolidated financial statements of Morgan were audited by
Copeland & Company, independent certified public accountants. On July 23,
1993, Morgan appointed Garcia & Ortiz, P.A, independent certified public
accountants, to replace Copeland & Company. The replacement of Copeland &
Company was approved by Morgan's Board of Directors because Garcia & Ortiz,
P.A. is a larger firm than Copeland & Company, and therefore, is believed
to be able to provide the level of services required by Morgan. Copeland &
Company's report on Morgan's 1992 consolidated financial statements did not
contain an adverse opinion or a disclaimer of opinion, nor was it modified
as to uncertainty, audit scope or accounting principles. During the two
fiscal years preceding the replacement of Copeland & Company, there were no
disagreements between Morgan and Copeland & Company on any matters of
accounting principles or practice, financial statement disclosure or
auditing scope or procedure.
Directors and Executive Officers
The directors and officers of Morgan are as follows:
Tenure as
Officer or
Name Age Position Director
---- --- -------- ----------
J. Mark Strong 43 President, Chief June 1989
Executive to Present
Officer,
Treasurer and
Director
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Sandra G. Garrison 41 Vice President, June 1989
Secretary and to Present
Director
Thomas Acey, Jr. 53 Director December 1994
to Present
Dr. James E. Cooke 38 Director January 1995
to Present
Robert T. Hamilton 52 Director March 1995
to Present
J. Mark Strong has served as President, Chief Executive Officer,
Treasurer and a director of Morgan since June 1989, and as President,
Treasurer and a director of MMC since its inception in June 1986. From
June 1984 until June 1986, he served as President of General Funding
Capital, Inc., a privately-held company engaged in the business of
equipment leasing.
Sandra G. Garrison has served as Vice President, Secretary and a
director of Morgan since June 1989, and as Secretary and a director of MMC
since August 1988. From November 1987 until July 1988, Ms. Garrison was
employed as the Personnel Manager/Special Projects Coordinator for the
Department of Surgery at the University of South Florida School of
Medicine. From 1980 until 1987, she was employed as Executive
Assistant/Educational Coordinator for the Department of Surgery at the
University of South Carolina School of Medicine. Ms. Garrison received a
Bachelor of Science Degree in Marketing from the University of South
Carolina in 1976.
Thomas Acey, Jr., has served as a director of Morgan since December
1994. He is an attorney in Safety Harbor, Florida and has practiced law as
a member of the State of Florida bar since 1991. He presently is a
principal in Holt Partners International, a business consulting firm.
During the period from July 1987 to November 1989, Mr. Acey served as the
Deputy General Counsel for Home Shopping Network, Inc. Prior to 1987, Mr.
Acey was a partner in the law firm of Verner, Lippfert, Bernhard, McPherson
and Hand in Washington, D.C.
Dr. James E. Cooke has served as a director of Morgan since January
1995, and previously served as director from 1989 through 1992. He is
currently employed as an anesthesiologist in a private practice at West
Paces Medical Center in Atlanta, Georgia. Between 1989 and 1992, Dr. Cooke
was on the faculty of the University of South Florida Medical School, and
between 1986 and 1988, he served on the faculty of Stanford University
Medical School. Dr. Cooke received his Doctor of Medicine from
Northwestern Medical School in 1982.
Robert T. Hamilton has served as a director of Morgan since March
1995. Mr. Hamilton is the President and CEO of Robert T. Hamilton &
Associates, a management consulting firm, and Senior Vice President of
Intrados/International Management Group, an international business
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consulting firm. Mr. Hamilton was employed from 1963 until 1994 in various
manufacturing, business units and regional organizations of Eastman Kodak
Company, including service from 1991 to 1994 as the Vice President and
Regional General Manager of Eastman Kodak Company's United States and
Canada regions.
All of Morgan's directors serve for a period of one year and until
their successors are elected and qualify. The officers of Morgan are
elected by the Board of Directors at the first meeting after each annual
meeting of Morgan's shareholders, and hold office until their death, or
until they shall resign or have been removed from office.
Director Compensation
Prior to 1994, no compensation was paid to directors of Morgan for
their services as directors. In 1994, the Morgan Board approved a plan
whereby each director would receive 1,000 shares of Morgan Common Stock for
each meeting of the Morgan Board attended by the director. For services
rendered during 1994, J. Mark Strong, Sandra G. Garrison and Martin Silbiger
(a former director of Morgan) each received 3,000 shares, and Thomas Acey, Jr.
received 1,000 shares, of Morgan Common Stock pursuant to the plan. For
services rendered during 1995, Mr. Strong, Ms. Garrison, Mr. Acey and
Dr. James E. Cooke will each receive 5,000 shares of Morgan Common Stock
pursuant to the plan.
In addition, during the first four months of 1995 Mr. Acey received
$12,150 for services rendered to the Morgan Board as chairman of a special
committee of the Morgan Board which reviewed matters related to the
Schedule 13D filed by the Morgan Shareholder Group. In his role as
chairman of the special committee, Mr. Acey took the leading role in
addressing the Schedule 13D filing, which included holding discussions with
members of the Morgan Shareholder Group and reaching a resolution of the
issues raised in the filing. Dr. Cooke also received $3,125 for services
rendered to the Morgan Board in connection with the filing of the Schedule
13D. Although Dr. Cooke was not an independent director since he was also
a member of the Morgan Shareholder Group, he was not a member of Morgan's
management. Therefore, his participation in the special committee and the
sharing of his views on the matters being addressed were considered
important by other members of the Morgan Board of Directors. Both Mr. Acey
and Dr. Cooke devoted significant time to the Schedule 13D matter in excess
of the time commitments normally required of directors and were compensated
accordingly by Morgan. See "The Merger--Background of the Merger;
Negotiations; Fairness Opinions".
Executive Compensation
The following table sets forth the compensation paid during Morgan's
three fiscal years ended December 31, 1994 to the chief executive officer
of Morgan. No other executive officer of Morgan received compensation in
excess of $100,000 in the last fiscal year.
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Summary Compensation Table
--------------------------
Annual Compensation
-------------------
Name and Principal Salary Bonus
Position Year ($) ($)
------------------ ---- ------ -----
J. Mark Strong 1994 105,936 -0-
President and Chief 1993 94,500 48,000
Executive Officer 1992 94,500 -0-
Mr. Strong does not presently have any employment agreement with
Morgan, nor is he a party to any agreement providing for payments to him in
the event of a change in control of Morgan.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of July 1, 1995, the beneficial
ownership of each person known by Morgan to be the beneficial owner of five
percent or more of Morgan Common Stock, each officer and director of Morgan
individually, and all directors and officers of Morgan as a group:
Amount and
Name and Address Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
J. Mark Strong 1,367,500 42.4%
101 E. Kennedy Blvd.
Suite 1010
Tampa, FL 33602
Sandra G. Garrison 123,417(1) 3.7%
101 E. Kennedy Blvd.
Suite 1010
Tampa, FL 33602
Morgan Shareholder Group 1,068,334(2) 31.2%
c/o William A. Despo, Esq.
One Gateway Center
Newark, NJ 07102
John Morris 238,041(3)(4) 6.8%
P.O. Box 320487
Tampa, FL 33679
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William C. Callari 300,000(3)(5) 9.3%
c/o Realty Development &
Management, Inc.
210 West Front Street
Suite 101
Red Bank, New Jersey 07701
Carl Anderson 226,500(3)(6) 6.9%
15414 E. Burrell Dr.
Lutz, FL 33549
Dr. James E. Cooke 225,793(3) 7.0%
2788 Ridge Valley Rd.
Atlanta, GA 30327
Thomas Acey, Jr. 1,000 *
132 10th Avenue North #105
Safety Harbor, FL 34695
All officers and 1,717,710(1) 51.7%
directors as a Group
(5 Persons)
_______________
* Less than one-percent.
(1) Includes 100,000 shares underlying currently exercisable options.
(2) Includes 200,000 shares underlying currently exercisable warrants.
(3) Member of Morgan Shareholder Group.
(4) Includes 150,000 shares underlying currently exercisable warrants.
(5) Represents shares held by Realty Development & Management, Inc., of
which Mr. Callari is the owner.
(6) Includes 50,000 shares underlying currently exercisable warrants.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
No options were exercised by executive officers of Morgan during the
fiscal year ended December 31, 1994. The following table sets forth for
each of the named executive officers the number of unexercised
options/SAR's remaining at December 31, 1994 and the potential value
thereof based on the year-end per share price of Morgan Common Stock of
$1 1/8 on December 31, 1994, which is based on the average of the closing
bid and asked price for shares of Morgan Common Stock on such date.
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Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SAR's
Options/SAR's at Fiscal
at Fiscal Year-End(#) Year-End($)
Exercisable (E)/ Exercisable (E)/
Name Unexercisable(U) Unexercisable (U)
- ---- -------------------------- -----------------
Sandra G. Garrison 100,000 E(1) $12,500 E
0 U 0 U
(1) Includes 100,000 shares issuable pursuant to an option
exercisable at $1.00 per share.
Certain Shareholder Matters
Holders of Morgan Common Stock are entitled to receive such
dividends as may be declared by Morgan's Board of Directors. No dividends
have been paid with respect to the Morgan Common Stock and no dividends are
anticipated to be paid in the foreseeable future.
As of August 3, 1995, there were approximately 93 holders of record
of the Morgan Common Stock. As of July 31, 1995, 300,000 shares of Morgan
Common Stock were issuable upon the exercise of presently issued and
outstanding Morgan Derivative Securities. In addition, as of July 31,
1995, there are 629,027 shares of Morgan Common Stock that could be sold
pursuant to Rule 144 under the Securities Act.
Certain Relationships and Related Transactions
In June 1990, Morgan borrowed $50,000 from Dr. James E. Cooke, a
director of Morgan, for the purchase of certain equipment. This loan bore
interest at 12%, with the interest being repayable in cash or, at Dr.
Cooke's option, in Morgan Common Stock at a price of $.20 per share. On
September 13, 1990, Morgan repaid $25,000 plus accrued interest in cash to
Dr. Cooke, and on February 19, 1993, Morgan repaid to Dr. Cooke a total of
$10,000, including principal and accrued interest, in cash. On January 1,
1994, Morgan agreed to repay the remainder of the outstanding debt to Dr.
Cooke by the issuance of 7,985 shares of Morgan Common Stock at a price of
$.20 a share for accrued interest in accordance with the terms of the note
evidencing the loan. In addition, Dr. Cooke received 15,411 shares of
Morgan Common Stock at a price of $1.00 per share, based upon the then
prevailing market price for Morgan Common Stock, adjusted for restrictions
on the transfer of such shares, in satisfaction of the remaining principal
balance of the loan. On December 31, 1993, the last trading date before
the foregoing transaction, the closing bid and asked price for shares of
Morgan Common Stock were $1-3/4 and $2-1/2, respectively.
J. Mark Strong, President and Chief Executive Officer of Morgan, and
Sandra G. Garrison, Vice President of Morgan, were indebted to Morgan in
the amounts of $324,348 and $39,353, respectively, as of June 30,
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1995, including accrued interest. The largest aggregate outstanding amount
of the indebtedness of Mr. Strong and Ms. Garrison to Morgan during 1994
was $314,323 and $69,345, respectively. The indebtedness was incurred over
a period of years through a number of transactions.
With regard to Mr. Strong, his indebtedness was incurred as follows:
$100,000 was lent by Morgan to Mr. Strong in order to permit Mr. Strong to
repurchase and cancel an option he had granted with respect to his shares
of Morgan Common Stock; $17,556 in personal expenses were paid by Morgan in
1994; $173,219 in personal expenses were paid by Morgan between 1989 and
1993, inclusive, principally relating to office space maintained in Mr.
Strong's residence; and $33,573 in accrued but unpaid interest.
Mr. Strong made payments on his indebtedness in the amounts of
$68,730 in 1993 and $5,576 in 1994. In April 1994, Mr. Strong issued a
promissory note to Morgan evidencing a portion of his indebtedness in the
amount of $275,000, payable in sixty monthly installments of $5,576 each,
and bearing interest at 8% per annum. This note is currently in default.
The additional amount of indebtedness, $53,176 as of June 30, 1995, is not
evidenced by a promissory note, is due on demand and bears interest at 8%
per annum.
An independent committee of the Morgan Board of Directors has
considered the issue of Mr. Strong's indebtedness to Morgan. After its
review, the independent committee of the Board of Directors recommended on
March 10, 1995, in light of the contemplated Merger with NMR, that Mr.
Strong be required to renew his efforts to make current the interest
payments on these loans and, if the Merger with NMR is not completed, to
fully collateralize the loan with his shares of Morgan Common Stock.
With regard to Ms. Garrison, her indebtedness was incurred through a
series of personal advances that Morgan made to Ms. Garrison to enable her
to acquire certain discounted computer equipment for Morgan and to pay for
certain other business and personal expenses incurred by her and Mr.
Strong. Because of delays in processing the invoices for these expenses, a
portion of such expenses remain in Ms. Garrison's loan account. The amount
of these expenses, net of repayments, charged to her loan account in 1993
was $21,388 and in 1994 was $19,305.
Morgan has been informed by Colorado legal counsel that under Colorado
law as it existed at the time, Mr. Strong's and Ms. Garrison's indebtedness
was required to be approved in advance by Morgan's shareholders. No such
prior shareholder approval was obtained. Morgan does not believe that
there are any contingencies associated with the loans to Mr. Strong and Ms.
Garrison. Morgan has been advised by Colorado legal counsel that Morgan
should not bear any financial responsibility for the failure of the loans
to receive the necessary shareholder approval. Accordingly, Morgan's Board
of Directors has determined that Morgan does not need to record any
contingent liabilities in its financial statements relating to the loans.
Further, because the loans constitute binding obligations of Mr. Strong and
Ms. Garrison,
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respectively, which will be secured by pledges of Morgan Common Stock in
the event the Merger is not consummated, regardless of the lack of
shareholder approval and because Morgan's Board of Directors believes that
Mr. Strong and Ms. Garrison are good credit risks, Morgan's Board of
Directors has determined that Morgan can record the full amount of the
indebtedness on its financial statements.
If the Merger is completed, Mr. Strong's and Ms. Garrison's
indebtedness to Morgan will be assigned to NMR and collateralized with NMR
Common Stock they will receive pursuant to the Merger. See "The Merger--
Terms of the Merger--Notes".
NMR
NMR is engaged, directly and through limited partnerships, in the
business of installing, managing and maintaining MRI and other imaging
systems used for diagnostic purposes on an outpatient basis in facilities
operated by private physicians not employed by NMR.
NMR's principal executive offices are located at 430 Mountain Avenue,
Murray Hill, New Jersey 07974-2732, telephone (908) 665-9400.
This Joint Proxy Statement is accompanied by NMR's 1995 Annual Report
to Stockholders (which includes NMR's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1995), which fully sets forth the business of
NMR as of the date thereof. Other information concerning NMR's business
and financial condition is incorporated by reference from its reports filed
with the SEC. See "Incorporation of Certain Documents by Reference."
Directors
The directors of NMR, their age, and the year in which each first
became a director of NMR are as follows:
Director
Name Age Since
---- --- --------
Joseph G. Dasti............................ 62 1990
Donald W. Arthur........................... 40 1990
Dr. David L. Bloom......................... 65 1990
John A. Faraone............................ 61 1990
Joseph T. Zappala.......................... 60 1990
All of NMR's directors serve for a period of one year and until their
successors are elected and qualified.
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<PAGE>
Mr. Dasti was elected Chairman of the Board of NMR in August 1990 and
President and Chief Executive Officer in October 1990. Prior thereto he
was engaged for more than five years in the securities business with
Seaboard Securities, Inc., except that from January 1985 to October 1986,
Mr. Dasti was employed by Swartwood, Hesse Inc., a securities broker-
dealer. Mr. Dasti was a director of NMR from 1986 to February 1990 and was
re-elected as director in August 1990.
Mr. Arthur has been employed by Schering Plough Research Institute in
various capacities in its research and development activities for more than
the past five years. Mr. Arthur is currently a Foreperson, engaged in
pharmaceutical process development.
Dr. Bloom is Medical Director and Director of Magnetic Resonance
Imaging for Somerset Diagnostic Centers, a privately held provider of MRI
services located in Boston, Massachusetts. He is also a Senior Vice
President and a director of Medical Diagnostics, Inc., a publicly-held
provider of MRI services, and the President and Clinical Director of
Imaging Consultants, Inc., positions he has held since 1987. From 1983 to
1987, Dr. Bloom was President and Chief Executive Officer and a director of
NMR. See "Certain Transactions."
Mr. Faraone has been a practicing attorney specializing in real estate
and personal injury law as a sole practitioner in Wilmington, Delaware for
more than the past five years.
Mr. Zappala has been engaged as a retail equities broker in the
securities business for more than the past five years with Seaboard
Securities, Inc. ("Seaboard"). Mr. Zappala is a principal owning 33% of
Seaboard. From January 1985 until September 1986, he was employed by
Swartwood, Hesse Inc., a securities broker-dealer.
Except for Dr. Bloom, who is also a director of Medical Diagnostics
Inc., no director of NMR is a director of any other corporation which is
subject to the periodic reporting requirements of the Securities Exchange
Act of 1934 or is a registered investment company under the Investment
Company Act of 1940.
Executive Officers
The following table sets forth certain information regarding the
executive officers of NMR.
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<PAGE>
Name Age Offices Held
---- --- ------------
Joseph G. Dasti 62 Chairman of the Board, President
and Chief Executive Officer
John P. O'Malley III 33 Executive Vice President-Finance,
Chief Financial Officer and
Secretary
Mr. O'Malley was appointed Secretary in March 1994 and Executive Vice
President-Finance and Chief Financial Officer in December 1992, and was
initially employed by NMR in May 1992. Prior thereto, he was, commencing
in August 1984, employed by Ernst & Young, a public accounting firm, and
its predecessors, most recently as a manager in its Audit Department. Mr.
O'Malley holds a B.S. degree in Accounting from the University of Delaware
and is a Certified Public Accountant.
All of NMR's executive officers hold office for a term of one year
unless removed earlier by the Board of Directors.
Board of Directors Meetings and Committees
NMR's Board of Directors held ten meetings during the fiscal year
ended March 31, 1995. The Board of Directors has established four
committees. Messrs. Dasti, Faraone, and Bloom are members of the Executive
Committee of the Board of Directors, Messrs. Arthur, Faraone, and Zappala
are members of the Compensation/Stock Option Committee of the Board of
Directors, Messrs. Arthur, Faraone and Zappala are members of the
Audit/Finance Committee of the Board of Directors and Messrs. Dasti, Bloom
and Faraone are members of the Nominating Committee of the Board of
Directors.
Executive Committee. The Executive Committee met one time during the
fiscal year ended March 31, 1995. The Executive Committee has and may
exercise such rights, powers and authority of the Board of Directors as may
from time to time be granted to it by the Board of Directors as permitted
by law.
Audit/Finance Committee. The Audit/Finance Committee met two times
during the fiscal year ended March 31, 1995. The Audit/Finance Committee
recommends the appointment of independent public accountants for NMR and
reviews the scope of audits proposed by the independent public accountants.
In addition, this committee makes recommendations to the Board of Directors
as to finance-related matters.
Compensation/Stock Option Committee. The Compensation/Stock Option
Committee met four times during the fiscal year ended March 31, 1995. The
Compensation/Stock Option Committee reviews and approves compensation
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of employees above a certain salary level, reviews management proposals
relating to incentive compensation plans and the NMR Option Plan, and
reviews and makes recommendations concerning directors' compensation.
Nominating Committee. The Nominating Committee did not meet during
the fiscal year ended March 31, 1995. The Nominating Committee recommends
the appointment of persons to the Board of Directors and to various
committees of the Board of Directors.
Director Compensation
Directors of NMR received compensation at the rate of $2,500 per
quarter plus $500 for each meeting of a committee of directors attended.
NMR has entered into an agreement with Dr. Bloom, a director of
NMR, whereby he provides consulting and advisory services to NMR in
connection with the purchase and technical use of diagnostic imaging
equipment and other services. As compensation for these services, Dr.
Bloom receives $72,000 per annum, payable monthly. The term of the
agreement is for one year expiring December 31, 1995, subject to automatic
renewal unless terminated by either party. In addition, pursuant to the
agreement Dr. Bloom was issued a warrant to purchase 20,000 shares of NMR
Common Stock at an exercise price of $6.38 per share exercisable through
August 29, 2001.
Executive Compensation
The following table sets forth the compensation paid during NMR's
three fiscal years ended March 31, 1995 to the chief executive officer of
NMR and the other executive officer(s) of NMR whose compensation exceeded
$100,000 in the last fiscal year.
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE
Long term
Compensation
Annual Compensation Awards
---------------------- ----------------------
Securities Underlying
Name and Options/SARs All Other
Principal Position Year(1) Salary($)(2) Bonus($) and Warrants (#) Compensation ($)(4)
- ------------------ ------- ------------ -------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Joseph G. Dasti 1995 206,923 19,450 0 14,531
President 1994 150,384 50,000(3) 100,000 27,450
1993 148,461 25,000 0 1,504
John P. O'Malley III 1995 155,369 15,951 0 20,302
Executive Vice 1994 105,726 55,000(3) 100,000 12
President-Finance 1993 71,654 7,800 0 0
- ---------------------------
</TABLE>
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(1) Information relates to the fiscal years ended March 31.
(2) Includes amounts for periods during which executive officers were
employed by NMR, regardless of capacity in which employed.
(3) $40,000 of bonus was earned during fiscal 1994 and paid subsequent to
year-end.
(4) Amounts of All Other Compensation include (i) amounts contributed or
accrued to NMR's 401(k) profit sharing plan, (ii) employee portion of
premiums on key-man life insurance and (iii) amounts paid for
accumulated unused vacation pay which was earned during prior fiscal
years.
OPTION/SAR AND WARRANT GRANTS IN LAST FISCAL YEAR
No options, warrants or stock appreciation rights (SAR's) were
granted to any executive officer during the fiscal year ended March 31,
1995.
AGGREGATED OPTION/SAR AND WARRANT EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR AND WARRANT VALUES
No options or warrants were exercised by executive officers
during the fiscal year ended March 31, 1995. The following table sets
forth for each of the named executive officers the number of unexercised
options/SAR's and warrants remaining at March 31, 1995 and the potential
value thereof based on the year-end closing per share sales price of NMR
Common Stock of $4.75 on March 31, 1995.
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SAR's and
Options/SAR's and Warrants Warrants at
at Fiscal Year-End(#) Fiscal Year-End($)
Exercisable (E)/ Exercisable (E)/
Name Unexercisable(U) Unexercisable (U)
- ---- -------------------------- -----------------
Joseph G. Dasti 417,500 E(1) 202,900 E
87,500 U(2) 140,250 U
John P. O'Malley III 25,000 E(3) 52,495 E
75,000 U(4) 157,485 U
(1) Includes 30,000 shares issuable pursuant to a warrant exercisable at
$3.92 per share, 75,000 shares issuable pursuant to a warrant exercisable
at $3.00 per share, 50,000 shares issuable pursuant to a warrant
exercisable at $6.38 per share, 37,500 options exercisable at $6.38 per
share, 100,000 shares issuable pursuant to a warrant exercisable at $7.63
per share, 100,000 shares issuable pursuant to a warrant exercisable at
$10.00 per share, and 25,000 shares issuable pursuant to an option
exercisable at $2.88 per share.
(2) Includes 12,500 shares issuable pursuant to an option exercisable at
$6.38 per share and 75,000 shares issuable pursuant to an option
exercisable at $2.88 per share.
(3) Includes 10,000 shares issuable pursuant to an option exercisable at
$2.31 per share, and 15,000 shares issuable pursuant to an option
exercisable at $2.88 per share.
(4) Includes 30,000 shares issuable pursuant to an option exercisable at
$2.31 per share and 45,000 shares issuable pursuant to an option
exercisable at $2.88 per share.
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Indemnification of Officers and Directors
NMR has entered into separate indemnification agreements with each of
its officers that could require NMR, among other things, to indemnify its
officers against certain liabilities that may arise by reason of their
status or service as officers and to advance expenses incurred by them as a
result of any proceeding against them as to which they could be
indemnified.
In addition, NMR's Bylaws provide that NMR shall indemnify its
officers and directors made, or threatened to be made, a party to any
action (other than an action by or in the right of NMR) by reason of the
fact that he is or was a director or officer of NMR against liabilities and
reasonable expenses incurred in connection with such action if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal proceedings, had no reasonable cause to believe his conduct was
unlawful. NMR's Bylaws also provide that NMR shall, with certain
exceptions, indemnify its officers and directors against reasonable
expenses incurred in connection with any action by or in the right of NMR
if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation. Under
NMR's Bylaws, NMR must also indemnify its directors and officers against
reasonable expenses if such person is successful in the defense of any
action of the nature described above. See "The Merger--Comparison of
Rights of Holders of Shares Under Colorado and Delaware Law".
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of NMR pursuant to the foregoing provisions, or otherwise, NMR has
been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Employment Agreements
NMR has entered into executive employment agreements with Messrs.
Dasti and O'Malley which expire on June 20, 1999 and provide for annual
base salaries in amounts of $200,000 and $150,000, respectively. Pursuant
to the contracts, Messrs. Dasti and O'Malley are entitled to receive
quarterly bonus payments calculated as a percentage of NMR's consolidated
quarterly pre-tax income (as defined in the agreements) as follows:
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Percentage Percentage
Payable to Payable to
Quarterly Pre-Tax Income ("PTI") Mr. Dasti Mr. O'Malley
- -------------------------------- --------- ------------
PTI in excess of $450,000 up to 4.45% 3.65%
$674,000
PTI in excess of $674,000 up to 2.92% 2.38%
$900,000
PTI in excess of $900,000 up to 1.98% 1.62%
$1,125,000
PTI in excess of $1,125,000 1.65% 1.35%
Each of the employment agreements of Messrs. Dasti and O'Malley
provides that if the executive is terminated without cause, he shall be
entitled to receive severance pay equal to his base salary and bonus for
the remainder of the term of his contract. In addition, he would be
entitled to continued participation in all NMR benefit plans until the
earlier of (i) the expiration date of his contract or (ii) the date he
becomes employed by another company providing similar benefits. In the
event that the executive is terminated for cause, he is not entitled to
receive any monetary compensation under his employment agreement other than
compensation accruing to the date his employment is terminated.
Each of the employment agreements also provides that if following
a change of control (as defined in the agreements) of NMR, NMR, among other
things, assigns to the executive duties inconsistent with his position,
materially reduces his powers or functions, fails to provide annual salary
increases consistent with past practices or requires the executive to
change his place of employment, then the executive will have the right to
terminate his employment agreement. In such an event, the executive would
be entitled to receive the same severance pay as he would receive in the
event his employment is terminated without cause.
In the event either executive terminates his employment agreement
for cause, any stock options held by him issued pursuant to any stock
option plan of NMR would, to the extent permissible, become immediately
vested and exercisable. If the immediate vesting of such options is not
permitted, he would be entitled to receive a five-year warrant immediately
exercisable for the same number of shares of NMR Common Stock subject to
such options and exercisable at the same per share exercise price. The
executive would also be entitled in certain instances to have the resale of
the shares subject to the warrant registered under the Securities Act.
Director and Officer Securities Reports
The Federal securities laws require NMR's directors and executive
officers, and persons who own more than 10% of a registered class of NMR's
equity securities, to file with the SEC reports of changes
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in ownership of any equity securities of NMR. Copies of such reports are
required to be furnished to NMR. To NMR's knowledge, based solely on a
review of the copies of such reports furnished to NMR, all persons subject
to these reporting requirements filed the required reports on a timely
basis during the 1995 fiscal year.
Certain Transactions
Ten of the operational diagnostic imaging systems owned by NMR at
June 30, 1995 have been installed in offices leased by professional
corporations whose principal is Dr. David L. Bloom, who is also a director
of NMR. These agreements in general provide for the payment to NMR of a
periodic fixed fee, a fee based upon the number of scans performed and a
billing charge. Local radiologists are under contract with these
professional corporations pursuant to which such local radiologists serve
as the professional staff at the center and read the scans produced at the
center for a fee. Under the agreements, NMR is obligated to make the
necessary leasehold alterations or site improvements at each installation
for the diagnostic imaging systems, and provide the furniture, fixtures,
and furnishings necessary for the operation of the office. NMR is also
obligated to provide all the ancillary supplies and equipment used by the
diagnostic imaging systems and for arranging and paying for maintenance of
the diagnostic imaging systems. NMR also provides consultation with
respect to the financial management of the center, including billing and
collecting fees. All fees are collected by the physician professional
corporations, however, NMR has the contractual responsibility to maintain
all financial and other records and prepare and transmit bills. Pursuant
to the foregoing agreements, NMR billed affiliated professional
corporations, net of contractual adjustments, $14,784,092 and $15,190,299
during the fiscal years ended March 31, 1995 and 1994, respectively.
On January 21, 1992, the Board of Directors authorized NMR to
enter into an agreement with Seaboard Securities, Inc. ("Seaboard") to
provide advisory services to NMR in exchange for a warrant to purchase
100,000 shares of NMR Common Stock at an exercise price of $8.00 per share,
subject to vesting as services are provided. In addition, NMR granted
rights to certain persons who are shareholders of Seaboard, including Mr.
Zappala, a director of NMR and 33.3% shareholder of Seaboard, to have
resales of the shares of NMR Common Stock issuable on exercise of warrants
held by such persons registered under the Securities Act at the expense of
such persons.
Principal and Other Stockholders
The following table sets forth the number of shares of NMR Common
Stock beneficially owned as of July 1, 1995 by (i) each person known to
NMR to be a beneficial owner of more than 5% of the outstanding NMR Common
Stock; (ii) each director of NMR; (iii) NMR's chief executive officer and
its other four most highly compensated executive officers whose total
salary and bonus for the fiscal year ended March 31, 1995 exceeded
$100,000, and (iv) all directors and officers of NMR as a group:
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Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership (1) Percent of Class
- ------------------------- --------------------------- ----------------
Joseph G. Dasti 559,513(2) 10.2%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
John P. O'Malley III 38,626(3) 0.8%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
Donald W. Arthur 33,000(4) 0.6%
4 Kalman Court
Warren Township, NJ 07060
Dr. David L. Bloom 150,000(5) 2.9%
Somerset Diagnostic
400 Commonwealth Avenue
Boston, MA 02215
John A. Faraone 64,000(6) 1.3%
1213 King Street
Wilmington, DE 19899
Joseph T. Zappala 37,900(7) 0.7%
30 South Broadway
Pennsville, NJ 08070
Dr. Donald A. Tobias 311,000(8) 6.2%
97 Biltmore Estates
Phoenix, AZ 85016
All Directors and Officers 883,039(9) 15.8%
as a Group (6 persons)
(1) through (7)
- ---------------
(1) Unless otherwise disclosed, all of such persons hold their shares of
record and beneficially.
(2) Includes 134,700 shares held of record and beneficially, 7,313 shares
owned through NMR's 401(k) plan, 30,000 shares issuable pursuant to a
warrant exercisable at $3.92 per share through May 18, 1999, 75,000 shares
issuable pursuant to a warrant exercisable at $3.00 per share through
November 5, 1998, 50,000 shares issuable pursuant to a warrant exercisable
at $6.38 per share through December 18, 2001, 37,500 stock options
exercisable at $6.38 per share through December 18, 2001, 100,000 shares
issuable pursuant to a warrant exercisable at $7.63 per share through March
12, 2002, 100,000 shares issuable pursuant to a warrant exercisable at
$10.00 per share through March 12, 2002 and 25,000 shares issuable pursuant
to a stock option exercisable at $2.88 per share through March 14, 2004.
Does not include 12,500 shares issuable pursuant to a stock option
exercisable at $6.38 per share through December 18, 2001 and 75,000 shares
issuable pursuant to a stock option exercisable at $2.88 per share through
March 14, 2004, which are not currently exercisable.
(3) Includes 10,000 shares held of record and beneficially, 3,626 shares
owned through NMR's 401 (k) plan, 10,000 shares issuable pursuant to a
stock option exercisable at $2.31 per share through August 4, 2003 and
15,000 shares issuable pursuant to a stock option exercisable at $2.88 per
share through March 14, 2004. Does not include 30,000 shares issuable
pursuant to a stock option exercisable at $2.31 per share through August 4,
2003 and 45,000 shares issuable pursuant to a stock option exercisable at
$2.88 per share through March 14, 2004, which are not currently
exercisable.
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(4) Includes 13,000 shares held of record and beneficially and 20,000
shares issuable pursuant to a warrant exercisable at $6.38 per share
through December 18, 2001.
(5) Includes 110,000 shares held of record and beneficially and 40,000
shares issuable pursuant to warrants exercisable at $6.38 per share through
December 18, 2001.
(6) Includes 44,000 shares held of record and beneficially and 20,000
shares issuable pursuant to a warrant exercisable at $6.38 per share
through December 18, 2001.
(7) Includes 3,900 shares held of record and beneficially, 20,000 shares
issuable pursuant to a warrant exercisable at $6.38 per share through
December 18, 2001 and 14,000 shares issuable pursuant to a warrant
exercisable at $3.92 per share through May 18, 1999.
(8) Based on information set forth in Schedule 13D dated February 19,
1986 filed by Dr. Tobias.
(9) Includes shares issuable on exercise of NMR Options and NMR Warrants
held by officers and directors which are exercisable within 60 days of
July 1, 1995.
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GOVERNMENT REGULATION OF NMR AND MORGAN
General
Various Federal and state statutes and regulations affect
virtually all aspects of NMR's and Morgan's operations. These include
statutes intended to facilitate healthcare planning by placing limitations
on the purchase of medical equipment and other capital expenditures and by
seeking to contain healthcare costs within the Medicare and Medicaid
reimbursement programs. Federal and state statutes also seek to prohibit
or limit referrals of patients to facilities in which the referring
physician has an ownership interest. These statutes and regulations, as
well as the reimbursement policies of the various state and Federal
government programs and other aspects of government regulation of the
healthcare industry are subject to amendment, revision and further
interpretation from time to time. These amendments, revisions and
interpretations could change the regulatory environment relating to NMR's
and Morgan's operations and the programs under which physicians and others
are reimbursed for diagnostic imaging procedures, and thereby could have a
material effect on NMR's and Morgan's business activities.
Certificate of Need Requirements
Certain states have enacted certificate of need ("CON") laws to
facilitate healthcare planning by placing limitations on the purchase of
major medical equipment and other capital expenditures. CON legislation
has been enacted in the states of New Jersey, Pennsylvania and Illinois,
where NMR has MRI centers, as well as a number of other states where NMR
does not currently have MRI centers. These statutes, together with their
implementing regulations, could limit NMR's ability to acquire new imaging
equipment or expand or replace its existing equipment, and no assurances
can be given that the required regulatory approvals for any future
acquisitions, expansions or replacements will be granted to NMR. With
respect to Morgan's operations in Florida, MRIs and the free standing
centers from which they are operated are presently exempt from CON review
in the State of Florida. The exemption of MRIs in Florida is based upon
prior Federal Food and Drug Administration approval of the technology for
human use.
Reimbursement under Federal Programs
The services offered at NMR's and Morgan's imaging centers are
made available to private pay patients (including those covered by a health
benefit plan of a third-party payer) and patients relying on Medicare
and/or Medicaid for payment of their expenses. Medicaid is a program
administered by the various states to provide medical assistance to the
indigent. For example, Florida's Department of Health and Rehabilitative
Services promulgates and administers rules affecting services to Florida
Medicaid patients. Medicare, on the other hand, is a Federally-funded
program pursuant to the Federal Health Insurance For the Aged and Disabled
Act. To receive reimbursement under the Medicare
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and/or Medicaid programs, NMR, Morgan and/or the physicians rendering
services at their imaging centers, must be certified as a provider of
Medicare and/or Medicaid services. The qualifications for participation in
these programs, as well as the programs' coverage requirements for
reimbursement of imaging services, depend upon a number of factors, and no
assurances can be made that NMR and Morgan may not be required to change or
improve their facilities, personnel, relationships with personnel,
equipment or services to maintain their Medicare/Medicaid certification.
Stark Law
As part of the Federal Omnibus Budget Reconciliation Act of 1993,
Congress established a ban on physician referrals of Medicare and Medicaid
patients to "designated health services" in which a physician or member of
a physician's immediate family has a "financial interest." A "financial
interest" includes both an ownership or investment interest, including a
limited partnership interest, in the entity furnishing designated health
services, and a compensation arrangement between the physician (or
immediate family member) and the entity furnishing designated health
services.
This law, generally referred to as "Stark II," applies to
referrals made on or after January 1, 1995 to entities furnishing
designated health services. Specifically with regard to NMR's and Morgan's
operations, the "designated health services" covered by Stark II's
physician self-referral prohibition include "radiology or other diagnostic
services, including magnetic resonance imaging, computerized axial
tomography scans and ultrasound services." In addition, Stark II's self-
referral prohibition applies to the physical therapy services presently
offered by Morgan.
Stark II provides exceptions, including employment and certain
contractual relationships, but unless an exception to the self-referral
restrictions applies, physicians will be precluded from billing for
referred services rendered to Medicare and Medicaid patients. Violations
of Stark II prohibitions include denial of payment for designated health
services, refunds of amounts billed and collected for such services, civil
monetary penalties and exclusion from the Medicare and Medicaid programs.
Stark II also requires NMR and Morgan, as providers of diagnostic
services, to report to the Department of Health and Human Services ("HHS")
the names and identification number of physicians who have, or whose
immediate family members have, an investment interest in NMR or Morgan, as
the case may be.
In response to the enactment of Stark II, NMR purchased limited
partnership interests from physician and non-physician investors in certain
of its limited partnerships during the fourth quarter of fiscal 1994, and
any physician investors who chose not to divest their interests in NMR's
imaging centers are not permitted to make Medicare or Medicaid
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referrals to NMR imaging centers. Prior to the acquisitions of these
limited partnership interests, NMR's imaging centers did not receive a
material amount of Medicare or Medicaid referrals from those physician
limited partners who chose not to divest their interests. Accordingly, any
loss of referrals from non-exempt physician limited partners who chose not
to divest their interests in NMR's imaging centers prior to January 1, 1995
is not expected to have a material adverse impact on NMR's revenues, net,
results of operations and liquidity.
Although NMR and Morgan believe that they are in material
compliance with all applicable Federal laws and regulations which place
limitations on referrals of patients, there can be no assurance that such
laws or regulations will not be amended, interpreted or applied in the
future in such a way as to have a material adverse impact on NMR and/or
Morgan, or that the Federal government will not impose additional
restrictions upon all or a portion of NMR's and/or Morgan's activities,
which might adversely affect NMR's and/or Morgan's businesses.
Federal Fraud and Abuse Law
NMR and Morgan are subject to Federal fraud and abuse laws. The
principal Federal fraud and abuse law contains the illegal remuneration
provisions which prohibit the offering or payment, or the solicitation or
acceptance of any bribe, kickback, rebate or any direct or indirect
remuneration, in exchange for the referral of a patient for items or
services reimbursed by the Medicare or Medicaid programs (the "Anti-
Kickback Statute"). The Anti-Kickback Statute is intended, in part, to
prevent the improper referral of patients for medical tests or treatment by
healthcare providers who may have a financial interest in the entity which
provides such services. Among other situations to which this legislation
may be applicable, governmental authorities have from time to time
maintained under certain circumstances that where physicians or other
healthcare providers have made investments in medical care enterprises,
although no express agreement regarding referrals of patients to the
enterprise may exist, payments to the physicians or healthcare providers
who refer patients to the enterprise may violate the Anti-Kickback Statute.
Violation of this law may result in significant criminal and civil
penalties and exclusion from participation in the Medicare and Medicaid
programs.
On July 29, 1991, HHS issued "safe harbor" regulations under the
Anti-Kickback Statute, which define safe payment practices which are not
subject to criminal or civil prosecution. Additional safe harbors were
proposed in September of 1993, but they have not yet been adopted. A safe
harbor for investment interests sets forth eight conditions, which if all
are met, assure a partnership that distributions of profits to its partners
who refer patients to or provide services for the partnership will be
deemed not to violate the Anti-Kickback Statute.
Morgan was advised that the percentage rent terms of the lease
agreement for its Cape Coral center, entered into on December 19, 1989, may
fall outside of the safe harbor regulations and be violative of
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Federal law. The lease agreement provided for a percentage rent equal to
15% of the center's net cash flow from operations, which includes payments
for Medicare in-patients referred by Cape Coral Hospital. In response to
this advice, Morgan reached an agreement with the hospital to revise the
lease to provide for a fixed monthly rent.
The safe harbor regulations are not the sole determinant of
whether a healthcare business is operating in compliance with the Anti-
Kickback Statute, and failure to comply with applicable safe harbors does
not necessarily make a particular payment practice illegal. If a payment
practice does not fall within the applicable safe harbors, the arrangement
must be examined in light of the language and intent of the Anti-Kickback
Statute. Thus, a healthcare business can fail to meet the safe harbors and
still be operating lawfully under the Anti-Kickback Statute. Although NMR
and Morgan believe that they are in general and substantial compliance with
the Anti-Kickback Statute, there can be no assurance that the HHS' Office
of Inspector General, which is responsible for enforcing the Anti-Kickback
Statute, will not challenge NMR's or Morgan's position on compliance with
such statute or that, if such a challenge occurred, a court would uphold
NMR's or Morgan's position.
State Referral Laws
Many states, including those states in which NMR and Morgan
conduct their businesses, have their own laws which impose restrictions on
physicians and other healthcare providers in connection with the referral
of patients to facilities in which such physicians and providers have an
ownership interest. Unlike the Anti-Kickback Statute, these state referral
laws are not limited to items and services reimbursed by Medicare and
Medicaid.
Specifically with respect to Morgan's operations in Florida, the
Florida Patient Self-Referral Act of 1992 (the "Florida Act") regulates
and, in some cases, prohibits physicians' referrals of patients to facili-
ties in which they own an investment interest. Referrals to a diagnostic
imaging center became specifically prohibited effective October 1, 1994.
Under the Florida Act, a physician who owns Morgan capital stock is also
prohibited from making any patient referrals to Morgan's diagnostic imaging
facilities.
Morgan's Naples MRI center was owned by a limited partnership in
which MMC was general partner and the sole limited partner was a
corporation, all the shareholders of which were physicians who referred
patients to the Naples MRI center. Morgan's management determined that the
physicians' financial interest in the limited partnership might not comply
with Florida law. Accordingly, during 1993, MMC acquired the corporation
from these physicians for cash and promissory notes. The promissory notes
were paid by Morgan in November 1994.
Although NMR and Morgan believe that they are in material
compliance with all applicable state laws and regulations which place
limitations on referrals of patients, there can be no assurance that such
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laws or regulations will not be amended, interpreted or applied in the
future in such a way as to have a material adverse impact on NMR and/or
Morgan, or that state governments will not impose additional restrictions
upon all or a portion of NMR's and/or Morgan's activities, which might
adversely affect NMR's and Morgan's businesses.
Practice of Medicine
NMR's and Morgan's imaging centers are subject to state laws
prohibiting the practice of medicine by non-physicians and the rebate or
division of fees between physicians and non-physicians. Specifically with
respect to NMR, professional radiology services are performed at NMR's
imaging centers by licensed physicians under contract with a medical
professional corporation, while NMR provides the imaging equipment and
technical employees. The physicians with whom NMR enters into agreements
are subject to requirements of the licensing authorities of the states in
which they practice medicine to assure that such persons meet the
requirements necessary to practice medicine and for the protection of the
public. In addition, the imaging centers of NMR may be subject to certain
states' healthcare facility licensure requirements. There can be no
assurance that state authorities or others may not challenge this structure
as involving NMR in the unlawful practice of medicine or that any required
facility licensure approvals will be granted to NMR.
Florida's Department of Health and Rehabilitative Services is
required by law to license Morgan's imaging centers and to collect certain
financial and operating information from Morgan. Florida law also subjects
the medical personnel performing services at each center to licensure and
regulation. Physical therapy services provided at Morgan's Georgia center
are not regulated by either state or Federal agencies, although all
personnel performing services at the center are required to be licensed.
Healthcare Cost Containment Legislation
Federal and state agencies have adopted or are considering
medical cost containment legislation which has restricted or may restrict
prices charged by hospitals and other healthcare providers. Such
legislation, together with cost constraints imposed by insurance companies
and other third-party payers, has reduced, and can be expected to continue
to reduce, the fees which NMR and Morgan collect for the use of their
diagnostic imaging equipment and/or for the provision of diagnostic imaging
services.
For example, the Florida Act provides that no diagnostic imaging
center, other than one owned by a hospital or physician group practice, may
charge a patient more than 115% above the Medicare approved charge for
physicians who do not participate in the Medicare program. An order was
entered in Federal court enjoining, on constitutional grounds, the
enforcement of the provisions of the Florida Act which imposed a fee cap on
providers of certain designated healthcare services, similar to
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those services provided by Morgan. This order was subsequently reversed,
and the constitutionality of the Florida Act continues to be litigated.
Morgan is not a party to this action.
In June 1994, a Florida court ruled that the fee cap provisions
of the Florida Act violated the Florida state constitution.
Representatives of the State of Florida have indicated that it will appeal
the decision. As a result of the state court's decision, Morgan is not
presently subject to the fee cap provisions of the Florida Act. There can
be no assurance, however, that the state court's decision will not be
reversed, or that the fee cap would not be reinstated retroactively to the
initial effective date. Morgan's management is unable, at this time, to
quantify the effects of the fee cap on its future operations. If the fee
cap provisions of the Florida Act are ultimately upheld and enforced
retroactively, Morgan may become subject to financial penalties and claims
for refunds of any charges collected since July 1, 1992 that exceeded the
amount permitted under the Florida Act. Thus, depending on how the fee cap
is implemented, this statute could have a material adverse effect on NMR's
and Morgan's operations in Florida following the Merger.
Other Federal and state cost containment proposals have not been
fully formulated at this time. Thus, NMR and Morgan are unable to
determine at this time how any such proposals that are adopted may affect
their businesses, but NMR and Morgan expect that these proposals will
reduce their average revenue, net realized for diagnostic imaging
procedures.
NMR and Morgan have been pursuing agreements with health
maintenance organizations (HMOs), preferred provider organizations (PPOs),
and others to provide services to these organizations and their members.
These organizations typically negotiate for and receive an allowance
deducted from the standard fee thereby reducing revenues to NMR and Morgan.
NMR and Morgan expect these contracts to become an increasingly significant
part of their mix of business. Significant changes in coverage, possibly
combined with a reduction in payment rates by third-party payers, would
have a material adverse effect on NMR's and Morgan's revenues, net, results
of operations and liquidity.
Possible National Healthcare Reform
The enactment of national healthcare reform legislation is
uncertain. Although national healthcare reform laws, if enacted, may have
the beneficial effect of increasing the number of persons who will have
access to services provided by NMR and Morgan, such reform laws may also
reduce the fees that may be charged for such services. In particular,
there is a possibility that a significant portion of healthcare services
will be rendered and administered through a system which could force price
concessions from service providers such as NMR and Morgan. Moreover,
national healthcare reform laws could cause greater analysis of each
patient's need for diagnostic testing, with the aim of eliminating
unnecessary tests and reducing the volume and cost of
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medical care. Depending on the nature and extent of any new Federal laws
and/or regulations, or possible changes in the interpretation of existing
laws and/or regulations, the foregoing may have a material adverse effect
on NMR's and Morgan's revenues, operating margins and profitability.
FDA Regulation
The use of diagnostic imaging systems are subject to regulation
by the Food and Drug Administration ("FDA") as a medical device. The FDA
has approved all of the devices used by NMR and Morgan in substantially all
currently utilized procedures. Although considered by NMR and Morgan to be
unlikely, there can be no assurance that the FDA may not promulgate
regulations in the future that may negatively affect their use of
diagnostic imaging systems.
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COMPARISON OF RIGHTS OF HOLDERS OF SHARES
UNDER COLORADO AND DELAWARE LAW
The rights of holders of Morgan Common Stock are currently
governed by Colorado law, Morgan's Articles of Incorporation and Morgan's
Bylaws. Upon consummation of the Merger, holders of Morgan Common Stock
will become holders of NMR Common Stock, and their rights as holders of NMR
Common Stock will be governed by Delaware law, NMR's Certificate of
Incorporation and NMR's Bylaws. Although it is not practical to summarize
all of the rights of holders of Morgan Common Stock and NMR Common Stock,
certain principal differences that could materially affect the rights of
the holders of Morgan Common Stock are set forth below.
Anti-Takeover Measures
NMR is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). In general, this statute prohibits a
publicly held Delaware corporation from engaging, under certain
circumstances, in a "business combination" with an "interested stockholder"
for a period of three years after the date of the transaction in which the
person becomes an interested stockholder, unless either: (i) prior to the
date at which the stockholder became an interested stockholder, the Board
of Directors approved either the business combination or the transaction in
which the person becomes an interested stockholder; (ii) the stockholder
acquires more than 85% of the outstanding voting stock of the corporation
(excluding shares held by directors who are officers or held in certain
employee stock plans) upon consummation of the transaction in which the
stockholder becomes in interested stockholder; or (iii) the business
combination is approved by the Board of Directors and by at least 66 2/3%
of the outstanding voting stock of the corporation (excluding shares held
by the interested stockholder) at a meeting of stockholders (and not by
written consent) held on or subsequent to the date of the business
combination. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's voting stock. Section 203
defines a "business combination" to include, without limitation, mergers,
consolidations, stock sales and asset based transactions and other
transactions resulting in a financial benefit to the interested
stockholder.
The Colorado Business Corporation Act ("CBCA") does not have any
anti-takeover provision similar to Section 203 of the DGCL.
The Articles of Incorporation of Morgan and the Certificate of
Incorporation of NMR authorize the Morgan Board and the NMR Board,
respectively, without the necessity of further action or authorization by
their respective stockholders, to issue shares of preferred stock in
series, and to fix with respect to the shares of each such series, among
other things, (i) the number of shares in such series, (ii) the voting
rights, if any, (iii) the conversion privileges and rates, if any, (iv)
redemption rights, if any, and (v) liquidation rights and preferences.
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The issuance of a series of preferred stock could discourage an attempt by
a person or entity to acquire control of Morgan or NMR, as applicable, by a
tender offer or other means by increasing the difficulty or cost to persons
seeking to effect a takeover or otherwise gain control. See "Risk Factors-
- -Possible Adverse Effects of Preferred Stock Issuances" and "The Merger--
Description of NMR Stock--Preferred Stock".
Amendment to Articles or Certificate of Incorporation
Under the CBCA, an amendment to a corporation's articles of
incorporation may be proposed by the board of directors or by holders of
shares representing at least 10% of the votes entitled to be cast on the
amendment. Under the Articles of Incorporation of Morgan, an amendment
must be approved by a majority of the votes entitled to be cast on the
amendment. Holders of the outstanding shares of a class are entitled to
vote as a class with respect to certain amendments, including any amendment
which would increase or decrease the aggregate number of authorized shares
of such class, effect an exchange or reclassification of shares of such
class for shares of another class, change the designation, preferences,
limitations or relative rights of such shares, or create a new class of
shares having, or alter the rights and preferences of or increase the
authorized shares of any other class which following the amendment would
have, rights or preferences with respect to distributions or dissolution
that are superior, or substantially equal to, shares of such class.
Under the DGCL, an amendment to a corporation's certificate of
incorporation requires the affirmative vote of the holders of a majority of
the outstanding shares of the corporation entitled to vote thereon and a
majority of the outstanding shares of each class entitled to vote thereon
as a class, unless the corporation's certificate of incorporation provides
for a higher percentage. Holders of the outstanding shares of a class, or
series of a class, shall be entitled to vote as a class with respect to any
amendment which would increase or decrease the aggregate number of
authorized shares of such class or series, increase or decrease the par
value of the shares of such class or series, or alter or change the powers,
preferences or special rights of such shares so as to adversely affect such
holders. NMR's Certificate of Incorporation and Bylaws do not alter the
procedures set forth in the DGCL for effecting an amendment to NMR's
Certificate of Incorporation.
Mergers, Exchanges, Consolidations and Dissolutions
Under the Articles of Incorporation of Morgan, the holders of a
majority of the outstanding shares entitled to be voted thereon may approve
an agreement of merger or consolidation, share exchange or the dissolution
of Morgan. Under the DGCL, the holders of a majority of the outstanding
shares of the corporation entitled to vote thereon may approve an agreement
of merger or consolidation or the dissolution of a corporation, unless the
corporation's certificate of incorporation provides for a higher
percentage.
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Both the CBCA and the DGCL provide that approval of the
shareholders of the surviving corporation of a merger is not required if
the charter of the corporation is not being amended in connection with the
merger, no change will be made to the outstanding stock in connection with
the merger, and the amount of shares of common stock to be issued in the
merger (including shares issuable pursuant to any derivative securities
issued pursuant to the merger) does not exceed 20% the number of shares
outstanding immediately prior to the effective date of the merger. Both
the CBCA and the DGCL further provide that a corporation owning at least
90% of the outstanding shares of each class of another corporation may
merge with such other corporation without the approval of the shareholders
of either corporation (unless the parent corporation is not the surviving
corporation in the merger, in which case the approval of the shareholders
of the parent corporation must be obtained as provided above), and permits
such merger if either the parent or subsidiary is a domestic corporation
and such merger is otherwise permitted by applicable law.
Disposition of Assets
Under the Articles of Incorporation of Morgan, the sale, lease or
exchange of all, or substantially all, of a corporation's assets must be
authorized by the holders of a majority of the outstanding shares entitled
to vote thereon.
Under the DGCL, the sale, lease or exchange of all, or
substantially all, of a corporation's assets must be authorized by a
resolution adopted by the holders of a majority of the outstanding shares
of the corporation entitled to vote thereon, unless the corporation's
certificate of incorporation provides for a higher percentage. NMR's
Certificate of Incorporation does not provide for a percentage vote by
stockholders higher than that required by the DGCL with respect to a
disposition of assets.
Amendment to Bylaws
Under the DGCL, shareholders of a Delaware corporation have the
power to adopt, amend or repeal the bylaws of the corporation. Such action
may be taken by the stockholders at an annual or special meeting at which a
quorum is present. The Certificate of Incorporation of NMR provides that
the Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of NMR, although this provision does not divest or limit the power
conferred upon the NMR stockholders by the DGCL.
The Articles of Incorporation of Morgan provide that the power to
alter, amend or repeal the Bylaws of Morgan or adopt new Bylaws is vested
in the Morgan Board of Directors, subject to repeal or change by the Morgan
shareholders. The shareholders of Morgan may amend or repeal actions taken
by the Morgan Board of Directors with respect to the Bylaws of Morgan by
the shareholders at an annual or special meeting at which a quorum is
present, or by unanimous written consent of the shareholders. Under the
CBCA, the articles of incorporation may also be amended to
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limit the power of the board of directors to amend, repeal or adopt the
bylaws. In addition, a bylaw provision may prohibit amendment by the board
of directors, regardless of whether it is adopted by the board or by the
shareholders.
Change in Number of Directors
Under the CBCA, the number of directors is to be specified in or
fixed in accordance with the bylaws of the corporation. If the bylaws
establish a range for the size of the board, the number of directors may be
fixed by the shareholders or the directors of the corporation.
Under the DGCL and the Certificate of Incorporation of NMR, the
number of directors is be fixed by or in the manner provided in the bylaws
of the corporation, unless such number is fixed in the corporation's
certificate of incorporation, in which case a change in the number of
directors shall be made by amendment of the certificate of incorporation.
Vacancies and Newly Created Directorships
The CBCA provides that, unless otherwise provided in the
corporation's articles of incorporation, vacancies and newly created
directorships resulting from an increase in the authorized number of
directors may be filled by the directors then in office, although less than
a quorum, or by the shareholders; provided, that if the vacant office was
held by a director elected by the holders of any class of shares, such
vacancy shall be filled by a majority of the directors then in office
elected by the holders of such class, or by such holders. Morgan's
Articles of Incorporation do not alter the CBCA provisions regarding
vacancies and newly created directorships.
The DGCL provides that, unless otherwise provided in the
corporation's certificate of incorporation or bylaws, vacancies and newly
created directorships resulting from an increase in the authorized number
of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director; provided,
that if the holders of any class or series are entitled to elect one or
more directors, vacancies and newly created directors of such class or
series shall be filled by a majority of the directors elected by such class
or series then in office, or by the sole remaining director so elected.
The Bylaws of NMR permit vacancies and newly created
directorships to be filled in the manner set forth in the DGCL, and further
state that if no directors are in office, any officer or stockholder may
call a special meeting of stockholders at which such vacancies may be
filled.
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Removal of Directors
The CBCA permits the removal of any or all directors, with or
without cause, by the shareholders of the corporation, unless the articles
of incorporation provide that directors may only be removed for cause;
provided, however, that (i) if a director was elected by the holders of a
class of shares, only the holders of such class may participate in the vote
to remove that director; and (ii) if the corporation has cumulative voting,
no director may be removed without cause if the votes cast against removal
would be sufficient to elect such director if voted cumulatively. Morgan's
Articles of Incorporation do not provide that directors may only be removed
for cause. A director may be removed by a court in connection with an
action brought for such purpose by the corporation or holders of 10% or
more of the outstanding shares of any class if such director engaged in
misconduct.
The DGCL permits the removal of any or all directors, with or
without cause, by the holders of a majority of the shares of the
corporation entitled to vote at an election of directors; provided,
however, that (i) if the board of directors has been classified into
classes, such removal may only be for cause; (ii) if the corporation has
cumulative voting, no director may be removed without cause if the votes
cast against removal would be sufficient to elect such director if voted
cumulatively at an election of the entire board or the entire class of
directors of which he is a member; and (iii) when the certificate of
incorporation provides that holders of shares of a class or series are
entitled to elect one or more directors, any director so elected may be
removed without cause only by the applicable vote of such holders.
The Bylaws of NMR also permit the removal of any and all
directors with or without cause by a majority of the shares entitled to
vote at an election of directors.
Dividends
A Colorado corporation may declare and pay dividends to its
shareholders unless following such dividend, the corporation would be
unable to pay its debts as they become due, or the corporation's total
assets would be less than its total liabilities. Morgan's Articles of
Incorporation impose no restriction on the payment of dividends.
A Delaware corporation may declare and pay dividends to its
stockholders only out of its surplus, or if there shall be no surplus, out
of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. The DGCL defines a corporation's surplus
as the amount by which its net assets exceeds the capital of the
corporation. Under the DGCL, net assets means the amount by which a
corporation's total assets exceeds its total liabilities. NMR's
Certificate of Incorporation imposes no restriction on the payment of
dividends.
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Power to Call Special Meeting of Shareholders
Under the CBCA, special meetings of stockholders may be called by
the board of directors or such other person or persons as may be authorized
in the bylaws. Morgan's Bylaws provide that a special meeting may be
called by its President, Board of Directors or the holders of 10% or more
of the shares entitled to be voted at the special meeting. In addition,
under the CBCA, a corporation shall hold a special meeting if it receives
written demand for such meeting by holders of shares representing at least
10% of the votes entitled to be cast on any issue proposed to be considered
at the meeting.
Under the DGCL, special meetings of stockholders may be called by
the board of directors or such other person or persons as may be authorized
in the certificate of incorporation or the bylaws. NMR's Bylaws provide
that special meetings may be called by the Chairman of the Board, if any,
or the President, and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors or of the
stockholders owning a majority of the issued and outstanding shares
entitled to vote.
Shareholder Action Without a Meeting
Under the CBCA, unless the articles of incorporation require that
such action be taken at a shareholders' meeting, any action required or
permitted to be taken at any meeting of shareholders may be taken without a
meeting if all of the shareholders entitled to vote thereon consent to such
action in writing. Morgan's Articles of Incorporation do not prohibit the
taking of any action by written consent of shareholders.
The DGCL provides that, unless otherwise provided in the
certificate of incorporation, any action required or permitted to be taken
at any meeting of stockholders may be taken without a meeting if a written
consent setting forth the action so taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. NMR's
Certificate of Incorporation provides that no action required or permitted
to be taken by the stockholders of NMR may be taken without a meeting of
stockholders. See "The Merger--NMR--Description of NMR Stock--Requirement
of Stockholder Meetings".
Conflict of Interest Transactions with Directors and Officers
Both the CBCA and the DGCL contain very similar provisions which
shift to the holders of shares of a corporation the burden of proving that
the directors have breached their fiduciary duty to the corporation by
authorizing corporate transactions in which a director has an interest if
the transaction is approved in a specified manner. Generally, these
provisions state that no contract or other transaction between the
corporation and one or more of its directors, or any entity in which any of
them is a director or officer or has a financial
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interest, is void or voidable solely for that reason alone or because the
director is present at or participates in the meeting of the board or
committee at which the contract or transaction is authorized, or because
his votes are counted for such purpose, if the contract or transaction is
fair to the corporation, or if the material facts as to his relationship or
interest and as to the contract or transaction are disclosed to or known by
(i) the board of directors or committee and the contract or transaction is
authorized by a majority of the disinterested directors thereof, even
though the disinterested directors constitute less than a quorum, or (ii)
the stockholders and the contract or transaction is approved by a vote of
the stockholders.
Under the CBCA, a Colorado corporation may make loans to its
officers and directors without shareholder approval. Under prior Colorado
law, such shareholder approval was required. The CBCA further provides,
however, that the board of directors or committee thereof may not authorize
a loan by the corporation to any director or any entity in which such
person is a director or officer or has a financial interest, or authorize
any guaranty by the corporation of any obligation of the director or such
entity, until at least ten days after written notice of the loan or
guaranty has been given to shareholders who would be entitled to vote
thereon if the matter was submitted to a vote of shareholders.
The Articles of Incorporation of Morgan and Certificate of
Incorporation of NMR contain provisions similar to the provisions of the
CBCA and the DGCL, respectively, regarding conflict of interest
transactions.
Preemptive Rights
The Certificate of Incorporation of NMR provides that no
stockholder of NMR shall have any preemptive or preferential right to
acquire any shares or securities issued by NMR. The Articles of
Incorporation of Morgan also provide that no shareholder of Morgan shall
have any preemptive or preferential right to acquire any shares or
securities issued by Morgan.
Dissenters' Rights
Under the CBCA, shareholders of a corporation have the right to
dissent from and receive payment of the fair value of their shares in
connection with any merger, or any sale, lease, exchange or other
disposition of all or substantially all the assets of a corporation, for
which shareholder approval is required, in connection with share exchanges
if the corporation's shares will be acquired, and certain amendments to the
corporation's articles of incorporation which adversely affect such
shareholders. Shareholders also have the right to dissent with respect to
any corporate action to the extent provided by the bylaws or a resolution
of the board of directors. See "The Merger--Terms of the Merger--
Dissenters' Rights".
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A stockholder of a Delaware corporation is entitled to dissent
from and receive payment of the fair value of his shares in the event of
consummation of a merger or consolidation where approval of the plan of
merger or consolidation by the stockholders of the corporation is required,
but not in connection with any sale or other disposition of assets;
provided, that there is no right of dissent with respect to a plan of
merger or consolidation in favor of holders of shares which were either
listed on a national securities exchange or NASDAQ, or held of record by at
least 2,000 holders, on the record date fixed to determine the stockholders
entitled to vote upon such transaction.
Indemnification
The CBCA and the DGCL contain very similar provisions relating to
indemnification of corporate agents. Under both the CBCA and DGCL, a
corporation may indemnify any person made, or threatened to be made, a
party to any action (other than an action by or in the right of the
corporation) by reason of the fact that he is or was an director, officer,
employee or agent of the corporation against judgments, fines, amounts paid
in settlement and reasonable expenses incurred in connection with such
action if such person acted in good faith and in a manner he reasonable
believed to be in or not opposed to the best interests of the corporation,
and with respect to any criminal proceedings, had no reasonable cause to
believe his conduct was unlawful. In addition, under both the CBCA and the
DGCL, a corporation may indemnify such person against reasonable expenses
incurred in connection with any action by or in the right of the
corporation if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; provided no such indemnification shall be made in respect of
any claim, issue or matter as to which such person has been adjudged liable
to the corporation (or under the CBCA, has been adjudged to have derived an
improper personal benefit), unless a court determines that, in view of all
the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses.
Under the CBCA and the DGCL, a corporation must indemnify a
director, officer, employee or agent against reasonable expenses if such
person is successful in the defense of any action of the nature described
above. Under the CBCA and the DGCL, expenses incurred by any officer or
director (and under the CBCA, to any agent or employee) in defending any
action of the nature described above may be paid by the corporation in
advance of the final disposition of such action upon receipt of an
undertaking by such person to repay such amounts if it is ultimately
determined that he is not entitled to be indemnified by the corporation.
The Articles of Incorporation of Morgan provide that Morgan may
indemnify its directors, officers, employees and agents to the full extent
permitted by Colorado law.
The Bylaws of NMR make mandatory the permissive statutory
indemnification. The NMR Bylaws permit, but do not require, advancement of
expenses, and are otherwise consistent with the provisions of the
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DGCL. The NMR Bylaws permit the Board of Directors to authorize
indemnification with respect to employees, agents and others as and when it
deems such indemnification to be in the best interests of NMR. The Bylaws
of NMR also authorize NMR to purchase and maintain liability insurance with
respect to its directors and officers.
Limitations on Liabilities of Directors
Both the CBCA and DGCL authorize a corporation to include in its
charter provisions limiting or eliminating the liability of directors to
the corporation or its shareholders for damages for any breach of duty as a
director. Neither the CBCA nor the DGCL permits limiting or eliminating
the liability of any director (i) for any breach of such director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions
not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) for unlawful dividends and stock repurchases, or
(iv) for any transaction from which the director derived an improper
personal benefit. Both Morgan and NMR have adopted charter provisions
which eliminate the liability of its directors to the fullest extent
permitted by these statutes.
ELECTION OF DIRECTORS OF NMR (ITEM NO. 2)
(FOR NMR STOCKHOLDERS ONLY)
At the NMR Meeting, NMR stockholders will be asked to vote on a
proposal, which would only become effective if the Merger is not
consummated, to elect five (5) directors to hold office until the next
annual meeting of stockholders and until their successors have been duly
elected and qualified. IF THE MERGER IS CONSUMMATED, THE VOTE ON THIS
PROPOSAL WILL BE CONSIDERED VOID AND OF NO FORCE AND EFFECT.
The following five individuals have been nominated for election
as directors in the event the Merger is not consummated: Joseph G. Dasti,
Donald W. Arthur, David L. Bloom, John A. Faraone and Joseph T. Zappala.
Each of the nominees is currently a director of NMR. For biographical and
other information on the nominees, see "The Merger--NMR".
The directors of NMR will be elected by a plurality of the votes
cast by stockholders of NMR present at the NMR Meeting in person or
represented by proxy if a quorum is present.
It is the intention of the persons named in the accompanying
proxy to vote FOR the election of the five nominees, unless contrary
instructions are given or authority to do so is withheld.
AT THE NMR MEETING, THE STOCKHOLDERS OF NMR WILL BE REQUESTED TO
ELECT FIVE DIRECTORS TO THE BOARD OF DIRECTORS. THE DIRECTORS OF NMR WILL
BE ELECTED BY A PLURALITY OF THE VOTES CAST BY STOCKHOLDERS OF NMR PRESENT
AT THE NMR MEETING IN PERSON OR REPRESENTED BY PROXY. THE
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<PAGE>
ELECTION OF ANY DIRECTORS UNDER THIS PROPOSAL WILL ONLY BE GIVEN EFFECT IF
THE MERGER IS NOT CONSUMMATED.
AMENDMENT OF THE NMR 1986 INCENTIVE STOCK OPTION
NON-STATUTORY OPTION PLAN
(ITEM NO. 3) (FOR NMR STOCKHOLDERS ONLY)
At the NMR Meeting, the stockholders of NMR will be asked to
consider and vote upon an amendment to the NMR Option Plan which would
increase the number of shares of NMR Common Stock for which options may be
granted under the NMR Option Plan from 600,000 to 1,000,000 (subject to
certain anti-dilution adjustments). THE BOARD OF DIRECTORS OF NMR HAS
UNANIMOUSLY APPROVED THE AMENDMENT, SUBJECT TO APPROVAL BY THE NMR
STOCKHOLDERS. THE VOTE ON THE PROPOSED AMENDMENT TO THE NMR OPTION PLAN
WILL BE GIVEN EFFECT EVEN IF THE MERGER AGREEMENT IS NOT APPROVED OR IF THE
MERGER IS NOT OTHERWISE CONSUMMATED.
The NMR Option Plan was initially adopted by the Board of
Directors of NMR and approved by the NMR stockholders in 1986. The
following is a summary of the principal terms of the NMR Option Plan.
Options Available for Grants; Eligibility. The NMR Option Plan
authorizes the granting of options to officers and key employees of NMR or
its subsidiaries on either a "nonqualified" or an "incentive stock option"
basis. Directors who are not also officers or employees of NMR are not
eligible to receive options under the NMR Option Plan. As of July 31,
1995, approximately 160 persons were eligible to receive options under the
NMR Option Plan.
Presently, 600,000 shares of NMR Common Stock are authorized for
issuance upon the exercise of options granted under the NMR Option Plan.
To date, options to purchase a total of 387,000 shares of NMR Common Stock
have been issued, leaving options for 213,000 shares remaining to be
issued. NMR Common Stock subject to options which expire or are terminated
prior to exercise will be available for future grants under the NMR Option
Plan.
Administration. The NMR Option Plan is administered by the
Compensation/Stock Option Committee (the "Option Committee") of the NMR
Board of Directors. The Option Committee has the authority to determine,
in its discretion, (i) the individuals to whom and times at which options
are to be granted, (ii) whether the options to be granted will be
"nonqualified" stock options ("NQOs") or "incentive stock options"
("ISOs"), (iii) the number of the shares subject to each option, (iv) the
vesting schedule of each option, and (v) certain other terms and provisions
relating to options granted under, and the administration of, the NMR
Option Plan; provided, that no person shall be entitled to receive any ISOs
pursuant to the NMR Option Plan if such person possesses more than 10% of
the total combined voting power of the NMR capital stock.
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Vesting and Termination of Options; Nontransferability. Options
granted under the NMR Option Plan vest and become exercisable in four equal
annual installments beginning on the first anniversary of the date of
grant; provided, that no ISO shall be exercisable by an optionee if the
optionee holds any other ISO granted prior thereto. No option may be
exercisable more than ten years from the date of grant.
Options will be forfeited if the optionee's employment with NMR
or a subsidiary is terminated for any reason. If an optionee dies, is
terminated by reason of disability or retires, the optionee (or in the
event of death, the optionee's estate) may, within sixty days after such
the date of such event, exercise any options that the optionee was entitled
to exercise on such date. Options granted under the NMR Option Plan are
not transferable except by will or the laws of descent and distribution.
Exercise Price of Options. The Option Committee has the
discretion to determine the exercise price for each option granted under
the NMR Option Plan; provided that the exercise price of an ISO may not be
less than 100% of the fair market value of the NMR Common Stock on the date
of grant. The exercise price of an NQO issued under the NMR Option Plan
may not be less than 40% of the fair market value of the NMR Common Stock
on the date of grant. On August 3, 1995, the closing sales price reported
on the NASDAQ - National Market System for NMR Common Stock was $4.125 per
share. The exercise price may be paid in cash and/or by delivery of
certificates for shares of NMR Common Stock owned by the optionee valued at
fair market value on the date of exercise.
Federal Tax Consequences. Under the Internal Revenue Code of
1986, as amended (the "Code"), no taxable income results from the grant of
an ISO or upon the issuance of shares to the optionee when the ISO is
exercised. Correspondingly, no deduction is allowed to NMR upon either the
grant or the exercise of an ISO.
Under the Code, if shares acquired upon the exercise of an ISO
are not disposed of either within the two-year period following the date
the ISO is granted or within the one-year period following the date the
shares are acquired by the optionee pursuant to exercise of the ISO, the
difference between the amount realized on any disposition thereafter and
the exercise price will be treated as long-term capital gain or loss to the
optionee. If a disposition occurs before the expiration of the requisite
holding periods, then the lower of (i) any excess of the fair market value
of the shares at the time of exercise of the ISO over the exercise price or
(ii) the actual gain realized on disposition will be deemed to be
compensation to the optionee and will be taxed at ordinary income rates.
In such event, NMR will be entitled to a corresponding deduction from its
income, provided NMR withholds and deducts as required by law. Any such
increase in the income of the optionee or deduction from the income of NMR
attributable to such disposition is treated as an increase in income or a
deduction from income in the taxable year in which the disposition occurs.
Any excess of the amount realized by the optionee on disposition over the
fair market value of the shares at the
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time of exercise will be treated as capital gain. Any optionee disposing
of shares acquired pursuant to an ISO prior to the expiration of the
holding periods referred to above must notify NMR promptly of such
disposition.
Under the Code, a person who is granted an NQO will not have
taxable income at the date at grant; however, an optionee who thereafter
exercises such an option will be deemed to have received compensation
income in an amount equal to the difference between the exercise price and
the fair market value of the shares on the date of exercise. The
optionee's basis for such shares will be increased by the amount which is
deemed compensation income. For the year in which an NQO is exercised, NMR
will be entitled to a deduction in the same amount as the optionee is
required to include in his or her income, provided NMR withholds and
deducts as required by law. When the optionee disposes of such shares, he
or she will recognize capital gain or loss.
Options Granted Under the NMR Option Plan. As of the date
hereof, ISOs for 288,100 shares and NQOs for 98,900 shares have been
granted under the NMR Option Plan. The following table sets forth
information regarding options granted under the NMR Option Plan.
<TABLE><CAPTION>
Number of ISOs Number of NQOs Total Options
Name and Position Granted Granted Granted
- ----------------- -------------- -------------- ----------
<S> <C> <C> <C>
Joseph G. Dasti 100,000 50,000 150,000
President and Chief Executive
Officer
John P. O'Malley III 100,000 0 100,000
Executive Vice President-Finance
and Chief Financial Officer
Executive officers as a group (2 200,000 50,000 250,000
persons)
All Employees (excluding executive 88,100 48,900 137,000
officers)
</TABLE>
In the opinion of the NMR Board of Directors, NMR and its
stockholders have benefitted substantially from the NMR Option Plan. The
Board of Directors believes that by providing an opportunity to acquire a
proprietary interest in NMR, the NMR Option Plan has enabled NMR to attract
and retain talented personnel who have been largely responsible for NMR's
growth and success and has provided an incentive for these persons to
increase their efforts on behalf of NMR. Therefore, it is the opinion of
the Board of Directors that the number of shares of NMR Common Stock for
which options may be granted under the NMR Option Plan should
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be increased in order to afford NMR continued benefits from the NMR Option
Plan.
The NMR Board of Directors has unanimously approved an amendment
to Section 2 of the NMR Option Plan to increase the number of shares
available for issuance under the NMR Option Plan to 1,000,000. The
complete text of this amendment is set forth as Appendix E to this Joint
Proxy Statement.
Unless, you indicate to the contrary, it is the intention of the
persons named in the accompanying proxy to vote in favor of the proposal to
amend the NMR Option Plan.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES OF NMR COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY
PROXY AND ENTITLED TO VOTE AT THE NMR MEETING IS REQUIRED TO APPROVE THE
AMENDMENT TO THE NMR OPTION PLAN. THE BOARD OF DIRECTORS RECOMMENDS THAT
NMR STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE NMR OPTION PLAN. IF
APPROVED BY THE STOCKHOLDERS OF NMR, THIS PROPOSAL WILL BE EFFECTIVE EVEN
IF THE MERGER IS NOT APPROVED OR IS OTHERWISE NOT CONSUMMATED.
ELECTION OF DIRECTORS OF MORGAN
(ITEM NO. 4) (FOR MORGAN SHAREHOLDERS ONLY)
At the Morgan Meeting, Morgan shareholders will be asked to vote
on a proposal, which would only become effective if the Merger is not
consummated, to elect five (5) directors to hold office until the next
annual meeting of the shareholders and until their successors have been
duly elected and qualified. IF THE MERGER IS CONSUMMATED, THE VOTE ON THIS
PROPOSAL WILL BE CONSIDERED VOID AND OF NO FORCE AND EFFECT.
The following four individuals have been nominated for election
as directors in the event the Merger is not consummated: J. Mark Strong,
Sandra G. Garrison, Dr. James E. Cooke, Thomas Acey, Jr. and Robert T.
Hamilton. Each of the nominees is currently a director of Morgan. For
certain biographical and other information on the nominees, see "The
Merger--Morgan".
The directors of Morgan will be elected by a plurality of the
votes cast by shareholders of Morgan present at the Morgan Meeting in
person or represented by proxy if a quorum is present.
Unless you indicate to the contrary, it is the intention of the
persons named in the accompanying proxy to vote for the election of the
four nominees.
THE VOTE BY THE SHAREHOLDERS OF MORGAN TO ELECT DIRECTORS
PURSUANT TO THIS ITEM NO. 4 WILL ONLY BECOME EFFECTIVE IF THE MERGER IS NOT
APPROVED OR OTHERWISE CONSUMMATED.
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INDEPENDENT ACCOUNTANTS
NMR has appointed Coopers & Lybrand L.L.P. as the independent
accountants to examine the consolidated financial statements of NMR for the
current fiscal year. Said firm was first retained by NMR as its
independent public accountants for the fiscal year ended March 31, 1984.
The selection of Coopers & Lybrand L.L.P. was approved by the Board of
Directors prior to their appointment. Coopers & Lybrand L.L.P. has advised
NMR that they do not have any material financial interests in, or any
connection (other than as independent accountants) with, NMR.
Coopers & Lybrand L.L.P. is expected to be present at the NMR
Meeting and will have the opportunity to make a statement, if they desire
to do so, and they are expected to be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS FOR 1996
ANNUAL MEETING OF NMR STOCKHOLDERS
Proposals which NMR stockholders intend to present at the 1996
annual meeting of stockholders must be received by NMR by May 16, 1996 to
be eligible for inclusion in the proxy materials for that meeting.
OTHER MATTERS
As of the date of this Joint Proxy Statement, the Board of
Directors of NMR knows of no other business to be presented at the NMR
Meeting and the Board of Directors of Morgan knows of no other business to
be presented at the Morgan Meeting. However, if any other matters properly
come before either such meeting, the persons named in the enclosed form of
proxy are expected to vote the proxy in accordance with their best judgment
on such matters.
LEGAL OPINIONS
McCarter & English, counsel to NMR has rendered an opinion as to
the legality of the shares of NMR Common Stock offered hereby. Counsel to
Morgan or NMR will render an opinion at the closing under the Merger
Agreement as to certain tax matters with respect to the Merger.
EXPERTS
The consolidated balance sheets of NMR as of March 31, 1995 and
1994 and consolidated statements of operations, retained earnings, and cash
flows for each of the three years in the period ended March 31, 1995
incorporated in this Joint Proxy Statement have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent
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accountants, given on the authority of said firm as experts in accounting
and auditing.
The consolidated balance sheets of Morgan as of December 31, 1994
and 1993 and consolidated statements of operations, retained earnings, and
cash flows for each of the two years ended December 31, 1994 included in
this Joint Proxy Statement have been audited by Garcia & Ortiz, P.A.,
independent accountants, whose report thereon appears herein. The
consolidated statement of operations, retained earnings, and cash flows for
the year ended December 31, 1992 included in this Joint Proxy Statement
have been audited by Copeland & Company, independent accountants, whose
report thereon appears herein. Such financial statements have been so
included in reliance on the reports of such independent accountants given
on the authority of such firms as experts in auditing and accounting.
BY ORDER OF THE BOARD OF BY ORDER OF THE BOARD OF
DIRECTORS OF NMR OF DIRECTORS OF MORGAN MEDICAL
AMERICA, INC. HOLDINGS, INC.
Joseph G. Dasti J. Mark Strong
President and Chief President and Chief
Executive Officer Executive Officer
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED: April 11, 1995
BY AND AMONG
NMR OF AMERICA, INC.,
NMR SUB, INC.
AND
MORGAN MEDICAL HOLDINGS, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Surviving Corporation . . . . . . . . . . . . . . . . . 1
1.2 Certificate of Incorporation . . . . . . . . . . . . . . 1
1.3 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Directors . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Officers . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Effective Time . . . . . . . . . . . . . . . . . . . . . 2
1.7 Additional Actions . . . . . . . . . . . . . . . . . . . 2
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSIDERATION; CONVERSION OF SHARES . . . . . . . . . . . . . . . 3
2.1 Merger Consideration . . . . . . . . . . . . . . . . . . 3
2.2 Conversion of Shares; Treatment of Warrants, Options,
and Convertible Securities . . . . . . . . . . . . . . . 3
2.3 Cancellation of Certificates . . . . . . . . . . . . . . 5
2.4 No Fractional Securities . . . . . . . . . . . . . . . . 5
2.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO MORGAN . . . . . . 6
3.1 Corporate Existence and Power; Qualification;
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Corporate and Governmental Authorization;
Contravention . . . . . . . . . . . . . . . . . . . . . 7
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 8
3.4 Financial Statements of Morgan; Changes . . . . . . . . 8
3.5 No Undisclosed Liabilities . . . . . . . . . . . . . . . 10
3.6 Compliance with Laws . . . . . . . . . . . . . . . . . . 11
3.7 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Title to Properties; Absence of Liens and Encumbrances,
Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.9 Facilities . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Condition of Facilities, Equipment, Etc. . . . . . . . . 12
3.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Agreements, Plans, Arrangements, Etc. . . . . . . . . . 13
3.13 Intellectual Properties . . . . . . . . . . . . . . . . 14
3.14 Permits, License, Etc. . . . . . . . . . . . . . . . . . 15
3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . 15
3.16 Accounts and Notes Receivable . . . . . . . . . . . . . 16
3.17 No Interest in Competitors, Etc. . . . . . . . . . . . . 16
3.18 Books and Records . . . . . . . . . . . . . . . . . . . 16
3.19 Employees, Labor Relations, Etc. . . . . . . . . . . . . 17
3.20 Environmental Matters . . . . . . . . . . . . . . . . . 17
3.21 Employee Benefit Plans, Etc. . . . . . . . . . . . . . . 19
3.22 SEC Filings . . . . . . . . . . . . . . . . . . . . . . 20
3.23 Information . . . . . . . . . . . . . . . . . . . . . . 21
3.24 Accreditation. . . . . . . . . . . . . . . . . . . . . . 21
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ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO NMR . . . . . . . . 21
4.1 Corporate Existence and Power; Qualification;
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Corporate and Governmental Authorization;
Contravention . . . . . . . . . . . . . . . . . . . . . 22
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 23
4.4 Financial Statements of NMR; Changes . . . . . . . . . . 24
4.5 No Undisclosed Liabilities . . . . . . . . . . . . . . . 26
4.6 Compliance with Laws . . . . . . . . . . . . . . . . . . 26
4.7 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 27
4.8 Title to Properties; Absence of Liens and Encumbrances,
Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.9 Facilities . . . . . . . . . . . . . . . . . . . . . . . 27
4.10 Condition of Facilities, Equipment, Etc. . . . . . . . . 27
4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . 28
4.12 Agreements, Plans, Arrangements, Etc. . . . . . . . . . 28
4.13 Intellectual Properties . . . . . . . . . . . . . . . . 29
4.14 Permits, License, Etc. . . . . . . . . . . . . . . . . . 30
4.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . 30
4.16 Accounts and Notes Receivable . . . . . . . . . . . . . 30
4.17 No Interest in Competitors, Etc. . . . . . . . . . . . . 31
4.18 Books and Records. . . . . . . . . . . . . . . . . . . . 31
4.19 Employees, Labor Relations, Etc. . . . . . . . . . . . . 31
4.20 Environmental Matters . . . . . . . . . . . . . . . . . 32
4.21 Employee Benefit Plans, Etc. . . . . . . . . . . . . . . 33
4.22 SEC Filings . . . . . . . . . . . . . . . . . . . . . . 37
4.23 Information . . . . . . . . . . . . . . . . . . . . . . 37
4.24 Acquisition . . . . . . . . . . . . . . . . . . . . . . 38
4.25 Accreditation. . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CONDUCT OF BUSINESS OF MORGAN AND NMR PRIOR TO THE EFFECTIVE
TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.1 Conduct of Business of Morgan . . . . . . . . . . . . . 38
5.2 Conduct of Business of NMR . . . . . . . . . . . . . . . 40
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 42
6.1 Access to Properties and Records . . . . . . . . . . . . 42
6.2 Registration Statement . . . . . . . . . . . . . . . . . 42
6.3 Stockholders' Approvals . . . . . . . . . . . . . . . . 43
6.4 Affiliates' Letters . . . . . . . . . . . . . . . . . . 43
6.5 Reasonable Efforts; Etc. . . . . . . . . . . . . . . . . 44
6.6 Material Events . . . . . . . . . . . . . . . . . . . . 44
6.7 Tax Consequences . . . . . . . . . . . . . . . . . . . . 44
6.8 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . 44
6.9 Exclusivity . . . . . . . . . . . . . . . . . . . . . . 44
6.10 Fair Price Statute . . . . . . . . . . . . . . . . . . . 45
6.11 Indemnification . . . . . . . . . . . . . . . . . . . . 45
6.12 Quarterly Financial Statements . . . . . . . . . . . . . 46
6.13 J. Mark Strong Voting Rights. . . . . . . . . . . . . . 46
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<PAGE>
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CONDITIONS TO THE OBLIGATIONS OF NMR . . . . . . . . . . . . . . . 46
7.1 Representations and Warranties True . . . . . . . . . . 46
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . 47
7.3 Authorization of Merger . . . . . . . . . . . . . . . . 47
7.4 Registration Statement; Blue Sky Laws . . . . . . . . . 47
7.5 Affiliates Letters . . . . . . . . . . . . . . . . . . . 47
7.6 Restrictive Legends . . . . . . . . . . . . . . . . . . 47
7.7 Absence of Litigation . . . . . . . . . . . . . . . . . 48
7.8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . 48
7.9 Appraisal Rights . . . . . . . . . . . . . . . . . . . . 48
7.10 Fairness Opinions . . . . . . . . . . . . . . . . . . . 48
7.11 Certificates of Merger . . . . . . . . . . . . . . . . . 48
7.12 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . 48
7.13 Consents. . . . . . . . . . . . . . . . . . . . . . . . 48
7.14 Strong Proxy . . . . . . . . . . . . . . . . . . . . . . 49
7.15 Director Resignations. . . . . . . . . . . . . . . . . . 49
7.16 Amendment of Lease; Waiver. . . . . . . . . . . . . . . 49
7.17 Note and Pledge Agreements. . . . . . . . . . . . . . . 49
7.18 Agreement of Fahnestock & Co. Inc. . . . . . . . . . . . 49
7.19 Sale of Morgan HealthWorks, Inc. . . . . . . . . . . . . 49
7.20 Agreements. . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
CONDITIONS TO THE OBLIGATIONS OF MORGAN . . . . . . . . . . . . . 50
8.1 Representations and Warranties True . . . . . . . . . . 50
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . 50
8.3 Authorization of Merger . . . . . . . . . . . . . . . . 50
8.4 Registration Statement; Blue Sky Laws . . . . . . . . . 50
8.5 Absence of Litigation . . . . . . . . . . . . . . . . . 51
8.6 Fairness Opinions . . . . . . . . . . . . . . . . . . . 51
8.7 Opinion of Counsel . . . . . . . . . . . . . . . . . . . 51
8.8 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . 51
8.9 Certificates of Merger . . . . . . . . . . . . . . . . . 51
8.10 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . 51
8.11 Consents . . . . . . . . . . . . . . . . . . . . . . . . 51
8.12 Inclusion on NASDAQ System. . . . . . . . . . . . . . . 52
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . 52
9.2 Share Price Termination Events . . . . . . . . . . . . . 53
9.3 Notice of Termination . . . . . . . . . . . . . . . . . 53
9.4 Effect of Termination . . . . . . . . . . . . . . . . . 54
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 54
10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . 54
10.2 Waiver of Compliance . . . . . . . . . . . . . . . . . 54
10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . 54
10.4 Assignment . . . . . . . . . . . . . . . . . . . . . . 55
10.5 No Third Party Beneficiaries . . . . . . . . . . . . . 55
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10.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . 56
10.7 Additional Fee . . . . . . . . . . . . . . . . . . . . 57
10.8 Public Announcements . . . . . . . . . . . . . . . . . 57
10.9 Brokers and Finders . . . . . . . . . . . . . . . . . . 57
10.10 Further Agreements . . . . . . . . . . . . . . . . . . 58
10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . 58
10.12 Entire Agreement . . . . . . . . . . . . . . . . . . . 58
10.13 Governing Law . . . . . . . . . . . . . . . . . . . . . 58
10.14 Descriptive Headings . . . . . . . . . . . . . . . . . 59
10.15 Specific Performance . . . . . . . . . . . . . . . . . 59
EXHIBITS
6.4 Form of Affiliates' Letter
7.8 Form of Opinion of Morgan Counsel
7.17 Forms of Note and Pledge Agreements
7.20A Form of Non-Competition Agreement
7.20B Form of Employment Agreement
8.7 Form of Opinion of NMR Counsel
8.8 Form of Tax Opinion
SCHEDULES
1.4A List of Directors of NMR
1.4B List of Directors of Surviving Corporation
1.5A List of Officers of NMR
1.5B List of Officers of Surviving Corporation
Morgan Representations and Warranties/Covenants
3.1 Subsidiaries
3.2 Conflicts and Consents
3.3 Contracts Relating to Stock
3.4 Changes Since Morgan Balance Sheet Date
3.5 Undisclosed Liabilities
3.6 Compliance with Laws
3.7 Taxes
3.8 Title to Properties; Liens and Encumbrances
3.9 Facilities
3.11 Insurance
3.12 Contracts
3.13 Intellectual Properties
3.14 Permits
3.15 Litigation
3.16 Accounts and Notes Receivable
3.17 Related Party Transactions, Etc.
3.19 Labor Matters
3.20 Environmental Matters
3.21 Employee Benefit Plans
3.24 Accreditations
5.1 Capital Expenditures
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<PAGE>
NMR Representations and Warranties/Covenants
4.1 Subsidiaries
4.2 Conflicts and Consents
4.3 Contracts Relating to Stock
4.4 Changes Since Balance Sheet Date
4.5 Undisclosed Liabilities
4.6 Compliance with Laws
4.7 Taxes
4.8 Title to Properties; Liens and Encumbrances
4.9 Facilities
4.11 Insurance
4.12 Contracts
4.13 Intellectual Properties
4.14 Permits
4.15 Litigation
4.16 Accounts and Notes Receivable
4.17 Related Party Transactions, Etc.
4.19 Labor Matters
4.20 Environmental Matters
4.21 Employee Benefit Plans
4.25 Accreditations
5.2(e) Permitted Issuances
5.2(i) Capital Expenditures
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 11, 1995 by and among
NMR of America, Inc., a corporation organized under the laws of the State
of Delaware ("NMR"), NMR Sub, Inc., a corporation organized under the laws
of the State of Delaware and a wholly-owned subsidiary of NMR
("Acquisition"), and Morgan Medical Holdings, Inc., a corporation organized
under the laws of the State of Colorado ("Morgan").
WHEREAS, the respective Boards of Directors of NMR, Acquisition and
Morgan have approved the merger of Acquisition with and into Morgan (the
"Merger"), pursuant to which Morgan will be the surviving corporation and
the holders of Morgan Common Stock (as herein defined) will be entitled to
receive the consideration provided for in this Agreement, all upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending
to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 Surviving Corporation. In accordance with the provisions of this
Agreement, the Delaware General Corporation Law (the "Delaware Act") and
the Colorado Business Corporation Act (the "Colorado Act"), at the
Effective Time (as that term is hereinafter defined in Section 1.6 hereof)
Acquisition shall be merged with and into Morgan, with Morgan being the
surviving corporation in the Merger (hereinafter sometimes called the
"Surviving Corporation"). At the Effective Time, the separate existence of
Acquisition shall cease and the Surviving Corporation shall continue its
corporate existence under the laws of the State of Colorado. Without
limiting the generality of the foregoing, from and after the Effective Time
the Surviving Corporation shall possess all of the rights, privileges,
immunities, powers and purposes, and shall assume and be liable for all of
the liabilities, obligations and penalties, of each of Morgan and
Acquisition, and the Merger shall have all of the effects provided for in
the Delaware Act and the Colorado Act.
1.2 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Morgan as in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law.
1.3 By-Laws. At the Effective Time, the By-Laws of Morgan as in
effect at the Effective Time shall be the By-Laws of the
<PAGE>
Surviving Corporation until thereafter amended as provided by law.
1.4 Directors. On and after the Effective Time, the directors of NMR
shall be those persons who are listed on Schedule 1.4A, and the directors
of the Surviving Corporation shall be those persons who are listed on
Schedule 1.4B, all such directors to hold office until their respective
successors are duly elected and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of NMR and the Certificate of
Incorporation and By-Laws of the Surviving Corporation, respectively, or as
otherwise provided by law.
1.5 Officers. On and after the Effective Time, the officers of NMR
shall be those persons who are listed on Schedule 1.5A, and the officers of
the Surviving Corporation shall be those persons who are listed on Schedule
1.5B, each to hold the office(s) set forth opposite their respective names
on such Schedule, all such officers to hold office until their respective
successors are duly elected and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of NMR and the Certificate of
Incorporation and By-Laws of the Surviving Corporation, respectively, or as
otherwise provided by law.
1.6 Effective Time. As soon as practicable following the Closing (as
that term is hereinafter defined in Section 2.5 hereof), Certificates of
Merger or any similar document required by state law to effect the Merger
(the "Certificates of Merger") shall be filed with the Secretaries of State
of the States of Colorado and Delaware. The Merger shall become effective
upon the filing of the last of such certificates. The time when the Merger
shall become effective is herein referred to as the "Effective Time."
1.7 Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other acts or things are
necessary or desirable to vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation, its right, title or interest in or to any of
the rights, properties or assets of Acquisition or Morgan acquired or to be
acquired by reason of, or as a result of, the Merger, or otherwise to carry
out the purposes of this Agreement (including, but not limited to, any
applications which may be required in order to allow the Surviving
Corporation to transact business in any jurisdiction), the Surviving
Corporation and its proper officers and directors shall be authorized to
execute and deliver, in the name and on behalf of Acquisition or Morgan,
all such deeds, bills of sale, assignment and assurances and to do, in the
name and on behalf of Acquisition or Morgan, all such other acts and things
necessary or desirable to vest, perfect or confirm any and all right, title
or interest in, to or under such
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rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES
2.1 Merger Consideration. Except as set forth in Section 2.2(e)
hereof, the consideration payable in the Merger to holders of shares of
Morgan Common Stock, without par value ("Morgan Common Stock"), and to the
holders of warrants, options, convertible securities and other rights to
purchase Morgan Common Stock upon exercise or conversion of the same, shall
consist solely of shares of Common Stock, par value $.01 per share, of NMR
("NMR Common Stock"), such shares of NMR Common Stock to have such rights
as are set forth in the Certificate of Incorporation of NMR and to be
issuable in accordance with the terms of this Agreement.
2.2 Conversion of Shares; Treatment of Warrants, Options, and
Convertible Securities. (a) Subject to Section 2.4 hereof, each share of
Morgan Common Stock issued and outstanding as of the Effective Time (other
than Morgan Dissenting Shares, as that term is hereinafter defined in
Section 2.2(e) below) shall, by virtue of the Merger and without any action
on the part of the holders thereof, automatically be converted into
0.3330886 shares of NMR Common Stock.
(b) (i) Each warrant to acquire shares of Morgan Common Stock (a
"Warrant") that is outstanding and unexercised at the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, and subject to the other terms and conditions thereof,
automatically be deemed to be exercisable for that number of shares of NMR
Common Stock the holder of such Warrant would have received in the Merger
pursuant to Section 2.2(a) had such holder exercised such Warrant in full
immediately prior to the Effective Time, and the price per share of NMR
Common Stock issuable after the Effective Time upon exercise of such
Warrant shall equal the product of the price per share of Morgan Common
Stock under such Warrant as in effect prior to the Effective Time
multiplied by 3.0022042.
(ii) Each option to acquire shares of Morgan Common Stock
issued, or agreed or committed to be issued, under any stock option plan of
Morgan or otherwise (an "Option") that is outstanding and unexercised at
the Effective Time shall, by virtue of the Merger and without any action on
the part of the holders thereof, and subject to the other terms and
conditions thereof, automatically be assumed by NMR and shall be
exercisable for that number of shares of NMR Common Stock the holder of
such Option would have received in the Merger pursuant to Section
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<PAGE>
2.2(a) had such holder exercised such Option in full (assuming, for the
purpose of this calculation only, that there is no limitation on the
vesting of the right to exercise such Option) immediately prior to the
Effective Time, and the price per share of NMR Common Stock issuable after
the Effective Time upon exercise of such Option shall equal the product of
the price per share of Morgan Common Stock under such Option as in effect
prior to the Effective Time multiplied by 3.0022042. Any term or condition
respecting the vesting of the right to exercise such Option shall remain
unaffected by the Merger; provided, however, that any period during which
-------- -------
the holder of such Option shall have served as an employee or consultant,
as the case may be, of Morgan prior to the Merger shall be counted toward
determining the vesting of the right to exercise such Option after the
Effective Time.
(iii) Each note or debenture of Morgan which is convertible
into shares of Morgan Common Stock (a "Convertible Security") and that is
outstanding and unconverted at the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, and
subject to the other terms and conditions thereof, automatically be deemed
to be convertible into that number of shares of NMR Common Stock the holder
of such Convertible Security would have received in the Merger pursuant to
Section 2.2(a) had such holder converted such Convertible Security in full
immediately prior to the Effective Time, and the price per share of NMR
Common Stock issuable after the Effective Time upon conversion of such
Convertible Security shall be equal to the product of the price per share
of Morgan Common Stock under such Convertible Security as in effect prior
to the Effective Time multiplied by 3.0022042.
(iv) The Morgan Warrants, Options and Convertible
Securities are hereinafter referred to collectively as the "Morgan
Derivative Securities." Except as provided in clauses (i), (ii) and (iii)
above, the terms and conditions of the Morgan Derivative Securities in
effect prior to the Effective Time shall continue in effect after the
Effective Time.
(c) Each share of Morgan Common Stock held in the Morgan
treasury as of the Effective Time, if any, shall, by virtue of the Merger,
be canceled without payment of any consideration thereof.
(d) Each share of Common Stock, without par value, of
Acquisition ("Acquisition Common Stock") issued and outstanding at the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, remain outstanding and shall thereafter
represent one share of common stock of the Surviving Corporation.
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<PAGE>
(e) Notwithstanding the foregoing, any shares of Morgan Common
Stock issued and outstanding immediately prior to the Effective Time which
are held by shareholders of Morgan who have not voted such shares in favor
of the Merger and who have complied with all other relevant provisions of
Article 113 of the Colorado Act (the "Morgan Dissenting Shares") shall not
be converted into shares of NMR Common Stock in the manner contemplated by
Section 2.2(a) above, and the rights of holders of Morgan Dissenting Shares
shall be governed by the provisions of the Colorado Act.
2.3 Cancellation of Certificates. As promptly as is practicable
after the Effective Time, NMR shall designate a bank or trust company (the
"Exchange Agent") to act as exchange agent in effecting the exchange of
certificates representing Morgan Common Stock (other than Morgan Dissenting
Shares) for certificates representing the shares of NMR Common Stock into
which such shares of Morgan Common Stock have been converted. The Exchange
Agent shall send a letter of transmittal to the holders of Morgan Common
Stock offering to exchange the certificates representing such Morgan Common
Stock for certificates representing shares of NMR Common Stock.
Notwithstanding the foregoing, from and after the Effective Time, all such
outstanding shares of Morgan Common Stock when so converted shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist. From and after the Effective Time, each certificate or
instrument which prior to the Effective Time represented shares of Morgan
Common Stock or Morgan Derivative Securities, as applicable, shall be
deemed to represent only the right to receive the certificates of NMR
Common Stock or the right to acquire shares of NMR Common Stock
contemplated by Section 2.2 hereof, and the holder of each such certificate
or instrument shall cease to have any rights with respect to the shares of
Morgan Common Stock formerly represented thereby, in the case of
certificates formerly representing shares of Morgan Common Stock, or with
respect to the shares of Morgan Common Stock issuable upon exercise or
conversion thereof, in the case of instruments formerly representing Morgan
Derivative Securities, except as otherwise provided by law.
2.4 No Fractional Securities. No fractional shares of NMR Common
Stock shall be issuable by NMR upon the conversion of shares of Morgan
Common Stock in the Merger pursuant to Section 2.2(a) hereof or upon
exercise or conversion of any Morgan Derivative Security. In lieu of any
fractional share of NMR Common Stock which would otherwise be issuable upon
conversion of any shares of Morgan Common Stock or exercise or conversion
of any Morgan Derivative Security, NMR shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the
last reported sales price on the primary exchange or market (including the
National Association of Securities Dealers Automated Quotation System,
National Market System) on
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<PAGE>
which the NMR Common Stock is then listed or traded, or if not listed or
admitted to trading on any such primary exchange or market, the average of
the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to
time by NMR for that purpose.
2.5 Closing. Subject to Section 9.1(b)(ii) hereof, the closing of
the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of McCarter & English, Four Gateway Center, Newark,
New Jersey at 10:00 A.M. local time, (i) as soon as practicable after the
later to occur of (x) the date of the stockholders' meetings referred to in
Section 6.3 hereof or (y) the day on which the last condition set forth in
Articles VII and VIII hereof shall have been fulfilled or waived, or (ii)
at such other time as NMR and Morgan may mutually agree (the "Closing
Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO MORGAN
Morgan represents and warrants to NMR as follows (as used in this
Article III, the term "Morgan" shall include Morgan and each subsidiary (as
such term is defined in Rule 405 promulgated under the Securities Act of
1933, as amended (the "Securities Act") of Morgan (a "Morgan Subsidiary"),
unless the context suggests otherwise):
3.1 Corporate Existence and Power; Qualification; Subsidiaries.
Morgan is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has all
corporate powers to execute and deliver this Agreement and to perform its
obligations hereunder and consummate the transactions contemplated hereby,
and has all corporate powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted
and to own its properties, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or
the ownership or leasing of its properties requires such qualification.
The copies of Morgan's Certificate of Incorporation and Bylaws that have
been delivered to NMR are complete and correct and are in full force and
effect. Schedule 3.1 sets forth a complete list of each Morgan Subsidiary.
Each Morgan Subsidiary is a corporation or partnership duly incorporated
(if a corporation), validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, as the case may be, has
all requisite powers and all governmental licenses, authorizations,
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<PAGE>
consents and approvals required to carry on its business as now conducted
and to own its properties, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or
the ownership or leasing of its properties requires such qualification.
Morgan has not made any advances to or investments in, nor directly or
indirectly owns any securities of, any domestic or foreign business entity,
enterprise or organization other than as set forth on Schedule 3.1.
Neither Morgan nor any Morgan Subsidiary is in violation of any provision
of its Certificate of Incorporation or Bylaws or certificate of limited
partnership, or equivalent organizational document, as the case may be.
Each of the outstanding shares of capital stock of, or other equity
interests in, any Morgan Subsidiary owned by Morgan is owned by Morgan free
and clear of any security interest, pledge, lien, charge, claim or other
encumbrance of any kind or nature (collectively, "Encumbrance").
3.2 Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by Morgan of this Agreement and the
Merger have been duly authorized by all necessary corporate action (other
than the approval of this Agreement and the Merger by the holders of a
majority of the outstanding shares of Morgan Common Stock). This Agreement
has been duly executed and delivered by Morgan. The execution and delivery
of this Agreement do not and the consummation of the transactions
contemplated hereby is not prohibited by, and will not violate or conflict
with, any provision of the Certificate of Incorporation or Bylaws of
Morgan, or of any Law (as such term is defined in Section 3.6), or, except
as set forth on Schedule 3.2, any provision of, or result in the
acceleration of, result in any severance or termination pay liability,
constitute a default under, entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any obligation under, result
in the creation or imposition of any Encumbrance upon any property of
Morgan pursuant to any provisions of, or create any right on the part of
any party to modify, amend or terminate, any Contract (as such term is
defined below), lien, instrument, order, Permit (as such term is defined in
Section 3.14 hereof), arbitration award, judgment or decree to which Morgan
is a party or by which it is bound. Other than the requirement to file the
Certificates of Merger with the Secretaries of State of the States of
Colorado and Delaware, as applicable, the Hart-Scott-Rodino Act ("HSR Act")
filing referenced in Section 6.8 hereof, if necessary, or as may be
required by the Securities Act, the Exchange Act of 1934, as amended (the
"Exchange Act"), state securities laws and the National Association of
Securities Dealers, Inc. ("NASD"), and except as set forth in Schedule 3.2,
no authorization, consent or approval of, or filing with, any domestic or
foreign public body or authority is necessary on the part of Morgan for the
consummation by Morgan of the transactions contemplated by this Agreement
or the other agreements referred to herein and the ownership and operation
by the Surviving
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Corporation of the business and properties of Morgan after the Effective
Time in substantially the same manner as presently owned and operated,
except where the failure to give such notices, obtain such authorizations,
consents or approvals or make such filings would not, in the aggregate,
have a material adverse effect on the condition (financial or otherwise),
business or operations of the Surviving Corporation, or delay or prevent
the consummation of the transactions contemplated by this Agreement or
prevent Morgan from performing its obligations hereunder. This Agreement
is a valid, legal and binding agreement of Morgan, subject to applicable
bankruptcy, insolvency, moratorium or other laws affecting the enforcement
of creditors' rights in general from time to time in effect and general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). As used herein,
"Contracts" shall mean any lease, license, mortgage, contract, sales order,
purchase order or other agreement, arrangement, understanding or
commitment, whether written or oral which is material to the business or
properties of Morgan or NMR as the context shall require.
3.3 Capitalization. (a) The shares of Morgan Common Stock which are
currently outstanding have been duly authorized and are validly issued,
fully paid, nonassessable and free of preemptive rights created by statute,
Morgan's Certificate of Incorporation or otherwise. The authorized capital
stock of Morgan consists of 1,000,000,000 shares of Morgan Common Stock, of
which 3,224,727 shares are issued and outstanding, and 500,000 shares of
Preferred Stock, without par value, of which no shares are outstanding.
(b) There are no subscriptions, options, warrants or other
rights, calls, agreements or commitments obligating Morgan or any Morgan
Subsidiary to issue, or repurchase, redeem or otherwise acquire, capital
stock or other securities of Morgan or any Morgan Subsidiary, except as set
forth in Schedule 3.3.
3.4 Financial Statements of Morgan; Changes. (a) Morgan has
heretofore delivered to NMR true and complete copies of its consolidated
audited balance sheet as of December 31, 1994 (the "Morgan Balance Sheet
Date") and audited consolidated Statements of Operations and audited
consolidated Statements of Cash Flows for the three year period then ended
(collectively, the "Morgan Financial Statements"). The Morgan Financial
Statements present fairly the consolidated financial position of Morgan as
of the Morgan Balance Sheet Date and the consolidated results of operations
and cash flows for each of the three years in the three-year period then
ended, all in conformity with generally accepted accounting principles
applied on a consistent basis, except as stated thereon.
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(b) Except as set forth in Schedule 3.4 hereto and except as
contemplated by this Agreement, since the Morgan Balance Sheet Date:
(i) there has been no material adverse change in the business,
assets, financial condition or results of operations of Morgan;
(ii) there has not been any direct or indirect redemption,
purchase or other acquisition by Morgan of any of its capital stock,
or any declaration, setting aside or payment of any dividend or other
distribution by Morgan in respect of its capital stock, and Morgan has
not authorized or proposed any of the foregoing, or entered into any
contract, agreement, commitment or arrangement to do any of the
foregoing, except as may be contemplated by this Agreement and the
agreements contemplated hereby or referred to herein;
(iii) except for the transactions contemplated hereby, Morgan has
conducted its business in the ordinary course and consistent with past
practices;
(iv) there has been no damage, destruction or casualty loss
(whether or not covered by insurance) suffered by Morgan materially
adversely affecting the business, assets, financial condition or
results of operations of Morgan, nor has Morgan been notified of any
pending condemnation proceeding concerning any of its properties;
(v) there have not been any defaults or breaches by Morgan under
agreements to which it is a party or by which it is bound which, taken
in the aggregate, would have a material adverse effect upon the
business, assets, financial condition or results of operation of
Morgan;
(vi) Morgan has not directly or indirectly, (A) issued, sold,
pledged, disposed of, or encumbered, or authorized, proposed or agreed
to the issuance, sale, pledge, disposition or encumbrance of, any
shares of, or any options, warrants or rights of any kind to acquire
any shares of or any securities convertible into or exchangeable for
any of, the capital stock of any class of Morgan, or any other
securities in respect of, in lieu of, or in substitution for any such
capital stock; (B) acquired (by merger, consolidation, or acquisition
of shares or assets) any corporation, partnership or other business
organization or division thereof or made any investment either by
purchase of shares or securities, contributions to capital (other than
to subsidiaries or affiliates) or property transfer; (C) authorized
any change in its capitalization or authorized, recommended or
proposed any release or
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relinquishment of any Contract right; or (D) authorized any of the
foregoing, or entered into or modified any contract, agreement,
commitment or arrangement to do any of the foregoing;
(vii) Morgan has not incurred any obligation or liability (fixed
or contingent) with respect to its business or any of its assets,
except (1) obligations incurred in the ordinary course of business
consistent with past practice and (2) obligations and liabilities
under this Agreement or contemplated hereby;
(viii) Morgan has not discharged or satisfied any Encumbrance or
paid any obligation or liability (fixed or contingent) except (1)
current obligations and liabilities included in the Morgan Financial
Statements and (2) current obligations and liabilities incurred since
the Morgan Balance Sheet Date in the ordinary course of business;
(ix) Morgan has not mortgaged, pledged or subjected to any
Encumbrance any of its assets or properties;
(x) Morgan has not sold, transferred or leased any of its assets
or properties except in the ordinary course of business;
(xi) Morgan has not taken any action other than in the ordinary
course of business and consistent with past practice (none of which
actions is unreasonable or unusual) with respect to the grant of any
severance or termination pay (otherwise than pursuant to policies of
Morgan in effect on the date hereof) or with respect to any increase
of benefits payable under its severance or termination pay policies in
effect on the date hereof; and
(xii) Morgan has not adopted or amended any bonus, profit sharing,
thrift, savings, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any employee or increased in any manner the compensation or
fringe benefits of any employee or paid any benefit not required by
any existing plan and arrangement, except for salary increases for
employees in the ordinary course of business consistent with past
practices.
3.5 No Undisclosed Liabilities. Except as set forth in Schedules
3.4, 3.5, 3.12, 3.14, 3.15, 3.19, 3.20 and 3.21, there are no liabilities
of Morgan of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
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(a) liabilities disclosed or provided for in the consolidated
balance sheet of Morgan (or the notes thereto) as of the Morgan
Balance Sheet Date included in the Morgan Financial Statements; and
(b) liabilities incurred in the ordinary course of business
consistent with past practice since the Morgan Balance Sheet Date.
3.6 Compliance with Laws. Except as set forth in Schedule 3.6,
Morgan has complied, and is in compliance, in all material respects with
all applicable federal, state, local or foreign laws, regulations or orders
or any other requirements of any governmental, regulatory or administrative
agency or authority or court or other tribunal (including, but not limited
to, any laws, regulations, order or requirement relating to securities, the
environment, properties, business, products, manufacturing processes,
advertising, sales or employment practices, terms and conditions of
employment, occupational safety, health and welfare conditions of occupied
premises, environmental protection, air or water pollution, product safety,
and liability or civil rights) (each and all of the foregoing being herein
referred to as "Laws"). Morgan is not now charged with or to its knowledge
under investigation with respect to any violation of any applicable Law
where such violation could have a material adverse effect on its business,
assets, financial condition or results of operation. Morgan has filed all
reports required to be filed with any governmental, regulatory or
administrative agency or authority where failure to file such report would
have a material adverse effect on its business, assets, financial condition
or results of operation.
3.7 Tax Matters. Except as set forth in Schedule 3.7, (a) Morgan has
duly filed or will file with the appropriate government agencies all Tax
(as hereinafter defined below) returns required to be filed by it on or
before the Effective Time, (b) Morgan has timely paid, or made provision on
its books and records by establishing a reserve for the payment of, all
Taxes due with respect to its operations or any other operation of the
Morgan Group (as hereinafter defined below) prior to the Effective Time,
including all Taxes shown as due on all Tax returns described in clause (a)
above and all estimated Tax payments due on or before the Effective Time,
(c) Morgan has not executed or filed any agreement extending the period for
assessment or collection of any Taxes, nor is Morgan a party to any pending
Litigation (as hereafter defined in Section 3.15 hereof) by any
governmental authority for assessment or collection of any Taxes, and no
claims for assessment or collection of any Taxes have been asserted against
Morgan, and (d) to the knowledge of Morgan, no Tax returns of Morgan or the
Morgan Group are under examination. Morgan is not a "United States real
property holding company" within the meaning of
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Section 1445 of the Code. As used herein (i) "Morgan Group" shall mean
Morgan and all members of its affiliated group as defined in section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
as defined in any applicable Law providing for consolidated or combined
returns and (ii) "Tax" or "Taxes" shall mean taxes of any kind payable to
any federal, state, local, or foreign taxing authority, including, without
limitation, (A) income, gross receipts, ad valorem, value added, sales,
use, service, franchise, profits, real or personal property, capital stock,
license, payroll, withholding, employment, social security, workers
compensation, unemployment compensation, utility, severance, production,
excise, stamp, sales, liquor, occupation, premium, windfall profits,
transfer and gains taxes, (B) customs duties, (C) interest, penalties, and
additions to tax imposed with respect to the above taxes, and (D) any
damages, costs, expenses, fees or other liability arising from such Tax or
Taxes.
3.8 Title to Properties; Absence of Liens and Encumbrances, Etc.
Except as set forth in Schedule 3.8, Morgan owns no real property and has
good title to or a legal, valid and enforceable right to use the other
properties and assets used in the conduct of its business (including
without limitation the assets reflected in its balance sheet as at the
Morgan Balance Sheet Date, except as since sold or otherwise disposed of in
the ordinary course of business), free and clear of all Encumbrances,
imperfections of or other matters affecting title, and any rights of third
parties whatsoever, except (i) the lien of taxes not yet due and payable or
being contested in good faith by appropriate proceedings, and (ii) such
imperfections of title and other Encumbrances, if any, which, individually
or in the aggregate, do not materially detract from the marketability,
value, or interfere with the present use, of the property or asset subject
thereto or otherwise impair the operations of its business (collectively,
"Permitted Encumbrances").
3.9 Facilities. Schedule 3.9 sets forth a correct and complete list
of all of the real properties, together with the buildings, improvements,
and structures located thereon, owned or used by Morgan in the conduct of
its business, indicating whether such property is owned or leased and
setting forth where such property is located.
3.10 Condition of Facilities, Equipment, Etc. The buildings,
structures, equipment and other physical properties and assets owned,
operated, or leased by Morgan in connection with its business are in good
condition and repair (ordinary wear and tear which are not such as to
affect adversely the operation of Morgan's business excepted), free of any
structural or engineering defect, are suitable for the conduct of its
business as presently conducted and as presently proposed to be conducted,
and do not require any maintenance or repairs except for routine
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maintenance and repairs. All such physical properties and assets are in
conformity in all respects with all applicable Laws and other requirements
relating thereto currently in effect or scheduled to come into effect,
including, without limitation, Laws relating to environmental regulation
and the maintenance of occupational safety and health among the workforce.
3.11 Insurance. The business and the assets of Morgan are covered by
insurance with licensed insurance companies against casualty and other
losses customarily obtained to cover comparable businesses and assets in
the region in which such businesses and assets are located, in amounts,
scope and coverage which are reasonable in light of existing conditions.
Schedule 3.11 sets forth a correct and complete list of all of the policies
of insurance and fidelity or surety bonds carried by Morgan with respect to
its business or any of its assets (including prior policies to the extent
that they continue to provide coverage). Morgan has not failed to give any
notice or present any claim under such insurance policies in due and timely
fashion, and there are no claims by Morgan against any of such policies as
to which any insurance company is denying liability or defending under a
reservation of rights clause.
3.12 Agreements, Plans, Arrangements, Etc. Except as set forth in
Schedule 3.12 (which may refer to other specific Schedules hereto), Morgan
is not a party to, nor is Morgan or any of its properties and assets bound
or affected by, any of the following:
(a) a lease (whether as lessor or lessee) relating to real or
personal property;
(b) a license, sublicense, assignment or other Contract (whether
as licensor or licensee, assignor or assignee) relating to
Intellectual Property (as such term is defined in Section 3.13
hereof);
(c) an employment Contract or consulting Contract;
(d) a joint venture or partnership Contract;
(e) a Contract for the borrowing or lending of money or
guaranteeing, indemnifying or otherwise becoming liable for the
obligations or liabilities of another;
(f) a Contract granting any person a security interest or other
Encumbrance on any of the assets of Morgan;
(g) a Contract for the construction or modification of any
building or structure or for the incurrence of any other capital
expenditure;
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(h) a Contract which restricts Morgan from doing business
anywhere in the world;
(i) a Contract not entered into in the ordinary course of
business;
(j) a Contract requiring the payment of royalties; or
(k) any other Contract which could have a material adverse
effect on the Surviving Corporation.
Correct and complete copies of all Contracts set forth in Schedule 3.12 or
any other Schedule hereto, including all amendments to date (or, where they
are oral, true and complete written summaries thereof), and true and
complete copies of all standard form Contracts used by Morgan in the
conduct of its business have been delivered to NMR or its Representatives
(as such term is defined in Section 3.23 hereof) prior to the date hereof.
Each such Contract is valid, in full force and effect and enforceable in
accordance with its terms and Morgan has fulfilled, or taken all action
reasonably necessary to enable it to fulfill when due, its obligations
under such Contracts. There has not occurred any default, or any event
which, with the lapse of time or the election of any person other than
Morgan, or any combination thereof, will become a default, by Morgan, nor
to the knowledge of Morgan has there occurred any default by others or any
event which, with the lapse of time or the election of Morgan, will become
a default by others under any material Contracts. Morgan is not, and to
the knowledge of Morgan, no other party, is in arrears in respect of the
performance or satisfaction of the terms or conditions on its part to be
performed or satisfied under any of such Contracts and no waiver or
indulgence has been granted by any of the parties thereto.
3.13 Intellectual Properties. Schedule 3.13 sets forth a correct and
complete list of all patents, trademarks, trade names, service marks,
copyrights, and applications therefor (collectively, "Intellectual
Properties") used in the conduct of the business of Morgan. Except as
disclosed in Schedule 3.13, (a) Morgan owns or possesses adequate licenses
or other valid rights to use (without the making of any payment to others
or the obligation to grant rights to others in exchange) all Intellectual
Properties necessary to the conduct of its business as presently being
conducted and the consummation of the transactions contemplated hereby will
not alter or impair any of such rights; (b) the validity of such rights and
the title thereto of Morgan has not been questioned in any Litigation (as
defined in Section 3.15 hereof) to which it is a party, nor to the
knowledge of Morgan is any such Litigation threatened; (c) the conduct of
Morgan's business as now conducted does not infringe or conflict with any
Intellectual Properties of others; (d) there is no use of any trademark,
service mark or trade name
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owned by or licensed to Morgan that has heretofore been or is now being
made, except by Morgan or by an entity duly licensed by it to use the same
under a Contract disclosed in Schedule 3.12; and (e) to the knowledge of
Morgan there is no infringement by others of any Intellectual Properties
owned by or licensed by or to Morgan. All patents, patent applications and
rights to inventions heretofore owned or held by any employee or officer of
Morgan and relating to its business in any manner have been duly
effectively transferred to Morgan. All licenses and Contracts requiring
the payment of royalties by Morgan are referenced and correctly described
in Morgan's Annual Report on Form 10-K for the year ended December 31,
1993.
3.14 Permits, License, Etc. Morgan has, and has complied in all
material respects with, all Permits (as hereafter defined below) that are
required in order to carry on its business as presently conducted and is
not in default of any thereof. Schedule 3.14 sets forth a correct and
complete list of all such Permits, all of which are in full force and
effect, and to Morgan's knowledge, no suspension, cancellation or non-
renewal of any of them is threatened, nor does any basis for such
suspension, cancellation or non-renewal exist. As to any such Permit that
has expired or is about to expire, Morgan has promptly applied for the
renewal of same. A true and complete copy of each Permit set forth in
Schedule 3.14 has been previously delivered to NMR. As used herein,
"Permits" shall mean all licenses, permits, consent orders, administrative
orders, registrations, authorizations, franchises and other approvals from
any domestic (federal, state or local) or foreign governmental, public or
self-regulatory body or authority the failure of which to obtain would have
a material adverse effect on the business or properties of Morgan or NMR,
taken as a whole, as the context shall require.
3.15 Litigation. Except as set forth on Schedule 3.15, there is no
claim, action, suit, proceeding, arbitration, investigation or inquiry
(each and all of the foregoing items being herein referred to as
"Litigation") pending before any federal, state, municipal, foreign or
other court or governmental, administrative or self-regulatory body or
agency, or any private arbitration tribunal, or to the knowledge of Morgan
threatened, against, relating to or affecting Morgan with respect to its
business or the transactions contemplated by this Agreement; nor to the
knowledge of Morgan is there any basis for any such Litigation. Neither
Morgan nor any officer, director or employee of Morgan has been permanently
or temporarily enjoined or barred by order, judgment or decree of any court
or other tribunal or any agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with its business. There
is not in existence any order, judgment or decree of any court or other
tribunal or any agency or self-regulatory body enjoining Morgan from taking
or requiring Morgan
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to take action of any kind with respect to its business or to which Morgan
is subject or by which Morgan is bound.
3.16 Accounts and Notes Receivable. Attached hereto as Schedule 3.16
is a true, complete and correct listing of all of the receivables
(including accounts receivable, notes receivable, loans receivable and any
advances) of Morgan as of December 31, 1994. All such receivables, net of
any allowance for doubtful accounts, have been reflected on the Morgan
Financial Statements in accordance with generally accepted accounting
principles applied on a consistent basis except as stated thereon. Except
as set forth on Schedule 3.16, all accounts and notes receivable reflected
on the December 31, 1994 balance sheet of Morgan or arising thereafter and
on or prior to the Effective Time arose from bona fide transactions in the
ordinary course of business.
3.17 No Interest in Competitors, Etc. Except as set forth in Schedule
3.17 (which may refer to other specific Schedules hereto), and except for
the ownership of not more than five percent (5%) of the outstanding
securities of any class of an issuer registered under Section 12 of the
Exchange Act and securities traded on foreign securities exchanges and
their American depository receipt counterparts, neither Morgan or any
affiliate thereof, nor any officer or director of Morgan or any affiliate
or associate thereof, directly or indirectly is, or owns any interest in or
controls or is an employee, officer, director, or partner of or participant
in or consultant to any corporation, partnership, limited partnership,
joint venture, association, or other entity which is a competitor,
supplier, customer, landlord, or tenant of Morgan. Schedule 3.17 hereto
sets forth all Contracts or other arrangements between Morgan and any
affiliate thereof for space, facilities, personnel, management, computer,
telephone or other services. Except as set forth in Schedule 3.17, Morgan
does not owe any amount to, or have any Contract with or commitment to, any
of its shareholders, directors, officers, employees or consultants (other
than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business), none
of such persons owes any amount to Morgan, and no property or assets of any
shareholders of Morgan or any affiliate of any shareholders of Morgan is
used by Morgan.
3.18 Books and Records. The books of account and other financial and
corporate records of Morgan are in all material respects complete and
correct, are maintained in accordance with good business practices and all
Laws applicable to Morgan, and are accurately reflected in the Morgan
Financial Statements. The minute books of Morgan as previously made
available to NMR and its counsel contain accurate records of all meetings,
and accurately reflect all other corporate action of the shareholders and
directors of Morgan.
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3.19 Employees, Labor Relations, Etc. Except as set forth in
Schedule 3.19, (a) Morgan is not a party to any contract or agreement with
any labor organization or other representative of Morgan employees; (b)
there is no unfair labor practice charge or complaint pending or, to the
best knowledge of Morgan, threatened, against Morgan; (c) there is no labor
strike, slowdown, work stoppage or other material labor controversy in
effect, or to the knowledge of Morgan threatened against or otherwise
affecting Morgan; (d) Morgan has not experienced any labor strike,
slowdown, work stoppage or other material labor controversy within the past
three years; (e) no representation question has been raised respecting any
of Morgan's employees within the past three years, nor, to the best
knowledge of Morgan are there any campaigns being conducted to solicit
cards from Morgan's employees to authorize representation by any labor
organization; (f) no collective bargaining agreement relating to any of
Morgan's employees is being negotiated; (g) no action, suit, complaint,
charge, arbitration, inquiry, proceeding, or investigation by or before any
court, governmental agency, administrative agency or commission brought by
or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of Morgan's employees,
is pending or, to the best knowledge of Morgan, threatened, against Morgan;
(h) Morgan is not a party to, or otherwise bound by, any consent decree
with, or citation by, any government agency relating to Morgan's employees
or employment practices relating to Morgan's employees; (i) Morgan is in
compliance in all material respects with all applicable Laws and Contracts
relating to employment, employment practices, wages, hours, and terms and
conditions of employment, and have not engaged in any unfair labor practice
or discriminated on the basis of race, age, sex or otherwise in its
employment conditions or practices with respect to its employees; (j)
Morgan has paid in full to all of its employees all wages, salaries,
commissions, bonuses, benefits and other compensation due and payable to
such employees on or prior to the date hereof; (k) Morgan is in compliance
with its obligations with respect to Morgan' employees pursuant to the
Worker Adjustment and Retraining Notification Act of 1988, and all other
notification and bargaining obligations arising under any collective
bargaining agreement, statute or otherwise. Schedule 3.19 sets forth the
name, position, title or function and salary or wages of each employee of
Morgan employed as of the date of this Agreement at an annual salary
or wage (including in each case commissions and bonuses) of $25,000 or
more. Except as set forth on Schedule 3.19, none of such employees has
notified Morgan of his or her intention to resign or retire.
3.20 Environmental Matters. (a) Schedule 3.20 lists all notices to
Morgan of environmental violations or environmental claims and all reports
made by Morgan to any foreign or domestic environmental agency since
December 31, 1989 and true and correct
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copies of all such notices, claims and reports have previously been
delivered to NMR.
(b) Morgan currently conducts its business within the limits set
forth in each and every environmental Permit it holds, regardless of
whether such Permits are current, have expired or about to expire, and has
conducted its business in compliance with all terms and conditions of such
Permits since December 31, 1989.
(c) Except as set forth in Schedule 3.20, no Permit of any foreign or
domestic environmental authority is required for, or by reason of, the
Merger or for the consummation and performance of this Agreement in any
other respect.
(d) Morgan has not conducted or operated and currently does not
conduct or operate storage areas, drum storage areas, surface impoundments,
incinerators, land fills, tanks, lagoons, ponds, waste piles, or deep well
injection system for the purpose of treatment, storage or disposal of
hazardous waste as defined by the Federal Resource Conservation and
Recovery Act, as amended ("RCRA"), or to which any similar foreign Law is
applicable, on any real property used or formerly used by it.
(e) Morgan has not transported for off site disposal any hazardous
waste or substance as defined in either RCRA or the Federal Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), or to
which any similar foreign Law is applicable, or entered into any contract
or agreement, or otherwise arranged, for the transportation, storage, or
disposal of any such hazardous substance or waste at any offsite treatment,
storage or disposal facility.
(f) There has been no release or discharge by Morgan of any hazardous
substance, as defined in CERCLA or in the Federal Superfund Amendment and
Reauthorizations Act of 1986 ("SARA") or to which any similar foreign Law
is applicable, or of a hazardous waste, as defined in RCRA or to which any
similar foreign Law is applicable, which would (i) constitute or have
constituted a violation of Law, or (ii) give rise to an obligation by
Morgan, or its assigns or successors in interest to effect any
environmental cleanup or remediation.
(g) No federal, state or local government or agency has asserted or
created an Encumbrance upon any or all of the real properties utilized by
Morgan in conducting its business as a result of any use, spill, release,
discharge or cleanup of any hazardous substance or waste under CERCLA, SARA
or RCRA or any similar foreign Law nor has any such use, spill, release,
discharge or cleanup occurred which could result in the assertion or
creation of such an Encumbrance.
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3.21 Employee Benefit Plans, Etc. (a) Schedule 3.21 hereto contains a
true and complete list of each plan, Contract, program, policy or
arrangement, including, but not limited to, pension, bonus, section 401(k)
plan, deferred compensation, incentive compensation, stock purchase,
supplemental retirement, severance or termination pay, stock option,
hospitalization, medical, life insurance, dental, disability, salary
continuation, vacation, supplemental unemployment benefits, profit-sharing,
or retirement plan, Contract, program, policy or arrangement, maintained,
contributed to, or required to be contributed to, by Morgan or by any of
its subsidiaries or affiliates for the benefit of any employee, whether or
not any of the foregoing is funded, whether formal or informal, whether or
not subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and whether legally binding or not (collectively, the
"Benefit Plans"). Morgan has delivered to NMR true and complete copies of
all documents embodying or relating to the Benefit Plans, including,
without limitation, with respect to each Benefit Plan, all amendments to
the Benefit Plans, and any trust or other funding arrangement.
(b) Morgan does not maintain any Benefit Plan which is an "employee
pension benefit plan," within the meaning of Section 3(2) of ERISA.
(c) Except as specifically set forth in Schedule 3.21, the execution
and delivery of, and performance of the transactions contemplated by, this
Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Benefit Plan or
individual agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, vesting or increase in benefits
with respect to any employee, and will not cause Morgan and/or the
Surviving Corporation to incur any multiemployer plan or other withdrawal
liability.
(d) Except as specifically set forth in Schedule 3.21, there is no,
nor has there ever been, any multiemployer plan (as defined in ERISA
Section 3(37)) covering employees of Morgan or a past or present withdrawal
therefrom within the meaning of Section 4201 and 4204 of ERISA.
(e) Except for multiemployer plans, Morgan does not maintain any
Benefit Plan which is funded by a trust described in Section 501(c)(9) of
the Code or subject to the provisions of Section 505 of the Code.
(f) Except as specifically set forth in Schedule 3.21, no Benefit Plan
provides or is required to provide health, medical, death or survivor
benefits to any former or retired employee or beneficiary thereof, except
to the extent required under any
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state insurance law providing for a conversion option under a group
insurance policy or under Section 601 of ERISA.
(g) Morgan does not maintain any Benefit Plan which is a "Group
Health Plan" (as such term is defined in Section 162(i)(2) of the Code)
that has not been administered and operated in all respects in compliance
with the applicable requirements of Section 601 of ERISA and Section 4980B
of the Code and Morgan is not subject to any liability including, but not
limited to, additional contributions, fines or penalties or loss of tax
deduction as a result of such administration and operation. Morgan does
not maintain any Benefit Plan which is an "Employee Welfare Benefit Plan"
(as such term is defined in Section 3(1) of ERISA) and has not provided any
benefit which is a "Disqualified Benefit" (as such term is defined in
Section 4976(b) of the Code) for which an excise tax would be imposed.
(h) Except as specifically set forth in Schedule 3.21, full payment
has been made of all amounts which Morgan is required, under applicable law
or under any Benefit Plan or any agreement relating to any Benefit Plan to
which Morgan is a party, to have paid as contributions thereto as of the
last day of the most recent fiscal year of such Benefit Plan ended prior to
the date hereof. Morgan has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under
the terms of any Benefit Plan or related agreements. Benefits under all
Benefit Plans are as represented and have not been increased subsequent to
the date as of which documents have been provided.
(i) For purposes of this Section 3.21, any reference to the term
"Morgan" shall be deemed to refer also to any entity which is under common
control or affiliated with Morgan within the meaning of Section 4001 of
ERISA and the rules and regulations thereunder and/or Section 414 of the
Code and the rules and regulations thereunder.
3.22 SEC Filings. Morgan has filed with the Securities and Exchange
Commission ("SEC") in a timely manner, and has previously delivered to NMR
true and complete copies of, all forms, reports, schedules, statements, and
other documents required to be filed by Morgan since January 1, 1992 under
the Securities Act or the Exchange Act, and has previously delivered to NMR
true and complete copies of all forms, reports, schedules, statements, and
other documents otherwise filed by Morgan since January 1, 1992 under the
Securities Act or the Exchange Act. Morgan does not have any class of
securities registered under Section 12 of the Exchange Act. No form,
report, schedule, statement or other document filed by Morgan with the SEC
since January 1, 1992 contained any untrue statement of a material fact or
omitted to state any material fact, at the time such document was filed,
necessary in order to make the statements therein, in
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light of the circumstances under which they were made, not misleading,
other than such facts as were corrected in any subsequent form, report,
schedule, statement or other document filed by Morgan with the SEC.
3.23 Information. None of the information concerning Morgan supplied
or to be supplied by Morgan or any of its agents, accountants, lawyers or
other consultants or advisors (each of the foregoing referred to herein as
"Representative") for inclusion in the proxy and registration statement on
Form S-4 prepared in connection with the transactions contemplated hereby
or any amendment or supplement thereto has or will, at the time that the
proxy and registration statement was or any amendment is mailed, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or, in the case of
any such proxy and registration statement, necessary to correct any
statement in any earlier communication with respect to the solicitation of
any proxy for the meeting or consent in connection with which such proxy
and registration statement shall be mailed. None of the information and
documents which have been or may be furnished by Morgan or any of its
Representatives to NMR or their Representatives in connection with the
transactions contemplated hereby is or will be materially false or
misleading or contains or will contain any material misstatement of fact or
omits or will omit any material fact necessary to be stated in order to
make the statements therein not misleading.
3.24 Accreditation. Schedule 3.24 sets forth with respect to each
imaging facility of Morgan a correct and complete list of all
accreditations received relating to the performance of diagnostic imaging
procedures in specific modalities. No other accreditations are required
for the performance of such procedures by any imaging facility of Morgan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO NMR
NMR, on behalf of itself and Acquisition, represents and warrants to
Morgan as follows (as used in this Article IV, the term "NMR" shall include
NMR and each subsidiary (as such term is defined in Rule 405 promulgated
under the Securities Act) of NMR (an "NMR Subsidiary"), unless the context
suggests otherwise):
4.1 Corporate Existence and Power; Qualification; Subsidiaries. Each
of NMR and Acquisition is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation.
NMR has all corporate powers to execute and deliver this Agreement and to
perform its obligations hereunder and consummate the transactions
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contemplated hereby, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and to own its properties, and is duly qualified
to do business and is in good standing in each jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
requires such qualification. The copies of NMR's Certificate of
Incorporation and By-laws and Acquisition's Certificate of Incorporation
and Bylaws that have been delivered to Morgan are complete and correct and
are in full force and effect. Schedule 4.1 sets forth a complete list of
each NMR Subsidiary. Each NMR Subsidiary is a corporation or partnership
duly incorporated (if a corporation), validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, as the
case may be, has all requisite powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted and to own its properties, and is duly qualified to do
business and is in good standing in each jurisdiction in which the conduct
of its business or the ownership or leasing of its properties requires such
qualification. Neither NMR nor Acquisition has made any advances to or
investments in, nor directly or indirectly owns any securities of, any
domestic or foreign business entity, enterprise or organization other than
as set forth on Schedule 4.1. Neither NMR nor any NMR Subsidiary is in
violation of any provision of its Certificate of Incorporation or Bylaws or
certificate of limited partnership, or equivalent organizational document,
as the case may be. Each of the outstanding shares of capital stock of, or
other equity interests in, any NMR Subsidiary owned by NMR is owned by NMR
free and clear of any Encumbrance.
4.2 Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by NMR and Acquisition of this
Agreement and the Merger have been duly authorized by all necessary
corporate action (other than the approval of this Agreement and the Merger
by the holders of a majority of the outstanding shares of NMR Common Stock
voted at the stockholder meeting referred to in Section 6.3 hereof). This
Agreement has been duly executed and delivered by each of NMR and
Acquisition. The execution and delivery of this Agreement do not and the
consummation of the transactions contemplated hereby will not be prohibited
by, or violate or conflict with, any provision of the Certificate of
Incorporation or Bylaws of NMR or Acquisition, or of any Law, or, except as
set forth on Schedule 4.2, any provision of, or result in the acceleration
of, result in any severance or termination pay liability, constitute a
default under, entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under, result in the
creation or imposition of any Encumbrance upon any property of NMR or
Acquisition pursuant to any provisions of, or create any right on the part
of any party to modify, amend or
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terminate, any Contract, lien, instrument, order, Permit (as such term is
defined in Section 3.14 hereof), arbitration award, judgment or decree to
which NMR or Acquisition is a party or by which any of them is bound.
Other than the requirement to file the Certificates of Merger with the
Secretaries of State of the States of Colorado and Delaware, as
appropriate, the HSR Act filing referenced in Section 6.8 hereof, if
necessary, and as required by the Securities Act, the Exchange Act, state
securities laws, the NASD and the Philadelphia Stock Exchange, and except
for the other regulatory filings and approvals set forth in Schedule 4.2
hereof, no authorization, consent or approval of, or filing with, any
domestic or foreign public body or authority is necessary on the part of
NMR or Acquisition for the consummation by NMR and Acquisition of the
transactions contemplated by this Agreement or the other agreements
referred to herein and the ownership and operation by the Surviving
Corporation of the business and properties of Acquisition after the
Effective Time in substantially the same manner as presently owned and
operated, except where the failure to give such notices, obtain such
authorizations, consents or approvals or make such filings would not, in
the aggregate have a materially adverse effect on the condition (financial
or otherwise), business or operations of NMR, or delay or prevent the
consummation of the transactions contemplated by this Agreement or prevent
NMR or Acquisition from performing their respective obligations hereunder.
This Agreement is a valid, legal and binding agreement of each of NMR and
Acquisition, subject to applicable bankruptcy, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights in general from
time to time in effect and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
4.3 Capitalization. (a) The shares of NMR Common Stock which are
currently outstanding have been duly authorized and are validly issued,
fully paid, nonassessable and free of preemptive rights created by statute,
NMR's Certificate of Incorporation or otherwise. The authorized capital
stock of NMR consists of 30,000,000 shares of NMR Common Stock, of which
5,048,044 shares are issued and outstanding, and 500,000 shares of
Preferred Stock, par value $.05 per share, of which no shares are
outstanding. The authorized capital stock of Acquisition consists of 1,000
shares of Acquisition Common Stock, of which 100 shares are issued and
outstanding. NMR is the record and beneficial owner of all of the issued
and outstanding Acquisition Common Stock.
(b) There are no subscriptions, options, warrants or other
rights, calls, agreements or commitments obligating NMR or any NMR
Subsidiary to issue, or repurchase, redeem or otherwise acquire, capital
stock or other securities of NMR or any NMR Subsidiary, except as set forth
in Schedule 4.3.
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(c) The shares of NMR Common Stock to be issued to the
stockholders of Morgan pursuant to the Merger or upon exercise or
conversion of any Morgan Derivative Security to the holder thereof will be,
upon such issuance, duly authorized and validly issued, fully paid
(assuming the exercise or conversion of such Morgan Derivative Security in
accordance with its terms), nonassessable and free of preemptive rights
created by statute, NMR's Certificate of Incorporation or otherwise.
4.4 Financial Statements of NMR; Changes. (a) NMR has heretofore
delivered to Morgan (i) its Annual Report on Form 10-KSB for the year ended
March 31, 1994 (the "NMR 1994 Annual Report"), which report contains true
and complete copies of its consolidated audited balance sheet as at March
31, 1994 and audited consolidated Statements of Operations and audited
consolidated Statements of Cash Flows for the three year period then ended,
and (ii) its Quarterly Report on Form 10-QSB for the period ended December
31, 1994 (the "NMR Balance Sheet Date"), which report contains true and
complete copies of its unaudited consolidated balance sheet as at the NMR
Balance Sheet Date and unaudited consolidated Statements of Operations and
unaudited consolidated Statements of Cash Flows for the nine month period
then ended (the statements referred to in clauses (i) and (ii) referred to
collectively as the "NMR Financial Statements"). The NMR Financial
Statements present fairly (x) the consolidated financial position of NMR as
of March 31, 1994 and the consolidated results of operations and cash flows
for each of the three years in the three-year period then ended, and (y)
the consolidated financial position of NMR as of the NMR Balance Sheet Date
and the consolidated results of operations and cash flows for the nine
month period then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis, except as stated
thereon, and except with respect to the unaudited NMR Financial Statements,
subject to normal and recurring year-end adjustments.
(b) Except as set forth in Schedule 4.4 hereto and except as
contemplated by this Agreement, since the NMR Balance Sheet Date:
(i) there has been no material adverse change in the business,
assets, financial condition or results of operations of NMR;
(ii) there has not been any direct or indirect redemption,
purchase or other acquisition by NMR of any of NMR's capital stock, or
any declaration, setting aside or payment of any dividend or other
distribution by NMR in respect of its capital stock, and neither NMR
nor Acquisition has authorized or proposed any of the foregoing, or
entered into any contract, agreement, commitment or arrangement to do
any of the foregoing, except as may be
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contemplated by this Agreement and the agreements contemplated hereby
or referred to herein;
(iii) except for the transactions contemplated hereby, NMR has
conducted its business in the ordinary course and consistent with past
practices;
(iv) there has been no damage, destruction or casualty loss
(whether or not covered by insurance) suffered by NMR materially
adversely affecting the business, assets, financial condition or
results of operations of NMR, nor has NMR been notified of any pending
condemnation proceeding concerning any of its properties;
(v) there have not been any defaults or breaches by NMR under
agreements to which it is a party or by which it is bound which, taken
in the aggregate, would have a material adverse effect upon the
business, assets, financial condition or results of operation of NMR;
(vi) neither NMR nor Acquisition has directly or indirectly, (A)
issued, sold, pledged, disposed of, or encumbered, or authorized,
proposed or agreed to the issuance, sale, pledge, disposition or
encumbrance of, any shares of, or any options, warrants or rights of
any kind to acquire any shares of or any securities convertible into
or exchangeable for any of, the capital stock of any class of NMR or
Acquisition, or any other securities in respect of, in lieu of, or in
substitution for any such capital stock; (B) acquired (by merger,
consolidation, or acquisition of shares or assets) any corporation,
partnership or other business organization or division thereof or made
any investment either by purchase of shares or securities,
contributions to capital (other than to subsidiaries or affiliates) or
property transfer; (C) authorized any change in its capitalization or
authorized, recommended or proposed any release or relinquishment of
any Contract right; or (D) authorized any of the foregoing, or entered
into or modified any contract, agreement, commitment or arrangement to
do any of the foregoing;
(vii) NMR has not incurred any obligation or liability (fixed or
contingent) with respect to the business of NMR or any of its assets,
except (1) obligations incurred in the ordinary course of business
consistent with past practice and (2) obligations and liabilities
under this Agreement or contemplated hereby;
(viii) NMR has not discharged or satisfied any Encumbrance or
paid any obligation or liability (fixed or contingent) except (1)
current obligations and liabilities included in the NMR Financial
Statements and (2) current
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obligations and liabilities incurred since the NMR Balance Sheet Date
in the ordinary course of business;
(ix) NMR has not mortgaged, pledged or subjected to any
Encumbrance any of the assets or properties of NMR;
(x) NMR has not sold, transferred or leased any of the assets or
properties of NMR, except in the ordinary course of business;
(xi) NMR has not taken any action other than in the ordinary
course of business and consistent with past practice (none of which
actions is unreasonable or unusual) with respect to the grant of any
severance or termination pay (otherwise than pursuant to policies of
NMR in effect on the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay policies in
effect on the date hereof; and
(xii) NMR has not adopted or amended any bonus, profit sharing,
thrift, savings, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any employee or increased in any manner the compensation or
fringe benefits of any employee or paid any benefit not required by
any existing plan and arrangement, except for salary increases for
employees in the ordinary course of business consistent with past
practices.
4.5 No Undisclosed Liabilities. Except as set forth in Schedules
4.4, 4.5, 4.12, 4.14, 4.15, 4.19, 4.20 and 4.21, there are no liabilities
of NMR of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities disclosed or provided for in the balance sheet
of NMR (or the notes thereto) as of the NMR Balance Sheet Date
included in the NMR Financial Statements; and
(b) liabilities incurred in the ordinary course of business
consistent with past practice since the NMR Balance Sheet Date.
4.6 Compliance with Laws. Except as set forth in Schedule 4.6, NMR
and Acquisition have complied, and are in compliance, in all material
respects with all applicable Laws. NMR is not now charged with or to its
knowledge under investigation with respect to any violation of any
applicable Law where such violation could have a material adverse effect on
the business, assets, financial condition or results of operation of NMR.
NMR has filed all
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reports required to be filed with any governmental, regulatory or
administrative agency or authority where failure to file such report would
have a material adverse effect on the business, assets, financial condition
or results of operation of NMR.
4.7 Tax Matters. Except as set forth in Schedule 4.7, (a) NMR has
duly filed or will file with the appropriate government agencies all Tax
returns required to be filed by it on or before the Effective Time, (b) NMR
has timely paid, or made provision on its books and records by establishing
a reserve for the payment of, all Taxes due with respect to its operations
or any other operation of the NMR Group (as hereinafter defined below)
prior to the Effective Time, including all Taxes shown as due on all Tax
returns described in clause (a) above and all estimated Tax payments due on
or before the Effective Time, (c) NMR has not executed or filed any
agreement extending the period for assessment or collection of any Taxes,
nor is NMR a party to any pending Litigation by any governmental authority
for assessment or collection of any Taxes, and no claims for assessment or
collection of any Taxes have been asserted against NMR, and (d) to the
knowledge of NMR, no Tax returns of NMR or the NMR Group are under
examination. As used herein, "NMR Group" shall mean NMR and all members of
its affiliated group as defined in section 1504(a) of the Code and as
defined in any applicable Law providing for consolidated or combined
returns. NMR is not a "United States real property holding company" within
the meaning of Section 1445 of the Code.
4.8 Title to Properties; Absence of Liens and Encumbrances, Etc.
Except as set forth in Schedule 4.8, NMR owns no real property and has good
title to or a legal, valid and enforceable right to use the other
properties and assets used in the conduct of the business of NMR (including
without limitation the assets reflected in its balance sheet as at the NMR
Balance Sheet Date, except as since sold or otherwise disposed of in the
ordinary course of business), free and clear of all Encumbrances,
imperfections of or other matters affecting title, and any rights of third
parties whatsoever, except Permitted Encumbrances.
4.9 Facilities. Schedule 4.9 sets forth a correct and complete list
of all of the real properties, together with the buildings, improvements,
and structures located thereon, owned or used by NMR in the conduct of its
business, indicating whether such property is owned or leased and setting
forth where such property is located.
4.10 Condition of Facilities, Equipment, Etc. The buildings,
structures, equipment and other physical properties and assets owned,
operated, or leased by NMR in connection with its business are in good
condition and repair (ordinary wear and tear which are not such as to
affect adversely the operation of NMR's business excepted), free of any
structural or engineering
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defect, are suitable for the conduct of NMR's business as presently
conducted and as presently proposed to be conducted, and do not require any
maintenance or repairs except for routine maintenance and repairs. All
such physical properties and assets are in conformity in all respects with
all applicable Laws and other requirements relating thereto currently in
effect or scheduled to come into effect, including, without limitation,
Laws relating to environmental regulation and the maintenance of
occupational safety and health among the workforce.
4.11 Insurance. The business and the assets of NMR are covered by
insurance with licensed insurance companies against casualty and other
losses customarily obtained to cover comparable businesses and assets in
the region in which such businesses and assets are located, in amounts,
scope and coverage which are reasonable in light of existing conditions.
Schedule 4.11 sets forth a correct and complete list of all of the policies
of insurance and fidelity or surety bonds carried by NMR with respect to
NMR's business or any of its assets (including prior policies to the extent
that they continue to provide coverage). NMR has not failed to give any
notice or present any claim under such insurance policies in due and timely
fashion, and there are no claims by NMR against any of such policies as to
which any insurance company is denying liability or defending under a
reservation of rights clause.
4.12 Agreements, Plans, Arrangements, Etc. Except as set forth in
Schedule 4.12 (which may refer to other specific Schedules hereto), NMR is
not a party to, nor is NMR or any of its properties and assets bound or
affected by, any of the following:
(a) a lease (whether as lessor or lessee) relating to real or
personal property;
(b) a license, sublicense, assignment or other Contract (whether
as licensor or licensee, assignor or assignee) relating to
Intellectual Property;
(c) an employment Contract or consulting Contract;
(d) a joint venture or partnership Contract;
(e) a Contract for the borrowing or lending of money or
guaranteeing, indemnifying or otherwise becoming liable for the
obligations or liabilities of another;
(f) a Contract granting any person a security interest or other
Encumbrance on any of the assets of NMR;
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(g) a Contract for the construction or modification of any
building or structure or for the incurrence of any other capital
expenditure;
(h) a Contract which restricts NMR from doing business anywhere
in the world;
(i) a Contract not entered into in the ordinary course of
business;
(j) a Contract requiring the payment of royalties; or
(k) any other Contract which could have a material adverse
effect on the Surviving Corporation.
Correct and complete copies of all Contracts set forth in Schedule 4.12 or
any other Schedule hereto, including all amendments to date (or, where they
are oral, true and complete written summaries thereof), and true and
complete copies of all standard form Contracts used by NMR in the conduct
of its business have been delivered to Morgan or its Representatives prior
to the date hereof. Each such Contract is valid, in full force and effect
and enforceable in accordance with its terms and NMR has fulfilled, or
taken all action reasonably necessary to enable it to fulfill when due, all
of its obligations under such Contracts. Except as set forth in Schedule
4.12, there has not occurred any default, or any event which, with the
lapse of time or the election of any person other than NMR, or any
combination thereof, will become a default, by NMR, nor to the knowledge of
NMR has there occurred any default by others or any event which, with the
lapse of time or the election of NMR, will become a default by others under
any of such Contracts. Neither NMR nor to NMR's knowledge any other party
is in arrears in respect of the performance or satisfaction of the terms or
conditions on its part to be performed or satisfied under any of such
Contracts and no waiver or indulgence has been granted by any of the
parties thereto.
4.13 Intellectual Properties. Schedule 4.13 sets forth a correct and
complete list of all Intellectual Properties used or presently proposed to
be used in the conduct of the business of NMR. Except as disclosed in
Schedule 4.13, (a) NMR owns or possesses adequate licenses or other valid
rights to use (without the making of any payment to others or the
obligation to grant rights to others in exchange) all Intellectual
Properties necessary to the conduct of its business as presently being
conducted and the business of NMR as presently being conducted and the
consummation of the transactions contemplated hereby will not alter or
impair any of such rights; (b) the validity of such rights and the title
thereto of NMR have not been questioned in any Litigation (as defined in
Section 3.15 hereof) to which NMR is a party, nor to the knowledge of NMR
is any such Litigation
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threatened; (c) to NMR's knowledge, the conduct of NMR's business as now
conducted does not infringe or conflict with any Intellectual Properties of
others; (d) there is no use of any trademark, service mark or trade name
owned by or licensed to NMR that has heretofore been or is now being made,
except by NMR or by an entity duly licensed by it to use the same under a
Contract disclosed in Schedule 4.12; and (e) to the knowledge of NMR there
is no infringement by others of any Intellectual Properties owned by or
licensed by or to NMR. All patents, patent applications and rights to
inventions heretofore owned or held by any employee or officer of NMR or
affiliate of NMR and relating to its business in any manner have been duly
effectively transferred to NMR. All licenses and Contracts requiring the
payment of royalties by NMR are referenced and correctly described in the
NMR 1994 Annual Report.
4.14 Permits, License, Etc. NMR has, and has complied in all material
respects with, all Permits that are required in order to carry on its
business as presently conducted and is not in default of any thereof.
Schedule 4.14 sets forth a correct and complete list of all such Permits,
all of which are in full force and effect, and, to NMR's knowledge, no
suspension, cancellation or non-renewal of any of them is threatened, nor
does any basis for such suspension, cancellation or non-renewal exist. As
to any such Permit that has expired or is about to expire, NMR has promptly
applied for the renewal of same. A true and complete copy of each Permit
set forth in Schedule 4.14 has been previously delivered to Morgan.
4.15 Litigation. Except as set forth on Schedule 4.15, there is no
Litigation pending before any federal, state, municipal, foreign or other
court or governmental, administrative or self-regulatory body or agency, or
any private arbitration tribunal, or to the knowledge of NMR threatened,
against, relating to or affecting NMR with respect to its business or the
transactions contemplated by this Agreement; nor to the knowledge of NMR is
there any basis for any such Litigation. Neither NMR nor any officer,
director or employee of NMR has been permanently or temporarily enjoined or
barred by order, judgment or decree of any court or other tribunal or any
agency or self-regulatory body from engaging in or continuing any conduct
or practice in connection with its business. There is not in existence any
order, judgment or decree of any court or other tribunal or any agency or
self-regulatory body enjoining NMR from taking or requiring NMR to take
action of any kind with respect to its business or to which NMR is subject
or by which it is bound.
4.16 Accounts and Notes Receivable. Attached hereto as Schedule 4.16
is a true, complete and correct listing of all of the receivables
(including accounts receivable, notes receivable, loans receivable and any
advances) of NMR as of December 31, 1994. All such receivables, net of any
allowance for doubtful
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accounts, have been reflected on the NMR Financial Statements in accordance
with generally accepted accounting principles applied on a consistent
basis, except as stated thereon. All accounts and notes receivable
reflected on the December 31, 1994 balance sheet of NMR or arising
thereafter and on or prior to the Effective Time arose from bona fide
transactions in the ordinary course of business.
4.17 No Interest in Competitors, Etc. Except as set forth in Schedule
4.17 (which may refer to other specific Schedules hereto), and except for
the ownership of not more than five percent (5%) of the outstanding
securities of any class of an issuer registered under Section 12 of the
Exchange Act and securities traded on foreign securities exchanges and
their American depository receipt counterparts, neither NMR nor any
affiliate thereof, nor any officer or director of NMR or any affiliate or
associate thereof, directly or indirectly is, or owns any interest in or
controls or is an employee, officer, director, or partner of or participant
in or consultant to any corporation, partnership, limited partnership,
joint venture, association, or other entity which is a competitor,
supplier, customer, landlord, or tenant of NMR. Schedule 4.17 hereto sets
forth all Contracts or other arrangements between any affiliate of NMR and
NMR for space, facilities, personnel, management, computer, telephone or
other services. Except as set forth in Schedule 4.17, NMR does not owe any
amount to, or have any Contract with or commitment to, any of its
shareholders, directors, officers, employees or consultants (other than
compensation for current services not yet due and payable and reimbursement
of expenses arising in the ordinary course of business), none of such
persons owes any amount to NMR, and no part of the property or assets of
any shareholder of NMR or any affiliate of any shareholder of NMR is used
by NMR.
4.18 Books and Records. The books of account and other financial and
corporate records of NMR are in all material respects complete and correct,
are maintained in accordance with good business practices and all Laws
applicable to NMR, and are accurately reflected in the NMR Financial
Statements. The minute books of NMR as previously made available to Morgan
and its counsel contain accurate records of all meetings, and accurately
reflect all other corporate action of the shareholders and directors of
NMR.
4.19 Employees, Labor Relations, Etc. Except as set forth in
Schedule 4.19, (a) NMR is not a party to any contract or agreement with any
labor organization or other representative of NMR's employees; (b) there is
no unfair labor practice charge or complaint pending or, to the best
knowledge of NMR, threatened, against NMR; (c) there is no labor strike,
slowdown, work stoppage or other material labor controversy in effect, or
to the knowledge of NMR threatened against or otherwise affecting NMR;
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(d) NMR has not experienced any labor strike, slowdown, work stoppage or
other material labor controversy within the past three years; (e) no
representation question has been raised respecting any of NMR's employees
within the past three years, nor, to the best knowledge of NMR are there
any campaigns being conducted to solicit cards from NMR's employees to
authorize representation by any labor organization; (f) no collective
bargaining agreement relating to any of NMR's employees is being
negotiated; (g) no action, suit, complaint, charge, arbitration, inquiry,
proceeding, or investigation by or before any court, governmental agency,
administrative agency or commission brought by or on behalf of any
employee, prospective employee, former employee, retiree, labor
organization or other representative of NMR's employees, is pending or, to
the best knowledge of NMR, threatened, against NMR; (h) NMR is not a party
to, or otherwise bound by, any consent decree with, or citation by, any
government agency relating to NMR's employees or employment practices
relating to NMR's employees; (i) NMR is in compliance in all material
respects with all applicable Laws and Contracts relating to employment,
employment practices, wages, hours, and terms and conditions of employment,
and has not engaged in any unfair labor practice or discriminated on the
basis of race, age, sex or otherwise in its employment conditions or
practices with respect to its employees; (j) NMR has paid in full to all of
NMR's employees all wages, salaries, commissions, bonuses, benefits and
other compensation due and payable to such employees on or prior to the
date hereof; (k) NMR is in compliance with its obligations with respect to
NMR's employees pursuant to the Worker Adjustment and Retraining
Notification Act of 1988, and all other notification and bargaining
obligations arising under any collective bargaining agreement, statute or
otherwise. Schedule 4.19 sets forth the name, position, title or function
and salary or wages of each employee of NMR employed as of the date of this
Agreement at an annual salary or wage (including in each case commissions
and bonuses) of $25,000 or more. Except as set forth on Schedule 4.19,
none of such employees has notified NMR of his or her intention to resign
or retire.
4.20 Environmental Matters. (a) Schedule 4.20 lists all notices to
NMR of environmental violations or environmental claims and all reports
made by NMR to any foreign or domestic environmental agency since December
31, 1989 and true and correct copies of all such notices, claims and
reports have previously been delivered to NMR.
(b) NMR currently conducts its business within the limits set forth
in each and every environmental Permit it holds, regardless of whether such
Permits are current, have expired or about to expire, and has conducted its
business in compliance with all terms and conditions of such Permits since
December 31, 1989.
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(c) Except as set forth in Schedule 4.20, no Permit of any foreign or
domestic environmental authority is required for, or by reason of, the
Merger or for the consummation and performance of this Agreement in any
other respect.
(d) Except as set forth on Schedule 4.20, NMR has not conducted or
operated and currently does not conduct or operate storage areas, drum
storage areas, surface impoundments, incinerators, land fills, tanks,
lagoons, ponds, waste piles, or deep well injection system for the purpose
of treatment, storage or disposal of hazardous waste as defined by RCRA, on
any real property used or formerly used by it.
(e) Except as set forth on Schedule 4.20, NMR has not transported for
off site disposal any hazardous waste or substance as defined in either
RCRA or CERCLA, or entered into any contract or agreement, or otherwise
arranged, for the transportation, storage, or disposal of any such
hazardous substance or waste at any offsite treatment, storage or disposal
of any such hazardous substance or waste at any off site treatment, storage
or disposal facility.
(f) There has been no release or discharge by NMR of any hazardous
substance, as the term is defined in CERCLA or in SARA or of a hazardous
waste, as the term is defined in RCRA, which would (i) constitute or have
constituted a violation of Law, or (ii) give rise to an obligation by NMR,
its assigns or its successors in interest to effect any environmental
cleanup or remediation.
(g) No federal, state or local government or agency has asserted or
created an Encumbrance upon any or all of the real properties utilized by
NMR in conducting its business as a result of any use, spill, release,
discharge or cleanup of any hazardous substance or waste, as those terms
are defined in CERCLA, SARA or RCRA nor has any such use, spill, release,
discharge or cleanup occurred which could result in the assertion or
creation of such an Encumbrance.
4.21 Employee Benefit Plans, Etc. (a) Schedule 4.21 hereto contains a
true and complete list of each plan, Contract, program, policy or
arrangement, including, but not limited to, pension, bonus, section 401(k)
plan, deferred compensation, incentive compensation, stock purchase,
supplemental retirement, severance or termination pay, stock option,
hospitalization, medical, life insurance, dental, disability, salary
continuation, vacation, supplemental unemployment benefits, profit-sharing,
or retirement plan, Contract, program, policy or arrangement, maintained,
contributed to, or required to be contributed to, by NMR or by any of its
subsidiaries or affiliates for the benefit of any employee, whether or not
any of the foregoing is funded, whether formal or informal, whether or not
subject to ERISA, and
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whether legally binding or not (collectively, the "Benefit Plans"). NMR
has delivered to Morgan (i) true and complete copies of all documents
embodying or relating to the Benefit Plans, including, without limitation,
with respect to each Benefit Plan, all amendments to the Benefit Plans, and
any trust or other funding arrangement, including certified financial
statements which fairly present the assets and liabilities of each of the
Benefit Plans as of the date thereof (and there have been no material
changes in the assets and the liabilities since the date of such financial
statements), (ii) the most recent annual and periodic actuarial valuations,
if any, prepared for any Benefit Plan, (iii) the most recent annual reports
(series 5500 and all schedules thereto), if any, required under ERISA, (iv)
if the Benefit Plan is funded, the most recent annual and periodic
accounting of the Benefit Plan's assets, (v) the most recent determination
letter received from the Internal Revenue Service, if any, and (vi) a copy
of the most recent summary plan description together with the most recent
summary of modifications required under ERISA with respect to each such
Benefit Plan, and all employee communications relating to each such Benefit
Plan.
(b) Except as specifically set forth in Schedule 4.21, (i) each of the
Benefit Plans which is an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA (each a "Pension Plan") and which is
intended to meet the requirements of Section 401(a) and, where applicable,
Section 401(k) of the Code, now meets, and since its inception has met, the
requirements for qualification under Section 401(a) and, where applicable,
Section 401(k) of the Code and its related trust is now, and since its
inception has been, exempt from taxation under Section 501(a) of the Code
and nothing has occurred which would adversely affect the qualified status
of any such Pension Plan; (ii) NMR has performed all obligations required
to be performed by it under, and is not in default under or in violation
of, any and all of the Benefit Plans, and is in compliance with, and each
Benefit Plan has been operated and administered in accordance with its
provisions and in compliance with, the Laws governing each such Benefit
Plan, including, without limitation, rules and regulations promulgated by
the Department of Labor, the Pension Benefit Guaranty Corporation and the
Department of the Treasury pursuant to the provisions of ERISA and the
Code; (iii) no event has occurred and there has been no failure to act on
the part of NMR, a fiduciary of any Benefit Plan or a "plan official" (as
defined in Section 412 of ERISA) that violates Section 404 of ERISA or
could subject the Surviving Corporation, a Benefit Plan, a fiduciary or a
plan official to the imposition of any tax, penalty or other liability,
whether by way of indemnity or otherwise; (iv) there is no litigation
pending, or to NMR's knowledge threatened (other than routine claims for
benefits) against any Benefit Plan or against the assets of any Benefit
Plan; (v) there are no accrued but unpaid contributions to any of
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the Benefit Plans; (vi) no reportable event (as defined in Section 4043(e)
of ERISA) for which the notice requirements have not been waived,
prohibited transaction (as defined in Section 406 of ERISA or Section 4975
of the Code), accumulated funding deficiency (as defined in Section 302 of
ERISA or Section 412 or 418B of the Code) or plan termination (as defined
in Title IV of ERISA or Section 411(d) of the Code) has occurred with
respect to any of the Benefit Plans; (vii) the present value of accrued
benefits (as agreed to by NMR's actuary in writing) under any of the
Benefit Plans that is covered by Title IV of ERISA (except for any
multiemployer plan as defined in ERISA Section 3(37)) does not exceed the
value of the assets of such Benefit Plans; (viii) no filing, application or
other matter with respect to any of the Benefit Plans is pending with the
Internal Revenue Service, Pension Benefit Guaranty Corporation, Department
of Labor or other governmental body; (ix) none of the Benefit Plans has
been terminated nor has the Pension Benefit Guaranty Corporation or any
other person stated its intention to or taken any action to terminate any
of the Benefit Plans and no trustee has been appointed by any court to
administer any of the Benefit Plans; and (x) in the case of any Benefit
Plan to which NMR makes contributions on behalf of employees under which
contributions are fixed pursuant to a collective bargaining agreement, the
level of contributions currently provided for in the applicable collective
bargaining agreement is sufficient to meet the funding requirements of
ERISA applicable to such plan, based on reasonable actuarial assumptions
(as determined in writing by the actuary employed by such Benefit Plan).
(c) Except as specifically set forth in Schedule 4.21, the execution
and delivery of, and performance of the transactions contemplated by, this
Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Benefit Plan or
individual agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, vesting or increase in benefits
with respect to any employee, and will not cause NMR and/or the Surviving
Corporation to incur any multiemployer plan or other withdrawal liability.
(d) Except as specifically set forth in Schedule 4.21, there is no,
nor has there ever been, any multiemployer plan (as defined in ERISA
Section 3(37)) covering employees of NMR or a past or present withdrawal
therefrom within the meaning of Section 4201 and 4204 of ERISA.
(e) Except for multiemployer plans, NMR does not maintain any Benefit
Plan which is funded by a trust described in Section 501(c)(9) of the Code
or subject to the provisions of Section 505 of the Code.
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(f) Except as specifically set forth in Schedule 4.21, no Benefit Plan
provides or is required to provide health, medical, death or survivor
benefits to any former or retired employee or beneficiary thereof, except
to the extent required under any state insurance law providing for a
conversion option under a group insurance policy or under Section 601 of
ERISA.
(g) NMR has not incurred any liability (other than the payment of
premiums) to the PBGC in connection with any Benefit Plan covering any
employees of NMR, including any liability under Section 4069 of ERISA and
any penalty imposed under Section 4071 of ERISA, or ceased operations of
any facility or withdrawn from any such Benefit Plan in a manner which
could subject it to liability under Section 4063, 4064 or 4068(f) of ERISA,
and there are no facts or circumstances which might give rise to any
liability of NMR to the PBGC under Title IV of ERISA which could reasonably
be anticipated to result in any claims being made against the Surviving
Corporation by the PBGC.
(h) NMR does not maintain any Benefit Plan which is a "Group Health
Plan" (as such term is defined in Section 162(i)(2) of the Code) that has
not been administered and operated in all respects in compliance with the
applicable requirements of Section 601 of ERISA and Section 4980B of the
Code and NMR is not subject to any liability including, but not limited to,
additional contributions, fines or penalties or loss of tax deduction as a
result of such administration and operation. NMR does not maintain any
Benefit Plan which is an "Employee Welfare Benefit Plan" (as such term is
defined in Section 3(1) of ERISA) and has not provided any benefit which is
a "Disqualified Benefit" (as such term is defined in Section 4976(b) of the
Code) for which an excise tax would be imposed.
(i) Except as specifically set forth in Schedule 4.21, full payment
has been made of all amounts which NMR is required, under applicable law or
under any Benefit Plan or any agreement relating to any Benefit Plan to
which NMR is a party, to have paid as contributions thereto as of the last
day of the most recent fiscal year of such Benefit Plan ended prior to the
date hereof. NMR has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under
the terms of any Benefit Plan or related agreements. Benefits under all
Benefit Plans are as represented and have not been increased subsequent to
the date as of which documents have been provided.
(j) Except as set forth in Schedule 4.21, as of the date of this
Agreement, the aggregate current value of all accrued benefits (based upon
actuarial assumptions, if any, which have been furnished to and relied upon
by Morgan) under all Benefit Plans which are subject to Title IV of ERISA
and which are "Single Employer Plans" (as such term is defined in Section
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4001(a)(15) of ERISA) did not exceed the aggregate current value of all
assets of such Single Employer Plans allocable to such vested accrued
benefits, and since NMR's most recent fiscal year end there has been (A) no
adverse change in the financial condition of any Single Employer Plan, (B)
no change in the actuarial assumptions with respect to any Single Employer
Plan as a result of plan amendments, change in applicable law or otherwise,
which individually or in the aggregate, would result in the aggregate
current value of all accrued benefits to exceed the aggregate current value
of all such assets or require the provision of security to any such Plan
pursuant to Section 401(a)(29) of the Code.
(k) NMR has either adopted on a timely basis all amendments to
Benefit Plans which are required by the Tax Reform Act of 1986 so as to
avoid discrimination in participating or benefits in favor of highly
compensated employees or has complied with the requirements for obtaining
"anti-cutback" relief provided under Internal Revenue Service Notice 88-131
as modified by Notice 89-92 by adopting appropriate amendments to such
Benefit Plans.
(l) For purposes of this Section 4.21, any reference to the term "NMR"
shall be deemed to refer also to any entity which is under common control
or affiliated with NMR within the meaning of Section 4001 of ERISA and the
rules and regulations thereunder and/or Section 414 of the Code and the
rules and regulations thereunder.
4.22 SEC Filings. NMR has filed with the SEC in a timely manner, and
has previously delivered to Morgan true and complete copies of, all forms,
reports, schedules, statements, and other documents required to be filed by
NMR since January 1, 1992 under the Securities Act or the Exchange Act. No
form, report, schedule, statement or other document filed by NMR with the
SEC since January 1, 1992 contained any untrue statement of a material fact
or omitted to state any material fact, at the time such document was filed,
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, other than such
facts as were corrected in any subsequent form, report, schedule, statement
or other document filed by NMR with the SEC.
4.23 Information. None of the information concerning NMR incorporated
by reference, or any other information supplied or to be supplied by NMR or
its Representatives for inclusion, in the proxy and registration statement
on Form S-4 prepared in connection with the transactions contemplated
hereby or any amendment or supplement thereto has or will, at the time that
the proxy and registration statement was or any amendment is mailed,
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were
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made, not misleading or, in the case of any such proxy and registration
statement, necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the meeting or consent in
connection with which such proxy and registration statement shall be
mailed. None of the information and documents which have been or may be
furnished by NMR or any of its Representatives to Morgan or its
Representatives in connection with the transactions contemplated hereby is
or will be materially false or misleading or contains or will contain any
material misstatement of fact or omits or will omit any material fact
necessary to be stated in order to make the statements therein not
misleading.
4.24 Acquisition. Acquisition has been formed solely for the purpose
of executing and delivering this Agreement and consummating the
transactions contemplated hereby. Since the date of its incorporation,
Acquisition has neither engaged in nor transacted any business of activity
of any nature whatsoever other than activities related to its corporate
organization and the execution and delivery of this Agreement. Acquisition
has no assets or properties or debts, liabilities or obligations of any
kind whatsoever, and other than this Agreement, is not party to any
contract, agreement or undertaking of any nature.
4.25 Accreditation. Schedule 4.25 sets forth with respect to each
imaging facility of NMR a correct and complete list of all accreditations
received relating to the performance of diagnostic imaging procedures in
specific modalities. No other accreditations are required for the
performance of such procedures by any imaging facility of NMR.
ARTICLE V
CONDUCT OF BUSINESS OF MORGAN
AND NMR PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of Morgan. During the period commencing on
the date hereof and continuing until the Effective Time, Morgan agrees
that, except as otherwise expressly contemplated by this Agreement or
agreed to in writing by NMR, Morgan (which for purpose of this Article V
shall include the Morgan Subsidiaries, as appropriate):
(a) will carry on its business only in the ordinary course and
consistent with past practice;
(b) will not declare or pay any dividend on or make any other
distribution (however characterized) in respect of shares of its
capital stock;
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(c) will not, directly or indirectly, redeem or repurchase, or
agree to redeem or repurchase, any shares of its capital stock;
(d) will not amend its Certificate of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its capital
stock (except (i) pursuant to the exercise and/or conversion of
currently outstanding Morgan Derivative Securities, (ii) the issuance
of up to 40,000 shares of Morgan Common Stock to the directors of
Morgan as compensation for attendance at meetings of directors in
accordance with the present compensation policy of Morgan, (iii) the
issuance of shares of Morgan Common Stock in accordance with the terms
of the letter agreement dated April 6, 1995 between Morgan and
Fahnestock & Co. Inc., and (iv) the issuance of up to 23,334 shares of
Morgan Common Stock to Sandra Garrison and up to 14,583 shares of
Morgan Common Stock to Cole Blair), or any options, warrants or other
rights to acquire shares of its capital stock, or any securities
convertible into or exchangeable for shares of its capital stock;
(f) will not combine, split or otherwise reclassify any shares
of its capital stock;
(g) will not sell or pledge, or agree to sell or pledge, any
shares of the capital stock of or other equity interest in any Morgan
Subsidiary;
(h) will use all reasonable efforts to preserve intact its
present business organization, keep available the services of its
officers and key employees and preserve its relationships with clients
and others having business dealings with it to the end that its
goodwill and ongoing business shall not be materially impaired at the
Effective Time;
(i) except as set forth in Schedule 5.1, will not (A) make any
capital expenditures individually in excess of $25,000 or in the
aggregate in excess of $50,000, (B) enter into or terminate (except in
the ordinary course of business and consistent with past practice) any
lease of, or purchase or sell, any real property, (C) enter into any
leases of personal property involving individually in excess of
$10,000 annually or in the aggregate in excess of $25,000 annually,
(D) incur or guarantee any additional indebtedness for borrowed money,
(E) create or permit to become effective any Encumbrance on its
properties or assets, or (F) enter into any agreement to do any of the
foregoing; provided, that Morgan shall not make or enter into any
agreement to
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make any capital expenditure set forth on Schedule 5.1 without the
prior written consent of NMR;
(j) will not, other than in the ordinary course of business,
adopt or amend any Benefit Plan for the benefit of employees, or enter
into any agreement to do the same;
(k) will promptly advise NMR of the commencement of, or threat of
(to the extent that such threat comes to the knowledge of Morgan), any
claim, action, suit, proceeding or investigation against, relating to
or involving Morgan or any of its directors, officers, employees,
agents or consultants in connection with its business or the
transactions contemplated hereby;
(l) will maintain in full force and effect all insurance
policies maintained by Morgan on the date hereof;
(m) will not enter into any agreement to dissolve, merge,
consolidate or, except in the ordinary course, sell any material
assets of Morgan;
(n) will provide NMR on a weekly basis with a report of daily
procedural volume in all modalities by center, and a report of
aggregate cash receipts for consolidated centers; and
(o) will promptly provide NMR with copies of any and all reports
or documents filed with the SEC.
Notwithstanding the foregoing, Morgan shall have the right at any time to
employ or discharge employees and increase or decrease any employee
salaries or compensation in the ordinary course, but shall notify NMR after
the taking of any such action.
5.2 Conduct of Business of NMR. During the period commencing on the
date hereof and continuing until the Effective Time, NMR agrees that,
except as otherwise expressly contemplated by this Agreement or agreed to
in writing by Morgan, NMR (which for purposes of this Article V shall
include the NMR Subsidiaries, as appropriate):
(a) will carry on its business only in the ordinary course and
consistent with past practice;
(b) will not declare or pay any dividend on or make any other
distribution (however characterized) in respect of shares of its
capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or
agree to redeem or repurchase, any shares of its capital stock;
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(d) will not amend its Certificate of Incorporation or By-Laws;
(e) except as set forth on Schedule 5.2(e), will not issue, or
agree to issue, any shares of its capital stock (except pursuant to
the exercise and/or conversion of currently outstanding options,
warrants, convertible securities or other rights, or pursuant to NMR's
existing section 401(k) plan), or any options, warrants or other
rights to acquire shares of its capital stock, or any securities
convertible into or exchangeable for shares of its capital stock;
(f) will not combine, split or otherwise reclassify any shares
of its capital stock;
(g) will not sell or pledge, or agree to sell or pledge, any
shares of Acquisition Common Stock;
(h) will use all reasonable efforts to preserve intact its
present business organization, keep available the services of its
officers and key employees and preserve its relationships with clients
and others having business dealings with it to the end that its
goodwill and ongoing business shall not be materially impaired at the
Effective Time;
(i) except as set forth in Schedule 5.2(i), will not (A) make
any capital expenditures individually in excess of $25,000 or in the
aggregate in excess of $50,000, (B) enter into or terminate (except in
the ordinary course of business and consistent with past practice) any
lease of, or purchase or sell, any real property, (C) enter into any
leases of personal property involving individually in excess of
$10,000 annually or in the aggregate in excess of $25,000 annually,
(D) incur or guarantee any additional indebtedness for borrowed money,
(E) create or permit to become effective any Encumbrance on its
properties or assets, (F) hire or fire employees receiving
compensation in excess of $50,000 annually or (G) enter into any
agreement to do any of the foregoing;
(j) will not, other than in the ordinary course of business,
adopt or amend any Benefit Plan for the benefit of employees or
(except for such increases in salary or other compensation payable to
any employee as the Board of Directors of NMR may reasonably determine
are necessary to retain the services of such employee) increase the
salary or other compensation (including, without limitation, bonuses)
payable or to become payable to its employees (except pursuant to
existing contractual obligations which have been
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disclosed to Morgan or consistent with past practice), or enter into
any agreement to do any of the foregoing;
(k) will promptly advise Morgan of the commencement of, or threat
of (to the extent that such threat comes to the knowledge of NMR), any
claim, action, suit, proceeding or investigation against, relating to
or involving NMR or any of its directors, officers, employees, agents
or consultants in connection with its business or the transactions
contemplated hereby;
(l) will maintain in full force and effect all insurance
policies maintained by NMR on the date hereof; and
(m) will not enter into any agreement to dissolve, merge,
consolidate or, except in the ordinary course, sell any material
assets of NMR.
(n) will provide Morgan on a weekly basis with a report of daily
procedural volume in all modalities by center, and a report of
aggregate cash receipts for consolidated centers; and
(o) will promptly provide Morgan with copies of any and all
reports or documents filed with the SEC.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Properties and Records. Between the date of this
Agreement and the Effective Time, Morgan will provide NMR and its
Representatives and NMR will provide Morgan and its Representatives, with
full access, during business hours, to their respective premises and
properties and their respective books and records (including, without
limitation, contracts, leases, insurance policies, litigation files, minute
books, accounts, working papers and tax returns filed and in preparation)
and each will cause its officers to furnish to the other and its authorized
advisors such additional financial, tax and operating data and other
information pertaining to its business as the other shall from time to time
reasonably request. All of such data and information shall be subject to
the terms and conditions of the confidentiality agreements dated August 19,
1994 (the "Confidentiality Agreements") between Morgan and NMR, and between
NMR and Fahnestock & Co. Inc., respectively.
6.2 Registration Statement. As soon as reasonably practicable after
the execution and delivery of this Agreement, NMR and Morgan shall prepare
and file with the SEC a
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registration and joint proxy statement on Form S-4 (the "Registration
Statement"), which shall cover all of the shares of NMR Common Stock to be
issued in connection with the Merger, and shall use all reasonable efforts
to have the Registration Statement declared effective by the SEC as
promptly as practicable. NMR shall also take such actions as may be
required under state blue sky or securities laws in connection with such
issuance of shares of NMR Common Stock in connection with the Merger.
Morgan shall cooperate fully with NMR and shall furnish NMR will all
information concerning Morgan and its shareholders and shall take all such
other action as NMR may reasonably request in connection with any such
actions.
6.3 Stockholders' Approvals. Promptly after the effectiveness of the
Registration Statement and compliance with all state securities and blue
sky laws, each of NMR and Morgan shall take all action necessary to convene
meetings of their respective stockholders for the purpose of voting upon
the transactions contemplated hereby and such other matters as may be
appropriate at such meetings, and in connection therewith shall in a timely
manner mail to the respective stockholders the Proxy Statement contained in
the Registration Statement and, if necessary after the Proxy Statement
shall have been mailed, shall promptly and in a timely manner circulate
amended or supplemental materials and, if necessary, materials necessary
for resoliciting proxies. Subject to the continued effectiveness of the
fairness opinions referred to in Sections 7.10 and 8.6 hereof, each of NMR
and Morgan will, through its respective Board of Directors, recommend to
its respective stockholders approval of the transactions contemplated by
this Agreement; provided that neither NMR nor Morgan shall be obligated to
make such recommendation, and either NMR or Morgan may withdraw such
recommendation if its Board of Directors receives an unsolicited written
proposal to effect a merger, consolidation or other business combination, a
sale of substantial assets or similar transaction involving it or any
subsidiary or a sale of more than 25% of its outstanding capital stock
(each of the foregoing referred to herein as an "Acquisition Proposal")
which its Board of Directors or any committee thereof, in good faith and
upon the advice of its independent financial advisor, determines to be more
favorable to its stockholders than the transactions contemplated by this
Agreement.
6.4 Affiliates' Letters. Morgan shall deliver to NMR, prior to the
Closing, a letter identifying all persons who are, at the time the Merger
is submitted to the aforesaid meeting of the stockholders of Morgan,
"affiliates" of Morgan for purposes of Rule 145 under the Securities Act.
Morgan shall use its best efforts to cause each person who is identified as
an "affiliate" in the letter referred to above to deliver, at or prior to
the Closing, a signed, written agreement, in the form attached as Exhibit
6.4 hereto, to the effect that such person will not sell
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or otherwise transfer any shares of NMR Common Stock issued to such person
pursuant to the Merger, except pursuant to an effective registration
statement or in compliance with Rule 145 or other exemption from the
registration requirements of the Securities Act.
6.5 Reasonable Efforts; Etc. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable
efforts to promptly take, or cause to be taken, all actions, and to
promptly do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations, whether before or after the
Effective Time, to consummate and make effective the transactions
contemplated by this Agreement, including obtaining any consents,
authorizations, exemptions and approvals from, and making all filings with,
any governmental or regulatory authority, agency or body which are
necessary in connection with the transactions contemplated by this
Agreement; provided that the obligation of the parties to use reasonable
efforts as required by this Section 6.5 shall not obligate any party to
incur unreasonable costs or expenses.
6.6 Material Events. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of the occurrence of any
event which will or may result in the failure to satisfy any of the
conditions specified in Article VII or Article VIII hereof.
6.7 Tax Consequences. From and after the Effective Time, none of the
parties will take any position in or with regard to their respective
Federal, state or local income tax returns (or any amendments thereto) that
is inconsistent with the treatment of the Merger as a tax-free
reorganization for Federal income tax purposes under Section 368(a)(2)(E)
of the Code or with respect to the tax consequences contemplated thereby
(including those related to the basis of stock and assets).
6.8 HSR Act. NMR and Morgan shall, as soon as practicable after the
execution and delivery of this Agreement, file, if necessary, Notification
and Report Forms under the HSR Act with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and shall use their reasonable efforts to respond as
promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation. Each of
the aforesaid parties shall pay the filing fee payable in connection with
the Notification and Report Form filed by such party.
6.9 Exclusivity. Without in any way limiting Article IX hereof, in
consideration for the substantial expenditure of time, effort and expense
to be undertaken by each party in connection with its investigation of the
other party, each party agrees that
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neither it nor any of its affiliates will solicit or initiate any
discussions with or supply confidential or other information to, any other
prospective purchasers of the stock or assets of NMR or Morgan between the
date hereof and October 31, 1995. Notwithstanding the foregoing, either
party may furnish information concerning its business, properties or assets
to any other person or entity if the board of directors of either Morgan or
NMR, as appropriate, or any committee or independent members thereof, in
the exercise of their fiduciary responsibilities determines that such
information should be provided to such other party.
6.10 Fair Price Statute. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, NMR and Morgan and the
members of their respective Board of Directors shall use their best efforts
to grant such approvals and take such actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to minimize
the effects of such statute or regulation on the transactions contemplated
thereby.
6.11 Indemnification. (a) In the event the Merger shall become
effective, then from and after the Effective Time, NMR and the Surviving
Corporation (the "Indemnifying Parties") shall indemnify, defend and hold
harmless each person who is now, or who becomes prior to the Effective
Time, an officer, director, employee or agent of NMR or Morgan (the
"Indemnified Parties") against (i) all losses, claims, damages, costs,
expenses, liability or judgment or amounts paid with the approval of the
Indemnifying Party (which approval shall not be unreasonably withheld) in
settlement of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part
out of the fact that such person is or was an officer, director, employee
or agent of NMR or Morgan, whether pertaining to any matter existing or
occurring at or prior to the Effective Time, and whether asserted or
claimed prior to, at, or after, the Effective Time (the "Indemnified
Liabilities") and (ii) all Indemnified Liabilities based in whole or in
part on or arising in whole or in part out of or pertaining to this
Agreement or the transactions contemplated hereby, including, without
limitation, any Indemnified Liabilities arising under or out of any state
or federal securities laws, in each case to the fullest extent permitted by
law (and NMR and the Surviving Corporation, as the case may be, shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking that may be required by law).
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(b) Any Indemnified Party wishing to claim indemnification under
this Section 6.11 shall notify NMR or the Surviving Corporation promptly
upon learning of any such claim, action, suit, proceeding or investigation
(but the failure to notify an Indemnifying Party should not relieve it from
any liability which it may have under this Section 6.11 except to the
extent such failure prejudices such party).
(c) The provisions of this Section 6.11 are intended to be for
the benefit of, and shall be enforceable by each Indemnified Party, and his
or her heirs and representatives.
6.12 Quarterly Financial Statements. Prior to the Effective Time,
Morgan and NMR shall deliver to the other party as soon as available, but
in any event no later than 45 days after the end of each quarterly period
of its fiscal year (or such later period as may be permitted for the filing
of quarterly financial statements under the Exchange Act), unaudited
balance sheets and the related unaudited statements of income and retained
earnings and unaudited statements of cash flows for each such quarter.
6.13 J. Mark Strong Voting Rights. If requested by NMR, Morgan shall
use its best efforts to obtain from Mr. J. Mark Strong ("Strong"), and to
deliver to NMR, the irrevocable proxy of Strong or a voting trust, voting
rights or similar agreement in form and substance acceptable to NMR and its
counsel (the "Strong Proxy"), which shall, for a period of three years
immediately following the Effective Date, authorize and direct Joseph
Dasti, John O'Malley or either of them, or their respective successors as
President and Chief Executive Officer or Executive Vice President-Finance
and Chief Financial Officer of NMR, to vote all of the shares of NMR Common
Stock beneficially owned by Strong in the manner recommended by the Board
of Directors of NMR with respect to any election of directors of NMR for
which any nominees for director are presented in opposition to the persons
so nominated by NMR's Board of Directors.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF NMR
The obligation of NMR to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be
waived in writing by NMR in its sole discretion):
7.1 Representations and Warranties True. The representations and
warranties of Morgan which are contained in this Agreement, or contained in
any Schedule, certificate or other instrument or document delivered or to
be delivered
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pursuant to this Agreement shall be true and correct in all material
respects at and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date except for changes
expressly permitted or contemplated by the terms of this Agreement, and at
the Closing Morgan shall have delivered to NMR a certificate (signed on its
behalf by its President and the Chief Financial Officer) to that effect
with respect to all such representations and warranties.
7.2 Performance. Morgan shall have performed and complied in all
material respects with all of its obligations under this Agreement which
are required to be performed or complied with on or prior to the Closing
Date, and at the Closing Morgan shall have delivered to NMR a certificate
(signed on its behalf by its President and its Chief Financial Officer) to
that effect with respect to all such obligations required to have been
performed or complied with by Morgan on or before the Closing Date.
7.3 Authorization of Merger. This Agreement and the consummation of
the transactions contemplated hereby shall have been duly approved and
adopted (i) by the requisite affirmative vote of the stockholders of NMR
and (ii) by the requisite affirmative vote of the stockholders of Morgan,
in each case in accordance with applicable law and the rules and
regulations of the NASD.
7.4 Registration Statement; Blue Sky Laws. The Registration
Statement shall have been declared effective under the Securities Act and
shall not be subject to a stop order or any threatened stop order. All
necessary state securities and blue sky permits, approvals and exemption
orders required in connection with the transactions contemplated by this
Agreement shall have been obtained.
7.5 Affiliates Letters. Morgan shall have obtained from each person
who is an "affiliate" (as such term is defined in Rule 144 of the
Securities Act) of Morgan an executed letter agreement in the form of
Exhibit 6.4 hereto and shall have delivered such letter agreements to NMR.
7.6 Restrictive Legends. The transfer agent for NMR shall have been
instructed to place the following legend on each certificate representing
shares of NMR Common Stock issued to any "affiliate" of Morgan pursuant to
the Merger:
"The sale or other transfer of the shares represented
by this certificate is not permitted unless effected
pursuant to an effective registration statement or in
compliance with Rule 145 or another exemption from the
registration requirements of the Securities Act of
1933, as amended."
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7.7 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall
have been issued and shall remain in effect, by any court or governmental
or regulatory body, agency or authority which restrains, enjoins or
otherwise prohibits the consummation of the transactions contemplated
hereby, and no action, suit or proceeding before any court or governmental
or regulatory body, agency or authority shall have been instituted by any
person (or instituted or threatened by any governmental or regulatory body,
agency or authority), and no investigation by any governmental or
regulatory body, agency or authority shall have been commenced, with
respect to the transactions contemplated hereby or with respect to Morgan
which, in the reasonable judgment of NMR's Board of Directors, would have a
material adverse effect on the transactions contemplated hereby or on the
business of Morgan.
7.8 Opinion of Counsel. Morgan shall have delivered to NMR the
opinion of counsel to Morgan, in the form annexed as Exhibit 7.8 hereto.
7.9 Appraisal Rights. The holders of more than ten (10%) percent of
the issued and outstanding shares of Morgan Common Stock shall not have
demanded appraisal rights in respect of the Merger.
7.10 Fairness Opinions. Janney Montgomery Scott, Inc., financial
advisers to the board of directors of NMR, shall have delivered its opinion
to the effect that the terms of the Merger are fair to the stockholders of
NMR from a financial point of view, and such opinion shall not have been
rescinded or materially qualified, and Fahnestock & Co. Inc. or such other
financial adviser as may be appointed by the Morgan board of directors (the
"Morgan Financial Adviser"), shall have delivered its opinion to Morgan to
the effect that the terms of the Merger are fair to the stockholders of
Morgan from a financial point of view, and such opinion shall not have been
rescinded or materially qualified.
7.11 Certificates of Merger. Morgan shall have executed and delivered
to NMR counterparts of the Certificates of Merger to be filed with the
Secretaries of State of the States of Colorado and Delaware in connection
with the Merger.
7.12 HSR Act. The waiting period under the HSR Act, if applicable,
shall have expired or been terminated.
7.13 Consents. NMR and Morgan shall have obtained all necessary
waivers, consents, authorizations or approvals of, and made any necessary
filings with, any governmental, public or self-regulatory body or authority
or any other third party to the consummation of the transactions
contemplated hereby, or
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executions therefrom or waivers thereof, and any requisite waiting period
with respect thereto shall have expired.
7.14 Strong Proxy. Morgan shall have delivered to NMR the Strong
Proxy, if requested by NMR.
7.15 Director Resignations. NMR shall have received the written
resignations of all officers and directors of Morgan who, on and after the
Effective Time, shall no longer serve in such capacity.
7.16 Amendment of Lease; Waiver. The lease between Morgan and Cape
Coral Hospital (the "Hospital") shall have been amended or supplemented, or
other agreements, understandings or arrangements entered into by Morgan and
the Hospital, to the satisfaction of NMR, to the extent required by
applicable law, and Morgan shall have delivered to NMR the written waiver
of the Hospital of any right of first refusal made applicable by the
transactions contemplated hereby.
7.17 Note and Pledge Agreements. Morgan shall have assigned to NMR
all of its right to payment of any and all amounts owed to Morgan as of the
Closing Date by Strong or Sandra Garrison ("Garrison"), and Morgan shall
have delivered to NMR the Note and Pledge Agreements, duly executed by
Strong and Garrison, respectively, in substantially the forms attached as
Exhibit 7.17 hereto.
7.18 Agreement of Fahnestock & Co. Inc. Fahnestock & Co. Inc. shall
have acknowledged in writing to NMR that it shall not be entitled to any
fee from either Morgan or NMR as a result of the consummation of the
transactions contemplated by this Agreement other than the fees described
in Section 10.9 hereof.
7.19 Sale of Morgan HealthWorks, Inc. Morgan shall have
unconditionally sold either all of the outstanding stock or all of the
assets of its Morgan HealthWorks, Inc. subsidiary for a cash consideration
(not to exceed $250,000) of not less than the greater of (i) the appraised
value of such stock or assets, as the case may be, as determined by an
independent appraiser selected upon the mutual agreement of Morgan and
NMR, and (ii) $190,258 plus such additional amounts as have been or may
be contributed to such subsidiary by Morgan after December 31, 1994 and
prior to the Effective Time, and in the event of a sale of assets, the
purchaser of such assets shall have unconditionally assumed all of the
indebtedness of such subsidiary, including but not limited to any long-term
indebtedness, outstanding as of the date of such acquisition.
7.20 Agreements. Strong shall have executed and delivered to NMR a
non-competition agreement in the form attached as Exhibit 7.20A hereto, and
Garrison shall have executed and delivered to
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NMR an employment agreement in the form attached as Exhibit 7.20B hereto.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF MORGAN
The obligation of Morgan to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be
waived in writing by Morgan in its sole discretion):
8.1 Representations and Warranties True. The representations and
warranties of NMR contained in this Agreement, or contained in any
Schedule, certificate or other instrument or document delivered or to be
delivered pursuant to this Agreement, shall be true and correct in all
material respects at and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date
except for changes expressly permitted or contemplated by the terms of this
Agreement, and at the Closing NMR shall have delivered to Morgan a
certificate (signed on its behalf by its President and its Chief Financial
Officer) to that effect with respect to all such representations and
warranties made by such entity.
8.2 Performance. NMR shall have performed and complied in all
material respects with all of its obligations under this Agreement which
are required to be performed or complied with on or prior to the Closing
Date, and at the Closing NMR shall have delivered to Morgan a certificate,
signed on its behalf by its President and its Chief Financial Officer, to
that effect with respect to all such obligations required to have been
performed or complied with on or before the Closing Date.
8.3 Authorization of Merger. This Agreement and the consummation of
the transactions contemplated hereby shall have been duly approved and
adopted by (i) the requisite affirmative vote of the stockholders of NMR,
and (ii) by the requisite affirmative vote of the stockholders of Morgan,
in each case in accordance with applicable law and the rules and
regulations of the NASD.
8.4 Registration Statement; Blue Sky Laws. The Registration
Statement shall have been declared effective under the Securities Act and
shall not be subject to a stop order or any threatened stop order. All
necessary state securities and blue sky permits, approvals and exemption
orders required in connection with the transactions contemplated by this
Agreement shall have been obtained.
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8.5 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall
have been issued and shall remain in effect, by any court or governmental
or regulatory body, agency or authority which restrains, enjoins or
otherwise prohibits the consummation of the transactions contemplated
hereby, and no action, suit or proceeding before any court or governmental
or regulatory body, agency or authority shall have been instituted by any
person (or instituted or threatened by any governmental or regulatory body,
agency or authority) and no investigation by any governmental or regulatory
body, agency or authority shall have been commenced, with respect to the
transactions contemplated hereby or with respect to NMR which, in the
reasonable judgment of Morgan's Board of Directors, would have a material
adverse effect on the transactions contemplated hereby or on the business
of NMR.
8.6 Fairness Opinions. The Morgan Financial Adviser shall have
delivered its opinion to Morgan, to the effect that the terms of the Merger
are fair to the stockholders of Morgan from a financial point of view, and
such opinion shall not have been rescinded or materially qualified, and
Janney Montgomery Scott, Inc., financial advisers to the board of directors
of NMR, shall have delivered its opinion to NMR to the effect that the
terms of the Merger are fair to the stockholders of NMR from a financial
point of view, and such opinion shall not have been rescinded or materially
qualified.
8.7 Opinion of Counsel. NMR shall have delivered to Morgan the
opinion of counsel to NMR, substantially in the form annexed as Exhibit 8.7
hereto.
8.8 Tax Opinion. Counsel to Morgan, or counsel to NMR, shall have
rendered its opinion to Morgan, in substantially the form annexed as
Exhibit 8.8 hereto.
8.9 Certificates of Merger. Acquisition shall have executed and
delivered to Morgan counterparts of the Certificates of Merger to be filed
with the Secretaries of State of the States of Colorado and Delaware in
connection with the Merger.
8.10 HSR Act. The waiting period under the HSR Act, if applicable,
shall have expired or been terminated.
8.11 Consents. NMR and Morgan shall have obtained all necessary
waivers, consents, authorizations or approvals of, and made any necessary
filings with, any governmental, public or self-regulatory body or authority
or any other third party to the consummation of the transactions
contemplated hereby, or executions therefrom or waivers thereof, and any
requisite waiting period with respect thereto shall have expired.
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8.12 Inclusion on NASDAQ System. The NMR Common Stock to be issued to
the stockholders of Morgan pursuant to the Merger shall be listed for
trading on the National Association of Securities Dealers Automated
Quotation System, National Market System, and there shall have been no
involuntary trading halt, as of the Effective Time, of NMR Common Stock
imposed by the NASD.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether prior to or after approval of this Agreement
and the transactions contemplated hereby by the stockholders of Morgan
and/or NMR:
(a) by the mutual written consent of the Boards of Directors of
Morgan and NMR;
(b) by either Morgan or NMR
(i) if any court or governmental or regulatory agency,
authority or body shall have enacted, promulgated or issued any
statute, rule, regulation, ruling, writ or injunction, or taken
any other action, restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby and all appeals and means of
appeal therefrom have been reasonably exhausted;
(ii) if the Effective Time shall not have occurred on or
before October 31, 1995; provided, however, that the right to
terminate this Agreement pursuant to this Section 9.1(b)(ii)
shall not be available to any party whose (or whose
affiliate(s)') breach of any representation or warranty or
failure to perform or comply with 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; and provided
further, however, that if Morgan shall terminate this Agreement
pursuant to this Section 9.1(b)(ii) due to the failure to occur of
the condition set forth in Section 7.19 of the Agreement, then
Morgan shall pay to NMR the amounts required pursuant to Section
10.6(d).
(iii) if the stockholders of NMR and/or Morgan shall have
failed to approve the Merger at the meetings referred to in
Section 6.3; or
(iv) it receives an Acquisition Proposal which its Board of
Directors, in good faith and upon the advice of its independent
financial advisors, determines to be more favorable to its
stockholders than the transactions contemplated by this
Agreement;
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(c) by Morgan,
(i) if any of the conditions specified in Article VIII have
not been met in all material respects or waived prior to the
earlier of October 31, 1995 or such time as such condition can
no longer be satisfied; or
(ii) within five business days after the first business day
on which there shall have occurred a Morgan Share Price
Termination Event (as such term is defined in Section 9.2
hereof);
(d) by NMR,
(i) if any of the conditions specified in Article VII shall
not have been met in all material respects or waived prior to the
earlier of October 31, 1995 or such time as such condition can no
longer be satisfied; or
(ii) within five business days after the first business day
on which there shall have occurred an NMR Share Price Termination
Event (as such term is defined in Section 9.2 hereof).
9.2 Share Price Termination Events. For purposes of this Agreement,
a "Morgan Share Price Termination Event" shall be deemed to have occurred
on a particular date if the Closing Price per share of NMR Common Stock for
the five (5) consecutive trading days preceding such date shall be less
than $3.25. For purposes of this Agreement, an "NMR Share Price
Termination Event" shall be deemed to have occurred on a particular date if
the Closing Price per share of NMR Common Stock for the five (5)
consecutive trading days preceding such date shall be greater than $6.75.
As used herein, the "Closing Price" per share of NMR Common Stock on any
date shall be the last reported sales price on the primary exchange or
market (including the National Association of Securities Dealers Automated
Quotation System, National Market System) on which the NMR Common Stock is
then listed or traded, or if not listed or admitted to trading on any such
primary exchange or admitted to trading in any such market, the average of
the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to
time by the Company for that purpose.
9.3 Notice of Termination. (a) In the event Morgan or NMR shall
elect to terminate this Agreement pursuant to Section 9.1, it shall give
written notice of such termination to the other party, which notice shall
state the reasons for such termination.
(b) In the event that Morgan shall have the right to terminate this
Agreement pursuant to Section 9.1(c)(ii), or NMR shall have the right to
terminate this Agreement pursuant to
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Section 9.1(d)(ii), and the notice of termination to be provided pursuant
to Section 9.3(a) above shall not have been given to the other party in
accordance with Section 10.3 within the five (5) business days of the
Morgan Share Price Termination Event or the NMR Share Price Termination
Event, as applicable, such party shall be deemed to have waived its right
to terminate, and shall have no further right to terminate, this Agreement
pursuant to Section 9.1(c)(ii) or Section 9.1(d)(ii), as the case may be,
regardless of the Closing Price of the NMR Common Stock at any time prior
to the Effective Date.
9.4 Effect of Termination. In the event of the termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or their respective
officers or directors, except for Sections 10.6, 10.7 and 10.9 and the last
sentence of Section 6.1, which shall remain in full force and effect, and
except that nothing herein shall relieve any party from liability for a
breach of this Agreement prior to the termination hereof.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment. This Agreement may be amended by written agreement
between Morgan, Acquisition and NMR prior to the Effective Time, whether
prior to or after approval hereof by the stockholders of NMR and/or the
stockholders of Morgan, but after any such approval no amendment shall be
made to the exchange ratio pursuant to which outstanding shares of Morgan
Common Stock are converted into shares of NMR Common Stock pursuant to the
Merger, without the further approval of such stockholders.
10.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written
notice from the party or parties entitled to the benefits thereof. No
failure by any party hereto to exercise, and no delay in exercising, any
right hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or future
exercise of that right by that party.
10.3 Notices. All notices and other communications hereunder shall
be deemed given if given in writing and delivered personally, by registered
or certified mail, return receipt requested, postage prepaid, or by
overnight courier to the party to receive the same at its respective
address set forth below (or at such other address as may from time to time
be designated by such party to the others in accordance with this Section
10.3):
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(a) if to Morgan, to:
J. Mark Strong
President
Morgan Medical Holdings, Inc.
300 5th Avenue South, Suite 20
Naples, Florida 33940
with copies to:
Morgan, Lewis & Bockius
5300 Southeast Financial Center
200 South Biscayne Blvd.
Miami, Florida 33131
Attn: Ethan W. Johnson, Esq.
(b) if to NMR, to:
Joseph G. Dasti
President
NMR of America, Inc.
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
With copies to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Attn: Peter S. Twombly, Esq.
All such notices and communications hereunder shall be deemed given
when received, as evidenced by the signed acknowledgment of receipt of the
person to whom such notice or communication shall have been personally
delivered, the acknowledgment of receipt returned to the sender by the
applicable postal authorities or the confirmation of delivery rendered by
the applicable overnight courier service.
10.4 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement
nor any rights, duties or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other parties hereto.
10.5 No Third Party Beneficiaries. Except as provided in Section
6.11 hereof to the contrary, neither this Agreement nor any provision
hereof nor any Schedule, certificate or other instrument delivered pursuant
hereto, nor any agreement to be entered into pursuant hereto or any
provision hereof, is intended
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to create any right, claim or remedy in favor of any person or entity,
other than the parties hereto and their respective successors and permitted
assigns.
10.6 Expenses. (a) Except as otherwise provided in this Section
10.6, each party shall pay its own expenses in connection with this
Agreement, the agreements to be entered into pursuant hereto and the
transactions contemplated hereby; provided, that if the Merger is
consummated pursuant to this Agreement, all such expenses of Morgan
incurred on behalf of Morgan in connection with the transactions
contemplated hereby shall be the responsibility of the Surviving
Corporation.
(b) Notwithstanding anything contained in Section 10.6(a) to the
contrary, if (i) Morgan shall terminate this Agreement at any time prior to
the Effective Time pursuant to Section 9.1(b)(iv), (ii) NMR shall terminate
this Agreement at any time prior to the Effective Time pursuant to Section
9.1(b)(iii) for the failure of the stockholders of Morgan to approve the
Merger, or (iii) NMR shall terminate this Agreement at any time prior to
the Effective Time pursuant to Section 9.1(d)(i) due to the non-
satisfaction of any of the conditions set forth in Sections 7.1, 7.2, 7.7
(to the extent such non-satisfaction relates to any suit, action or
proceeding brought by or in the name of Morgan or any of its stockholders),
7.8, 7.9, 7.10 (to the extent such non-satisfaction relates to the opinion
of the Morgan Financial Adviser), 7.11, 7.13 (to the extent such non-
satisfaction relates to waivers, consents, authorizations, approvals or
filings required to be obtained or made by Morgan), 7.14, 7.15, 7.16, 7.17,
7.18, or 7.20, then Morgan shall promptly reimburse NMR for all reasonable
expenses (including attorney's and other professional fees) incurred by
NMR in connection with the preparation, execution and delivery of this
Agreement and the transactions contemplated hereby; provided, however,
that in no event shall the amount payable to NMR by Morgan pursuant to
this Section 10.6(b) exceed $100,000.
(c) Notwithstanding anything contained in Section 10.6(a) to the
contrary, if (i) NMR shall terminate this Agreement at any time prior to
the Effective Time pursuant to Section 9.1(b)(iv), (ii) Morgan shall
terminate this Agreement at any time prior to the Effective Time pursuant
to Section 9.1(b)(iii) for the failure of the stockholders of NMR to
approve the Merger, or (iii) Morgan shall terminate this Agreement at any
time prior to the Effective Time pursuant to Section 9.1(c)(i) due to the
non-satisfaction of any of the conditions set forth in Sections 8.1, 8.2,
8.5 (to the extent such non-satisfaction relates to any suit, action or
proceeding brought by or in the name of NMR or any of its stockholders),
8.6 (to the extent such non-satisfaction relates to the opinion of Janney
Montgomery Scott, Inc.), 8.7, 8.9, 8.11 (to the extent such non-
satisfaction relates to waivers, consents, authorizations, approvals or
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filings required to be obtained or made by NMR) or 8.12 (to the extent such
non-satisfaction results from the failure of NMR to take any action
required to obtain such listing), then NMR shall promptly reimburse Morgan
for all reasonable expenses (including attorney's and other professional
fees) incurred by Morgan in connection with the preparation, execution and
delivery of this Agreement and the transactions contemplated hereby;
provided, however, that in no event shall the amount payable to Morgan by
NMR pursuant to this Section 10.6(c) exceed $100,000.
(d) Notwithstanding anything otherwise contained herein to the
contrary, if as a result of the non-satisfaction of the condition set
forth in Section 7.19, (i) the Effective Date does not occur on or prior
to October 31, 1995, (ii) NMR shall terminate this Agreement at any time
prior to the Effective Time pursuant to Section 9.1(d)(i), or (iii)
Morgan shall terminate this Agreement pursuant to Section 9.1(b)(ii),
then Morgan, in consideration of the time, effort and resources expended
by NMR in connection herewith, shall promptly reimburse NMR for all
reasonable expenses (including attorneys and other professional fees)
not to exceed $125,000 incurred by NMR in connection with the preparation,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby."
(e) Any amounts payable pursuant to this Section 10.6 by one party
shall be paid to the other party in immediately available funds no later
than six (6) months after any notice of termination is provided pursuant
to Section 9.3 or, in the case of the circumstance described in Section
10.6 (d)(i), no later than April 30, 1996, and shall bear interest from
either the date such notice is provided or October 31, 1995, as applicable,
to the date of payment at the prime rate of interest announced from time to
time by Chemical Bank of New York (the "Prime Rate"). Morgan and NMR each
agree to execute such notes or other instruments of indebtedness as the
other party may request to evidence any amounts payable to the other party
pursuant to this Section 10.6.
10.7 Additional Fee. In addition to any amounts which may be payable
by NMR or Morgan pursuant to Section 10.6 hereof, in the event NMR or
Morgan shall terminate this Agreement at any time prior to the Effective
Time pursuant to Section 9.1(b)(iv), then the party so terminating shall
pay to the other party, in consideration of the time, effort and resources
expended in connection herewith, a fee of $150,000. The fee shall be paid
in immediately available funds no later than six (6) months after the
notice of termination is provided pursuant to Section 9.3. Any amounts
payable pursuant to this Section 10.7 shall bear interest from the date
such notice is provided to the date of payment at the Prime Rate. Morgan
and NMR each agree to execute such notes or other instruments of
indebtedness as the other party may request to evidence any amounts payable
to the other party pursuant to this Section 10.7.
10.8 Public Announcements. Promptly upon execution and delivery of
this Agreement, NMR and Morgan shall issue a joint press release in such
form as they shall mutually agree. Thereafter, and prior to the
consummation of the Merger or the termination of this Agreement, none of
the parties hereto shall, except as mutually agreed by NMR and Morgan, or
except as may be required by law or applicable regulatory authority
(including, without limitation, the rules applicable to NASDAQ listed
companies), issue any reports, releases, announcements or other statements
to the public relating to the transactions contemplated hereby.
10.9 Brokers and Finders. Morgan and NMR each represent and warrant
to the other that no broker, finder or investment
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banker is entitled to any brokerage, finder's or other fee or commission
based on arrangements made by or on behalf of either, other than a fee of
$200,000 payable to Fahnestock & Co. Inc. for services rendered to Morgan
in connection with the Merger and the fees of the Morgan Financial Adviser
and Janney Montgomery Scott, Inc. for services rendered to and on behalf of
the respective boards of directors of Morgan and NMR in connection with the
fairness opinions referred to in Sections 7.10 and 8.6.
10.10 Further Agreements. The parties acknowledge and agree that if,
following any breach of any of the representations and warranties of the
parties set forth in this Agreement, the existence of which is disclosed in
writing signed by the disclosing party and submitted to the non-breaching
party prior to the Effective Time, and the parties thereafter nevertheless
proceed to consummate the transactions contemplated hereby, it shall be
conclusively presumed, in the absence of written agreement of the parties
to the contrary, that the breach so disclosed has been waived by the non-
breaching party and no party shall be liable therefor in damages, whether
pursuant to this Agreement or otherwise.
10.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Entire Agreement. This Agreement, and the Schedules,
certificates and other instruments and documents delivered pursuant hereto,
together with the other agreements referred to herein and to be entered
into pursuant hereto, embody the entire agreement of the parties hereto in
respect of, and there are no other agreements or understandings, written or
oral, among the parties relating to, the subject matter hereof, other than
the Confidentiality Agreements. This Agreement supersedes all prior
agreements and understandings, written or oral, between the parties with
respect to such subject matter, other than the Confidentiality Agreements.
10.13 Governing Law. The parties hereby agree that this Agreement,
and the respective rights, duties and obligations of the parties hereunder,
shall be governed by and construed in accordance with the laws of the State
of New Jersey, without giving effect to principles of conflicts of law
thereunder, except for the provisions of Article I hereto setting forth the
provisions for consummating, and the effects of, the Merger, which shall be
governed by and construed in accordance with the Colorado Act to the extent
that the Colorado Act is applicable by its terms. Each of the parties
hereby (i) irrevocably consents and agrees that any legal or equitable
action or proceeding arising under or in connection with this Agreement
shall be brought exclusively in the Superior Court of the State of New
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Jersey or any federal district court located in New Jersey and any court to
which an appeal may be taken in any such litigation, and (ii) by execution
and delivery of this Agreement, irrevocably submits to and accepts, with
respect to any such action or proceeding, for itself and in respect of its
properties and assets, generally and unconditionally, the jurisdiction of
the aforesaid courts, and irrevocably waives any and all rights such party
may now hereafter have to object to such jurisdiction.
10.14 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
10.15 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event this Agreement were not to be
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any
other remedies at law or equity.
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IN WITNESS WHEREOF, Morgan, NMR and Acquisition have caused this
Agreement to be duly executed and delivered as of the date first above
written.
NMR OF AMERICA, INC.
By: /s/ Joseph G. Dasti
-------------------------
Name: Joseph G. Dasti
Title: President & CEO
NMR SUB, INC.
By: /s/ Joseph G. Dasti
-------------------------
Name: Joseph G. Dasti
Title: President & CEO
MORGAN MEDICAL HOLDINGS, INC.
By: /s/ J. Mark Strong
-------------------------
Name: J. Mark Strong
Title: President
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APPENDICE B
<PAGE>
[JANNEY MONTGOMERY SCOTT INC. LETTERHEAD]
June 9, 1995
Board of Directors
NMR of America, Inc.
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of outstanding shares of common stock
("Stockholders") of NMR of America, Inc. ("NMR" or the "Company") of the
exchange ratio (the "Exchange Ratio") in the proposed merger pursuant to
the Agreement and Plan of Merger dated April 11, 1995 ("Merger Agreement")
entered into by and among NMR and Morgan Medical Holdings, Inc. ("Morgan"),
which provides that Morgan will become a wholly-owned subsidiary of NMR.
The terms and conditions of the Proposed Transaction are more fully set
forth in the Merger Agreement.
Janney Montgomery Scott Inc. ("JMS"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and
their securities in connection with the preparation of fairness opinions,
mergers and acquisitions, rights offerings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate, and other purposes.
In connection with our opinion, we have reviewed the Merger Agreement,
certain financial and other information of NMR and Morgan, including
certain internal analyses, reports, forecasts and other information. We
have held discussions with senior management of NMR and Morgan concerning
the current operations, financial condition and prospects of each of NMR
and Morgan and the companies on a combined basis. We have also held
discussions with senior management of NMR concerning the strategic and
operating benefits anticipated by NMR in the Proposed Transaction. In
addition, we have (i) reviewed the price and trading histories of NMR
common stock and Morgan common stock and compared those prices and trading
histories with those of publicly traded companies we deemed relevant; (ii)
compared the financial positions and operating results
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NMR of America, Inc.
Page 2
of NMR and Morgan with those of publicly traded companies we deemed
relevant; (iii) compared certain financial terms of the Proposed
Transaction to certain financial terms of selected other business
combinations we deemed relevant; (iv) analyzed the pro forma financial
statements giving effect to the Proposed Transaction; and (v) conducted
such other financial studies, analyses and investigations, and reviewed
such other factors, as we deemed relevant.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for purposes of
this opinion. With respect to financial projections, we assumed that they
have been reasonably prepared on bases reflecting the best currently
available information and judgments of the future financial performance of
NMR and Morgan. Although we have visited all the Morgan facilities, we have
not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with such valuations
or appraisals. We have assumed the Proposed Transaction will be accounted
for under the purchase method of accounting and will be treated as a tax-
free exchange.
Our opinion is necessarily based on financial, economic, market and
other conditions as they exist on, and information made available to us as
of, the date hereof. It should be understood that, although subsequent
developments may effect this opinion, we do not have any obligation to
update, revise or reaffirm this opinion. Furthermore, we express no
opinion as to the price or trading range at which the NMR stock will trade
subsequent to the date of our opinion. Payment of JMS' fee is not
contingent upon the conclusion reported.
It should be understood that this letter is furnished in connection
with the Proposed Transaction only and does not constitute a recommendation
to any Stockholder as to how such stockholder should vote on the Proposed
Transaction, and may not be used for any other purpose without our prior
written consent. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Proposed Transaction.
Based upon and subject to the foregoing, it is our opinion, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view to
the Stockholders of NMR.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/ William J. Barrett
---------------------------
William J. Barrett
Senior Vice President
WJB:bb
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APPENDICE C
<PAGE>
[FAHNESTOCK LETTERHEAD]
May 31, 1995
The Board of Directors
Morgan Medical Holdings, Inc.
101 E. Kennedy Blvd., Suite 1010
Tampa, FL 33602
Gentlemen:
We understand that Morgan Medical Holdings, Inc., a Colorado
corporation ("Morgan"), has agreed to the terms of the proposed merger (the
"Merger") of Morgan with NMR of America, Inc. ("NMR") as set forth in the
Agreement and Plan of Merger dated April 11, 1995 (the "Plan"). Under the
terms of the Merger, the shareholders of Morgan will receive .3330886
shares of common stock of NMR for each share of Morgan held by such
shareholders (the "Exchange Ratio"). The shares of common stock issued by
NMR will be registered, freely-tradeable shares. In addition, each warrant
and option to purchase Morgan common stock outstanding at the time of the
Merger shall be exchanged for .3330886 warrants and options, as the case
may be, to purchase NMR common stock with the appropriate adjustment to the
exercise price. We also understand that the Merger is expected to be
completed on a tax-free basis to the Morgan shareholders.
The Board of Directors of Morgan has requested our opinion as to
the fairness, from a financial point of view, to the shareholders of Morgan
of the terms of the Merger, including the Exchange Ratio.
Our opinion and evaluation are based upon conditions as they
existed on March 10, 1995 except for the Exchange Ratio which, under the
Plan, is computed as of April 11, 1995.
Our opinion is based on, among other things,: 1) a review of
information concerning the results of operations and financial condition of
Morgan; 2) discussions with the management of Morgan concerning the
prospective results of operations and financial condition of Morgan; 3) a
review of information concerning the results of operations and financial
condition of NMR; 4) discussions with the management of NMR concerning the
prospective result of operations and financial condition of NMR; 5) to the
extent we deemed appropriate, comparisons of Morgan and NMR with companies
regarded by us as comparable with respect to the nature of business,
results of operations, financial condition, and such other factors
considered relevant by us; 6) a review of the historical trading prices and
volume of the common stock of both Morgan and NMR; 7) a review of recent
transactions in the medical imaging industry regarded by us as reasonably
capable of comparison to the Merger; 8) a review of drafts of the Plan
relating to the merger; 9) the systematic approach undertaken by Morgan and
Fahnestock to seek a merger and/or strategic partner; 10) a review of the
business dynamics of the MRI services
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industry; 11) a review of the prospective pro forma financial information
of Morgan and NMR on a combined basis; and 12) such other matters as we
considered appropriate. 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.
In arriving at our opinion as expressed herein, we have not
conducted a physical inspection of all of the properties and facilities of
NMR and Morgan nor have we made any independent evaluation or appraisal of
such properties and facilities. Fahnestock did not conduct any independent
verification of information or material furnished it by NMR and Morgan and
Fahnestock has relied on the accuracy and completeness of such information
and material. Fahnestock has relied on the financial statements of Morgan
and NMR, including financial statements as audited by Garcia & Ortiz, P.A.
and Coopers & Lybrand, respectively. In addition, we have assumed that the
projections of NMR and Morgan supplied by their respective managements
represent the best judgment of management as to the future financial
condition and results of operations of NMR, Morgan and NMR and Morgan on a
pro forma combined basis, and have assumed that the projections have been
reasonably prepared based on such judgment.
On the basis of the foregoing reviews, discussions, comparisons
and considerations, and subject to matters set forth herein, it is our
opinion that the terms of the Merger, including the Exchange Ratio, are
fair from a financial point of view to the shareholders of Morgan.
This opinion shall not be described publicly or made available to
third parties nor may it be excerpted or paraphrased without the prior
approval of Fahnestock & Co., Inc., except as otherwise required by law.
Very truly yours,
FAHNESTOCK & CO., INC.
By: /s/ Henry P. Williams
-----------------------
Henry P. Williams
Senior Vice President
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APPENDIX D
COLORADO BUSINESS CORPORATION ACT
Article 113
Dissenters' Rights
PART 1
Right of Dissent - Payment of Shares
7-113-101 DEFINITIONS. - For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at
the time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
that exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at the
legal rate as specified in section 5-12-101, C.R.S.
(6) "Record Shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares that are registered in the name of a nominee to the extent such
owner is recognized by the corporation as the shareholder as provided in
section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
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7-113-102 RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of his or her shares in the
event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required for
the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation, or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholder of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102(2).
(2) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in
the event of:
(a) An amendment to the articles of incorporation that materially and
adversely affects rights in respect of the shares because it:
(I) Alter or abolishes a preferential right of the shares; or
(II) Creates, alters, or abolishes a right in respect of redemption
of the shares, including a provision respecting a sinking fund for their
redemption or repurchase; or
(b) An amendment to the articles of incorporation that affects rights
in respect of the shares because it:
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(I) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance
of shares or other securities with similar voting rights; or
(II) Reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created
is to be acquired for cash or the scrip is to be voided under section 7-
106-104.
(3) A shareholder is entitled to dissent and obtain payment of the
fair value of the shareholder's shares in the event of any corporate action
to the extent provided by the bylaws or a resolution of the board of
directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate
action creating such entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
7-113-103 RIGHT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in the record shareholder's name only if the
record shareholder dissents with respect to all shares beneficially owned
by any one person and causes the corporation to receive written notice
which states such dissent and the name, address, and federal taxpayer
identification number, if any, of each person on whose behalf the record
shareholder asserts dissenters' rights. the rights of a record shareholder
under this subsection (1) are determined as if the shares as to which the
record shareholder dissents and the other shares of the record shareholder
were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the
shares held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each such beneficial shareholder must certify to the
corporation that the beneficial shareholder
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and the record shareholder or record shareholders of all shares owned
beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such
requirement shall be stated in the dissenters' notice given pursuant to
section 7-113-203.
PART 2
Procedure for Exercise of Dissenters' Rights
7-113-201 NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders meeting, the
notice of the meeting shall be given to all shareholders, whether or not
entitled to vote. The notice shall state that shareholders are or may be
entitled to assert dissenters' rights under this article and shall be
accompanied by a copy of this article and the materials, if any, that,
under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting.
Failure to give notice as provided by this subsection (1) to shareholders
not entitled to vote shall not affect any action taken at the shareholders'
meeting for which the notice was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant
to section 7-107-104, any written or oral solicitation of a shareholder to
execute a writing consenting to such action contemplated in section 7-107-
104 shall be accompanied or preceded by a written notice stating that
shareholders are or may be entitled to assert dissenters' rights under this
article, by a copy of this article, and by the materials, if any, that,
under articles 101 to 117 of this title, would have been required to be
given to shareholders entitled to vote on the proposed action if the
proposed action were submitted to a vote at a shareholders' meeting.
Failure to give notice as provided by this subsection (2) to shareholders
not entitled to vote shall not affect any action taken pursuant to section
7-107-104 for which the notice was to have been given.
7-113-202 NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand
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payment for the shareholder's shares if the proposed corporate action is
effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant
to section 7-107-104, a shareholder who wishes to assert dissenters' rights
shall not execute a writing consenting to the proposed corporate action.
(3) A shareholders who does not satisfy the requirements of
subsection (1) or (2) of this section is not entitled to demand payment for
the shareholder's share under this article.
7-113-203 DISSENTERS' NOTICE.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment
for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section
shall be given no later than ten days, after the effective date of the
corporate action creating dissenter's rights under section 7-113-102 and
shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
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(g) Be accompanied by a copy of this article.
7-113-204 PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice pursuant to
section 7-113-203 and who wishes to assert dissenters' rights shall, in
accordance with the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203 (2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection
(1) of this section retains all rights of a shareholder, except the right
to transfer the shares, until the effective date of the proposed corporate
action giving rise to the shareholder's exercise of dissenters' rights and
has only the right to receive payment for the shares after the effective
date of such corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1)(b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the
shareholder's share certificates as required by the date or dates set in
the dissenters' notice is not entitled to payment for the shares under this
article.
7-113-205 UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under section 7-113-204 from
a shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall
be applicable to shareholders who own uncertificated shares.
7-113-206 PAYMENT.
(1) Except as provided in section 7-113-208, upon the effective date
of the corporate action creating dissenters' rights under section 7-113-102
or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied
with section 7-113-204,
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at the address stated in the payment demand, or if no such address
is stated in the payment demand, at the address shown on the corporation's
current record of shareholders for the record shareholder holding the
dissenter's shares, the amount the corporation estimated to be the fair
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall
be accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207 FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating
dissenters' rights under section 7-113-102 does not occur within sixty days
after the date set by the corporation by which the corporation must receive
the payment demand as provided in section 7-113-203, the corporation shall
return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(2) If the effective date of the corporate action creating
dissenter's rights under section 7-113-102 occurs more than sixty days
after the date set by the corporation by which the corporation must receive
the payment demand as provided in section 7-113-203, then the corporation
shall send a new dissenters' notice, as provided in section 7-113-203, and
the provisions of sections 7-113-204 to 7-113-209 shall again be
applicable.
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7-113-208 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION.
(1) The corporation may, in or with the dissenters' notice given
pursuant to section 7-113-203, state the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action
creating dissenters' rights under section 7-113-102 and that the dissenter
shall certify in writing, in or with the dissenter's payment demand under
section 7-113-204, whether or not the dissenter (or the person on whose
behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or
the person on whose behalf the dissenter asserts dissenters' rights
acquired beneficial ownership of the shares before such date, the
corporation may, in lieu of making the payment provided in section 7-113-
206, offer to make such payment if the dissenter agrees to accept it in
full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section
shall include or be accompanied by the information required by section 7-
113-206(2).
7-113-209 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and
interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-
206 or offered under section 7-113-208 is less than the fair value of the
shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required
by subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
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PART 3
7-113-301 COURT ACTION.
(1) If a demand for payment under section 7-113-209 remains
unresolved, the corporation may, within sixty days after receiving the
payment demand, commence a proceeding and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does
not commence the proceeding within the sixty-day period, it shall pay to
each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in
subsection (1) of this section in the district court of the county in this
state where the corporation's principal office is located or, if it has no
principal office in this state, in the district court of the county in
which its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of
the domestic corporation merged into, or whose shares were acquired by, the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unresolved parties to the
proceeding commenced under subsection (2) of this section as in an action
against their shares, and all parties shall be served with a copy of the
petition. Service on each dissenter shall be by registered or certified
mail, to the address stated in such dissenter's payment demand, or if no
such address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder
holding the dissenter's shares, or as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers
have the powers described in the order appointing them, or in any amendment
to such order. The parties to the proceeding are entitled to the same
discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if
any, by which the court finds the fair value of the dissenter's shares,
plus interest, exceeds the amount paid by the corporation, or for the fair
value, plus interest, of the dissenter's shares for which the corporation
elected to withhold payment under section 7-113-208.
D-9
<PAGE>
7-113-302 COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under section 7-
113-301 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation; except that the
court may assess costs against all or some of the dissenters, in amounts
the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment
under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable;
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in
favor of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and
that the fees for those services should not be assessed against the
corporation, the court may award to said counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefitted.
D-10
<PAGE>
APPENDIX E
Amendment to NMR 1986 Incentive Stock Option
and Non-Statutory Option Plan
2. Shares Subject to the Plan. A total of 1,000,000 shares of
---------------------------
authorized but unissued or reacquired Common Stock of the Company is
reserved for issuance upon exercise of options granted under the Plan. If
any option expires or terminates without having been exercised in full, the
unacquired shares shall be available for the grant of future options under
the Plan.
E-1
<PAGE>
APPENDICE F
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and
Board of Directors
Morgan Medical Holdings, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheets of Morgan
Medical Holdings, Inc. and Subsidiaries (the Company) as of December 31,
1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. 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 audits 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 referred to above
present fairly, in all material respects, the financial position of Morgan
Medical Holdings, Inc. and Subsidiaries as of December 31, 1994 and 1993,
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", in 1993.
/s/ Garcia & Ortiz, P.A.
GARCIA & ORTIZ, P.A.
Tampa, Florida
March 10, 1995
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Morgan Medical Holdings, Inc.
Tampa, Florida
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Morgan Medical Holdings, Inc. and
Subsidiaries (the Company) for the year ended December 31, 1992. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit include examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations,
changes in stockholders' equity and cash flows of Morgan Medical Holdings,
Inc. and Subsidiaries as of December 31, 1992, in conformity with generally
accepted accounting principles.
/s/ Copeland and Company
Copeland and Company
Tampa, Florida
May 1, 1993.
F-2
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1994 AND 1993
--------------------------
ASSETS 1994 1993
---------- ----------
Current Assets
- --------------
Cash $ 106,149 $ 405,367
Patient Accounts Receivable, Less
Allowance for Doubtful Accounts of
$169,700 in 1994 and $135,100 in 1993 1,652,167 1,067,263
Current Maturities of Due From Related
Parties 136,157 256,589
Prepaid Expenses 31,321 35,944
---------- ----------
Total Current Assets 1,925,794 1,765,163
---------- ----------
Property and Equipment
- ----------------------
Leasehold Improvements 734,626 494,161
Software 15,720 9,069
Furniture and Fixtures 159,472 79,937
Medical Equipment 6,709,898 4,445,829
Office and Other Equipment 248,525 112,777
Transportation Equipment 76,595 24,082
Equipment Leased to Others - 76,829
---------- ----------
7,944,836 5,242,684
Less Accumulated Depreciation
and Amortization 1,719,538 987,634
---------- ----------
Total Property and Equipment 6,225,298 4,255,050
---------- ----------
Other Assets
- ------------
Due From Related Parties,
Less Current Maturities 236,649 -
Deposits 39,233 141,536
Covenant-not-to-Compete 66,666 166,667
Goodwill 209,255 225,352
Other 17,508 14,923
---------- ----------
Total Other Assets 569,311 548,478
---------- ----------
Total Assets $8,720,403 $6,568,691
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-3
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1994 AND 1993
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1994 1993
---------- ----------
Current Liabilities
- -------------------
Current Maturities of Long-Term Debt $ 700,718 $ 977,337
Current Maturities of Capital Lease
Obligations 331,551 -
Accounts Payable 121,755 77,926
Accrued Expenses 366,548 172,582
Loans Payable to Stockholder - 15,411
Due to Former Affiliates - 56,500
Deferred Income Taxes 469,599 309,995
---------- ----------
Total Current Liabilities 1,990,171 1,609,751
---------- ----------
Long-Term Liabilities
- ---------------------
Long-Term Debt, Less Current Maturities 3,606,180 3,514,033
Capital Lease Obligations, Less
Current Maturities 1,485,983 -
Deferred Revenue 6,000 18,000
Deferred Income Taxes 268,629 295,861
---------- ----------
Total Long-Term Liabilities 5,366,792 3,827,894
---------- ----------
Total Liabilities 7,356,963 5,437,645
---------- ----------
Stockholders' Equity
- --------------------
Preferred Stock, No Par Value;
500,000,000 Shares Authorized,
None Issued - -
Common Stock, No Par Value;
1,000,000,000 Shares Authorized;
3,156,393 and 3,132,997 Shares Issued
and Outstanding in 1994 and 1993 345,546 328,539
Paid-In Deficit (18,189) (18,189)
Retained Earnings 1,036,083 820,696
---------- ----------
Total Stockholders' Equity 1,363,440 1,131,046
---------- ----------
Total Liabilities and
Stockholders' Equity $8,720,403 $6,568,691
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-4
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
---------- ---------- ----------
Revenues
- --------
Patient Service Revenues $5,131,571 $4,671,390 $3,519,510
Laser Rental Fees - 26,552 62,759
---------- ---------- ----------
Total Revenues 5,131,571 4,697,942 3,582,269
---------- ---------- ----------
Costs and Expenses
- ------------------
Payroll and Related Costs 1,013,560 668,341 412,131
Depreciation and Amortization 897,549 542,823 369,101
Medical Supplies and
Other Operating Costs 1,908,003 1,522,152 1,258,224
Other General and
Administrative 281,014 212,448 179,221
Bad Debt Expense 246,927 273,434 260,600
Loss on Asset Impairment - 127,690 -
---------- ---------- ----------
Total Costs and
Expenses 4,347,053 3,346,888 2,479,277
---------- ---------- ----------
Income From Operations 784,518 1,351,054 1,102,992
Other Income and (Expenses)
- ---------------------------
Other Income 46,319 2,569 11,894
Interest Expense (483,078) (473,862) (468,851)
---------- ---------- ----------
Net Other Income and
(Expenses) (436,759) (471,293) (456,957)
---------- ---------- ----------
Income Before Minority Interest
and Provision for Income Taxes 347,759 879,761 646,035
Minority Interest in Income - 5,240 58,774
---------- ---------- ----------
Income Before Income Taxes 347,759 874,521 587,261
Provision for Income Taxes 132,372 335,028 232,530
---------- ---------- ----------
Income Before Extraordinary
Items and Cumulative Effect of
Change in Accounting Principle 215,387 539,493 354,731
(CONTINUED)
-----------
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-5
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
---------- ---------- ----------
Extraordinary Items - (6,978) 28,830
Cumulative Effect of Change
in Accounting Principle - 28,962 -
---------- ---------- ----------
Net Income $ 215,387 $ 561,477 $ 383,561
========== ========== ==========
Earnings Per Share (Primary and
- -------------------------------
Fully Diluted)
--------------
Income Before Extraordinary
Items and Cumulative Effect
of Change in Accounting
Principle $ 0.06 $ 0.17 $ 0.12
Extraordinary Items - - 0.01
Cumulative Effect of Change
in Accounting Principle - 0.01 -
---------- ---------- ----------
Net Income Per Share $ 0.06 $ 0.18 $ 0.13
========== ========== ==========
Weighted Average Number of
Shares and Common Share
Equivalents Outstanding
Primary 3,399,682 3,105,791 2,857,601
========== ========== ==========
Fully Diluted 3,399,682 3,200,900 2,857,601
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-6
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
<TABLE><CAPTION>
Common Stock
---------------------- Retained
Preferred Number of Paid-In Earnings
Stock Shares Amount Deficit (Deficit)
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated
Balance at
1/1/92 $ - 2,832,997 $ 253,539 $ (18,189) $ (72,346)
Net Income for
1992 - - - - 383,561
---------- ---------- ---------- --------- ----------
Consolidated
Balance at
12/31/92 - 2,832,997 253,539 (18,189) 311,215
Common Stock
Issued - 300,000 75,000 - -
Net Income for
1993 - - - - 561,477
Acquisition of
Minority
Interest in
Subsidiary - - - - (51,996)
---------- ---------- ---------- --------- -----------
Consolidated
Balance at
12/31/93 - 3,132,997 328,539 (18,189) 820,696
Common Stock
Issued - 23,396 17,007 - -
Net Income for
1994 - - - - 215,387
---------- ---------- ---------- --------- ----------
Consolidated
Balance at
12/31/94 $ - 3,156,393 $ 345,546 $ (18,189) $1,036,083
========== ========== ========== ========= ==========
The accompanying notes to consolidated financial statements are an integral part of these
consolidated financial statements.
</TABLE>
F-7
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
---------- ---------- ----------
Cash Flows from Operating Activities:
Net Income $ 215,387 $ 561,477 $ 383,561
---------- ---------- ---------
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 897,549 542,823 369,101
(Gain) Loss on Disposition of
Assets (8,333) 5,781 4,720
Bad Debt Expense 246,927 273,435 260,600
Minority Interest - 5,240 57,775
Deferred Income Taxes 132,372 327,218 203,700
Loss on Asset Impairment - 127,690 -
Reversal of Percentage Rent Accrual - (125,052) -
Loss on Refinancing of Lease
Obligations - 136,240 -
Cumulative Effect of Change in
Accounting Principle - (28,962) -
(Increase) Decrease in Assets:
Patient Accounts Receivable (831,831) (183,765) (871,029)
Prepaid Expenses 4,623 23,157 (50,567)
Deposits 102,303 (87,412) (500)
Other Assets (6,969) - -
Increase (Decrease) in Liabilities:
Accounts Payable 43,829 (197,735) 45,598
Accrued Expenses 195,562 54,861 197,859
Deferred Revenue (12,000) (13,544) (15,632)
Other Adjustments 628 5,112 12,630
---------- ---------- ---------
Total Adjustments 764,660 865,087 214,255
---------- ---------- ---------
Net Cash Provided by
Operating Activities 980,047 1,426,564 597,816
---------- ---------- ---------
Cash Flows from Investing Activities:
Proceeds from Sale of Assets 19,088 3,570 10,000
Purchase of Property and Equipment (505,136) (123,470) (36,364)
---------- ---------- ---------
Net Cash Used by
Investing Activities (486,048) (119,900) (26,364)
---------- ---------- ---------
(CONTINUED)
-----------
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-8
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
1994 1993 1992
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common
Stock $ - $ 75,000 $ -
Increase in Long-Term Debt 99,550 - 200,000
Proceeds from Refinancing Capital
Lease Obligations - 95,920 -
Principal Reductions of Long-Term
Debt (605,426) (344,785) (78,874)
Principal Reductions of Capital
Lease Obligations (134,908) (601,928) (494,863)
Repayment of Loans from Stockholders - (9,589) (100,000)
Loans to Related Parties (101,509) (223,148) (42,182)
Collections of Amounts Due from
Related Parties 5,576 68,730 -
Repayment of Amounts Due to Former
Affiliates (56,500) (114,500) -
---------- ---------- ---------
Net Cash Used by
Financing Activities (793,217) (1,054,300) (515,919)
---------- ---------- ---------
Net Increase (Decrease) in Cash (299,218) 252,364 55,533
Cash, Beginning of Year 405,367 153,003 97,470
---------- ---------- ---------
Cash, End of Year $ 106,149 $ 405,367 $ 153,003
========== ========== =========
Supplemental Disclosure of Cash Flow
Information:
Cash Paid for Interest $ 489,495 $ 460,282 $ 454,960
========== ========== =========
See Note 7 for disclosures of non-cash investing and financing activities.
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-9
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
Morgan Medical Holdings, Inc. and Subsidiaries, (the "Company"),
operate diagnostic Magnetic Resonance Imaging (MRI) facilities in Cape
Coral, Naples, Sarasota and Titusville, Florida and operate a physical
therapy facility in Albany, Georgia. Prior to December 31, 1993, the
Company leased under fee for service agreements two Candela lasers to
Cape Coral Hospital and to Waterford Diagnostic Services, Inc.
Morgan Medical Holdings, Inc. was incorporated in Colorado on May
17, 1988. Morgan Medical Corporation was incorporated in Florida on
February 28, 1986. On May 23, 1989, Morgan Medical Holdings, Inc.
acquired all of the then outstanding common stock of Morgan Medical
Corporation and accounted for the acquisition as a purchase.
Effective September 1, 1992, Morgan Medical Corporation purchased
substantially all of the assets and liabilities of an MRI Center in
Titusville, Florida. This MRI Center became an operating division of
Morgan Medical Corporation. Accordingly, the consolidated financial
statements reflect the results of operating this MRI Center for the
four-month period from September 1, 1992 to December 31, 1992 and for
the years ended December 31, 1993 and 1994.
Until December 31, 1993 and January 5, 1993, respectively, Morgan
Medical Corporation was the General Partner in Morgan Laser Limited
Partnership and Naples MRI Limited Partnership and owned a 55% and 70%
interest, respectively, in these partnerships. Morgan Medical
Corporation acquired the remaining interests in these partnerships on
December 31, 1993 and January 5, 1993, respectively, and dissolved
each partnership on its date of acquisition.
Morgan HealthWorks, Inc. was incorporated in Florida on August 1,
1994, as a wholly-owned subsidiary of Morgan Medical Holdings, Inc.
Morgan HealthWorks of Georgia, Inc. was incorporated in Georgia on
August 17, 1994, as a wholly-owned subsidiary of Morgan HealthWorks,
Inc.
F-10
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(CONTINUED)
-----------
Summary of Significant Accounting Policies
- ------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of
Morgan Medical Holdings, Inc.; Morgan Medical Corporation and Morgan
HealthWorks, Inc., its wholly-owned subsidiaries; Morgan HealthWorks
of Georgia, Inc., a wholly-owned subsidiary of Morgan HealthWorks,
Inc.; Morgan Laser Limited Partnership and Naples MRI Limited
Partnership. All significant inter-company accounts and transactions
have been eliminated.
Revenue Recognition
- -------------------
The Company recognizes revenue from three sources: diagnostic
fees from MRI scans at its Cape Coral, Naples, Sarasota and
Titusville, Florida centers, fees from physical therapy services at
its Albany, Georgia center and, prior to December 31, 1993, laser
fees, consisting of rental service fees from two Candela SPTL-1 pulsed
dye lasers. The Company recognizes revenue from the MRI scans and
physical therapy services, net of estimated contractual adjustments
resulting from the unpaid portion of assigned insurance billings and
other third party payers, as services are performed.
The Company has agreements with third-party payors, including the
Jess Parrish Memorial Hospital and the Cape Coral Hospital, at its
Titusville and Cape Coral centers, respectively, that provide payments
for services at amounts which differ from its established rates. A
summary of the payment arrangements with major third-party payers
follows:
Medicare: Outpatient services rendered to Medicare program
--------
beneficiaries are paid based on standard rates for technical services
determined by Medicare.
Medicaid: Outpatient services rendered to Medicaid beneficiaries
--------
at its Naples, Sarasota and Titusville centers are based on standard
rates for technical services determined by Medicaid.
The Company has an agreement with a radiology group for the
interpretation of the MRI scans at its Cape Coral center. The
radiologists bill Medicaid for the professional component of the
scans. Although the Company obtained a Medicaid provider number for
the Center, it is precluded from collecting from Medicaid for its
services, since Medicaid pays the professional component of the MRI
procedures before paying any other expenses and will not make more
than one payment for the same procedure. Therefore, all Medicaid
charges, other than Hospital inpatient referrals, are written off as
contractual adjustments.
F-11
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(CONTINUED)
-----------
Hospital: Services provided to the Jess Parrish Memorial
--------
Hospital's inpatient Medicare program beneficiaries are billed to the
Hospital at negotiated rates. Services provided to all other
inpatients are billed directly to the patients or to third-party
payors at customary rates.
Services provided to the Cape Coral Hospital's inpatient Medicare
program beneficiaries are billed to the Hospital at negotiated rates.
Services provided to the Hospital's inpatient Medicaid program
beneficiaries are written off as contractual adjustments. Services
provided to all other inpatients are billed directly to the patients
or to third-party payors at customary rates.
Accounts Receivable
- -------------------
The Company maintains an allowance account for potential losses
on individual and commercial accounts receivable at December 31, 1994
and 1993 of approximately $169,700 and $135,100, respectively.
Management considers the allowances provided to be reasonable.
Certain revenues are subject to audit and retroactive adjustment
by third-party payers. The Company is aware of no pending audits or
proposed adjustments and no provision for estimated retroactive
adjustments has been provided.
Property and Equipment
- ----------------------
Property and Equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method based on
the assets' estimated useful lives as follows:
Years
-------
Leasehold Improvements 5
Software 5
Furniture and Fixtures 7
Medical Equipment 7 - 10
Office and Other Equipment 5 - 10
Transportation Equipment 10
Equipment Leased to Others 10
F-12
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------------------
(CONTINUED)
-----------
For income tax purposes, depreciation is computed using the
Modified Accelerated Cost Recovery System of depreciation over
statutory periods. Expenditures for major repairs and betterments
that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred.
Effective January 1, 1994, the Company reduced the estimated
useful lives of certain medical equipment to reflect technological
changes. The effect of this change was to decrease net income for
1994 by approximately $137,000 ($.04 per share).
Intangible Assets
- -----------------
Intangible assets are stated at cost, less accumulated
amortization. The covenant-not-to-compete in the Titusville, Florida
area is being amortized over 36 months through August 1995 in
accordance with the term of the covenant. Goodwill is being amortized
over 15 years.
Earnings Per Share
- ------------------
Earnings per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period.
Common equivalent shares include the effect of stock options and
warrants, as calculated by using the treasury stock method. Under
this method, the number of common equivalent shares is the number of
shares exercisable under options and warrants less the number of
shares which could be purchased with the cash value of the total
exercise price of the average number of options and warrants
outstanding during the period.
Income Taxes
- ------------
Prior to January 1, 1993, the Company provided for deferred
income taxes resulting from the timing differences in reporting income
and expenses for financial statement purposes compared to the method
of reporting for income tax purposes.
F-13
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(CONTINUED)
-----------
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, income taxes are provided for under the liability
method, whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
NOTE 2 - INVESTMENT IN AFFILIATES
- ---------------------------------
Virginia Beach MRI Center
- -------------------------
On August 31, 1989, the Company entered into a joint venture
agreement for the purpose of establishing and operating an MRI center
in Virginia Beach, Virginia, to be operated as the Virginia Beach MRI
Center. The Company owned a 50% interest in the joint venture. The
Company invested $200,000 in the joint venture in April 1990. On June
29, 1990, the Company sold its interest in the joint venture for
$300,000. The total sales price consisted of $205,000 for the
interest in the joint venture, $60,000 for a covenant-not-to-compete
and $35,000 for a one-year consulting service contract. The deferred
income related to the covenant-not-to-compete is being amortized over
five years, the length of the covenant, and has an unamortized balance
at December 31, 1994 and 1993 of approximately $6,000 and $18,000,
respectively. The consulting service contract has been amortized over
a twelve-month period ended June 30, 1991.
Morgan Laser Limited Partnership
- --------------------------------
On November 20, 1989, the Company's wholly-owned subsidiary,
Morgan Medical Corporation, became a General Partner in Morgan Laser
Limited Partnership ("Partnership"). Prior to December 31, 1993, the
Company owned a fifty-five (55%) percent interest in the Partnership.
The Partnership was formed to provide treatments of certain vascular
lesions.
The Partnership's accounts are consolidated with the Company.
Prior to December 31, 1993, the Partnership had three limited
partners, including the Company's President and a former director.
The former limited partners have personally guaranteed a note issued
to finance the purchase of a Candela SPTL-1 Laser which is being
leased to a third party.
F-14
<PAGE>
NOTE 2 - INVESTMENT IN AFFILIATES (CONTINUED)
- ---------------------------------------------
On December 31, 1993, the Company acquired the remaining 45%
interest in the Partnership and dissolved the Partnership on that
date. No consideration other than the minority interest was
exchanged, and the deficit minority interest of $51,996 was absorbed
by the Company as a stockholders' equity transaction.
See Note 3 regarding the carrying value of the laser machine.
Naples MRI Limited Partnership
- ------------------------------
On February 5, 1991, the Company's wholly-owned subsidiary,
Morgan Medical Corporation, became the General Partner in Naples MRI
Limited Partnership ("Partnership"). Prior to January 5, 1993, the
Company owned a seventy percent (70%) interest in the Partnership.
The Partnership was formed to develop and manage a business operating
an MRI facility which non-invasively produces cross-section views of
the human anatomy.
The Partnership's accounts are consolidated with the Company.
Prior to January 5, 1993, the partnership had one Corporate Limited
Partner.
The Company and its President, along with the former individual
stockholders of the Limited Partner (to the extent of their 30%
ownership interest) had personally guaranteed the Partnership's
liability under a capital lease for the MRI equipment which is located
at the Naples, Florida facility. This lease was refinanced in
December 1993.
On January 5, 1993, the Company acquired the remaining 30%
interest in the Partnership and dissolved the Partnership on that
date.
The purchase price was $171,000, consisting of a down payment and
quarterly installments through November 1994, along with interest at
6% due November 1994. The principal balance due to these former
stockholders at December 31, 1993 was $56,500, which was captioned as
Due to Former Affiliates on the balance sheet.
Physical Therapy Subsidiaries
- -----------------------------
On August 17, 1994, Morgan HealthWorks of Georgia, Inc.
("HealthWorks") was incorporated as a wholly-owned subsidiary of
Morgan HealthWorks, Inc., which is a newly-incorporated subsidiary of
the Company. In November 1994, HealthWorks commenced operations of a
physical therapy center in Albany, Georgia. The Company incurred and
expensed approximately $54,000 in start-up expenses related to the
physical therapy center during the year ended December 31, 1994.
F-15
<PAGE>
NOTE 2 - INVESTMENT IN AFFILIATES (CONTINUED)
- ---------------------------------------------
As described in Note 14, on March 10, 1995, The Company's Board
of Directors approved a merger agreement which would require that the
Company sell its physical therapy subsidiaries as a condition of the
merger.
NOTE 3 - LASER OPERATIONS
- -------------------------
On October 9, 1990 and March 15, 1991, the Company entered into
two substantially similar agreements with two health care providers,
whereby its two Candela SPTL-1 Lasers were made available for the
treatment of certain vascular lesions. The agreements were for an
initial term of three years with options to renew for an additional
term of three years. Both agreements became effective in 1991.
Under the terms of the agreements, the Company received one-half
of the fees billed and collected from each patient in the form of
service fees or equipment rent.
Management discontinued its laser business in 1993 and
investigated options for possible disposition of the two lasers.
Based on information received from the manufacturer, the carrying
value of each laser was reduced to $40,000 at December 31, 1993. This
resulted in a charge to operations of approximately $127,700 in 1993.
On November 1, 1994, the Company entered into an Asset Purchase
Agreement with a company owned by a former director for the sale of
both Candela Lasers. The purchase price of the first laser is
$40,000, payable with $9,088 previously deposited by the purchaser,
$10,000 in cash and $20,912 in a promissory note (see Note 9). The
Agreement contains an option to purchase the second laser for $35,000.
This option expired on March 1, 1995.
F-16
<PAGE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
Long-term debt at December 31, 1994 and 1993 consisted of the following:
1994 1993
---------- ----------
9.5% note payable to an equipment
finance company in monthly installments,
including interest, of $15,000 through
December 1994, $19,000 through December
1995 and $29,626 through December 1998,
collateralized by the MRI system at Cape
Coral, Florida and by all other personal
property and accounts receivable of the
Company. $1,058,045 $1,133,587
9.5% note payable to an equipment
finance company in monthly installments,
including interest, of $21,000 through
December 1994, $24,500 through December
1995 and $33,585 through December 1998,
collateralized by the MRI system at
Titusville, Florida and by all other
personal property and accounts receivable
of the Company. 1,233,202 1,361,358
9.5% note payable to an equipment
finance company in monthly installments,
including interest, of $19,000 through
December 1994, $24,000 through December
1995 and $33,335 through December 1998,
collateralized by the MRI system at
Naples, Florida and by all other personal
property and accounts receivable of the
Company. 1,220,406 1,326,908
6% note payable to a limited partnership
in six semi-annual installments of
$82,325, plus interest, commencing
March 1993, collateralized by a security
interest in substantially all assets
at the Titusville center. Remaining
balance prepaid in 1994. - 338,933
(CONTINUED)
F-17
<PAGE>
NOTE 4 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
1994 1993
---------- ----------
Prime plus 2 3/8% note payable to a
finance company in monthly installments
of $4,124, including interest, through
September 1994, collateralized by a
security interest in all non-Medicare
accounts receivable and equipment of
the former Morgan Laser Limited
Partnership, and all proceeds from the
foregoing, guaranteed by the former
partners. - 35,020
Prime plus 2% $300,000 line of credit
with a finance company, due on demand
with interest paid monthly, collateralized
by a security interest in all accounts
receivable and equipment of Morgan Medical
Corporation, and all proceeds from the
foregoing. - 287,880
10.25% note payable to a bank in monthly
installments of $488, including interest,
through May 1995, collateralized by an
automobile. 2,379 7,684
7.36% note payable to a bank in monthly
installments of $623, including interest,
through July 1999, collateralized by an
automobile. 29,012 -
7.5% note payable to a bank in monthly
installments of $460, including interest,
through March 1997, collateralized by an
automobile. 11,301 -
11% note payable to a bank in monthly
installments of $13,095, including interest,
through December 1997, collateralized by a
security interest in all personal property
and accounts receivable of the Company. 400,000 -
(CONTINUED)
F-18
<PAGE>
NOTE 4 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
1994 1993
---------- ----------
9.45% note payable to an equipment
finance company in monthly installments of
$579, including interest, through January
1999, collateralized by MRI equipment at
Titusville, Florida. 23,463 -
8.76% unsecured note payable to an
equipment finance company in monthly
installments of $2,055, including interest,
through June 1999. 91,434 -
10.76% note payable to an equipment
finance company in monthly installments
of $6,015, including interest, through
January 1999, collateralized by MRI
equipment at Naples, Florida. 237,656 -
---------- ---------
Total 4,306,898 4,491,370
Less Current Maturities 700,718 977,337
---------- ----------
Long-Term Debt, Less Current Maturities $3,606,180 $3,514,033
========== ==========
The notes secured by the MRI systems were entered into in November
1993 as a result of refinancing existing equipment leases. Prepayment
penalties on the leases caused a $136,000 charge to operations in 1993,
which was recorded as an extraordinary item (see Note 10).
Certain of the Company's debt instruments contain restrictive
covenants regarding changes in control or ownership of the Company
(see Note 14).
The principal maturities of long-term debt at December 31, 1994 are
summarized as follows:
Year Ended
December 31, Amount
------------ ----------
1995 $ 700,718
1996 1,134,035
1997 1,244,758
1998 1,204,573
1999 22,804
----------
$4,306,898
==========
F-19
<PAGE>
NOTE 5 - CAPITAL LEASE OBLIGATIONS
- ----------------------------------
The Company leases equipment, furniture and fixtures from equipment
finance companies under capital lease obligations, which consisted of the
following at December 31, 1994 and 1993:
1994 1993
---------- ----------
Lease payable in monthly installments
including interest at 8.75%, of $15,000
through August 1994 and $25,966 through
August 1999, for MRI equipment at Sarasota,
Florida. $1,190,298 $ -
Lease payable in monthly installments
including interest at 8.75%, of $4,500
through August 1994 and $7,797 through
August 1999, for CT equipment at Sarasota,
Florida. 357,396 -
Lease payable in monthly installments
including interest at 9.46%, of $961
through June 1999, for camera equipment
at Sarasota, Florida. 42,094 -
Lease payable in monthly installments
including interest at 9.33%, of $1,448
through June 1999, for office equipment,
furniture and fixtures at various
locations. 63,662 -
Lease payable in monthly installments
including interest at 9.01%, of $739
through June 1997, for office equipment
at Sarasota, Florida. 19,779 -
Lease payable in monthly installments
including interest at 10.5%, of $1,556
through September 1999 for physical therapy
and office equipment at Albany, Georgia. 69,610 -
Lease payable in monthly installments
including interest at 9.5%, of $1,312
through October 1997 for physical therapy
and office equipment at Albany,
Georgia. 38,955 -
(CONTINUED)
F-20
<PAGE>
NOTE 5- CAPITAL LEASE OBLIGATIONS (CONTINUED)
- ---------------------------------------------
1994 1993
---------- ----------
Lease payable in monthly installments
including interest at 10.5%, of $817
through October 1999 for physical therapy
and office equipment at Albany, Georgia. 35,740 -
---------- ----------
Total $1,817,534 $ -
========== ==========
Each lease agreement contains a provision which allows the Company
to purchase the leased assets for $1 at the end of the lease term.
Capital lease obligations are presented on the balance sheet as follows:
1994 1993
---------- ----------
Current Liability $ 331,551 $ -
Long-Term Liability 1,485,983 -
---------- ----------
$1,817,534 $ -
========== ==========
The minimum future lease payments under capital lease obligations at
December 31, 1994, are summarized as follows:
Year Ended
December 31 Amount
----------- ----------
1995 $ 487,154
1996 487,154
1997 480,096
1998 462,539
1999 306,738
----------
Total Minimum Future Lease Payments 2,223,681
Less Amounts Representing Interest 406,147
----------
Present Value of Future Minimum
Lease Payments $1,817,534
==========
Property and equipment held under capital leases at December 31,
1994 and 1993 is summarized as follows: 1994 1993
---------- ----------
Furniture and Fixtures $ 52,402 $ -
Medical Equipment 1,825,483 -
Office and Other Equipment 75,779 -
---------- ----------
1,953,664
Less Accumulated Amortization 108,897 -
---------- ----------
$1,844,767 $ -
========== ==========
F-21
<PAGE>
NOTE 6- INCOME TAXES
- --------------------
The provision for income taxes for the years ended December 31,
1994, 1993, and 1992 consisted of the following:
1994 1993 1992
---------- ---------- ----------
Current $ - $ 3,600 $ 28,830
Deferred 132,372 331,428 203,700
---------- ---------- ----------
Total Provision for Income
Taxes $ 132,372 $ 335,028 $ 232,530
========== ========== ==========
See Note 10 for the income tax effect of extraordinary items
.
At December 31, 1994, the Company had available net operating loss
carryforwards for income tax purposes expiring as follows:
Year Ended
December 31 Amount
----------- ----------
2005 $ 429,992
2006 488,785
2007 199,449
2009 514,527
----------
Total Net Operating
Loss Carryforwards $1,632,753
==========
The following table shows the principal reasons for the differences
between the effective income tax rate and the United States Federal
statutory income tax rate of 34 percent.
1994 1993 1992
---------- ---------- -----------
Federal Income Tax at
Statutory Rate $ 118,238 $ 297,337 $ 199,669
State Income Tax, Net of
Federal Income Tax Benefit 12,623 32,594 21,195
Other, Net 1,511 5,097 11,666
---------- ---------- ----------
Provision for Income Taxes $ 132,372 $ 335,028 $ 232,530
========== ========== ==========
Effective Income Tax Rate 38.1% 38.3% 39.6%
========== ========== ==========
F-22
<PAGE>
NOTE 6 - INCOME TAXES (CONTINUED)
- ---------------------------------
As described in Note 1, the Company adopted the provisions of
SFAS No. 109, effective January 1, 1993. Under the provisions of
SFAS No. 109, deferred tax assets and liabilities total to a net
liability at December 31, 1994 and 1993. The components of this
net liability result from the following:
1994 1993
---------- ----------
Deferred Tax Liabilities:
Accelerated Depreciation of Property
and Equipment (Long-Term) $ 902,653 $ 698,526
Cash Basis Accounting for Revenues
and Expenses for Income Tax
Purposes (Current) 469,599 309,995
---------- ----------
Total Deferred Tax Liabilities 1,372,252 1,008,521
---------- ----------
Deferred Tax Assets:
Tax Benefit of Net Operating Loss
Carryforwards (Long-Term) 614,405 402,665
Capitalized Start-Up Expenses
(Long-Term) 19,619 -
---------- ----------
Total Deferred Tax Assets 634,024 402,665
---------- ----------
Net Deferred Tax Liability $ 738,228 $ 605,856
========== ==========
The net deferred tax liability is presented on the balance sheet
as follows:
1994 1993
---------- ----------
Current Liability $ 469,599 $ 309,995
Long-Term Liability 268,629 295,861
---------- ----------
$ 738,228 $ 605,856
========== ==========
The cumulative effect of the change in accounting principle at
January 1, 1993 of implementing SFAS No. 109 is to increase net income
by $28,962.
F-23
<PAGE>
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
The Company engaged in the following non-cash investing and
financing activities:
1994 1993 1992
---------- ---------- ----------
Financed the acquisition of
property and equipment through
capital lease obligations. $1,952,442 $ 438,442 $ -
Financed the acquisition of
property and equipment through
issuance of long-term debt. 321,404 349,800 -
Refinanced existing long-term
debt. 400,000 - -
Retired amounts due to
stockholder through issuance
of common stock. 17,007 - -
Sale of medical equipment in
exchange for note receivable. 20,912 - -
Acquisition of the remaining
interest in Morgan Laser
Limited Partnership as a
stockholders' equity
transaction. - 51,996 -
Capital lease obligations
refinanced through the
issuance of long-term debt. - 3,026,608 -
Increase in deposits resulting
from the refinancing of capital
lease obligations. - 47,500 -
Increase in other assets
resulting from the refinancing
of capital lease obligations. - 11,581 -
(CONTINUED)
F-24
<PAGE>
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
- -------------------------------------------------------
1994 1993 1992
---------- ---------- ----------
Non-cash charge to rent
expense reflecting the
effective lease cost of its
corporate headquarters. $ - $ - $ 4,360
As a result of the acquisition
of the remaining interest in
Naples MRI Limited Partnership,
the following non-cash
transactions resulted:
Increase in Due to Former
Affiliates - 171,000 -
Increase in Deferred Income
Taxes - 103,900 -
Decrease in Minority Interest - (214,751) -
Recording of Goodwill - (60,149) -
As a result of the acquisition
of substantially all of the
assets and liabilities of the
Titusville center, the
following non-cash transactions
resulted:
Assets Purchased - - (915,000)
Recording of Covenant-Not-to-
Compete - - (300,000)
Recording of Goodwill - - (181,320)
Increase in Long-Term Debt - - 493,951
Assumption of Capital Lease
Obligation - - 915,000
F-25
<PAGE>
NOTE 8 - STOCK OPTIONS AND WARRANTS
- -----------------------------------
Activity related to options and warrants is as follows:
Number of Price per
Shares Share
----------- ----------
Outstanding at January 1, 1992 64,500 $ .60
Granted in 1992 300,000 .50- 1.00
----------- ----------
Outstanding at December 31, 1992 364,500 .50- 1.00
Granted in 1993 100,000 1.00
Expired in 1993 (64,500) .60
---------- ----------
Outstanding at December 31, 1993 400,000 .50- 1.00
Expired in 1994 (100,000) 1.00
----------- ----------
Outstanding at December 31, 1994 300,000 $.50- 1.00
=========== ==========
Of the options and warrants outstanding at December 31, 1994,
200,000 warrants expire in October 1995 and 100,000 options expire in
November 1995. However, the expiration date of the options could be
extended for up to two years based on the termination of employment,
death or disability of the officer involved.
NOTE 9 - DUE FROM RELATED PARTIES
- ---------------------------------
Due from related parties at December 31, 1994 and 1993 consisted
of the following:
1994 1993
---------- ----------
8% unsecured note receivable from
an officer in monthly installments
of $5,576 including interest,
through March 1999. $ 271,172 $ -
Unsecured advances to officers
including interest at 8% for 1994
and 9% for 1993. 81,350 256,589
8.5% note receivable from related
party in monthly installments of
$776 including interest, through
May 1997, collateralized by medical
equipment. 20,284 -
---------- ----------
$ 372,806 $ 256,589
========== ==========
F-26
<PAGE>
NOTE 9 - DUE FROM RELATED PARTIES (CONTINUED)
- ---------------------------------------------
The note receivable from an officer is in default at December
31, 1994. The Company expects to collect the full balance of this note;
however, no final payment schedule has been established.
Due from related parties is presented on the balance sheet as
follows:
1994 1993
---------- ----------
Current Asset $ 136,157 $ 256,589
Noncurrent Asset 236,649 -
---------- ----------
$ 372,806 $ 256,589
========== ==========
NOTE 10 - EXTRAORDINARY ITEMS
- -----------------------------
Extraordinary items in the consolidated statements of income for
the years ended December 31, 1994, 1993, and 1992 consist of the following:
1994 1993 1992
---------- ---------- ----------
Reversal of contingent rent
based on renegotiation of
lease agreement (Note 13) $ - $ 125,052 $ -
Loss on refinancing of capital
lease obligations related to
MRI equipment (Note 4) - (136,240) -
Net deferred income tax credit
related to reversal of rent
and loss on refinancing - 4,210 -
Utilization of net operating
loss carryforwards prior to
January 1, 1993 - - 28,830
---------- ---------- ----------
Total $ - $ (6,978) $ 28,830
========== ========== ==========
NOTE 11 - CONCENTRATION OF CREDIT RISK
- --------------------------------------
Most of the Company's business activity is primarily with
customers located on the East Coast and Southwest Coast of Florida,
many of whom routinely assign to the Company payment by their medical
insurance providers. As of December 31, 1994, the Company's patient
accounts receivable from individuals and commercial medical and workers'
compensation insurance providers was approximately $1,165,000. As of
December 31, 1994, the Company's patient accounts receivable from
Medicare and Medicaid was approximately $487,000.
F-27
<PAGE>
NOTE 12 - COMMITMENTS
- ---------------------
The Company leases its MRI, physical therapy and office
facilities under operating leases which expire in various years
through 2004. Rental expense for the years ended December 31, 1994,
1993, and 1992 was approximately $203,300, $127,700, and $162,500,
respectively.
Future minimum lease payments as of December 31, 1994 are as
follows:
Year Ended
December 31, Amount
----------- ----------
1995 $ 312,645
1996 295,921
1997 234,837
1998 175,057
1999 159,171
Thereafter 393,956
----------
Total future minimum lease payments $1,571,587
==========
The Company provides for service and maintenance on its MRI
equipment at each location through agreements requiring various
monthly payments. Future required payments under these agreements at
December 31, 1994, are as follows:
Year Ended
December 31, Amount
----------- ----------
1995 $ 505,282
1996 395,371
1997 319,060
1998 186,083
1999 72,500
----------
Total future required payments $1,478,296
==========
NOTE 13 - CONTINGENCIES
- -----------------------
Prior to its amendment in January 1995, the Company's facility
lease agreement with Cape Coral Hospital contained a provision for
contingent rent based upon a percentage of Cape Coral MRI Center's net
cash flow from operations. The Company had been advised by legal
counsel that this arrangement may have violated the Safe Harbor
Regulations promulgated by the United States Department of Health and
Human Services. Consequently, the lease was amended to remove the
contingent rent provision. As a result of this action, Management
believes that any action taken against the Company for possible
noncompliance with these Regulations will not have a material effect
on the financial statements.
F-28
<PAGE>
NOTE 13 - CONTINGENCIES (CONTINUED)
- -----------------------------------
In 1993, the Company reversed accruals for contingent rent
totaling approximately $125,000 as an extraordinary item (see Note
10).
The Company's charges for MRI services exceed those allowable
under Florida's Patient Self-Referral Act of 1992 ("the Act"). The
enforcement of the Act could have a material effect on the Company's
financial statements. However, the constitutionality of the Act is
being challenged in the courts and no enforcement action under the Act
has been taken against the Company. Although Management believes that
no adverse consequences will result from any action taken under the
Act, Management cannot ascertain the effect of the ultimate resolution
of this matter on the financial statements.
The Company's facility lease agreement with Cape Coral Hospital
contains a provision which allows the hospital to purchase the MRI
Center at its fair market value. Cape Coral Hospital has not informed
the Company of its intention to purchase the Center. Although the
purchase of the Center could have a material adverse effect on the
operations of the Company, Management cannot ascertain the effect of
this matter on the financial statements.
NOTE 14 - SUBSEQUENT EVENT
- --------------------------
Effective March 10, 1995, the Company's Board of Directors
approved an agreement with NMR of America, Inc. ("NMR"), providing for
the acquisition by NMR of 100% of the Company's outstanding common
stock in exchange for 1,200,000 shares of NMR's common stock,
including approximately 100,000 shares reserved for issuance upon
exercise of the Company's outstanding stock options and warrants (see
Note 8).
The agreement is subject to certain conditions, including the
sale of the Company's physical therapy subsidiaries prior to the
acquisition, the receipt of fairness opinions, regulatory approval,
the consent of the stockholders of both companies and the consent of
certain lenders (see Note 4).
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
To the Stockholders and
Board of Directors
Morgan Medical Holdings, Inc.
Tampa, Florida
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Morgan Medical Holdings, Inc. and Subsidiaries
as of and for the years ended December 31, 1994 and 1993, included in this
Form 10-K and have issued our report thereon dated March 10, 1995. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in Item 14(a)2 is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/ Garcia & Ortiz, P.A.
GARCIA & ORTIZ, P.A.
Tampa, Florida
March 10, 1995
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
To the Stockholders and
Board of Directors,
Morgan Medical Holdings, Inc.
Tampa, Florida
We have audited, in accordance with generally accepted auditing standards,
the consolidated statements of income, stockholders' equity and cash flows
of Morgan Medical Holdings, Inc. and Subsidiaries for the year ended
December 31, 1992, included in this Form 10-K and have issued our report
thereon dated May 1, 1993. Our audit was made for the purpose of forming
an opinion on those financial statements taken as a whole. The schedule
listed in Item 14(a)2 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Copeland and Company
Copeland and Company
Tampa, Florida
May 1, 1993
F-31
<PAGE>
MORGAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
-----------------------------------------------------
Balance at Additions Deductions Balance
Beginning Charged to from End of
Classification of Year Expenses Reserves Year
-------------- ---------- ---------- ---------- ----------
Reserve Deducted
in the Balance
Sheet from the
Asset to Which
it Applied:
Allowance for
Doubtful
Accounts -
Year Ended
12/31/94 $ 135,056 $ 246,927 $ 212,317 $ 169,666
Year Ended
12/31/93 242,518 273,435 380,897 135,056
Year Ended
12/31/92 116,647 260,600 134,729 242,518
F-32
<PAGE>
MORGAN MEDICAL HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
- ------
Current Assets
Cash $166,076 $106,149
Patient Accounts Receivable, Less
Allowance for Contractual Adjustments
and Doubtful Accounts of $770,000 in
1995 and $730,900 in 1994 1,797,760 1,652,167
Current Maturities of Due From Related
Parties 188,587 136,157
Prepaid Expenses 16,679 31,321
--------- ---------
Total Current Assets 2,169,102 1,925,794
--------- ---------
Property and Equipment 7,960,821 7,944,836
Less Accumulated Depreciation
and Amortization 1,951,010 1,719,538
--------- ---------
Total Property and Equipment 6,009,811 6,225,298
--------- ---------
Other Assets
Due From Related Parties, Less Current
Maturities 188,785 236,649
Deposits 25,518 39,233
Covenant-not-to-Compete 41,667 66,666
Goodwill 205,230 209,255
Other 16,367 17,508
--------- ---------
Total Other Assets 477,567 569,311
--------- ---------
Total Assets $8,656,480 $8,720,403
========= =========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
G-1
<PAGE>
MORGAN MEDICAL HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1995 1994
--------- -----------
(Unaudited)
Current Liabilities
Current Maturities of Long-Term Debt $838,673 $700,718
Current Maturities of Capital Lease
Obligations 338,026 331,551
Accounts Payable 147,218 121,755
Accrued Expenses 334,828 366,548
Deferred Income Taxes 461,205 469,599
---------- ----------
Total Current Liabilities 2,119,950 1,990,171
---------- ----------
Long-Term Liabilities
Long-Term Debt, Less Current Maturities 3,257,516 3,606,180
Capital Lease Obligations, Less Current
Maturities 1,398,155 1,485,983
Deferred Revenue 3,000 6,000
Deferred Income Taxes 349,023 268,629
---------- ----------
Total Long-Term Liabilities 5,007,694 5,366,792
---------- ----------
Total Liabilities 7,127,644 7,356,963
---------- ----------
Stockholders' Equity
Preferred Stock, No Par Value;
500,000,000 Shares Authorized;
None Issued
Common Stock, No Par Value;
3,224,727 and 3,156,393 Shares Issued
and Outstanding at March 31, 1995 and
December 31, 1994. 386,644 345,546
Paid-In Deficit (18,189) (18,189)
Retained Earnings 1,160,381 1,036,083
---------- ----------
Total Stockholders' Equity 1,528,836 1,363,440
---------- ----------
Total Liaabilities and Stockholders' Equity $8,656,480 $8,720,403
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
G-2
<PAGE>
MORGAN MEDICAL HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Quarters Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
REVENUES ---------- ----------
- --------
Net Patient Services $1,770,128 $1,193,063
---------- ----------
EXPENSES
- --------
Payroll and Related Costs 373,127 176,365
Depreciation and Amortization 260,496 185,859
Medical Supplies and Other Operating
Costs 616,739 422,129
Other General and Administrative 77,366 82,381
Bad Debt Expense 6,092 51,809
---------- ----------
Total Expenses 1,333,820 918,543
---------- ----------
INCOME FROM OPERATIONS 436,308 274,520
OTHER INCOME AND (EXPENSES)
- ---------------------------
Other Income (Expenses) (99,390) 10,456
Interest Expense (140,620) ( 101,892)
---------- ----------
Net Other Income and (Expenses) (240,010) (91,436)
INCOME BEFORE INCOME TAXES 196,298 183,084
PROVISION FOR INCOME TAXES 72,000 67,396
---------- ----------
NET INCOME $124,298 $115,688
========== ==========
EARNING PER SHARE (PRIMARY AND
- ------------------------------
FULLY DILUTED) $0.04 $0.03
- -------------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Primary 3,350,434 3,392,997
========== ==========
Fully Diluted 3,401,949 3,392,997
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
G-3
<PAGE>
MORGAN MEDICAL HOLDINGS, INC, AND SUBSIDIARIES
CONSOLDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $124,298 $115,688
Adjustments to Reconcile Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 260,496 185,859
Deferred Income Taxes 72,000 67,396
Non-Cash Compensation 41,098
(INCREASE) DECREASE IN ASSETS:
Patient Accounts Receivable (145,593) (36,868)
Prepaid Expenses 14,642 (8,426)
Deposits 13,715 26,763
Other Assets 2,419 -
INCREASE (DECREASE) IN LIABILITIES:
Accounts Payable 25,463 (4,098)
Accrued Expenses (31,720) 52,135
Deferred Revenue (3,000) (3,000)
--------- ---------
Net Cash Provided by Operating Activities 373,818 395,449
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (15,985) (60,472)
--------- ---------
Net Cash Used by Investing Activities (15,985) (60,472)
(CONTINUED)
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements
G-4
<PAGE>
MORGAN MEDICAL HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 1995 and 1994
(Unaudited)
<TABLE><CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) in Receivable From Related Parties (5,844) (69,094)
Principal Reductions of Long-Term Debt (210,709) (209,471)
Principal Reductions of Capital Lease Obligations (81,353) -
Repayment of Amounts Due to Former Affiliates - ( 11,875)
--------- ---------
Net Cash Used by Financing Activities (297,906) (290,440)
NET INCREASE IN CASH 59,927 44,537
CASH
BEGINNING OF PERIOD 106,149 405,367
--------- ---------
CASH
END OF PERIOD $166,076 $449,904
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid for Interest $143,752 $134,625
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
G-5
<PAGE>
MORGAN MEDICAL HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1995
(Unaudited)
<TABLE><CAPTION>
Common Stock
Preferred Number of Paid-in Retained
Stock Shares Amount Deficit Earnings
----- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1994 - 3,156,393 $345,546 ($18,189) $1,036,083
COMMON STOCK ISSUED - 68,334 41,098 - -
NET INCOME FOR
THE PERIOD - - - - 124,298
========= ========= ========= ======== ==========
BALANCE
March 31, 1995 - 3,224,727 $386,644 ($18,189) $1,160,381
========= ========= ========= ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
G-6
<PAGE>
Morgan Medical Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
- ------------------------------------------
Condensed Consolidated Financial Statements
- -------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations since the
Company believes that the disclosures contained herein are adequate to make
the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements, and notes thereto included in the Company's latest Annual
Report on Form 10-K. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position of the Company as of March 31, 1995, as well as the
results of operations and cash flows for three months ended March 31, 1995
and 1994 have been included. The results of operations for such interim
periods are not necessarily indicative of the results for the full year.
Summary of Significant Accounting Policies
- ------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Morgan
Medical Holdings, Inc.; Morgan Medical Corporation and Morgan
HealthWorks, Inc., its wholly-owned subsidiaries; Morgan HealthWorks of
Georgia, Inc., a wholly-owned subsidiary of Morgan HealthWorks, Inc. All
significant inter-company accounts and transactions have been eliminated.
Revenue Recognition
- -------------------
The Company recognizes revenue from two sources: diagnostic fees
from MRI scans at its Cape Coral, Naples, Sarasota and Titusville, Florida
centers, and fees from physical therapy services in its Albany, Georgia center.
The Company recognizes revenue from the diagnostic scans and physical
therapy services, net of estimated contractual adjustments resulting from the
unpaid portion of assigned insurance billings and other third party payers, as
services are performed.
Accounts Receivable
- -------------------
Patient accounts receivable are offset by an allowance for contractual
adjustments at March 31, 1995 and December 31, 1994 of approximately
$571,000 and $561,200, respectively.
G-7
<PAGE>
The Company maintains an allowance account for potential losses on
individual and commercial accounts receivable at March 31, 1995 and
December 31, 1994 of approximately $199,000 and $169,700, respectively.
Management considers the allowances provided to be reasonable.
Certain revenues are subject to audit and retroactive adjustment by
third-party payers. The Company is aware of no pending audits or proposed
adjustments and no provision for estimated retroactive adjustments has been
provided.
Property and Equipment
----------------------
Property and Equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method based on the
assets' estimated useful lives as follows:
Leasehold Improvements 5
Software 5
Furniture and Fixtures 7
Medical Equipment 7-10
Office and Other Equipment 5-10
Transportation Equipment 10
Equipment Leased to Others 10
For income tax purposes, depreciation is computed using the Modified
Accelerated Cost Recovery System of depreciation over statutory periods.
Expenditures for major repairs and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
Intangible Assets
- -----------------
Intangible assets are stated at cost, less accumulated amortization. The
covenant-not-to-compete in the Titusville, Florida area is being amortized
over 36 months through August 1995 in accordance with the term of the
covenant. Goodwill is being amortized over 15 years.
Earnings Per Share
- ------------------
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares include the effect of stock options and warrants,
as calculated by using the treasury stock method. Under this method, the
number of common equivalent shares is the number of shares exercisable
under options and warrants less the number of shares which could be
purchased with the cash value of the total exercise price of the average
number of options and warrants outstanding during the period.
G-8
<PAGE>
Income Taxes
- ------------
Income taxes are provided for under the liability method, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Due from Related Parties
- ------------------------
Due from related parties at March 31, 1995 and December 31, 1994
consisted of the following:
March 31, December 31,
1995 1994
--------- ------------
8% Unsecured note receivable from
an officer in monthly installments
of $5,576 including interest,
through March, 1999. $271,172 $271,172
Unsecured advances to officers
including interest at 8%. 87,194 81,350
8.5% Note receivable from related
party in monthly installments of
$776 including interest, through
May, 1997, collateralized by
medical equipment. 19,006 20,284
-------- --------
$377,372 $372,806
======== ========
The note receivable from an officer is in default at March 31, 1995. The
Company expects to collect the full balance of this note; however, no final
payment schedule has been established.
G-9
<PAGE>
Due from related parties is presented on the balance sheet as follows:
March 31, December 31,
1995 1994
-------- ------------
Current Asset $188,587 $136,157
Noncurrent Asset 188,785 236,649
-------- --------
$377,372 $372,806
======== ========
Contingencies
- -------------
The Company's charges for MRI services exceed those allowable under
Florida's Patient Self-Referral Act of 1992 ("the Act"). The enforcement of the
Act could have a material effect on the Company's financial statements.
However, the constitutionality of the Act is being challenged in the courts
and no enforcement action under the Act has been taken against the
Company. Although Management believes that no adverse consequences
will result from any action taken under the Act, Management cannot
ascertain the effect of the ultimate resolution of this matter on the financial
statements.
Subsequent Event
- ----------------
On April 11, 1995 the Company executed a Merger Agreement with
NMR of America, Inc. ("NMR"), providing for the acquisition by NMR of
100% of the Company's outstanding common stock in exchange for 1,200,000
shares of NMR's common stock, including approximately 100,000 shares
reserved for issuance upon exercise of the Company's outstanding stock
options and warrants.
The agreement is subject to certain conditions, including the sale of
the Company's physical therapy subsidiary prior to the acquisition, the receipt
of fairness opinions, regulatory approval, the consent of the stockholders of
both companies and the consent of certain lenders.
Stockholders' Equity
- --------------------
In December, 1994, the Board of Directors authorized the issuance of
68,334 shares of the Company's common stock to certain officers and directors
as compensation for services. These shares were issued in February, 1995. The
value of these shares, $41,098, was determined based upon the average high and
low bid quotations for shares of the Company's common stock during the period
in which the shares were earned adjusted for a discount associated with the
restrictive nature of the shares.
G-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Article VII of the Registrant's Bylaws requires indemnification
of directors and officers of the Registrant to the fullest extent permitted
by Delaware law. Article VII of the Registrant's Bylaws also states that
the Registrant may provide such indemnification to its agents and
employees.
Section 145 of the General Corporation Law of the State of
Delaware provides generally that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at its request in such capacity in another corporation or business
association, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
In addition, pursuant to the authority of Delaware law, Article
Twelfth of the Registrant's Certificate of Incorporation eliminates the
liability of directors to the Registrant or its stockholders for damages
for any breach of duty as a director to the fullest extent permitted by
Delaware law.
The Registrant has entered into an indemnification agreement with
each of its officers that could require the Registrant, among other things,
to indemnify its officers against certain liabilities that may arise by
reason of their status or service as officers and to advance expenses
incurred by them as a result of any proceeding against them as to which
they could be indemnified.
ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibits
--------
2 Plan of acquisition, reorganization, arrangement, liquidation or
succession
2(a) Agreement and Plan of Merger, dated April 11, 1995, by and among
the Registrant, NMR SUB, Inc. and Morgan
II-1
<PAGE>
Medical Holdings, Inc. (composite copy as amended to date)
(Annexed as Appendix A to the Joint Proxy Statement/Prospectus
included in the Registration Statement; Schedules and Exhibits
thereto are listed therein and will be provided supplementally to
the Commission upon request).
3 Articles of Incorporation and By-Laws
3(a) Certificate of Incorporation. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1989).
3(b) Certificate of ownership of NMR of Delaware, Inc. (Incorporated
by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1989).
3(c) Bylaws. (Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1989).
4 Instruments defining the rights of security holders, including
indentures
4(a) Indenture dated as of July 1, 1986 between the Registrant and The
Trust Company of New Jersey, including form of Debenture.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-5567)).
5 Opinion re legality
*5(a) Opinion of McCarter & English.
8 Opinion on Tax Matters
**8(a) Form of tax opinion of Annis, Mitchell, Cockey, Edwards & Roehn.
10 Material contracts
10(a) Form of 8% Subordinated Note. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (File No. 33-
5567)).
10(b) Agreement between Image Sub, Inc. and Imaging Associates, P.A.,
and amendments thereto. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (File No. 33-
5567)).
10(c) Certificate and Agreement of Limited Partnership of MR Associates
I, a New Jersey limited partnership. (Incorporated by reference
to the Registrant's Registration Statement on Form S-1 (File No.
33-5567)).
II-2
<PAGE>
10(d) Certificate and Agreement of Limited Partnership of MR Associates
I, a Pennsylvania limited partnership. (Incorporated by
reference to the Registrant's Registration Statement on Form S-1
(File No. 33-5567)).
10(e) Certificate and Agreement of Limited Partnership of MR Associates
of Allentown, a Pennsylvania limited partnership. (Incorporated
by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-5567)).
10(f) Certificate and Agreement of Limited Partnership of MR Associates
of Morristown, a New Jersey limited partnership. (Incorporated
by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-5567)).
10(g) 1986 Incentive Stock Option and Non-Statutory Option Plan.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-5567)).
10(h) Form of amendment to 1986 Incentive Stock Option and Non-
Statutory Option Plan (proposed) (Annexed as Appendix E to the
Joint Proxy Statement/Prospectus included in this Registration
Statement).
10(i) Certificate of Limited Partnership of MR Partners of Greenbelt, a
Maryland limited partnership. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (File No. 33-
5567)).
10(j) Certificate and Agreement of Limited Partnership of MR Associates
of Chicago, an Illinois limited partnership. (Incorporated by
reference to the Registrant's Registration Statement on Form S-1
(File No. 33-5567)).
10(k) Acquisition Agreement among the Registrant, Diagnostic Network,
Incorporated (DNI) and NMR Newco, Inc. (Incorporated by
reference to the Registrant's Current Report on Form 8-K for July
1, 1987).
10(l) Plan of Reorganization and Agreement of Merger dated as of June
26, 1987 among the Registrant, DNI and NMR Newco, Inc.
(Incorporated by reference to the Registrant's Current Report on
Form 8-K for July 1, 1987).
10(m) Rights Agreement dated as of December 23, 1988 between Registrant
and American Stock Transfer & Trust Company. (Incorporated by
reference to the Registrant's Current Report on Form 8-K for
December 23, 1988).
II-3
<PAGE>
10(n) Employment Agreement dated March 1, 1991, between the Registrant
and Joseph Guy Dasti, and amendments and restatements thereto
dated March 1, 1993, August 5, 1993 and June 21, 1994.
(Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1995).
10(o) Certificate and Agreement of Limited Partnership of Garden State
Imaging Partners, a Delaware limited partnership. (Incorporated
by reference to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1994).
10(p) Certificate and Agreement of Limited Partnership of Hartford
County Imaging Partners, a Delaware limited partnership.
(Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1994).
10(q) Certificate and Agreement of Limited Partnership of Accessible
MRI, a Delaware limited partnership. (Incorporated by reference
to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1994).
10(r) Stock Purchase Agreement, dated January 21, 1994, among
Registrant, Eduardo Nijensohn, M.D. and John A. Gall, M.D.
(Incorporated by reference to the Registrant's Current Report on
Form 8-K for January 21, 1994, as amended).
10(s) Agreement and Plan of Reorganization, dated January 21, 1994,
among the Registrant and Eduardo Nijensohn, M.D. (Incorporated
by reference to the Registrant's Current Report on Form 8-K for
January 21, 1994, as amended).
10(t) Employment Agreement dated December 7, 1992, between the
Registrant and John P. O'Malley III, and amendments and
restatements thereto dated August 5, 1993 and June 21, 1994.
(Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1995).
*10(u) Form of Note and Pledge Agreement by and among the Registrant and
J. Mark Strong.
*10(v) Form of Non-Competition Agreement by and among the Registrant and J.
Mark Strong.
11 Statement re computation of per share earnings
II-4
<PAGE>
Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1995.
21 Subsidiaries
Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1995.
23 Consents of Experts and Counsel
*23(a) Consent of Coopers & Lybrand L.L.P. (as to the Registrant).
*23(b) Consent of Garcia & Ortiz, P.A. (as to Morgan).
*23(c) Consent of Copeland & Company (as to Morgan).
23(d) Consent of McCarter & English (see Exhibit 5(a)).
*23(e) Annis, Mitchell, Cockey, Edwards & Roehn
*23(f) Consent of Janney Montgomery Scott Inc.
*23(g) Consent of Fahnestock & Co. Inc.
*23(h) Consent of J. Mark Strong.
99 Additional Exhibits
*99(a) Form of Proxies and letters to stockholders of the Registrant and
shareholders of Morgan to be used in connection with the Annual
Meetings
*99(b) Due Diligence Memorandum and related Schedules of Janney
Montgomery Scott Inc.
- -----------------
* Previously filed in Registration Statement (No. 33-61681) filed on August
8, 1995.
** Filed herewith.
(b) Financial Statement Schedules
Schedules are omitted for the reason that they are not required
or are not applicable, or the required information is shown in the
financial statements of the Registrant or notes thereto.
(c) Item 4(b) Information
---------------------
The opinions of Janney Montgomery Scott Inc. and Fahnestock & Co.
Inc. are included as Appendix B and C, respectively, to the Joint Proxy
Statement/Prospectus included in this Registration Statement. The Due
Diligence Memorandum and related Schedules presented to the Board of
Directors of NMR of America, Inc. by Janney Montgomery Scott Inc. is included
as Exhibit 99(b) to this Registration Statement.
ITEM 22. Undertakings
II-5
<PAGE>
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "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 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes 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
II-6
<PAGE>
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date of
responding to the request.
The undersigned Registrant hereby undertakes 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.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Murray
Hill, State of New Jersey, on August 10, 1995.
NMR OF AMERICA, INC.
By /s/ Joseph G. Dasti
--------------------------
Name: Joseph G. Dasti
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph G. Dasti President, Chief August 10, 1995
--------------------- Executive Officer
Joseph G. Dasti and Director
(Principal
Executive Officer)
/s/ John P. O'Malley III Executive Vice August 10, 1995
------------------------ President -
John P. O'Malley III Finance and Chief
Financial Officer
(Principal
Financial and
Accounting
Officer)
/s/ Donald W. Arthur Director August 10, 1995
------------------------
Donald W. Arthur
/s/ David L. Bloom Director August 10, 1995
------------------------
David L. Bloom, M.D.
/s/ John A. Faraone Director August 10, 1995
------------------------
John A. Faraone
/s/ Joseph Zappala Director August 10, 1995
------------------------
Joseph Zappala
EXHIBIT 8(a)
FORM OF TAX OPINION
Morgan Medical Holdings, Inc.
300 Fifth Avenue South, Suite 20
Naples, Florida 33940
Dear Sirs:
[Customary preamble, statement of facts, general
assumptions and limitations]
In addition to the foregoing facts, you have made the
following additional representations with respect to the Merger
and have authorized us to rely on such representations in
expressing the opinions set forth below:
1. The fair market value of the NMR Common Stock and
other consideration received by each Morgan shareholder in
connection with the Merger will be approximately equal to the
fair market value of the Morgan Common Stock surrendered in the
transaction.
2. There is no plan or intention by the shareholders
of Morgan who own one percent (1%) or more of the Morgan Common
Stock, and to the best of the knowledge of the management of
Morgan, there is no plan or intention on the part of the
remaining shareholders of Morgan, to sell, exchange, or otherwise
dispose of a number of shares of NMR Common Stock received in the
Merger that would reduce the Morgan shareholders' ownership of
NMR Common Stock to a number of shares having a value, as of the
date of the Merger, of less than fifty percent (50%) of the value
of all of the formerly outstanding Morgan Common Stock as of the
same date. For purposes of this representation, shares of Morgan
Common Stock exchanged for cash in lieu of fractional shares of
NMR Common Stock, as well as shares of Morgan Common Stock held
by Morgan shareholders which are sold, redeemed or disposed of as
contemplated by the Merger Agreement, will be considered in
making this representation.
<PAGE>
3. NMR has no plan or intention to reacquire any of
the NMR Common Stock issued in the Merger.
4. NMR has no plan or intention to sell or otherwise
dispose of any of the assets of Morgan acquired in the Merger,
except for dispositions made in the ordinary course of business
or transfers described in Section 368(a)(2)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
5. The payment of cash in lieu of fractional shares
of NMR is solely for the purpose of avoiding the expense and
inconvenience to NMR of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the Merger to Morgan
shareholders in lieu of fractional shares of NMR Common Stock
will not exceed one percent (1%) of the aggregate consideration
that will be issued to Morgan shareholders with respect to their
Morgan Common Stock surrendered in the transaction.
6. The liabilities of Subsidiary assumed by Morgan
(if any) in the Merger and the liabilities to which the
transferred assets of Subsidiary are subject (if any) were
incurred by Subsidiary in the ordinary course of its business.
7. Following the Merger, NMR will continue the
historic business of Morgan or use a significant portion of
Morgan's historic business assets in a business.
8. NMR, Subsidiary, Morgan, and the shareholders of
Morgan will pay their respective expenses, if any, incurred in
connection with the Merger.
9. There is no intercorporate indebtedness existing
between Morgan and NMR or Subsidiary that was issued, acquired,
or will be settled at a discount in connection with the Merger.
10. No parties to the Merger are investment companies
as defined in Code Section 368(a)(2)(F)(iii).
11. Morgan is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Code Section
368(a)(3)(A).
12. The fair market value of the assets of Subsidiary
transferred to Morgan in the Merger will equal or exceed the sum
of the liabilities assumed by Morgan as a consequence of the
Merger, plus the amount of liabilities, if any, to which the
transferred assets are subject.
13. The Merger is based on valid business purposes
unrelated to the avoidance of Federal income taxes and will
comply in all respects with the laws of the states of
incorporation of the corporations involved in the Merger.
<PAGE>
14. Pursuant to the Merger, Morgan will acquire ninety
percent (90%) or more of the fair market value of Subsidiary's
net assets and seventy percent (70%) or more of the fair market
value of Subsidiary's gross assets and Morgan will retain ninety
percent (90%) or more of the fair market value of its net assets
and seventy percent (70%) or more of the fair market value of its
gross assets as determined under Revenue Ruling 77-307, 1977-2,
C.B. 117.
15. There have been no redemptions, spin-offs or other
extraordinary distributions by Morgan to its shareholders or
former shareholders prior to and in contemplation of the Merger
which, if considered a part of and precondition to the Merger and
treated as a step in the integrated Merger transaction, would
cause the representation set forth in paragraph 14, above, to be
inaccurate.
16. Subsidiary is a first-tier subsidiary of NMR.
17. Before the Merger, NMR owns stock of Subsidiary
which possesses at least eighty percent (80%) of the total
combined voting power of all classes of stock of Subsidiary
entitled to vote and at least eighty percent (80%) of the total
number of shares of all classes of Subsidiary stock.
18. In the Merger, the shareholders of Morgan will
exchange for voting stock of NMR an amount of voting stock in
Morgan which constitutes control of Morgan under Code Section
368(c).
[Customary statement as to examination of documents and
assumptions of genuineness]
Based on the foregoing, we are of the opinion that:
1. The Merger qualifies as a "reorganization" within
the meaning of Code Section 368(a)(1)(A). NMR, Subsidiary and
Morgan will each be considered a "party to a reorganization"
within the meaning of Code Sections 368(a)(2)(E) and 368(b)(2).
2. No gain or loss will be recognized by NMR,
Subsidiary or Morgan in connection with the Merger. Code Section
361(a).
3. No gain or loss will be recognized by the
shareholders of Morgan whose Morgan Common Stock is converted
solely into NMR Common Stock in connection with the Merger. Code
Section 354(a).
4. The Morgan shareholders receiving cash in lieu of
fractional shares of NMR Common Stock will be treated as if such
fractional shares had been issued by NMR and then subsequently
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redeemed by NMR and will be taxed on their otherwise unrecognized
gain in an amount which shall not exceed the amount of the cash
received. Code Section 356(a). Whether the cash received is
characterized as a dividend or as payment in exchange for Morgan
Common Stock will depend on whether the distribution of cash when
viewed as part of the reorganization as a whole and as a
redemption by NMR and applying principles analgous to those under
Code Section 302 (b) more closely resembles a dividend
distribution or a payment in exchange for Morgan Common Stock.
5. The basis of NMR Common Stock received by the
shareholders of Morgan in connection with the Merger will be the
same as the adjusted basis of the Morgan Common Stock surrendered
by such shareholders in exchange therefore. Code Section 358(a).
6. The holding period of NMR Common Stock received by
the shareholders of Morgan in connection with the Merger will
include the period during which the Morgan Common Stock
surrendered in exchange therefore was held, provided such stock
was held as a capital asset on the date of the Merger. Code
Section 1223(1).
Very truly yours,
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