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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[Mark one]
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File Number 1-9367
NMR OF AMERICA, INC.
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(Name of small business issuer in its charter)
Delaware 22-2468314
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-665-9400
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
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8% Convertible Subordinated Philadelphia Stock Exchange
Debentures Due 2001
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X
Yes ________ No ________
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $23,833,897
The aggregate market value of voting stock held by non-affiliates of the issuer,
computed by reference to the closing sales price of such stock on June 26, 1996
was $31,920,604.
The number of shares outstanding of the issuer's common stock, as of June 26,
1996 was 6,260,519.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits are incorporated herein by reference as set forth in Items
13(a)3, 13(a)4 and 13(a)10.
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INDEX TO FORM 10-KSB - PARTS I-III
PAGE
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PART I - Item 1. Description of Business 3
Item 2. Description of Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a
Vote of Security Holders 18
PART II - Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters 18
Item 6. Management's Discussion and
Analysis or Plan of Operation 19
Item 7. Financial Statements 30
Item 8. Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure 30
PART III - Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 30
Item 10. Executive Compensation 32
Item 11. Security Ownership of
Certain Beneficial
Owners and Management 36
Item 12. Certain Relationships and
Related Transactions 37
Item 13. Exhibits, Lists and Reports on
Form 8-K 37
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF THE BUSINESS. NMR of America, Inc. is
engaged, directly and through limited partnerships, in installing, managing and
maintaining diagnostic imaging systems utilizing primarily magnetic resonance
("MR") as well as other modalities. MR is a relatively recent development in the
technology of diagnostic imaging. It does not utilize potentially damaging
ionizing radiation, and is believed to have no harmful physical effects. It is
also believed to provide images superior in certain respects to those provided
by other diagnostic imaging technologies and is potentially capable of providing
biochemical information about the tissues being scanned. Although the Company
acquires the diagnostic imaging systems, it has no proprietary interest in the
imaging technology. The Company acquires its diagnostic imaging systems from
various manufacturers and the diagnostic imaging systems are installed under the
Company's supervision in the offices of private physicians. As of June 26, 1996,
the Company had under management eighteen operational diagnostic imaging systems
in physicians' offices. Of the eighteen operational diagnostic imaging systems,
eleven are located in installations owned by limited partnerships of which the
Company is the managing general partner, and seven are owned by the Company. All
eighteen centers include MR imaging systems and five centers also include other
imaging modalities. See "Description of Business."
The Company was incorporated in December 1982, completed its initial public
offering of securities in September 1983 and opened its first MR center in July
1984. In July 1986, the Company completed a public offering of $4,000,000
principal amount of its 8% Convertible Subordinated Debentures due 2001. On July
1, 1987, the Company acquired Diagnostic Networks, Incorporated by merger of a
subsidiary of the Company with and into Diagnostic Networks, Incorporated.
During the fiscal year ended March 31, 1988, the Company reincorporated as a
Delaware corporation by merger into a newly-formed wholly owned subsidiary of
the Company incorporated in Delaware. On January 21, 1994, the Company acquired
90% of the outstanding common stock of Oak Lawn Imaging Center, Inc. and Oak
Lawn Magnetic Resonance Imaging Center, Inc. On January 1, 1995, the Company
acquired the assets of Advanced Specialty Imaging, L.P. ("Libertyville").
Effective January 1, 1995, the Company acquired a 75% interest, inclusive of
both a general partner and limited partner interest, in Golf MRI Center, L.P.
and Diagnostic Imaging Center, L.P. ("Golf/DIC").
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On September 14, 1995, the Company completed the acquisition of Morgan Medical
Holdings, Inc. ("Morgan"). Morgan provides diagnostic imaging equipment,
facilities and management services to physicians through four outpatient centers
located in the Florida cities of Cape Coral, Naples, Sarasota and Titusville.
Effective January 1, 1996, the Company acquired substantially all of the
operating assets of Central Diversey M.R.I. Center, Inc. ("Central Diversey")
which operates a magnetic resonance imaging center in Chicago, Illinois.
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
subject to certain conditions. Medical Resources provides diagnostic imaging
equipment, facilities and management services to physicians through nineteen
outpatient centers located in New York, New Jersey and Florida. Pursuant to the
terms of the acquisition, each outstanding share of NMR common stock would
automatically be converted into 0.6875 of a share of Medical Resources common
stock. The merger is subject to certain conditions including shareholder and
regulatory approval and certain third party consents. Senior management of the
combined company would be composed of the current executives of Medical
Resources with NMR's current executive officers, Joseph G. Dasti and John P.
O'Malley III serving as consultants to the combined company. The closing of the
merger is anticipated to occur in the third quarter of fiscal 1997, although
there can be no assurance that the transaction will be completed as contemplated
or that it will occur when anticipated.
See Note 9 to Notes to Consolidated Financial Statements included herein for
information concerning the Company's Stockholders Rights Plan. As the term is
used herein, the Company includes NMR of America, Inc. and its consolidated
subsidiaries.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The
Company believes there is one business segment to its operations.
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(c) DESCRIPTION OF BUSINESS.
MR TECHNOLOGY.
MR diagnostic imaging utilizes magnetic fields and applied
radiowaves, instead of the potentially damaging ionizing radiation utilized by
certain other diagnostic imaging technologies, to obtain images of the internal
human anatomy. The MR systems used by the Company operate substantially in the
following manner: In a static magnetic field produced by a superconductive
magnet, the patient is exposed to energy in the radio frequency range produced
by a radio antenna coil which surrounds the body part to be imaged. Nuclei in
the portion of the body being scanned are thus stimulated from their state of
equilibrium. When the radio signal is switched off, the nuclei "relax" and
return to their original state, releasing energy that is directly related to
their quantity and environment. The energy given off by the nuclei is recorded,
measured and converted to a visual display by a digital computer. The nuclei of
different elements, for example, hydrogen and phosphorus, within the same
magnetic field respond to different radio frequencies and will respond only if
exposed to radio waves of that frequency.
MR imaging is sensitive to subtle physio-chemical differences
between tissues and is capable of differentiating soft tissues and detecting
diseases which induce physio-chemical changes that may not be detected by other
diagnostic imaging technologies such as x-ray or computerized axial tomography
(CT) diagnostic imaging, which themselves are only sensitive to differences in
the electron density of tissue. MR images also detect structures smaller than
those detectable by CT scanning, thus producing images with comparable or better
spatial resolution and possibly enabling detection at earlier stages. Because MR
images are produced without any mechanical movement of the MR system, images of
any plane of the body may be obtained, thereby producing views of anatomy
difficult to capture with other diagnostic imaging technologies. These factors
enhance the physician's ability to make diagnoses based on observation of
abnormal anatomy and thus permit earlier detection and diagnosis of disease and
earlier and more effective treatment.
Experience and research to date have identified no known
hazards from magnetic and radio fields of even greater intensity than those to
which a patient is exposed in an MR system. Magnets utilized in MR systems may
disrupt the operation of cardiac pacemakers and disturb biomedical implants,
curtailing in certain circumstances the general applicability of the technique.
Magnetic fields produced by magnets require careful facilities management to
isolate certain patients from the magnet and to isolate the magnet from
extraneous interference.
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Disadvantages of MR systems compared with other available
imaging systems are that imaging times are longer with an MR system where up to
one or more minutes per scan are required compared with CT scanning where only
two to five seconds per scan is required. In addition, in certain MR systems,
the patient is largely enclosed within the magnet and claustrophobia can occur
as well as delayed access to the patient in an emergency. Claustrophobia is,
however, less likely to occur in the Company's open architecture MR imaging
systems housed in the Chicago, Illinois and Union, New Jersey facilities and in
the Oak Lawn, Illinois MR system which possesses a large rectangular bore. In
addition, MR systems which utilize superconductive magnets are generally more
expensive to purchase and maintain than other diagnostic imaging systems. The
use of superconductive magnets, which utilize liquid helium and nitrogen,
results in increased facilities management and service and support requirements,
adding to the cost of the total system.
MR SYSTEMS.
The Company is engaged, directly and through limited
partnerships in which it is the general partner, in installing, managing and
maintaining diagnostic imaging systems, primarily utilizing magnetic resonance,
in offices operated by private physicians. The Company acquires or leases its
diagnostic imaging systems from various manufacturers and installs the systems
under the Company's supervision. Although the Company acquires or leases the
diagnostic imaging systems, it has no proprietary interest in the imaging
technology. In establishing a diagnostic imaging center, the Company's
activities generally involve selecting a site for the diagnostic imaging system,
leasing or acquiring the site, making the necessary leasehold or other
improvements to the center or supervising the construction of a building and
related improvements to house the diagnostic imaging system, arranging for the
purchase, financing and installation of the imaging equipment, and staffing the
office with technical and clerical personnel. In certain locations, limited
partnerships have been organized, with the Company as the general partner, to
provide financing for the establishment and operation of the center.
The Company has installed, as of June 26, 1996, MR systems at
eighteen operational locations including Chicago, Illinois (three locations);
Des Plaines, Illinois; Elgin, Illinois; Libertyville, Illinois; Oak Lawn,
Illinois; Cape Coral, Florida; Naples, Florida; Sarasota, Florida; Titusville,
Florida; Bel Air, Maryland; Seabrook, Maryland; Marlton, New Jersey; Morristown,
New Jersey; Union, New Jersey; Allentown, Pennsylvania and Philadelphia,
Pennsylvania. The Company's former Austin, Texas imaging center closed during
fiscal 1996.
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Information with respect to the Company's ownership interests in diagnostic
imaging centers is as follows:
COMPANY'S
OWNERSHIP
COMMENCEMENT SQUARE FEET INTEREST AS OF
LOCATION DATE OF CENTER JUNE 26, 1996(1)
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Allentown, PA May 1986 3,350 95.9%(2)
Austin, TX October 1986 5,000 38.0%(4)
Bel Air, MD November 1991 8,000 62.9%(2) (3)
Cape Coral, FL June 1990 2,450 100%
Chicago, IL April 1987 1,800 87.2%(2)
Chicago, IL June 1992 2,900 79.6%(2)
Chicago, IL April 1992 2,000 100%
Des Plaines, IL April 1990 4,000 75.0%(2)
Elgin, IL May 1992 3,700 100%
Libertyville, IL June 1992 5,063 100%
Marlton, NJ July 1984 3,671 91.0%(2)
Morristown, NJ December 1984 5,568 94.2%
Naples, FL March 1991 2,329 100%
Oak Lawn, IL February 1983 4,300 100%(2)
Philadelphia, PA January 1986 4,000 97.7%(2)
Sarasota, FL June 1994 3,303 100%
Seabrook, MD April 1995 3,302 87.1%(2)
Titusville, FL September 1992 3,200 100%
Union, NJ August 1984 3,370 63.6%(2)
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(1) Represents the Company's interest in profits, losses and distributions of
the respective centers.
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(2) The Company receives management fees at these centers.
(3) During the second quarter of the fiscal year ended March 31, 1993, the
accumulated losses attributed to the limited partners 37.1% pro rata
interest in Harford County Imaging Partners (Bel Air, Maryland) exceeded the
limited partners contributed capital. Additional losses of this partnership
are accrued, in full, to the Company as general partner.
(4) Center is no longer in operation.
The Company's Austin, Texas center was closed during December
1995. The center operated pursuant to a limited partnership agreement (the
"Austin Partnership") which was scheduled to expire on January 31, 1996, but was
extended by the governing board of the partnership for the purpose of
liquidating and distributing the remaining assets of the Austin Partnership. It
is anticipated that such liquidation and distribution will be completed during
fiscal 1997 and will not have a material impact on the results of operations or
liquidity of the Company.
Each of the centers includes a reception area, examination
rooms in which the diagnostic imaging equipment is located, computer rooms,
patient changing rooms and various service areas. Since MR systems generally use
magnets weighing in excess of 20,000 pounds, special site improvements are
required in the premises where they are installed including structural support
for the magnet and special protective walls (radio frequency shielding) to
reduce outside radio frequency interference with the operation of the MR
systems. The magnet in the MR system can cause interference with the use of
other computer systems within a distance of approximately thirty to fifty feet.
External mechanical devices, such as automobiles and trains, if operated within
thirty to fifty feet of the MR system, could cause interference with readings
from the MR system. Accordingly, the Company has incurred substantial costs for
site improvements in installing the MR systems at its various locations.
The MR systems used by the Company are characterized by
continuing technological advances which generally involve the need to make
periodic upgrades to the MR systems, which primarily involve computer software.
It is the Company's policy where consistent with utilization to acquire
refinements to and enhancements of its imaging equipment as available to remain
competitive with innovations. However, the development of new technologies or
refinements of existing technologies may at times place utilization of the
Company's existing MR systems at a disadvantage relative to systems utilizing
the newer technologies or systems having available the refinements to the
technology which may not have been included in the Company's systems.
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PHYSICIANS AGREEMENTS.
Each MR center includes a turnkey MR system, including the
machine and related office and other equipment. Six centers also include other
imaging modalities. In accordance with the terms of agreements entered into
relating to each center, all medical aspects of the center are under the
supervision of the professional corporations with whom agreements have been
entered into to staff or lease the center. Such medical aspects include
establishing professional fees, leasing the offices, analysis of diagnostic
information, preparation of reports to referring physicians, care of patients
while at the center and contacts with referring physicians. The Company has
entered into agreements with physician professional corporations to use and
operate the MR systems in each of the locations where the Company has MR sites.
In ten of these locations, such agreements are with professional corporations
whose principal is Dr. David L. Bloom ("Dr. Bloom"). Dr. Bloom is a Director of
the Company. These agreements in general provide for the payment to the Company
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 and interpret the scans produced at the center for
a fee. The Company believes that it is materially dependent on its relationships
with physicians in its operations.
Under the agreements with the physician professional
corporations, the Company 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. The Company 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. The
Company 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, the Company has the contractual
responsibility to maintain all financial and other records and prepare and
transmit bills.
At the eight Illinois and Florida imaging centers which were
acquired by the Company during fiscal years 1994 through 1996, professional
services are provided by physicians under contracts administered by Dr. Bloom.
The Company from time to time makes periodic improvements in
and upgrades to the diagnostic imaging systems at the locations. The Company
also provides periodic technical training sessions to technologists employed by
the Company.
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FINANCING.
From time to time, in connection with the acquisition by the
Company of new MR equipment, equipment upgrades or other leasehold improvements
at one of its imaging centers, the Company seeks financing from outside sources.
The Company seeks this financing from banks, leasing companies and equipment
vendors. Typically such arrangements provide for financing for up to 100% of the
cost of the project to be repaid over a period of three to seven years and are
collaterized by the related equipment and/or improvements. At March 31, 1996,
interest rates on such obligations range from 4.8% to 11.8%. To date, the
Company has been successful in obtaining this financing when required. See Notes
5 and 8 to Notes to Consolidated Financial Statements included herein. Where
limited partnerships or subsidiary corporations have been organized or acquired,
the Company remains contingently liable under the terms of the bank borrowings
or leases.
The purchase price of MR systems similar to those used by the
Company presently ranges from approximately $650,000 to $2,000,000. Site
improvements are additional and cost up to approximately $300,000 to $700,000.
The MR systems are maintained pursuant to agreements entered into with the
manufacturers of the equipment or other independent contractors.
MARKETING.
Through its center-based marketing personnel, the Company
seeks to stimulate physician awareness of the Company's centers, the superiority
of the professional and technical staffs associated with those centers, as well
as the capabilities of the Company's equipment at the centers. Center marketing
activities are conducted through direct marketing contacts with physicians
supplemented by sponsorship of medical seminars, direct mailings and attendance
at medical association meetings and conventions. Physicians are believed to
refer patients to the Company's centers on the basis of the center's imaging
capabilities and quality and the level of patient and professional services
provided.
As part of its corporate marketing strategy, the Company
directly markets magnetic resonance and other diagnostic imaging services
provided at its centers to the managed care market, including health maintenance
organizations ("HMO's"), preferred provider organizations ("PPO's") and self
insured groups, on an exclusive and non-exclusive basis. The Company believes
marketing to managed care organizations and groups is important since it
believes that such groups will control a larger portion of the reimbursement
market for magnetic resonance and other diagnostic imaging services in the
future.
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GOVERNMENT REGULATION.
Various Federal and State statutes and regulations affect virtually all
aspects of the Company's operations. These include statutes intended to
facilitate health care planning, which seek to place limitations on unnecessary
capital expenditures and which seek to contain health care costs within the
various Federal health care reimbursement programs. Statutes also seek to
prohibit or limit referrals of patients to facilities in which the referring
physician has an ownership interest. In addition, the Company's operations are
subject to laws prohibiting the unlicensed practice of medicine by
non-physicians. Statutes and regulations relating to the acquisition of health
care equipment, the reimbursement policies of the various state and Federal
government programs and other aspects of government regulation of the health
care 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 the Company's operations and the programs
under which physicians and others are reimbursed for undertaking MR procedures
and thereby affect materially the Company's business activities. The health care
industry is characterized by pervasive government regulation.
CERTIFICATES OF NEED. Certain states have enacted certificate of need
("CON") legislation in an attempt to regulate the acquisition of major medical
equipment and thereby limit what are possibly unnecessary capital expenditures.
Legislation of this type has been enacted in the states of New Jersey,
Pennsylvania and Illinois, where the Company has centers, as well as a number of
other states where the Company does not currently have centers. The Company's
locations in Allentown and Philadelphia, Pennsylvania, Chicago, Illinois and
Morristown, New Jersey have received certificates of need from the state
authorities. The Company's other diagnostic imaging systems have been installed
in reliance upon exemptions from state certificate of need legislation.
LEGISLATIVE DEVELOPMENTS. The Federal Omnibus Budget Reconciliation Act of
1989 contains provisions that, unless an exception applies, restrict physicians
from making referrals for services to be rendered to Medicare patients to
clinical laboratory facilities in which they have an ownership interest,
including a limited partnership interest, or with which they have a compensation
arrangement which is generally referred to as the "Stark I Legislation."
Recently, the Federal Omnibus Budget Reconciliation Act of 1993 added provisions
to these restrictions on Medicare payment for physician referrals which,
effective January 1, 1995, will greatly broaden the services which are subject
to this referral and payment ban. These provisions are generally referred to as
the "Stark II Legislation." Specifically with regard to the Company's
operations, the Stark II Legislation adds to the referral restriction "radiology
or other diagnostic services." The Stark II Legislation also extends these
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prohibitions to referrals of Medicaid patients. Both the Stark I and the Stark
II Legislation provide exceptions for certain types of physicians such as
radiologists and for certain types of employment and contractual relationships.
In response to the Stark I and Stark II Legislation, the Company purchased
limited partnership interests from physician and non-physician investors in
certain of its limited partnerships during the fourth quarter of fiscal 1994.
STATE REFERRAL LAWS. Many states, including those states in which NMR
conducts its business, 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 NMR'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 facilities 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 NMR capital stock is also prohibited from making any patient
referrals to NMR's diagnostic imaging facilities.
Although the Company believes that it is in material compliance with all
applicable Federal and State laws and regulations which place limitations on
referrals of patients, there can be no assurance that such laws or regulations
will not be enacted, interpreted or applied in the future in such a way as to
have a material adverse impact on the Company, or that federal or state
governments will not impose additional restrictions upon all or a portion of the
Company's activities, which might adversely affect the Company's business.
FRAUD AND ABUSE. The Company is subject to the federal Medicare and
Medicaid anti-fraud and abuse statutes, which prohibit bribes, kickbacks,
rebates and any direct or indirect remuneration in connection with the
furnishing or arranging of services, items or equipment for which payment may be
made in whole or in part under Medicare or Medicaid (the "Anti-Kickback
Statute"). These statutes are intended to prevent the improper referral of
patients for medical tests or treatment by health service providers who may have
a financial interest in the entity which provides such services. 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 health care 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 health care providers
who refer patients to the enterprise may
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violate the anti-fraud and abuse statutes. Violation of these anti-fraud and
abuse statutes may result in significant criminal penalties and exclusion from
participation in Medicare and Medicaid programs for both the entity paying the
kickback or rebate and the entity receiving it.
On July 29, 1991, the Department of Health and Human Services ("HHS")
issued "safe harbor" regulations under the anti-fraud and abuse statutes. Among
other provisions, these regulations set forth eight tests which, if 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-fraud abuse statutes. Additional safe harbor regulations relating to other
aspects of the referral process have been and are expected to be adopted. The
safe harbor regulations are not the sole determinant of whether a health care
business is operating in compliance with the anti-fraud and abuse statutes.
Since the safe harbors are not exclusive, a health care business can fail to
meet the safe harbor tests and still be operating lawfully under such statutes.
Although the Company believes that it is in general and substantial compliance
with the anti-fraud and abuse statutes, there can be no assurance that HHS will
not challenge the Company's position on compliance with such statutes or that,
if such a challenge occurred, a court would uphold the Company's position.
PRACTICE OF MEDICINE. The physicians with whom the Company enters into
agreements are subject to licensing by the States in which they practice
medicine. This licensing is intended to assure that such persons meet the
requirements necessary to practice medicine and is intended for the protection
of the public. The practice of medicine and the operation of certain health care
facilities are subject to existing laws and regulations.
The Company's imaging centers are also 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 ten of the Company's consolidated centers by licensed physicians
under contract with a professional corporation that is a party to an agreement
with the Company and whose principal is Dr. David L. Bloom, a Director and
principal shareholder of the Company. At the eight Illinois and Florida imaging
centers which were acquired by the Company during fiscal 1994 - 1996,
professional services are provided by licensed physicians under contracts
administered by Dr. Bloom. The Company provides the imaging equipment and
technical employees. There can be no assurance that state authorities or others
may not challenge these structures as involving the Company in the unlawful
practice of medicine.
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HEALTH CARE COST CONTAINMENT AND REIMBURSEMENTS. 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 health care
facilities. Such legislation, together with cost constraints imposed by
insurance companies and other third party payers has and can be expected to
continue to reduce the fees the Company can collect for the use of its
diagnostic imaging equipment and/or for the provision of diagnostic imaging
services.
When patients are billed directly by the radiologist for professional
services, most of their health care insurers, including, for example, Blue Cross
and Blue Shield, reimburse the provider for a portion or all of the physician's
charge for MR services provided the fee is "reasonable and customary" for that
area. The health care reimburser determines what is considered "reasonable and
customary." The Company expects that increasing pressure on these fees from
health care insurers may adversely affect the Company's revenue, net, results of
operations and liquidity.
The Company has also been pursuing agreements with HMOs, PPO's, 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 per procedure performed to the Company.
The Company expects these contracts to become an increasingly significant part
of its 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 the Company's revenue, net, results of operations and
liquidity.
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, 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.
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 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 revenues, operating margins and profitability.
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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 the Company in substantially all
currently utilized procedures. Although considered by the Company to be
unlikely, there can be no assurance that the FDA may not promulgate regulations
in the future that may affect the use of diagnostic imaging systems.
COMPETITION.
MR systems compete with a variety of other scanning technologies which are
available in physicians offices, hospitals and other diagnostic imaging centers.
Competition with other imaging modalities is generally based on the nature of
the medical procedure to be performed and the condition of the patient. The
Company also experiences competition from other MR systems located in the
vicinity of its centers in addition to other imaging modalities. The use of MR
imaging as a diagnostic tool continues to gain both professional and public
acceptance as MR imaging and diagnostic techniques improve, equipment software
is enhanced and attention is directed to MR's diagnostic successes. The
Company's performance is dependent upon physician and patient confidence in the
superiority of its MR imaging and service over other competing modalities and
systems.
Competition in the diagnostic imaging field, generally, is based on such
factors as equipment performance and reliability, quality of diagnostic and
patient services, center location and reputation, marketing and relationships
with the local medical community. These factors influence the likelihood that
referring physicians will direct prospective patients to a center operated by
the Company.
There are a number of manufacturers of MR imaging systems. These
manufacturers' marketing efforts can be expected to stimulate others, including
hospitals, to purchase and install the MR systems. Periodically, manufacturers
introduce innovations or newly designed MR systems with enhanced features.
Therefore, the Company encounters strong competition from other MR diagnostic
systems with innovative or enhanced features installed in the areas where the
Company has installed its MR systems, as well as strong competition in its
endeavors to establish new locations.
In its efforts to expand its operations the Company experiences competition
from others also engaged in the acquisition, installation and operation of MR
systems. Many of these competitors may be deemed to be larger with access to
greater amounts of financing than is available to the Company.
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LIABILITY INSURANCE.
Although the Company does not provide any medical treatment and only
provides support for diagnostic functions, the patients on whom imaging
procedures are performed, represent, by the nature of their illness or suspected
illness, a risk of suffering injury or death on the premises of one of the
centers, an occurrence which could subject the Company to the risk of litigation
seeking substantial damages. Although the Company has obtained liability
insurance, there can be no assurance that a claim may not be asserted for an
amount exceeding the liability limits of the policy or that the basis of the
claim may not be excluded from coverage under the policy. The Company's
agreements with physicians require that the physicians maintain medical
malpractice liability insurance with limits ranging from $1,000,000 to
$3,000,000. In addition, the Company also maintains insurance against claims
which may be asserted against it arising from the installation of the MR systems
and related activities. However, there cannot be any assurance that any claims
will not exceed the amount of the insurance coverage obtained by the Company.
The Company also maintains insurance against physical damage to the diagnostic
imaging systems, public liability insurance and workmen's compensation
insurance.
EMPLOYEES. As of June 26, 1996, the Company employed 197 persons, including
61 who are employed on a part-time basis. Of such persons, 18 are employed in an
executive and administrative capacity at the Company's corporate office, 14 are
employed in center based marketing activities, and the remainder are employed as
technologists and in other capacities at the imaging centers. To date, the
Company has not experienced any difficulty in employing technologists to staff
its diagnostic imaging system locations. The Company believes that its
relationship with its employees is satisfactory. None of the Company's employees
are covered by a collective bargaining agreement.
RAW MATERIALS. The Company believes that the chemicals and other materials
and supplies used in its MR installations are readily available from a number of
sources.
PATENTS AND TRADEMARKS. The Company believes that its business is not
dependent upon any patents, trademarks, licenses, franchises or concessions.
SEASONALITY. The Company believes that its business activities are not
seasonal.
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CUSTOMERS. The Company's customers are comprised of physicians and
physician groups, managed care entities, regional health care systems and
patients. The Company believes that it is not dependent upon any customer or few
customers. However, the Company believes that patient referrals by physicians in
the areas of the offices it equips are important to its success. In addition,
all medical aspects of the utilization of the Company's diagnostic imaging
installations are under the control of the professional corporations with which
the Company has entered into agreements. Such medical aspects include the
establishment of fees, leasing of offices, analysis of diagnostic information,
preparation of reports to referring physicians, care of patients while at the
center and contacts with the referring physicians. Accordingly, the Company's
success is directly dependent upon the ability of the professional corporations,
and the local radiologists under contract with the professional corporations, to
attract patient referrals and to operate the centers on a profitable basis.
BACKLOG. Backlog is not a material aspect of the Company's business.
RESEARCH AND DEVELOPMENT. The Company does not engage in any material
research and development activities.
ENVIRONMENTAL FACTORS. Compliance with Federal, State or local provisions
relating to the protection of the environment do not have any material impact on
the Company.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company leases its principal executive and administrative offices
pursuant to a five and one-half year lease with a term commencing May 19, 1993
and expiring November 18, 1998, subject to two (2) five (5) year renewal
options. The facility occupies approximately 5,000 square feet of space in a
building located in Murray Hill, New Jersey. The effective rental over the five
and one-half year term is approximately $106,000 per year plus increases in real
estate taxes and operating expenses.
All of the Company's present diagnostic imaging centers are located on
leased premises except the Union, New Jersey location which is owned by the
Company, subject to a mortgage obligation. Generally, the Company's other leases
are for an initial term of not less than five years with varying provisions to
extend the term for additional periods. The premises are subleased or by
contract made available to the physicians operating the offices. The sublessee
is generally obligated for the fixed monthly rental payment and the Company
meets any additional expenses required to be paid under the lease such as
maintenance, taxes and insurance.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year ended
March 31, 1996 to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock has been quoted on the NASDAQ system since
September 21, 1983. Effective August 6, 1991, the Company's Common Stock trades
on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol:
NMRR. The following table sets forth the high and low sales prices for the
Company's Common Stock during the period January 1, 1994 through June 26, 1996.
CALENDAR QUARTER HIGH LOW
---------------- ---- ----
1994
----
1st Quarter 3-3/8 2-1/4
2nd Quarter 4-3/8 2-1/2
3rd Quarter 4-1/2 3
4th Quarter 5-1/8 3-3/8
1995
----
1st Quarter 5-1/4 3-7/8
2nd Quarter 5-1/2 4-1/8
3rd Quarter 5-1/8 4
4th Quarter 4-1/4 3-1/4
1996
----
1st Quarter 3-3/4 2-7/8
2nd Quarter 5-3/4 3-1/8
(through June 26)
As of June 26, 1996, the last sales price for the Common Stock was 5-3/8.
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As of March 31, 1996, the Company had approximately 726 shareholders of record.
The Company has never paid a cash dividend on its Common Stock and management
has no present intention of commencing to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED
MARCH 31, 1995.
Reference is made to Note 2 of the Company's consolidated financial statements
for a definition of revenue, net.
For the fiscal year ended March 31, 1996, revenue, net was $23,833,897 versus
$17,987,824 for the fiscal year ended March 31, 1995 or a $5,846,073 (32.5%)
increase. The increase in revenue, net resulted primarily from the acquisition
of the assets of Central Diversey Center ("CD MRI") effective in January 1996,
Morgan Medical Holdings, Inc. ("Morgan") in September 1995 and the purchases of
Libertyville Imaging Center ("Libertyville") and Golf MRI and Diagnostic Imaging
Center ("Golf/DIC") which were effective in January 1995. These centers
generated revenue, net totaling $7,145,315 for fiscal year ended March 31, 1996
versus $825,081 in fiscal 1995 or an increase of $6,320,234. Same center
revenue, net decreased by $474,161 or 2.7% from $17,162,743 to $16,688,582
during the fiscal year ended March 31, 1996 primarily as a result of additional
discounted business offset by increased aggregate scan volume. Patient volume
and reimbursement sources both significantly impact the Company's revenue, net.
Patient medical costs are paid by managed care organizations, such as HMO's,
Blue Cross/Blue Shield, Medicare and Medicaid, and private pay organizations,
such as commercial insurance carriers. By virtue of contractual allowances
obtained by certain of these reimbursement sources under contracts entered into
with the Company, shifts in the mix of patients and their related reimbursement
sources will impact revenue, net in the period in which they occur.
Payroll and related costs for the fiscal year ended March 31, 1996 were
$6,442,710 versus $4,780,025 for the fiscal year ended March 31, 1995, or an
increase of $1,662,685 (34.8%). This increase is primarily due to the
acquisitions of CD MRI, Morgan, Libertyville and Golf/DIC which incurred payroll
and related costs totaling approximately $1,077,531 during the fiscal year ended
March 31, 1996 compared to $162,168 in fiscal 1995. In addition, the Company's
payroll and related costs increased due to the hiring of technical personnel to
increased patient flow at the Company's multi-modality imaging centers, the
hiring of managed care and marketing personnel and an increase in the cost of
providing health benefits to its employees. Payroll and
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related costs, as a percentage of revenue, net, were 27.0% and 26.6% in fiscal
1996 and 1995, respectively. Although the Company expects aggregate payroll and
related expense to increase in fiscal 1997 due to the inclusion of Morgan and CD
MRI for the entire period, it is anticipated that payroll, as a percentage of
revenue, net, will be relatively unchanged.
Depreciation and amortization expense increased by $142,216 (4.8%) from
$2,951,400 for the fiscal year ended March 31, 1995 to $3,093,616 for the fiscal
year ended March 31, 1996. These increases were primarily attributable to the
acquisitions of CD MRI, Morgan, Libertyville and Golf/DIC which resulted in
goodwill amortization and equipment depreciation aggregating $766,312 for the
fiscal year ended March 31, 1996 compared to $63,165 for the prior fiscal year.
This increase was offset by an approximately $561,000 decrease in aggregate same
center depreciation on the Company's more mature centers. In addition,
depreciation expense increased due to purchases of imaging equipment and related
upgrades during fiscal 1996. Depreciation and amortization expense, as a
percentage of revenue, net, was 13.0% and 16.4% in fiscal 1996 and 1995,
respectively. Although the Company expects aggregate depreciation and
amortization expense to increase in fiscal 1997 due to the inclusion of CD MRI
and Morgan for the entire period, it is anticipated that depreciation and
amortization expense, as a percentage of revenue, net, will decline slightly.
Medical supplies and other operating costs include the cost of equipment and
premises maintenance, medical supplies, radiology fees for acquired centers,
other center expenses, and patient billing fees. Medical supplies and other
operating costs increased by $2,785,906 (46.1%) from $6,048,762 for the fiscal
year ended March 31, 1995 to $8,834,668 for the fiscal year ended March 31,
1996. These increases result, primarily, from the inclusion of approximately
$2,573,000 in medical supplies and operating expenses relating to the operations
of CD MRI, Morgan, Libertyville and Golf/DIC in fiscal 1996 versus $305,447 in
fiscal 1995. In addition, medical supplies and operating expenses increased by
approximately $200,000 due to the inclusion of operating rent paid for the
equipment at the Seabrook Radiological Center, $100,000 in increased radiology
fees at the Oak Lawn centers due to increased volume and approximately $200,000
in increased medical and office supplies due to increased aggregate scan volume.
Medical supplies and other operating costs, as a percentage of revenue, net,
were 37.1% and 33.6% in fiscal 1996 and 1995, respectively. The increase is
primarily due to the inclusion of radiology fees for newly acquired centers in
this line item. Although the Company expects aggregate medical supplies and
other operating costs to increase in fiscal 1997, due to the inclusion of CD MRI
and Morgan for the entire period, it is anticipated medical and operating
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costs, as a percentage of revenue, net, will be consistent with fiscal
1996.
Other general and administrative expenses for the fiscal year ended March 31,
1996, were $763,662 versus $553,422 for the fiscal year ended March 31, 1995, or
an increase of $210,240 (38.0%). The increase during the fiscal year ended March
31, 1996 results primarily from increased advertising and promotional expenses
($156,206) relating to the Company's centers and an increase in professional
fees due to the inclusion of the GOLF/DIC management contracts for an entire
year. Other general and administrative expenses, as a percentage of revenue,
net, were 3.2% and 3.1% in fiscal 1996 and 1995, respectively. It is anticipated
that expenditures for general and administrative expenses will continue at these
levels in fiscal 1997.
Interest expense for the fiscal year ended March 31, 1996 was $1,677,698 versus
$1,186,811 for the prior fiscal year, or an increase of $490,887 (41.4%). This
increase results, primarily, from interest expense associated with the
acquisition and assumption of debt obligations relating to the CD MRI, Morgan,
Libertyville and Golf/DIC acquisitions, which generated interest expense
totaling approximately $505,000 for the fiscal year ended March 31, 1996 versus
$56,322 in fiscal 1995. In addition, aggregate same center interest expense
increased due to the financing of new equipment in the Company's Union, New
Jersey center and leasehold improvements at the Seabrook, Maryland center,
additional hardware and software upgrades and from increases in prevailing
interest rates, which impact the Company's variable rate debt obligations. These
increases were offset by decreases in interest expense relating to scheduled
reductions in outstanding principal balances. Interest expense, as a percentage
of revenue, net, was 7.0% and 6.6% in fiscal 1996 and 1995, respectively.
Although the Company expects aggregate interest expense to increase slightly in
fiscal 1997 due to the inclusion of CD MRI and Morgan for the entire period, it
is anticipated that interest expense, as a percentage of revenue, net, will
decline slightly due to reductions in outstanding principal balances.
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Other income, net increased by $98,259 from $24,546 for the fiscal year
ended March 31, 1995 to $122,805 for the fiscal year ended March 31, 1996. The
increase results primarily from an increase in interest income on invested cash
balances, a gain realized in fiscal 1996 on the disposition of imaging equipment
and the absence of certain non-recurring charges, which were recorded during
fiscal 1995. These increases were offset by increased losses experienced in the
Austin Partnership during fiscal 1996, which included a $60,000 reduction in the
carrying value of the investment. The components of other income, net are as
follows:
FISCAL 1996 FISCAL 1995
----------- -----------
Interest income $252,167 $133,486
Austin equity (171,085) (68,770)
Chicago equity 48,691 90,730
Film copies 55,205 44,619
Bel Air prepayment fee (15,945)
Gain (loss) on sale of equipment 62,443 (12,084)
Greenbelt lease buyout (51,600)
Board fees (55,500) (50,000)
Other (69,116) (45,890)
-------- --------
Other income, net $122,805 $ 24,546
======== ========
Minority interest in income (loss) of limited partnerships decreased by $117,113
(22.2%) from $527,663 for the fiscal year ended March 31, 1995 to $410,550 for
the fiscal year ended March 31, 1996. The decrease is primarily due a $136,632
reduction in aggregate same center minority interest due to a reduction in the
aggregate pre-minority interest income of such centers offset by a $19,519
increase in minority interest in income of the GOLF/DIC limited partnerships,
which were acquired effective January 1, 1995.
The Company's provision for (benefit from) income taxes resulted in effective
tax rates (benefits) of 35.0% in fiscal 1996 and (73.3%) in fiscal 1995,
respectively. In fiscal 1995 the non-recurring benefit in the effective tax
rate was primarily attributable to the recognition of the net deferred tax
asset. In fiscal 1996, the effective tax rate is higher than the statutory tax
rate primarily as a result of a 3.9% impact of state income taxes, net of the
federal benefit, partially offset by other items amounting to (2.9%) (see
rate reconciliation in Note 10).
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For the reasons described above, the Company's net income for the fiscal year
ended March 31, 1996 decreased by $656,535 to $1,777,377 from $2,433,912 for the
prior fiscal year. Fiscal 1995 net income includes the impact of two
non-recurring items relating to the write down of the Elgin, Illinois center
assets ($560,091) and the recognition of a deferred tax asset of $1,099,000,
which increased the Company's net income for the year ended March 31, 1995 by
approximately $539,000.
Federal legislation was enacted during the second quarter of fiscal 1994, which
prohibits, effective January 1, 1995, the referral of Medicare or Medicaid
patients to outpatient diagnostic imaging centers by physicians possessing a
financial interest in such centers. In addition, certain states in which the
Company operates have proposed or enacted similar legislation. As a result of
this legislation, the Company purchased limited partnership interests in certain
of the Company's imaging centers which were owned by physicians and other
non-physician limited partners. Although, to date, the Company does not believe
it has experienced any significant changes in its referral patterns resulting
from such acquisitions, the Company is unable to predict the long-term effect of
the foregoing legislation or the impact of the Company's purchases of limited
partner interests on referrals to the Company's centers. The loss of referrals
from former limited partners who refer Medicare, Medicaid or other patients to
the Company's centers would have a material adverse impact on the Company's
future net revenues, results of operations and liquidity.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED
MARCH 31, 1994.
Reference is made to Note 2 of the Company's consolidated financial statements
for a definition of revenue, net.
For the fiscal year ended March 31, 1995, revenue, net was $17,987,824 versus
$15,597,260 for the fiscal year ended March 31, 1994 or a $2,390,564 (15.3%)
increase. The increase in revenue, net resulted primarily from the acquisition
of Oak Lawn Imaging Center ("Oak Lawn") in January 1994 and the purchases of
Libertyville Imaging Center ("Libertyville") and Golf MRI and Diagnostic Imaging
Center ("Golf/DIC") which were effective January 1, 1995. These centers
generated revenue, net totaling $3,203,782
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for fiscal year ended March 31, 1995 versus $406,959 in fiscal 1994 or an
increase of $2,796,823. Same center revenue, net decreased by $406,259 or 2.7%
from $15,190,301 to $14,784,042 during the fiscal year ended March 31, 1995
primarily as a result of increased aggregate scan volume offset by additional
discounted business. Patient volume and reimbursement sources both significantly
impact the Company's revenue, net. Patient medical costs are paid by managed
care organizations, such as HMO's, Blue Cross/Blue Shield, Medicare and
Medicaid, and private pay organizations, such as commercial insurance carriers.
By virtue of contractual allowances obtained by certain of these reimbursement
sources under contracts entered into with the Company, shifts in the mix of
patients and their related reimbursement sources will impact revenue, net in the
period in which they occur.
Payroll and related costs for the fiscal year ended March 31, 1995 were
$4,780,025 versus $3,957,626 for the fiscal year ended March 31, 1994, or an
increase of $822,399 (20.8%). This increase is primarily due to the acquisitions
of Oak Lawn, Libertyville and Golf/DIC which incurred payroll and related costs
totaling approximately $581,000 during the fiscal year ended March 31, 1995. In
addition, the Company's payroll and related costs increased due to the hiring of
certain managed care and marketing personnel and an increase in the cost of
providing health benefits to its employees.
Depreciation and amortization expense increased by $406,292 (16.0%) from
$2,545,108 for the fiscal year ended March 31, 1994 to $2,951,400 for the fiscal
year ended March 31, 1995. These increases were primarily attributable to the
acquisitions of Oak Lawn, Libertyville and Golf/DIC which resulted in goodwill
amortization and equipment depreciation aggregating $381,368 for the fiscal year
ended March 31, 1995. In addition, depreciation expense increased due to
purchases of imaging equipment and related upgrades during fiscal 1995.
Medical supplies and other operating costs include the cost of equipment and
premises maintenance, medical supplies, radiology fees for acquired centers,
other center expenses, and patient billing fees. Medical supplies and other
operating costs increased by $861,879 (16.6%) from $5,186,883 for the fiscal
year ended March 31, 1994 to $6,048,762 for the fiscal year ended March 31,
1995. These increases result, primarily, from the inclusion of approximately
$500,000 of interpretation fees paid to radiologists at the Oak Lawn,
Libertyville and Golf/DIC centers. In addition, the Company experienced
increases aggregating approximately $500,000 in medical supplies and operating
expenses due to the operations of Oak Lawn, Libertyville and Golf/DIC. The
foregoing increase were offset by decreases in the cost of patient billing
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services ($50,000), medical supplies at the Company's other centers and a
$91,620 credit received from a vendor as consideration for business lost during
the installation of an equipment upgrade. Various cost containment measures
previously enacted by the Company are intended to reduce operating expenses, as
a percentage of revenue, net during fiscal 1996 and beyond.
The Company's results of operations for the fourth quarter of fiscal 1995
includes a non-recurring charge of approximately $560,000 to write-off the
Company's Elgin, Illinois center fixed assets which are no longer believed to be
recoverable from the center's future operations. The center has operated at a
loss since it opened in May 1992. The Company intends to utilize the facility to
perform certain regional administrative functions and to perform limited
diagnostic imaging procedures at reduced staffing levels.
Other general and administrative expenses for the fiscal year ended March 31,
1995, were $553,422 versus $689,347 for the fiscal year ended March 31, 1994, or
a decrease of $135,925 (19.7%). The decrease during the fiscal year ended March
31, 1995 results primarily from a $171,000 reduction in legal expenses offset by
increased advertising and promotional expenses relating to the Company's
centers.
Interest expense for the fiscal year ended March 31, 1995 was $1,186,811 versus
$824,420 for the prior fiscal year, or an increase of $362,391 (44.0%). This
increase results, primarily, from interest expense associated with financing the
purchase of limited partnership interests, which totaled approximately $170,000
for the fiscal year ended March 31, 1995, the acquisition and assumption of debt
obligations relating to the Oak Lawn, Libertyville and Golf/DIC acquisitions,
which generated interest expense totaling approximately $203,000 for the fiscal
year ended March 31, 1995, the financing of additional hardware and software
upgrades and from increases in prevailing interest rates, which impact the
Company's variable rate debt obligations. These increases were offset by
decreases in interest expense relating to scheduled reductions in outstanding
principal balances.
Other (income) expense, net decreased by $106,148 from $130,694 for the fiscal
year ended March 31, 1994 to $24,546 for the fiscal year ended March 31, 1995.
The decrease for the fiscal year ended March 31, 1995, results primarily from a
$121,837 decrease in the Company's equity interest in the earnings of the
Austin, Texas limited partnership, a prepayment penalty of $15,945 incurred
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during the third quarter of fiscal 1995 for the refinancing of the Bel Air,
Maryland center debt, a $12,084 loss on the disposition of ultrasound imaging
equipment in the Oak Lawn, Illinois center and $51,600 incurred to obtain the
landlord's release from the Greenbelt, Maryland center facility lease, offset by
an increase in interest income on invested cash of approximately $57,000.
The components of other income and expense, net are as follows:
FISCAL 1995 FISCAL 1994
----------- -----------
Interest income $133,486 $ 76,651
Austin equity inc. (loss) (68,770) 53,067
Film copies 44,619 22,762
Bel Air Prepayment fee (15,945)
Gain (loss) on equipment (12,084)
Greenbelt lease buyout (51,600)
Other (5,160) (21,768)
-------- --------
Other income, net $ 24,546 $130,694
======== ========
Minority interest in income (loss) of limited partnerships decreased by $521,407
(49.7%) from $1,049,070 for the fiscal year ended March 31, 1994 to $527,663 for
the fiscal year ended March 31, 1995. The decrease is primarily due to the
impact of purchases of additional interests in certain limited partnerships by
the Company during January 1994.
The Company's current provision for income taxes of $69,284 for the fiscal year
ended March 31, 1995, consists primarily of current state income and franchise
taxes ($44,284). The Company's current federal tax provisions of $25,000 and
$12,000 for the fiscal years ended March 31, 1995 and 1994, respectively,
represent amounts calculated in accordance with the alternative minimum tax
provisions of the Internal Revenue Code. The Company's fiscal 1995 taxable
income was offset through the utilization of net operating loss carryforwards
available from prior years. During the fourth quarter of fiscal 1995, the
Company recorded a benefit of $1,099,000 to reflect the recognition of the
Company's net deferred tax assets calculated in accordance with Statement of
Financial Accounting Standards No. 109. The recognition of this asset is based
upon the Company's current belief that it is more likely than not that such
assets will be realized. Due to the recognition of the foregoing net deferred
tax asset, the Company will record provisions for income taxes on future taxable
income at significantly higher effective rates than in fiscal 1995 and prior
years.
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<PAGE>
For the reasons described above, the Company's net income for the fiscal year
ended March 31, 1995 increased by $1,066,412 to $2,433,912 from $1,367,500 for
the prior fiscal year. Fiscal 1995 net income includes the impact of two
non-recurring items relating to the write down of the Elgin, Illinois center
assets ($560,091) and the recognition of a deferred tax asset of $1,099,000,
which increased the Company's net income for the year ended March 31, 1995 by
approximately $539,000.
INFLATION
Inflation and changing prices have generally impacted the Company only in the
salary and benefit areas and have not been material to the Company's operations.
In the event of increased inflation, management believes that the Company may
not be able to raise the prices for its services by an amount sufficient to
offset the cost of inflation. Management believes the Company is well positioned
to counter the impact of inflation on its operating margins given its mix of
mature centers with upgraded equipment, as well as newer facilities which offer
the increased efficiency and the high volume capacity of state of the art
diagnostic imaging equipment.
LIQUIDITY
The Company had net income of $1,777,377 for the fiscal year ended March 31,
1996 versus net income of $2,433,912 for the comparable prior fiscal year. At
March 31, 1996, the Company's working capital totaled $10,269,515 which includes
cash and cash equivalents totaling $3,782,315 and short-term investments
totaling $663,660. The Company generated $2,960,657 and $4,387,428 in net cash
flow from operating activities during the fiscal years ended March 31, 1996 and
1995, respectively, or a decrease of $1,426,771 (32.5%). Cash provided by
operating activities during the fiscal year ended March 31, 1996 resulted from
operating cash flows of $6,232,103 offset by a $3,271,446 net increase in the
Company's current assets and liabilities. The decrease in cash provided by
operating activities resulted primarily from the $3,546,074 increase in the
Company's due from affiliated physician associations and patient receivables,
which is primarily attributable to the conversion of substantially all of the
Company's third-party billing and collection services to a new vendor during the
third and fourth quarters of fiscal 1996. This resulted in a temporary reduction
in cash flow and higher outstanding balances as of March 31, 1996. This
transition was completed in order to consolidate all of the Company's billing
and collection activities for existing and acquired centers with one
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entity and for the purpose of reducing the cost and increasing the efficiency of
such services. As such, it is anticipated that cash flows will be higher than
historical experience during the first quarter of fiscal 1997 and will return to
normal levels during the remainder of fiscal 1997.
Investing activities provided $159,743 in cash during fiscal 1996. The Company
realized $1,391,227 from the sale of short-term investments and marketable
securities during the period ended March 31, 1996, net of purchases. The Company
invests substantially all of its excess cash balances in government securities,
certificates of deposit and other fixed income instruments with maturities of up
to one year. Such maturities are scheduled to coincide with the Company's
anticipated capital needs. In addition, the Company's acquisition of Morgan
Medical Holdings, Inc. resulted in a $411,905 increase in cash based upon
Morgan's cash balance as of the date of acquisition. These increases were offset
by the Company's purchase of CD MRI for $40,000 net of cash acquired and
($1,411,389) of equipment and leasehold improvements primarily for the Union,
New Jersey and Seabrook, Maryland imaging centers. The Company intends to
continue to evaluate hardware and software upgrades for imaging equipment and
expects to acquire such upgrades where deemed advisable.
Financing activities used net cash totaling $3,304,889 which is comprised of
$3,669,129 utilized for the repayment of debt and capital lease obligations,
$232,283 of limited partnership distributions and $353,007 utilized for the
purchase of treasury stock, offset by $912,686 in proceeds from borrowings
during the fiscal year ended March 31, 1996. The Company's borrowings related
primarily to financing obtained for the equipment and leasehold improvements at
the Union, New Jersey center. The Company intends to continue to monitor
prevailing market prices and other market conditions before purchasing
additional treasury stock during fiscal 1997.
At March 31, 1996, the Company had $1,765,440 in obligations under capital
leases compared to $767,781 at March 31, 1995. These obligations relate
primarily to the financing of imaging equipment at the Philadelphia,
Pennsylvania and OPEN MRI of Chicago centers and $1,444,779 of capital lease
obligations assumed during fiscal 1996 in connection with the Sarasota, Florida
diagnostic center. Repayments under capital leases totaling $447,120 were made
during the period ended March 31, 1996.
During the fiscal year ended March 31, 1993, on the basis of declining amounts
of cash generated by operating activities, the Company adopted a policy of
reducing operating expenses and enhancing cash management. Management reduced
the size of the Company's staff and reorganized administrative and imaging
center personnel. Management intends to continue to implement cost reductions
throughout fiscal 1997 wherever possible. Management of the Company believes
that various medical cost containment measures
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being implemented by Federal and state governments and third party payers can be
expected to place pressure on both the amounts charged for MR and other
diagnostic imaging procedures and the number of patient referrals from
physicians. Management expects that these efforts will put downward pressure on
the Company's revenue, net and cash generated by operating activities.
Management is seeking to offset these pressures by controlling the costs and
expenses described above, by increased marketing efforts and steps taken to
enhance the Company's professional medical representation in the communities
where its centers are located. To date, the Company has been able to obtain
financing for its diagnostic imaging equipment through equipment vendors,
equipment financing companies and banks and the Company expects to be able to
obtain additional financing, as required, in the future. However, there can be
no assurance that such financing will be available from such lending sources or
any other party on terms that will be favorable to the Company.
CAPITAL RESOURCES
The Company believes that the existing cash and cash equivalents, short-term
investments and cash generated from operating activities will be sufficient to
meet the needs of its current operations, any acquisitions of additional limited
partnership interests in the Company's centers, anticipated capital
expenditures, scheduled debt repayments and limited partner distributions.
Management of the Company believes that there are and will continue to be
opportunities to acquire additional diagnostic imaging centers, as well as
companies which own multiple imaging centers. Other than the Medical Resources,
Inc. transaction, which is described in the accompanying Notes to the
Consolidated Financial Statements, the Company is not a party to any agreements
or letters of intent relating to the acquisition of additional centers at June
26, 1996. Management reviews proposals to acquire additional centers and
evaluates these opportunities on the basis of the price at which it believes the
centers can be acquired, relevant demographic characteristics, competitive
centers, physician referral patterns, location and other factors. Management
intends to pursue the acquisition of additional centers if its analysis of these
factors indicates the Company would receive a favorable return from investing in
these centers. Any centers that are acquired can be expected to involve the
payment of the purchase price in either cash, notes or shares of common stock or
a combination thereof. No assurances can be given that additional centers will
be acquired or as to the terms thereof. In the event
-29-
<PAGE>
that the Company engages in the acquisition of additional centers, it may be
required to raise additional long-term capital through the issuance of debt or
equity securities. No assurance can be given that such capital will be available
on terms acceptable to the Company. The unavailability of capital for this
purpose would adversely affect the Company's ability to acquire additional
centers.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included in a separate section of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the fiscal year ended March 31, 1996, the Company has not filed any
Current Report on Form 8-K reporting any change in accountants in which there
was a reported disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The directors of the Company, their age, and the year in which each first
became a director of the Company are as follows:
Director
NAME AGE SINCE
- ---- --- -----
Joseph Guy Dasti...................................... 63 1990
Donald W. Arthur...................................... 41 1990
Dr. David L. Bloom.................................... 66 1990
John A. Faraone....................................... 62 1990
Joseph Zappala........................................ 61 1990
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<PAGE>
All of the Company's directors serve for a period of one year and until
their successors are elected and qualified.
Mr. Dasti was elected Chairman of Board of the Company 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 the Company 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 a 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., which provides MRI services and is a
wholly-owned subsidiary of Advanced NMR Systems, Inc., a publicly held company
which manufactures MRI Systems and provides 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 the Company. 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 50% 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., a
wholly-owned subsidiary of a public company, no director of the Company 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.
-31-
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company.
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
Joseph Guy Dasti 63 Chairman of the Board, President
and Chief Executive Officer
John P. O'Malley III 34 Executive Vice President-
Finance, Chief Financial Officer
and Secretary
Mr. Dasti's employment background is described above.
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 the Company 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 the Company's executive officers hold office for a term of one year
unless removed earlier by the Board of Directors.
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require the Company's directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the SEC reports of changes in
ownership of any equity securities of the Company. Copies of such reports are
required to be furnished to the Company. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company, all
persons subject to these reporting requirements filed the required reports on a
timely basis during the 1996 fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the Company's
three fiscal years ended March 31, 1996 to the chief executive officer of the
Company and the other executive officer(s) of the Company whose compensation
exceeded $100,000 in the last fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------------------
Awards
------------------------------------
Annual Compensation Restricted Securities
Name And ---------------------- Stock Awards Underlying Options/ All Other
Principal Position Year(1) Salary($)(2) Bonus($) ($)(4) SARS (#) Compensation ($)(5)
- ------------------ ------- ------------ -------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Guy Dasti ........... 1996 215,193 15,384 47,500 50,000 21,481
President .................. 1995 206,923 19,450 0 0 14,531
1994 150,384 50,000(3) 0 100,000 27,450
John P. O'Malley III ....... 1996 169,519 12,617 47,500 50,000 33,869
Executive Vice ............. 1995 155,369 15,951 0 0 20,302
President-Finance .......... 1994 105,726 55,000(3) 0 100,000 12
</TABLE>
- ---------
(1) Information relates to the fiscal years ended March 31.
(2) Includes amounts for periods during which executive officers were employed
by the Company, regardless of capacity in which employed.
(3) $40,000 of bonus was earned during fiscal 1994 and paid subsequent to year
end.
(4) The values of restricted stock awards were determined using the market
price for the stock at the date of the grant. Such restricted stock vests
ratably, on a quarterly basis, over two years from the date of the grant,
subject to provisions for acceleration of vesting in the event of a change
in control of the Company or the termination of the named executive without
cause.
(5) Amounts of All Other Compensation include (i) amounts contributed or
accrued to the Company's 401(k) plan, (ii) employee portion of premiums on
key-man life insurance and (iii) amounts paid for accumulated unused
vacation pay which was earned during prior fiscal years.
OPTION/SAR AND WARRANT GRANTS IN LAST FISCAL YEAR
No warrants or stock appreciation rights (SAR's) were granted to any named
executive officer of the Company during the fiscal year ended March 31, 1996.
The following table sets forth certain information concerning options granted
during the fiscal year ended March 31, 1996 to the named executives:
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Number of % of Total
Securities Options/sar's
Underlying and Warrants
Options/SAR'S Granted to Exercise
and Warrants Employees In or Base Price Expiration
Name Granted Fiscal Year ($/Share) Date (1)
- ---- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
Joseph Guy Dasti 50,000 34.89% 3.25 3/5/2006
John P. O'Malley III 50,000 34.89% 3.25 3/5/2006
</TABLE>
- ------------
(1) Options are not exercisable when granted. 25% of the options granted become
exercisable on each of the first four anniversary dates of the grant of the
options.
-33-
<PAGE>
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, 1996. 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, 1996 and the potential value thereof based on the
year-end closing per share sales price of the Company's Common Stock of $3.38 on
March 29, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SAR's and
Options/SAR's and Warrants Warrants at
Shares at Fiscal Year-End(#) Fiscal Year-End($)
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name Exercise(#) Realized($) Unexercisable (U) Unexercisable (U)
- ---- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Joseph Guy Dasti 0 0 255,000 E(1) 53,500 E
100,000 U(2) 31,500 U
John P. O'Malley III 0 0 61,250 E(3) 43,487 E
103,750 U(4) 45,262 U
</TABLE>
- ----------------
(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, 50,000 shares issuable pursuant to an option
exercisable at $6.38 per share and 50,000 shares issuable pursuant to an
option exercisable at $2.88 per share.
(2) Includes 50,000 shares issuable pursuant to an option exercisable at $3.25
per share and 50,000 shares issuable pursuant to an option exercisable at
$2.88 per share.
(3) Includes 20,000 shares issuable pursuant to an option exercisable at $2.31
per share, 30,000 shares issuable pursuant to an option exercisable at
$2.88 per share and 11,250 shares issuable pursuant to an option
exercisable at $2.75 per share.
(4) Includes 20,000 shares issuable pursuant to an option exercisable at $2.31
per share, 30,000 shares issuable pursuant to an option exercisable at
$2.88 per share, 11,250 shares issuable pursuant to an option exercisable
at $2.75 per share and 50,000 shares issuable pursuant to an option
exercisable at $3.25 per share.
DIRECTOR COMPENSATION
The Company has entered into an agreement with Dr. Bloom, a director of the
Company, whereby he provides consulting and advisory services to the Company in
connection with the purchase and technical use of diagnostic imaging equipment
and other services. As compensation for these services, Dr. Bloom receives
$77,000 per annum, payable monthly. The term of the agreement is for one year
expiring December 31, 1996, subject to automatic renewal unless terminated by
either party. In addition, Dr. Bloom was issued a warrant to purchase 20,000
shares of the Company's Common Stock at an exercise price of $6.38 per share
exercisable through August 29, 2001.
-34-
<PAGE>
Directors of the Company received compensation at the rate of $2,500 per quarter
plus $500 for each meeting of a committee of directors attended.
EMPLOYMENT AGREEMENTS
The Company has entered into executive employment agreements with Messrs. Dasti
and O'Malley which expire on June 20, 2000 and provide for annual base salaries
in amounts of $225,000 and $175,000, respectively. Pursuant to the contracts,
Messrs. Dasti and O'Malley are entitled to receive quarterly bonus payments
calculated as a percentage of the Company's consolidated quarterly pre-tax
income (as defined in the agreements) as follows:
Percentage Percentage
Payable to Payable to
QUARTERLY PRE-TAX INCOME ("PTI") Mr. Dasti Mr. O'Malley
- -------------------------------- --------- ------------
PTI in excess of $450,000 but less 4.45% 3.65%
than $674,000
PTI in excess of $674,000 but less 2.92% 2.38%
than $900,000
PTI in excess of $900,000 but less 1.98% 1.62%
than $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 the Company 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 beyond 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 the Company, the Company, 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 purchase options held by him issued pursuant to any stock
option plan of the Company would, to the extent permissible, become immediately
vested and exercisable. If the 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 the Company's 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 shares subject to the warrant
registered under the Securities Act of 1933.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL AND OTHER SHAREHOLDERS
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of 1996 by (i) each person known to the Company to
be a beneficial owner of more than 5% of the outstanding Common Stock of the
Company; (ii) each Director of the Company; (iii) The Company'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, 1996 exceeded
$100,000, and (iv) all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Owner of Beneficial Ownership (1) Percent of Class
- ------------------------------------ --------------------------- ----------------
<S> <C> <C>
Joseph G. Dasti 392,357 (2) 6.0%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
John P. O'Malley III 87,795 (3) 1.4%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
Donald W. Arthur 60,000 (4) 1.0%
4 Kalman Court
Warren Township, NJ 07060
Dr. David L. Bloom 190,000 (5) 3.0%
Somerset Diagnostic
400 Commonwealth Avenue
Boston, MA 02215
John A. Faraone 104,000 (6) 1.6%
1213 King Street
Wilmington, DE 19899
Joseph T. Zappala 77,900 (7) 1.2%
30 South Broadway
Pennsville, NJ 08070
Dr. Donald A. Tobias 311,000 (8) 5.0%
97 Biltmore Estates
Phoenix, AZ 85016
All Directors and Officers 912,052 (9) 13.3%
as a Group (6 persons)
(1) through (7)
</TABLE>
- ----------------
(1) Unless otherwise disclosed, all of such persons hold their shares of record
and beneficially.
(2) Includes 124,700 shares held of record and beneficially, 12,657 shares
owned through the Company'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 and 50,000 stock
options exercisable at $6.38 per share through December 18, 2001 and 50,000
shares issuable pursuant to a stock option exercisable at $2.88 per share
through March 14, 2004. Does not include 50,000 shares issuable pursuant to
a stock option exercisable at $2.88 per share through March 14, 2004 and
50,000 shares issuable pursuant to a stock option exercisable at $3.25 per
share through March 5, 2006, which are not currently exercisable.
(3) Includes 20,000 shares held of record and beneficially, 6,545 shares owned
through the Company's 401 (k) Plan, 11,250 shares issuable pursuant to a
stock option exercisable at $2.75 per share through December 16, 2002,
20,000 shares issuable pursuant to a stock option exercisable at $2.31 per
share through August 4, 2003 and 30,000 shares issuable pursuant to a stock
option exercisable at $2.88 per share through March 14, 2004. Does not
include 3,750 shares issuable pursuant to a stock option exercisable at
$2.75 per share through December 16, 2002, 20,000 shares issuable pursuant
to a stock option exercisable at $2.31 per share through August 4, 2003,
30,000 shares issuable pursuant to a stock option exercisable at $2.88 per
share through March 14, 2004 and 50,000 shares issuable pursuant to a stock
option exercisable at $2.75 per share through March 5, 2006, which are not
currently exercisable.
(4) Includes 3,000 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 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 2001.
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<PAGE>
(5) Includes 110,000 shares held of record and beneficially, 40,000 shares
issuable pursuant to warrants exercisable at $6.38 per share through
December 18, 2001 and 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 2001.
(6) Includes 44,000 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 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 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, 14,000 shares issuable pursuant to a warrant exercisable
at $3.92 per share through May 18, 1999 and 40,000 shares issuable pursuant
to a warrant exercisable at $3.25 per share through April 16, 2001.
(8) Based on information set forth in Schedule 13D dated February 19, 1986
filed by Dr. Tobias.
(9) Includes shares issuable on exercise of options and warrants held by
Officers and Directors which are exercisable within 60 days of March 31,
1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
Ten of the operational diagnostic imaging systems owned by the Company at
March 31, 1996 have been installed in offices leased by professional
corporations whose principal is Dr. David L. Bloom, who is also a director of
the Company. These agreements in general, provide for the payment to the Company
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, the Company 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. The Company 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. The
Company 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, the Company has the contractual
responsibility to maintain all financial and other records and prepare and
transmit bills. Pursuant to the foregoing agreements, the Company billed
affiliated professional corporations, net of contractual adjustments,
$13,431,954 and $14,784,092 during the fiscal years ended March 31, 1996 and
1995, respectively.
On January 21, 1992, the Board of Directors authorized the Company to enter into
an agreement with Seaboard Securities, Inc. ("Seaboard") to provide advisory
services to the Company in exchange for a warrant to purchase 100,000 shares of
the Company's Common Stock at an exercise price of $8.00 per share through
February 6, 1997, subject to vesting as services are provided. the Company's
consulting agreement with Seaboard expired on February 7, 1995. In addition, the
Company granted rights to certain persons who are shareholders of Seaboard,
including Mr. Zappala, a Director of the Company, to have the shares of Common
Stock issuable on exercise of warrants held by such persons registered under the
Securities Act of 1933 at the expense of such persons.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits and Financial Statements:
1. Financial Statements.
The following documents are filed as part of this report:
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<PAGE>
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of March 31, 1996 and March 31, 1995.
(iii) Consolidated Statements of Income for the years ended March 31,
1996, 1995 and 1994.
(iv) Consolidated Statements of Cash Flows for the years ended March 31,
1996, 1995 and 1994.
(v) Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1996 1995 and 1994.
(vi) Notes to Consolidated Financial Statements.
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<PAGE>
2. Exhibits
- -----------
Exhibit No. Description
----------- -----------
(2) Agreement and Plan of Merger dated as of May 20, 1996
by and among Medical Resources, Inc., MRI Sub, Inc. and
Registrant.+
(3) (i) Certificate of Incorporation.****
(ii) Certificate of Ownership of NMR of Delaware, Inc.****
(iii) By-laws.****
(4) Indenture dated as of July 1, 1986 between Company and The
Trust Company of New Jersey including form of Debenture.**
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<PAGE>
Exhibit No. Description
- ----------- -----------
(10) (i) Form of 8% Subordinated Note.**
(ii) Agreement between Image Sub, Inc. and Imaging Associates, P.A.,
and amendments thereto.**
(iii) Certificate and Agreement of Limited Partnership of NMR Associates
I, a New Jersey limited partnership.**
(iv) Certificate and Agreement of Limited Partnership of MR Associates
I, a Pennsylvania limited partnership.**
(v) Certificate and Agreement of Limited Partnership of MR Associates
of Allentown, a Pennsylvania limited partnership.**
(vi) Certificate and Agreement of Limited Partnership of MR Associates
of Morristown, a New Jersey limited partnership.**
(vii) 1986 Incentive Stock Option and Non-statutory Option Plan.**
(viii) Certificate of Limited Partnership of MR Partners of Greenbelt, a
Maryland limited partnership.**
(ix) Certificate and Agreement of Limited Partnership of MR Associates
of Chicago, an Illinois limited partnership.**
(x) Acquisition Agreement among Registrant, Diagnostic Network,
Incorporated (DNI) and NMR Newco, Inc.***
(xi) Plan of Reorganization and Agreement of Merger dated as of June
26, 1987 among Registrant, DNI and NMR Newco, Inc.***
(xii) Rights Agreement dated as of December 23, 1988 between Registrant
and American Stock Transfer and Trust Company dated December 23,
1988.*****
(xiii) Amendments No. 1, 2, 3, and 4 to Rights Agreement between the
Registrant and American Stock Transfer & Trust Company dated as of
December 23, 1988.
(xiv) Certificate and Agreement of Limited Partnership of Garden State
Imaging Partners, a Delaware limited partnership.*******
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<PAGE>
Exhibit No. Description
- ----------- -----------
(xv) Certificate and Agreement of Limited Partnership of Harford County
Imaging Partners, a Delaware limited partnership.*******
(xvi) Certificate and Agreement of Limited Partnership of Accessible
MRI, a Delaware limited partnership.*******
(xvii) Stock Purchase Agreement dated January 21, 1994 among Registrant,
Eduardo Nijensohn, M.D. and John A. Gall, M.D.******
xviii) Agreement and Plan of Reorganization, dated January 21, 1994,
among the Registrant and Eduardo Nijensohn, M.D.******
(xix) Second Amended and Restated Employment Agreement dated December
13, 1995 between the Registrant and John P. O'Malley, III.
(xx) Asset Purchase Agreement dated January 5, 1995 by and between
Advanced Specialty Imaging, L.P. and the Registrant.********
(xxi) Agreement to Acquire Partnership Interests dated February 10, 1995
among the Registrant, Parvez H. Shirazi and Golf Western Imaging
Corporation.********
(xxii) Agreement and Plan of Merger dated April 11, 1995, as amended, by
and among the Registrant, NMR Sub., Inc. and Morgan Medical
Holdings, Inc.***********
(xxiii) Asset Purchase Agreement among C.D. Acquisition, Inc., a wholly
owned subsidiary of the Registrant, and Central Diversey M.R.I.
Center, Inc.**********
(xxiv) Second Amended and Restated Employment Agreement dated December
13, 1995 between the Registrant and Joseph G. Dasti.+
(11) Computation of Shares Used for Earnings Per Share Calculation+
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<PAGE>
Exhibit No. Description
- ----------- -----------
(21) Subsidiaries
NAME STATE OF INCORPORATION
---- ----------------------
Imaging Networks,
Incorporated Delaware
Diagnostic Networks
of Texas, Incorporated Texas
Oak Lawn Imaging Center,
Incorporated Illinois
Oak Lawn Magnetic Resonance
Imaging Center, Incorporated Illinois
Morgan Medical Holdings,
Incorporated Colorado
Morgan Medical Corporation Florida
C.D. Acquisition,
Incorporated Illinois
(23) Consents
(i) Consent of Coopers & Lybrand, L.L.P.+
(27) Financial Data Schedules.+
- ------------
*Incorporated by reference from Company's Registration Statement on Form S-18
(File No. 2-85281-NY).
**Incorporated by reference from Company's Registration Statement on Form S-1
(File No. 33-5567).
***Incorporated by reference from Company's Current Report on Form 8-K for July
1, 1987.
****Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1989.
*****Incorporated by reference from the Company's Current Report on Form 8-K for
December 23, 1988.
******Incorporated by reference from Company's Current Report on Form 8-K dated
January 21, 1994, as amended.
*******Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1994.
********Incorporated by reference from Company's Current Report on Form 8-K
dated January 1, 1995.
*********Incorporated by reference from Company's Current Report on Form 8-K
dated September 15, 1995.
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<PAGE>
**********Incorporated by reference from Company's Current Report on Form 8-K
dated February 1, 1996, as amended by a report on Form 8-K/A.
***********Incorporated by reference to Exhibit A of Joint Proxy Statement/
Prospectus forming part of the Registration Statement on Form S-4 of
the Registrant (Registration No. 33-61681).
+ Filed herewith
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the fiscal year
ended March 31, 1996:
(i) The Company filed a report on Form 8-K, dated January 1, 1995,
reporting the acquisition of a seventy-five percent (75%) limited partnership
interest in Golf MRI Partners, L.P. and Diagnostic Imaging Center, L.P. and the
acquisition of the assets of Advanced Specialty Imaging, L.P. The following
financial statements and pro forma information were included in the Form 8-K:
Financial Statements of Business Acquired.
1) Unaudited Historical Combined Balance Sheets as of December 31, 1994 and
March 31, 1994, respectively.
2) Unaudited Historical Combined Statements of Operations for the year ended
March 31, 1994.
3) Unaudited Historical Combined Statements of Operations for the nine months
ended December 31, 1994.
Pro Forma Financial Information.
1) Unaudited Pro Forma Combined Balance Sheets as of December 31, 1994.
2) Unaudited Pro Forma Combined Statements of Operations for the year ended
March 31, 1994.
3) Unaudited Pro Forma Combined Statements of Operations for the nine months
ended December 31, 1994.
(ii) The Company filed a report on Form 8-K dated September 1995 reporting
the acquisition of Morgan Medical Holdings, Inc. The following financial
statements were included in the Form 8-K.
Financial Statements of Business Acquired.
1) The consolidated balance sheet of Morgan as of December 31, 1994 and the
consolidated statements of income, cash flows and changes in stockholders'
equity for the two years ending December 31, 1994.
-43-
<PAGE>
(iii) The Company filed a report of Form 8-K dated February 1, 1996, as
amended by a report on Form 8-K/A dated February 1, 1996, reporting the
acquisition of substantially all of the assets of Central Diversey M.R.I.
Center, Inc. The following financial statements and pro forma information were
included in the Form 8-K, as amended.
Financial Statements of Business Acquired.
1) Unaudited Historical Balance Sheets as of December 31, 1995 and March 31,
1995, respectively.
2) Unaudited Historical Statement of Income for the year ended March 31, 1995.
3) Unaudited Historical Statement of Income for the nine months ended December
31, 1995.
Pro Forma Financial Information
1) Unaudited Pro Forma Condensed Balance Sheet as of December 31, 1995.
2) Unaudited Pro Forma Condensed Statement of Operations for the year ended
March 31, 1995.
3) Unaudited Pro Forma Condensed Statement of Operations for the nine months
ended December 31, 1995.
-44-
<PAGE>
NMR OF AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants ......................................... F-1
Consolidated Balance Sheets--March 31, 1996 and 1995 .................... F-2
Consolidated Statements of Income--Years Ended March 31, 1996,
1995 and 1994 ......................................................... F-4
Consolidated Statement of Cash Flows--Years Ended March 31, 1996,
1995 and 1994 ......................................................... F-5
Consolidated Statement of Changes in Shareholders' Equity--
Years Ended March 31, 1996, 1995 and 1994 ............................. F-8
Notes to Consolidated Financial Statements--March 31, 1996 and 1995 ..... F-9
-45-
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders of NMR of America, Inc.
We have audited the accompanying consolidated balance sheets of NMR of America,
Inc., and Subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NMR of America,
Inc., and Subsidiaries as of March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
June 21, 1996
F-1
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31,
- -----------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 3,782,315 $ 3,966,804
Marketable securities 1,125,643
Short-term investments 663,660 886,609
Due from affiliated physician
associations and patient
receivables, net 14,182,008 9,498,268
Other current assets 1,442,394 903,373
- -----------------------------------------------------------------------
Total current assets 20,070,377 16,380,697
- -----------------------------------------------------------------------
Land, buildings and equipment 31,832,051 31,360,133
Less, accumulated depreciation
and amortization 17,381,581 19,580,504
- -----------------------------------------------------------------------
14,450,470 11,779,629
Long-term investments 192,000
Cost in excess of net assets
acquired 10,804,971 4,497,974
Deferred income taxes 109,000 1,099,000
Other assets 1,446,868 1,571,547
- -----------------------------------------------------------------------
Total assets $47,073,686 $35,328,847
=======================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 31,
- -----------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------
Current Liabilities:
Accounts payable and
accrued expenses $ 4,276,846 $3,098,931
Current installments on capital
lease obligations 612,985 286,263
Current installments on notes and
mortgage payable 4,911,031 2,769,098
- ---------------------------------------------------------------------
Total current liabilities 9,800,862 6,154,292
- ----------------------------------------------------------------------
Convertible subordinated debt, net 1,975,752 2,056,417
Obligations under capital leases,
less current installments 1,152,455 481,518
Notes and mortgage payable,
less current installments 11,028,647 10,451,119
Minority interest in limited partnerships 2,126,708 2,155,665
Commitments and contingencies
Shareholders' Equity:
Common Stock, $.01 par value;
authorized 30,000,000 shares,
6,705,143 and 5,416,967 shares
issued and outstanding at
March 31, 1996 and 1995,
respectively 67,051 54,169
Additional paid-in capital 17,027,890 11,570,401
Unrealized gains 14,208
Retained earnings 5,631,632 3,854,255
Less, 437,712 and 364,958
common shares in Treasury at
March 31, 1996 and 1995,
respectively, at cost (1,737,311) (1,463,197)
- -----------------------------------------------------------------------
Shareholders' equity 20,989,262 14,029,836
- -----------------------------------------------------------------------
Total liabilities and shareholders'
equity $47,073,686 $35,328,847
=======================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31,
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Revenue, net $23,833,897 $17,987,824 $15,597,260
- -------------------------------------------------------------------------------
Costs and Expenses:
Payroll and related costs 6,442,710 4,780,025 3,957,626
Depreciation and amortization 3,093,616 2,951,400 2,545,108
Medical supplies and other
operating costs 8,834,668 6,048,762 5,186,883
Non-recurring write-down of
center equipment 560,091
Other general and administrative 763,662 553,422 689,347
- ------------------------------------------------------------------------------
19,134,656 14,893,700 12,378,964
- ------------------------------------------------------------------------------
Operating income 4,699,241 3,094,124 3,218,296
Interest expense 1,677,698 1,186,811 824,420
Other income, net (122,805) (24,546) (130,694)
- -------------------------------------------------------------------------------
Income before minority
interest and income taxes 3,144,348 1,931,859 2,524,570
Minority interest in income of
limited partnerships 410,550 527,663 1,049,070
- -------------------------------------------------------------------------------
Income before income taxes 2,733,798 1,404,196 1,475,500
Provision for (benefit from)
income taxes 956,421 (1,029,716) 108,000
- -------------------------------------------------------------------------------
Net income $ 1,777,377 $ 2,433,912 $ 1,367,500
===============================================================================
PER SHARE DATA:
PRIMARY:
Net income per share $ .30 $ .49 $ .29
===============================================================================
FULLY DILUTED:
Net income per share $ .30 $ .47 $ .29
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $1,777,377 $2,433,912 $1,367,500
- -------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,093,616 2,951,400 2,545,108
Minority interest in income of
limited partnerships 410,550 527,663 1,049,070
Deferred income taxes 1,016,918 (1,099,000)
Equity in loss (income) from
unconsolidated partnership 171,085 68,770 (53,067)
Contractor reimbursement for lost
revenues (175,000) (91,620)
(Gain) loss on disposition of
center assets (62,443) 12,084 47,021
Non-recurring write-down of center
equipment 560,091
Proceeds from sale of marketable
securities--trading 411,270
Unrealized gain on
marketable securities (9,464)
Changes in assets and liabilities,
net of acquired centers:
Increase in amount due from
affiliated physician
associations and patient
receivables, net (3,546,074) (965,897) (2,196,385)
Decrease (increase) in other
current assets 236,999 (130,104) 188,810
Decrease (increase) in other assets 103,147 (92,931) 159,969
(Decrease) increase in accounts
payable and accrued expenses (80,001) (198,210) 531,966
Decrease in other liabilities (222,079)
Other 14,483
- -------------------------------------------------------------------------------
Total adjustments 1,183,280 1,953,516 2,040,949
- -------------------------------------------------------------------------------
Net cash provided by operating
activities 2,960,657 4,387,428 3,408,449
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
<TABLE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED MARCH 31,
- ----------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of equipment (1,411,389) (1,705,020) (338,080)
Purchase of short-term investments (2,814,660) (869,000)
Purchase of marketable securities (300,000) (1,111,435) (1,201,839)
Purchase of long-term investments (192,000)
Purchase of limited partnership
interests (48,800) (2,185,005)
Acquisition of purchase option (200,000)
Acquisition of centers, net of cash
acquired 371,905 (976,794) (325,000)
Proceeds from sale of marketable
securities 1,435,438 205,000 600,000
Proceeds from sale of short-term
investments 3,070,449
Proceeds from disposition of
center assets 6,250
Other (15,350) (11,014)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 159,743 (4,515,149) (3,660,938)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of debt, including capital
lease obligations (3,669,129) (2,134,292) (1,587,922)
Distributions to limited partners (232,283) (135,656) (683,067)
Proceeds from borrowings 912,686 2,617,683 2,319,500
Purchase of common stock warrants (12,000)
Proceeds from stock issuance and
exercise of stock options 36,844 27,812
Purchases of treasury stock (353,007)
- ---------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (3,304,889) 375,547 36,511
- ---------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (184,489) 247,826 (215,978)
Cash and cash equivalents
at April 1, 3,966,804 3,718,978 3,934,956
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents
at March 31, $3,782,315 $3,966,804 $3,718,978
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
<TABLE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED MARCH 31,
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash (received) paid during the year for:
Income Taxes, net of refunds
totaling $46,052 in 1996,
$26,474 in 1995 and
$155,676 in 1994 ($ 13,320) $ 69,345 ($ 131,237)
Interest $1,680,158 $1,187,160 $ 829,419
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Capital lease obligations incurred
for use of equipment $ --- $ --- $ 591,517
Capital lease obligations assumed
in connection with acquisitions $1,444,779 $ --- $ ---
Notes payable obligation
assumed in connection with
acquisition $4,690,296 $1,982,617 $1,475,000
Stock issued in connection with
acquisitions $5,224,320 $ 500,000 $ 487,500
Notes payable issued in connection
with acquisition $ --- $ --- $ 435,000
Note payable obligation incurred in
connection with acquisition
of purchase option $ --- $ --- $ 593,000
Note payable obligation incurred in
connection with refinancing of Bel
Air, Maryland center debt $ --- $2,493,683 $ ---
Additions to fixed assets included
in accounts payable and accrued
expenses $ --- $ 214,410 $ ---
Conversion of subordinated debentures
to common stock $ 123,000 $ 111,999 $ ---
Unrealized gain on marketable
securities available-for-sale $ --- $ 14,208 $ ---
Contribution to 401(k) plan $ 36,098 $ 10,061 $ ---
Note payable incurred in connection with
financing annual insurance premium $ 278,488 $ --- $ ---
Note payable incurred in connection with
equipment upgrade financing $ 60,000 $ --- $ ---
Issuance of restricted stock over
two year vesting period $ 94,800 $ --- $ ---
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
NMR OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN TREASURY STOCK UNREALIZED RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT GAINS EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1993 ..... 5,107,080 51,071 10,449,047 (377,326) (1,494,117) 52,843 9,058,844
- ----------------------------------------------------------------------------------------------------------------------------
Purchase of warrants ........... (12,000) (12,000)
Issuance of common stock ....... 150,000 1,500 486,000 487,500
Net income for fiscal 1994 ..... 1,367,500 1,367,500
- ---------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1994 ..... 5,257,080 52,571 10,923,047 (377,326) (1,494,117) 0 1,420,343 10,901,844
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of common stock ....... 135,000 1,350 528,650 530,000
Conversion of subordinated
debentures to common stock ... 24,887 248 111,751 111,999
Exercise of employee
stock options ................ 2,187 10,250 25,625 27,812
401(k) plan contributions ...... 4,766 2,118 5,295 10,061
Unrealized gain on securities
held for sale 14,208 14,208
Net income for fiscal 1995 ..... 2,433,912 2,433,912
- ---------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1995 ..... 5,416,967 $54,169 $11,570,401 (364,958) ($1,463,197) $14,208 $3,854,255 $14,029,836
- ---------------------------------------------------------------------------------------------------------------------------
Purchase of common stock ....... (99,650) (353,007) (353,007)
Issuance of common stock ....... 1,260,848 12,609 5,319,120 5,331,729
Conversion of subordinated
debentures to common stock ... 27,328 273 122,727 123,000
Exercise of employee
stock options ................ 5,906 12,375 30,938 36,844
401(k) plan contributions ...... 9,736 14,521 47,955 57,691
Unrealized gain on securities
held for sale ................ (14,208) (14,208)
Net income for fiscal 1996 ..... 1,777,377 1,777,377
- ---------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1996 ..... 6,705,143 $67,051 $17,027,890 (437,712) ($1,737,311) $0 $5,631,632 $20,989,262
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Its Significant Accounting Policies
THE COMPANY -- NMR of America, Inc., and Subsidiaries (the "Company") is engaged
in installing and maintaining imaging systems used for diagnostic purposes in
offices operated by private physicians.
CONSOLIDATION -- The accompanying consolidated financial statements include the
accounts of NMR of America, Inc., its wholly-owned subsidiaries and certain
limited partnerships in which the Company is a general partner. All material
intercompany balances and transactions have been eliminated. As general partner,
the Company is subject to all the liabilities of a general partner and as of
March 31, 1996, is entitled to share in partnership profits, losses and
distributable cash as follows:
COMPANY SHARE OF
PROFITS, LOSSES AND
PARTNERSHIP DISTRIBUTIONS
----------- -------------------
NMR Associates I (Union, New Jersey) 64%
MR Associates I (Philadelphia, Pennsylvania) 98%
MR Associates of Allentown (Allentown, Pennsylvania) 96%
MR Associates of Morristown (Morristown, New Jersey) 94%
MR Partners of Greenbelt (Seabrook, Maryland) 87%
MR Associates of Chicago (Chicago, Illinois) 87%
Garden State Imaging Partners (Marlton, New Jersey) 91%
Harford County Imaging Partners (Bel Air, Maryland) 63%
Accessible MRI (Chicago, Illinois) 80%
Golf MRI Center (Des Plaines, Illinois) 75%
Diagnostic Imaging Center (Des Plaines, Illinois) 75%
The Company owns a 100% interest in imaging centers located in Chicago, Elgin,
Libertyville, and Oak Lawn, Illinois as well as Cape Coral, Naples, Sarasota and
Titusville, Florida. The Company owns a 38% interest in an Austin, Texas limited
partnership, which is accounted for using the equity method (See Note 13). The
Company is also paid a monthly management fee based on patient cash collections
and/or patient volume under management agreements with certain of the
partnerships.
During the second quarter of the fiscal year ended March 31, 1993, accumulated
losses, from inception, of the Company's Harford County, Maryland limited
partnership fully offset the capital contributed by its limited partners.
Accordingly, losses incurred in excess of such limited partnership capital have
been charged, in full, to the Company as general partner. Future profits, if
any, in the Harford County partnership will be allocated, in full, to the
Company as general partner until such profits equal the Company's excess share
of allocable losses. Thereafter, future profits and losses will be allocated in
accordance with the parties respective ownership interests.
F-9
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Its Significant Accounting Policies (continued)
RECLASSIFICATION -- Certain prior year items have been reclassified to conform
to the current year presentation.
USE OF ESTIMATES -- The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The most significant
estimates relate to contractual and other allowances, income taxes,
contingencies and the useful lives of equipment. Actual results could differ
from those estimates. In addition, healthcare industry reforms and reimbursement
practices will continue to impact the Company's operations.
CASH AND CASH EQUIVALENTS -- For financial statement purposes cash equivalents
include short-term investments with an original maturity of ninety days or less.
At March 31, 1996 and 1995, respectively, the Company had investments in money
market accounts and certificates of deposit of $1,792,251 and $729,759. Cash and
cash equivalents includes $571,477 and $1,673,598 as of March 31, 1996 and 1995,
respectively, representing funds of the various partnerships.
MARKETABLE SECURITIES -- The Company adopted effective April 1, 1994, Statement
of Financial Accounting Standards No. 115, ("SFAS 115") "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 requires a more detailed
disclosure of debt and equity securities held for investment, the methods to be
used in determining fair value and when to record unrealized holding gains and
losses in earnings or in a separate component of shareholders' equity. Debt
securities for which the Company does not have the intent or the ability to hold
to maturity are classified as available-for-sale along with the Company's
investments in equity securities. Securities available for sale are carried at
fair value with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Any realized gains and losses are determined
on the specific identification method. In accordance with SFAS 115, prior year
financial statements have not been restated to reflect the change in accounting
method. The cumulative effect as a result of adopting SFAS 115 in fiscal 1995
was not material.
PROPERTY AND EQUIPMENT -- Property and equipment are being depreciated for
financial accounting purposes using the straight-line method over their
respective estimated useful lives ranging from three to ten years. Leasehold
improvements are being amortized over the shorter of the useful life or the
remaining lease term, typically 10 years. Upon
F-10
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Its Significant Accounting Policies (continued)
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments are
capitalized.
ORGANIZATIONAL COSTS -- The Company capitalizes costs associated with the
organization of the various limited partnerships and Company-owned centers. Such
costs are amortized on a straight-line basis over a five-year period beginning
with the commencement of operations at each location.
COST IN EXCESS OF NET ASSETS ACQUIRED -- The excess of the purchase price over
the fair market value of net assets acquired is being amortized using the
straight-line method over 20 years. As of March 31, 1996 and 1995, accumulated
amortization amounted to $694,783 and $274,544, respectively.
The Company periodically reviews goodwill to assess recoverability based upon
expectations of undiscounted cash flows and operating income of each
consolidated entity having a material goodwill balance. An impairment would be
recognized in operating results, based upon the difference between each
consolidated entities' respective undiscounted cash flows and the carrying value
of the related costs in excess of net assets acquired, if a permanent diminution
in value were to occur.
401(k) PLAN -- The Company maintains a 401(k) savings plan under which the
Company matches one-half of employee contributions to purchase the Company's
common stock and one-quarter of employee contributions to purchase other plan
investments, up to 6% of qualified earnings and subject to Internal Revenue
Service limitations. Company matching contributions for fiscal 1996 have
utiliized treasury stock. Plan expenses amounted to $36,098 and $10,061 in
fiscal 1996 and 1995, respectively.
EARNINGS PER SHARE -- Earnings per share is computed on the basis of the
weighted average number of common shares outstanding and dilutive common stock
equivalents. Common stock equivalents consist of stock options and warrants. For
the year ended March 31, 1994, earnings per share is computed on the basis of
the weighted average number of common shares outstanding during each year as the
Company's common stock equivalents had an anti-dilutive effect. The shares
issued by the Company in connection with the purchases of Oak Lawn Imaging
Center, Golf MRI Center, Diagnostic Imaging Center, Morgan Medical Holdings,
Inc. and Central Diversey MRI Center were considered outstanding from the date
of acquisition.
F-11
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Its Significant Accounting Policies (continued)
The Convertible Subordinated Debentures are not common stock equivalents and are
not included in the calculation of primary earnings per share. The debentures
were also not assumed converted for purposes of calculating fully diluted
earnings per share for the year ended March 31, 1994, as such conversion would
have been antidilutive for such year.
The number of common shares used to compute primary and fully diluted net income
per share are as follows:
1996 1995 1994
---- ---- ----
Primary 5,870,494 5,017,952 4,757,102
Fully Diluted 6,324,716 5,589,900 4,757,102
NEW ACCOUNTING STANDARDS -- Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") is effective for the Company's year ending March
31, 1997. The Company believes that the adoption of SFAS 121 will not have a
material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting and Disclosure
of Stock-Based Compensation" ("SFAS 123") encourages but does not require
companies to recognize stock awards based on their fair value at the date of
grant. The Company currently follows, and expects to continue to follow, the
provisions of Accounting Principle Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"), and related interpretations to account for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. Although the
Company is permitted to continue to follow the provisions of APB 25 under SFAS
123, certain pro forma disclosure, to reflect the impact on reported earnings,
will be required beginning with the Company's fiscal year ending March 31, 1997,
as if the Company has accounted for its stock options in accordance with the
fair value method under SFAS 123.
2. Due from Affiliated Physician Associations
For consolidated centers which the Company developed, it has entered into
agreements with physicians engaging in business as professional associations
("Physicians") pursuant to which the Company maintains and operates imaging
systems in offices operated by the Physicians. The agreements have terms of up
to six years and are renewable at the option of the Company. The Physicians'
principal, Dr. David L. Bloom, is a
F-12
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Due from Affiliated Physician Associations (continued)
director of the Company. Under the agreements, Physicians has agreed to be
obligated to contract for radiological services at the centers and to sublease
each facility. The Company is obligated to make necessary leasehold
improvements, provide furniture and fixtures and perform certain administrative
functions relating to the provision of technical aspects of the centers
operations for which Physicians pays 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 Company 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 the Company's
revenue, net for developed sites.
For consolidated centers which the Company has acquired, subsidiaries of the
Company have entered into agreements with unaffiliated professional corporations
to provide radiological services under Dr. Bloom's administration. Accordingly,
revenue, net for acquired centers consists of patient billings adjusted for
contractual and other allowances which have been negotiated with various
third-party payers. Fees paid to radiologists at these centers are reflected as
a component of medical supplies and other operating expense in the accompanying
statements of income.
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
provisions for estimated retroactive adjustments have been provided.
3. Short-term Investments
Short-term investments at March 31, 1996 and 1995 are stated at cost plus
accrued interest and consist of certificates of deposit having original
maturities of greater than three months but not in excess of one year.
F-13
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Marketable Securities
Marketable securities classified as available-for-sale are as follows:
GROSS FAIR
UNREALIZED MARKET
COST GAINS VALUE
---------- ---------- ----------
March 31, 1995
Available-For-Sale:
U.S. Government obligations $1,111,435 $ 14,208 $1,125,643
========== ========== ==========
At March 31, 1995, all investments in debt securities had maturities of less
than one year.
5. Property and Equipment
Property and equipment stated at cost are set forth below:
MARCH 31,
--------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------
Diagnostic equipment $18,328,154 $19,260,564
Diagnostic equipment under capital leases 2,272,367 1,402,367
Leasehold improvements 4,978,901 4,486,404
Leasehold improvements under capital leases 210,000
Land and buildings 1,353,569 1,353,569
Equipment 3,766,268 3,600,164
Equipment under capital leases 290,000
Furniture and fixtures 632,792 616,519
Construction in progress --- 640,546
--------------------------------------------------------------------------
$31,832,051 $31,360,133
==========================================================================
Depreciation expense for the years ended March 31, 1996, 1995 and 1994 amounted
to $2,444,896, $2,527,773 and $2,197,181, respectively.
Accumulated amortization relating to property and equipment under capital leases
at March 31, 1996 and 1995 was $881,674 and $510,570, respectively.
F-14
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property and Equipment (continued)
The following is a schedule by fiscal year of the minimum future lease payments
under capital leases as of March 31, 1996:
Year ending March 31,
1997 $ 731,728
1998 601,886
1999 487,624
2000 176,043
2001 ---
Thereafter ---
- -------------------------------------------------------------------------------
Total minimum lease payments 1,997,281
Less: amount representing
interest (imputed at an average
Rate of 7.9%) 231,841
- -------------------------------------------------------------------------------
Present value of
minimum lease payments 1,765,440
Less current installments 612,985
- -------------------------------------------------------------------------------
Obligations under capital leases,
less current installments $1,152,455
===============================================================================
6. Long-Term Investments
Long-term investments at March 31, 1996 are stated at cost plus accrued interest
and consist of certificates of deposits maturing in April and May 1997.
7. Convertible Subordinated Debentures
In July 1986, the Company completed a public offering of 8% Convertible
Subordinated Debentures of $4,000,000 due 2001 and received $3,365,000, net of
underwriting discount and other expenses. The debentures are redeemable at a
declining premium after July 1988, contain a mandatory sinking fund provision
calculated to retire 90% of the debentures before maturity at a rate of 10% per
year commencing in July 1992, and are convertible into the Company's common
stock at any time prior to maturity at $4.50 per share. As of March 31, 1996,
$1,956,000 of the debentures have been converted into the Company's common
stock. Under the provisions of the indenture, the Company has not been required
to meet its sinking fund requirement as a result of the cumulative debenture
conversions and does not expect to make a sinking fund payment until July of
1996.
F-15
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes and Mortgage Payable
Notes and mortgage payable consist of the following:
March 31, March 31,
1996 1995
- -------------------------------------------------------------------------------
Mortgage payable to bank (A) $ 517,169 $ 524,065
Allentown equipment note payable to bank (B) 1,561,907 1,980,952
Note payable for acquisition of limited
partnership interests (C) 1,029,343 1,861,835
Oak Lawn equipment note payable to bank (D) 1,218,476 1,334,594
Bel Air equipment note payable (E) 2,520,116 2,705,136
Notes payable from Morgan acquisition (F) 3,612,007
Notes payable from other acquisitions (G) 2,637,360 2,455,856
Other notes payable for equipment, equipment
upgrades and leasehold improvements (H) 2,843,300 2,357,779
- -------------------------------------------------------------------------------
Total 15,939,678 13,220,217
Less, current installments 4,911,031 2,769,098
- -------------------------------------------------------------------------------
Notes and mortgage payable less current
installments $11,028,647 $10,451,119
===============================================================================
(A) The Company has a thirty-year mortgage collateralized by the Union, New
Jersey imaging center land and building. The mortgage bears interest at a
variable rate, adjusted annually based on the one-year Treasury bill rate
plus 2.75% (8.5% at March 31, 1996) and matures October 2019. The current
monthly payments are $4,310, including interest.
(B) During the year ended March 31, 1992, the Company completed an upgrade at
its Allentown, Pennsylvania center which included both new imaging
equipment, related leasehold improvements and a five year prepaid equipment
maintenance agreement aggregating approximately $3,200,000. The Company
financed these amounts using a note payable (the "Note") over a five year
term which commenced in August 1992. The Note requires monthly installments
of $38,095 plus interest and a balloon payment of $952,395 due in July
1997. The Note bears interest at a variable rate equal to the bank's
prevailing prime rate plus one-half percent (8.75% at March 31, 1996),
however, the Note provides an option to fix the interest rate at any time
during the term. The Note is collateralized by substantially all of the
assets of the MR Associates of Allentown partnership. Effective for fiscal
1994, the Note's financial covenants were modified requiring the
Partnership to meet two debt coverage ratios, as defined, as of March 31 of
each fiscal year through the expiration of the Note.
F-16
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes and Mortgage Payable (continued)
(C) In March 1994, the Company financed the acquisition of limited partnership
interests using a $2,240,000 three year note payable which bears interest
at a rate of 8.9% and requires monthly payments of $49,830, including
interest through April 1995 and $83,378, including interest per month
thereafter. The note is collateralized by the imaging equipment and
receivables of certain of the limited partnerships in which additional
interests were acquired.
(D) In January 1994, the Company assumed a five year $1,475,000 note payable to
a bank which bears interest at a variable rate equal to the bank's
prevailing prime rate plus one percent (9.25% at March 31, 1996). Monthly
payments, including principal and interest, for the first three years of
the note are fixed at $20,000, and $45,894 thereafter. The note is
collateralized by substantially all of the equipment of the Oak Lawn
Imaging Center.
(E) In December 1994, the Company refinanced the imaging equipment and
leasehold improvement debt of its Bel Air, Maryland center with a remaining
principal balance of $2,493,683 as of the date of the refinancing. In
conjunction with the refinancing, the Company also financed the cost of
upgrades to its MR and nuclear medicine equipment with an aggregate cost of
$238,614. The Company incurred a prepayment penalty of $15,945 in
conjunction with the refinancing, which was included as a component of
other expense (income), net in the accompanying statement of income for
the year ended March 31, 1995. The note payable obligation, aggregating
$2,748,242 of principal is payable over a seven year term due January 2001,
bears interest at 11.25% and requires fixed monthly payments of $40,000,
including interest, during the first 24 months and $61,465, including
interest, for the remaining term. The note is collateralized by the related
imaging equipment.
(F) In September 1995, in connection with the acquisition of Morgan Medical
Holdings, Inc. ("Morgan") the Company assumed Morgan's existing equipment
debt obligations, aggregating $4,018,574. These notes bear interest at
rates ranging from 7.36% to 11.5% and require monthly payments ranging from
$623 to $33,335, including interest. The notes are payable over varying
terms with the last note due in September 1999. One of the notes restricts
the Company's ability to pay dividends. The foregoing notes are
collateralized by the respective centers' imaging equipment.
(G) In January 1995, in connection with the acquisition of Golf MRI L.P. and
Diagnostic Imaging Center L.P. the Company consolidated and refinanced the
centers' existing equipment debt obligations,
F-17
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes and Mortgage Payable (continued)
aggregating $1,823,167, using a five year bank term note bearing interest
at a variable rate equal to the bank's prevailing prime rate plus one
percent (9.25% at March 31, 1996). The note requires monthly installments
of $37,708, including interest, and is due on March 31, 2000. In addition,
the Company assumed $34,450 of notes payable to former limited partners of
Diagnostic Imaging Center which bear interest at a rate of 10%, require
quarterly payments of $8,612 plus interest which were paid in December
1995, and a $125,000 two year note payable to the former general partner,
which does not bear interest. The Company financed $550,000 of the cash
portion of the acquisition price with a bank using a five year term note
bearing interest at a variable rate equal to the bank's prevailing prime
rate plus one percent (9.25% at March 31, 1995). The note requires monthly
installments of $11,721, including interest, and is due on March 31, 2000.
The note agreement requires the Company to meet certain financial ratios as
of March 31 of each year the agreement is in effect. The foregoing bank
notes are collateralized by the center's imaging equipment.
In January 1996, in connection with the acquisition of the assets of
Central Diversey MRI Center, Inc. the Company assumed a $631,784 note
payable bearing interest at 10% due September 1999. The note is
collateralized by cash deposits totaling $120,000 (included in other
assets) and the center's diagnostic equipment and requires monthly
installments of $16,894, including interest.
(H) Included in other debt obligations is $2,091,274 and $1,312,046 at March
31, 1996 and 1995, respectively, of various notes payable relating to the
purchase of equipment, equipment upgrades and leasehold improvements. These
notes bear interest at rates ranging from 8.9% to 11.8% and require monthly
payments ranging from $1,106 to $18,082, including interest. The notes are
payable over varying terms of four and five years with the last note due
September 2000. The notes are primarily collateralized by the related
imaging equipment.
Included in other debt obligations is $664,161 and $1,045,733 at March 31,
1996 and 1995, respectively of various notes payable relating to the
acquisition of the Des Plaines, Oak Lawn and Libertyville, Illinois imaging
centers and a purchase option related to the general partner interest in MR
Associates of Chicago. These notes bear interest at rates ranging from 7.0%
to 9.0%, and have varying terms of two to five years. The payment
F-18
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes and Mortgage Payable (continued)
terms are primarily monthly and range from $3,554 to $13,294, including
interest.
As of March 31, 1996, the Company has $6,360,573 outstanding obligations with
certain financial institutions under agreements which include a material adverse
change in financial condition or other similar subjective acceleration clauses.
Aggregate maturities of the Company's notes and mortgage payable for fiscal
years 1997 through 2001 and thereafter are as follows: 1997--$4,911,031; 1998--
$4,763,865; 1999--$3,459,298; 2000--$1,684,933; 2001--$648,838; thereafter
$471,713.
9. Shareholders' Equity
AUTHORIZED STOCK
The Board of Directors is authorized to issue, without further action by the
shareholders, 500,000 shares of preferred stock, par value $.05, and to fix and
alter the rights related to such stock. The Company has a Shareholders' Rights
Plan (described below) which may require the issuance of Series A Preferred
Stock, $.05 par value, in connection with the exercise of certain stock purchase
rights. At March 31, 1996, there were no shares of preferred stock issued or
outstanding.
On October 25, 1995 the Board of Directors authorized a common stock repurchase
program whereby the Company can purchase up to $1,000,000 of its outstanding
common stock from time to time in the open market. The shares will be held as
treasury shares for reissuance upon the exercise of employee stock options,
warrants and other convertible securities. The timing of purchases and the
number of shares purchased will depend upon prevailing market prices and other
market conditions. During the year ended March 31, 1996, under the 1995
repurchase program, the Company purchased 99,650 shares of its outstanding
common stock at an aggregate cost of $353,007. As of March 31, 1996 the
Company's cumulative stock purchases, net of reissuance of 39,614 shares,
amounted to 437,712 shares with an aggregated cost of $1,737,311.
SHAREHOLDERS' RIGHTS PLAN
Under the Shareholders' Rights Plan each outstanding share of the Company's
common stock has attached to it one stock purchase right. These rights will
continue to be represented by and trade with the
F-19
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Shareholders' Equity (continued)
Company's common stock certificates unless and until certain takeover-related
events occur. Following such events, each right will become exercisable to
purchase one one-hundredth of a share of Series A Preferred Stock, par value
$.05, at an exercise price of $15 per one one-hundredth share subject to
adjustment. In the event any person acquires beneficial ownership of 15% or more
of the outstanding common shares, (i) each right will be exercisable, for a
sixty-day period following the announcement of such acquisition, to purchase the
Company's common stock or common stock equivalent having a market value equal to
two times the exercise price and (ii) prior to such exercise the Company's Board
of Directors, may, at its option exchange outstanding rights to shares of common
stock at an exchange ratio of one share for each right. The Shareholders' Rights
Plan further provides that if, after the occurrence of such an acquisition, the
Company is merged into any other corporation or 50% or more of the Company's
assets are sold, each right will be exercisable to purchase common shares of the
acquiring corporation having a market value equal to two times the exercise
price. The rights expire on December 23, 2002, and are subject to redemption by
the Company's Board of Directors at $.01 per right at any time prior to the
first date upon which they become exercisable to purchase common shares.
STOCK OPTIONS AND EMPLOYEE STOCK GRANTS
The Company maintains an Incentive Stock Option and Non-Statutory Option Plan
(the "Plan") for employees of the Company. Under the Plan, established in 1986,
up to 1,000,000 shares of common stock of the Company may be issued upon the
exercise of options to be granted during the ten-year term of the Plan. The
exercise price of options granted is equal to the fair market value of the
Company's common shares on the date of grant. Options with respect to 409,809
shares were outstanding at March 31, 1996, at an exercise price ranging from
$2.25 to $6.38 per share for terms of five and ten years. As of March 31, 1996,
options with respect to 219,325 shares were exercisable. During the year ended
March 31, 1996, 12,375 options were exercised at exercise prices ranging from
$2.25 to $3.00 per share.
In September 1995, the Company granted 10,000 unregistered shares of common
stock to each of its two officers. The shares vest ratably on a quarterly basis
over two years from the date of grant.
F-20
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Shareholders' Equity (continued)
STOCK PURCHASE WARRANTS
As of March 31, 1996, the Company had granted warrants to purchase its common
stock with the following terms:
NUMBER
OF EXERCISE EXPIRATION
SHARES PRICE DATE
------- -------- ----------
50,000 $7.00 September 26, 1996
50,000 $8.00 September 26, 1996
50,000 $3.00 August 2, 1996
50,000 $3.50 August 2, 1996
100,000 $8.00 February 6, 1997
7,000 $5.00 March 30, 1997
75,000 $3.00 November 5, 1998
35,000 $3.00 January 20, 1999
25,000 $3.09 February 23, 1999
100,000 $3.92 May 18, 1999
25,000 $5.00 September 30, 1999
190,000 $6.38 December 18, 2001
-------
757,000
=======
In October 1994, the Company issued warrants to purchase 25,000 shares of the
Company's common stock at an exercise price of $5.00 per share to a radiology
group providing services to one of its centers. These warrants have a term of
five years and are exercisable from the date of grant.
In May 1994, the Company entered into an agreement with Ehrenkrantz King
Nussbaum, Inc. ("EKN") under which EKN will provide financial consulting
services to the Company for a term of two years. Pursuant to this agreement, EKN
received warrants to purchase 100,000 shares of the Company's common stock;
50,000 warrants with an exercise price of $3.00 per share and 50,000 warrants
with an exercise price of $3.50 per share. These warrants had an initial term of
two years and are exercisable from the date of grant. During May 1996, the
Company extended the term of the EKN financial consulting agreement and warrants
for a period of three months to August 2, 1996.
In January 1994, the Company entered into a three year administrative services
agreement with Radiology Business Management Inc. ("RBM") to provide office and
clerical services to the Oak Lawn Imaging Center, pursuant to which the Company
issued RBM warrants to purchase 35,000 shares of the Company's common stock at
an exercise price of $3.00 per share. These warrants have a term of five years
and are exercisable from the date of grant.
F-21
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Shareholders' Equity (continued)
In connection with the Company's fiscal 1992 stock purchase warrant redemption
offer, the Company issued Strategic Growth International warrants to purchase
100,000 shares of the Company's common stock; 50,000 warrants with an exercise
price of $7.00 per share and 50,000 warrants with an exercise price of $8.00 per
share. These warrants have a term of five years and are exercisable from the
date of grant.
In March 1992, the Company issued warrants to purchase 7,000 shares of common
stock at an exercise price of $5.00 per share in connection with the execution
of a ground lease for one of its facilities. The warrants have a term of five
years and are exercisable from the date of grant.
In February 1992, the Company entered into an agreement with Seaboard
Securities, Inc. ("Seaboard") under which Seaboard will provide financial
consulting services for a term of three years. Pursuant to the agreement,
Seaboard received warrants to acquire 100,000 shares of the Company's common
stock at $8.00 per share. The warrants have a term of five years and vest as
services are provided. A member of the Company's board of directors is an
officer of Seaboard.
On December 19, 1991, the non-employee Directors of the Company were each
granted warrants to purchase 20,000 shares (an aggregate of 140,000 shares) of
common stock at $6.38 per share. These warrants have a term of ten years and are
exercisable from date of the grant.
On November 6, 1990, the Board of Directors granted an officer and director of
the Company warrants to acquire 75,000 shares of common stock at $3.00 per
share. The warrants vested over a three year period from the date of the grant
and have a term of eight years. During the year ended March 31, 1992, the
Company granted the same officer and director warrants to acquire 50,000 shares
of the Company's common stock with an exercise price of $6.38 per share. These
warrants are exercisable from date of grant and have a term of ten years.
In May 1989, the Company issued warrants to purchase 100,000 shares of common
stock at an exercise price of $3.92 per share to a non-employee director of the
Company. These warrants have a term of ten years and are exercisable from the
date of grant.
In February 1989, the Company issued warrants to purchase 25,000 shares of
common stock at an exercise price of $3.09 per share to a professional
association providing legal services to the Company. These warrants have a term
of ten years and are exercisable from the date of grant.
10. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income Taxes",
which requires an asset and liability approach. The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial reporting
basis and tax basis of the Company's assets and liabilities.
As of March 31, 1996, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 2000, of
approximately $6,389,000, of which approximately $3,390,000 represent net
operating losses of acquired companies. Under Section 382 of the Internal
Revenue Code, the Company's acquired operating losses are subject to an annual
utilization limitation of approximately $520,000.
F-22
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (continued)
Any unutilized annual limitation may be carried forward to available future
carryforward years.
Future changes in the ownership of the Company could result in additional
limitations on the utilization of its net operating loss carryovers. The state
tax jurisdictions in which the Company operates do not permit the carryback of
net operating losses to prior years in which taxes were paid. Such state tax net
operating losses were utilized to reduce the Company's fiscal 1996, 1995 and
1994 state income tax liability. For Federal income tax purposes, the Company
also has investment and alternative minimum tax credits of $386,000 and $81,000,
respectively, of which approximately $74,000 represents investment tax credits
of an acquired company. The Company's investment tax credits begin to expire in
the year 1999 and are accounted for under the flow through method. Alternative
minimum tax credits do not expire.
Significant components, tax effected, of the Company's deferred tax assets and
(liabilities) at March 31, 1996 and 1995 are as follows (in thousands):
1996 1995
---- ----
Deferred tax liabilities:
Fixed assets $(1,794) $ (1,123)
Purchase option (249) (273)
Cash to accrual basis (784) --
------- -------
Deferred tax liabilities (2,827) (1,396)
------- -------
Deferred tax assets:
Net operating losses 2,332 1,527
Excess financial reporting
partnership losses -- 466
Tax credits 466 491
Accrued liabilities 82 --
Other 56 11
------- -------
Deferred tax assets 2,936 2,495
Valuation allowance -- --
------- -------
Net deferred tax asset $ 109 $ 1,099
======= =======
The net decrease in the Company's valuation allowance on deferred tax assets
during the year ended March 31, 1995 totaled $1,304,000.
F-23
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (continued)
Components of the provision for (benefit from) income taxes are as follows:
1996 1995 1994
---- ---- ----
Current:
Federal $ 10,000 $ 25,000 $ 12,000
State 29,421 44,284 96,000
---------- ----------- --------
39,421 69,284 108,000
---------- ---------- --------
Deferred:
Federal 847,000 (1,142,000) --
State 70,000 43,000 --
---------- ----------- --------
917,000 (1,099,000) --
---------- ---------- --------
$ 956,421 $(1,029,716) $108,000
========== =========== ========
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:
1996 1995 1994
---- ---- ----
Expected Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 3.9% 6.2% 5.4%
Net operating loss carryforwards -- (32.2%) (33.2%)
Recognition of net deferred tax asset -- (82.4%) --
Other ( 2.9%) 1.1% 1.1%
----- ----- ----
Effective income tax rate 35.0% (73.3%) 7.3%
===== ===== =====
11. Commitments and Contingencies
As of March 31, 1996, the Company has entered into noncancelable leases for
eighteen offices that have imaging systems in current operation as well as
operating leases for magnetic resonance imaging equipment installed in its
Philadelphia, Pennsylvania and Seabrook, Maryland imaging centers and computed
axial tomography equipment installed in the Seabrook, Maryland imaging center.
Ten of the offices are subleased to affiliated Physicians. The office leases are
generally for terms of five and ten years and include rent escalation clauses
generally tied to the consumer price index and contain provisions for additional
terms at the option of the tenant. By reason of the sublease arrangements, if
the respective Physicians should be unable to pay the rental on the site, the
Company would be contingently liable. As of March 31, 1996, the Company has
subleased the operating sites to the Physicians for the base rental as
stipulated in the original lease. For the years ended March 31, 1996, 1995 and
1994 the related sublease income has been offset by the lease rent expense.
F-24
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and Contingencies (continued)
The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals. As of March 31, 1996, the aggregate future minimum lease
payments and sublease rentals are as follows:
ORIGINAL
YEAR ENDED MARCH 31, LEASES SUBLEASES NET
- ------------------- -------- --------- ---
1997 $2,146,015 $ 848,226 $1,297,789
1998 1,706,451 649,482 1,056,969
1999 1,118,892 529,929 588,963
2000 689,964 507,098 182,866
2001 459,330 322,617 136,713
THEREAFTER 315,292 99,795 215,497
- ------------------------------------------------------------------
$6,435,944 $2,957,147 $3,478,797
==================================================================
Effective May 31, 1993, the Company terminated its leases for corporate
headquarters in Morristown, New Jersey. The Company entered into a lease
agreement for new executive and administrative office space under a 66 month
lease which commenced on May 19, 1993. The base agreement contains two five year
renewal options. Corporate rent expense for the years ended March 31, 1996, 1995
and 1994 amounted to $116,318, $114,035, and $123,061, respectively.
During August, 1993, the Board of Directors authorized the Company to guarantee
personal loans made by a bank to an officer of the Company for the purpose of
purchasing the Company's common stock in the open market. The guarantee was
provided to the bank in the form of certificates of deposit aggregating $75,000.
The shares of common stock purchased by the officer are pledged to the Company
as collateral for the continuing guarantee of the related loan.
F-25
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and Contingencies (continued)
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations, cash flows or financial condition.
12. Related Parties
During the years ended March 31, 1996, 1995 and 1994, the Company, in accordance
with the related partnership agreements, allocated certain corporate overhead
costs to the limited partnerships which resulted in $7,230, $7,865 and $19,982,
respectively, of such costs being attributed to the minority interests.
As of March 31, 1996, the Company has notes receivable from two former officers
of Morgan Medical Holdings, Inc. in the amounts of $315,625 and $35,366,
including accrued interest thereon, which are included as a component of other
current assets and other assets in the Company's March 31, 1996 balance sheet.
The notes bear interest at prime and are payable in eight equal semi-annual
principal installments, plus interest, commencing March 15, 1996. The notes are
collateralized by a pledge of the Company's common stock which is owned by the
individuals, one of whom now is an employee of the Company. Subsequent to March
31, 1996, the loan for $315,625 plus interest was paid in full.
The Company has a consulting agreement with a member of the Board of Directors.
The consulting agreement has a one year term expiring on December 31, 1996, and
provides compensation of $77,000 per annum.
13. Imaging Center Matters
During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the center's
existing magnetic resonance imaging equipment, which was installed in 1984. The
new system was installed during June 1995 and became operational in early July
1995. The project was completed for an aggregate cost of approximately $910,000,
which includes the cost of related leasehold improvements, diagnostic imaging
equipment and related upgrades. The Company financed the equipment and related
leasehold improvements in the form of a five year note payable.
The Company's Greenbelt, Maryland magnetic resonance imaging center facility
lease expired on January 31, 1995. The Company constructed a new center offering
both magnetic resonance and CT imaging which opened April 1995. The Company
financed the cost of equipment, totaling $918,750, using an operating lease and
financed the $672,546 cost of
F-26
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Imaging Center Matters (continued)
related leasehold improvements using a term note. The Greenbelt lease required
the Company to repair damage caused by the removal of equipment at that
location. In lieu of performing such repairs, the Company paid $51,600 to obtain
the landlord's full release from such obligations. This amount is reflected in
the fiscal 1995 statement of income as a component of other income, net.
The Company's Austin, Texas center was closed during December 1995. The center
operated pursuant to a limited partnership agreement (the "Austin Partnership")
which was scheduled to expire on January 31, 1996, but was extended by the
governing board of the partnership for the purpose of liquidating and
distributing the remaining assets of the Austin Partnership. It is anticipated
that such liquidation will be completed during fiscal 1997 and will not have a
material impact on the results of operations or liquidity of the Company.
Effective January 1, 1996, the Company acquired the remaining 10% ownership
interest in Oak Lawn Imaging Center which increased the Company's ownership
percentage to 100%. As consideration for the acquisition, the Company issued
35,000 unregistered shares of its common stock.
14. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of unaudited quarterly consolidated financial
results for the years ended March 31:
(000's omitted, except for per share amounts)
---------------------------------------------
1996 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
Revenue, net $4,771 $5,289 $6,754 7,020
Operating income 709 1,068 1,378 1,544
Net income 238 355 554 630
Per fully diluted
common share (1):
Net income .05 .07 .09 .10
F-27
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Quarterly Consolidated Financial Information (Unaudited)(continued)
1995 1ST QTR 2ND QTR 3RD QTR 4TH QTR(2)
------- ------- ------- -------
Revenue, net $4,437 $4,299 $4,376 $4,875
Operating income 1,082 920 865 227
Net income 622 501 382 929
Per fully diluted
common share (1):
Net income .13 .10 .08 .18
----------
(1) Quarterly income per fully diluted common share does not equal the
annual amount due to changes in the common and equivalent shares
outstanding.
(2) The Company's fourth quarter consolidated financial results include (i)
a non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 15) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note
10).
Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.
15. Acquisitions
Effective January 1, 1996, the Company completed its acquisition of
substantially all of the operating assets of Central Diversey MRI Center, Inc.
("CD MRI") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially all
of CD MRI's operating assets, which consist primarily of magnetic resonance
imaging equipment, related leasehold improvements, office equipment and deposits
on the MRI related equipment aggregating $120,000 which are pledged as
collateral therefor. In addition, NMR assumed certain trade accounts payable of
Central Diversey aggregating $90,000 and MRI related equipment debt, subject to
existing collateral, totaling approximately $632,000 of outstanding principal as
of January 1, 1996. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at the fair value
at the date of acquisition. The Company recorded $429,333 of excess cost over
F-28
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Acquisitions (continued)
fair value of the assets which is being amortized over twenty years on a
straight line basis.
On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, providing for the acquisition of Morgan Medical Holdings,
Inc. ("Morgan"). A definitive merger agreement was executed on April 11, 1995.
The transaction was approved by the shareholders of Morgan and the Company on
September 14, 1995 and became effective September 15, 1995. Morgan provides
diagnostic imaging equipment, facilities and management services to physicians
through four outpatient centers located in the Florida cities of Cape Coral,
Naples, Sarasota and Titusville. Pursuant to the terms of the acquisition,
Morgan shareholders received 1,195,848 shares of the Company's common stock in
the transaction. Under the terms of the merger agreement, the Company exercises
control over the voting rights of Morgan's largest shareholder for a period of
three years. The Company accounted for the transaction as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their fair
values at the date of acquisition. In conjunction with the transaction, the
Company recorded $6,356,132 of costs in excess of fair value which will be
amortized over twenty years on a straight line basis.
Effective January 1, 1995, the Company acquired, approximately 75% of the
general and limited partnership interests of Diagnostic Imaging Center, L.P.
("DIC") and Golf MRI Center, L.P. ("Golf MRI")(collectively the "Centers").
These limited partnerships collectively operate a multi-modality imaging center
located in Des Plaines, Illinois. As consideration for the acquisition, the
Company paid $1,050,000 in cash and issued 125,000 unregistered shares of the
common stock of the Company and assigned a fair value of $500,000. In
conjunction with the acquisition, the Company entered into agreements with the
Center's radiologist to provide radiologic and other administrative services to
the Centers for three year terms. In addition, the Company consolidated and
refinanced the Centers' existing debt obligations, aggregating $1,823,167. The
acquisitions have been accounted for as purchases and, accordingly, the acquired
assets and liabilities have been recorded at their fair value at the date of
acquisition. The excess of the cost over the fair value of the net assets
acquired of $2,114,693 is being amortized over twenty years on a straight line
basis.
Effective January 1, 1995, the Company acquired the operations of a magnetic
resonance imaging center located in Libertyville, Illinois ("Libertyville"). As
consideration for the acquisition, the Company acquired certain of the seller's
assets and assumed certain liabilities. In addition, the Company agreed to pay
deferred consideration of up to
F-29
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Acquisitions (continued)
$300,000 which was conditioned upon the center achieving certain levels of
revenue during calendar 1995 which were not attained resulting in no additional
consideration being paid. The acquisition has been accounted for as a purchase
and, accordingly, the acquired assets and liabilities have been recorded at
their fair value at the date of acquisition. The excess of the cost over the
fair value of the net assets acquired was not material.
The Company's consolidated financial statements for the year ended March 31,
1996 include the results of operations of Morgan and CD MRI from the September
15, 1995 and January 1, 1996 effective dates of such transactions, respectively.
The Company's consolidated financial statements for the year ended March 31,
1995, do not include the results of operations of Morgan or CD MRI and include
the results of operations of Golf MRI, DIC and Libertyville ("Historical
Acquisitions") from the January 1, 1995 effective date of such transactions. The
following summarizes the unaudited proforma results of operations for the years
ended March 31, 1996 and 1995, assuming all of the foregoing acquisitions had
occurred on April 1, 1995 and 1994 (in thousands, except per share data):
FISCAL 1996
-------------------------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Revenue, net $21,844 $26,435 $27,300
Operating income $ 3,903 $ 5,437 $ 5,773
Income before
income taxes $ 2,080 $ 3,189 $ 3,452
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 1,342 $ 2,033 $ 2,257
Fully diluted net
income per share $ .21 $ .31 $ .35
F-30
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Acquisitions (continued)
FISCAL 1995 (1)
----------------------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Revenue, net $20,707 $25,962 $26,665
Operating income $ 3,637 $ 5,336 $ 5,647
Income before
income taxes $ 1,673 $ 2,934 $ 3,086
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 2,716 $ 3,806 $ 3,936
Fully diluted net
income per share $ .51 $ .58 $ .60
- -----------
(1) The Company's fiscal 1995 pro forma financial results include (i) a
non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 16) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note 10).
16. Asset Write-down
The Company's results of operations for the fourth quarter of fiscal 1995
includes a charge to expense of approximately $560,000 representing the
remaining net book value of the diagnostic imaging equipment of the Company's
Elgin, Illinois imaging center which are no longer believed to be recoverable
from the center's future operations. The center has operated at a loss since it
opened in May 1992. The impact of this charge on fiscal 1995 and fourth quarter
net income, net of the related tax benefit, was approximately ($338,000) or
($.06) per share. The Company intends to utilize the facility to perform certain
regional administrative functions and to perform limited diagnostic imaging
procedures at reduced staffing levels in the future.
F-31
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Fair Value of Financial Instruments
The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
March 31, 1996
-------------------------------
Carrying
Amount Fair Value
-------------- -------------
Assets:
Cash and cash equivalents $ 3,782,315 $ 3,782,315
Short-term investments 663,660 663,660
Long-term investments 192,000 192,000
Due from affiliated physician
associations and patient
receivables, net 14,182,008 14,182,008
Liabilities:
Notes payable $15,939,678 $15,977,899
Capital lease obligations 1,765,440 1,765,541
Convertible debentures 1,975,752 1,849,578
The carrying amounts of cash and cash equivalents, short-term investments,
long-term investments and due from affiliated physician associations and patient
receivables, net are a reasonable estimate of their fair value. The fair value
of the Company's notes payable, capital lease obligations and convertible
debentures are based upon a discounted cash flow calculation utilizing rates
under which similar borrowing arrangements can be entered into.
18. Subsequent Event
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
the subject to the merger conditions set forth below. Medical Resources provides
diagnostic imaging equipment, facilities and management services to physicians
through nineteen outpatient centers located in New York, New Jersey and Florida.
Pursuant to the terms of the acquisition, 0.6875 shares of Medical Resources
common stock would be issued for each outstanding share of NMR. The merger is
subject to certain conditions including shareholder and regulatory approval and
certain third party consents. Senior
F-32
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Subsequent Event (continued)
management of the combined company would be composed of the current executives
of Medical Resources with NMR's current executive officers, Joseph G. Dasti and
John P. O'Malley III serving as consultants to the combined company. The closing
of the merger is anticipated to occur in the third quarter of fiscal 1997,
although there can be no assurance that the transactions will be completed as
contemplated or that it will occur when anticipated.
In June 1996, the Company entered into a line of credit agreement with a lender
for an amount up to $4,000,000. Borrowing under the line of credit will bear
interest at a rate of one and one-half percent over the lender's prime rate and
will be collateralized by the Company's receivables.
F-33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NMR OF AMERICA, INC.
By /S/ JOSEPH G. DASTI
-----------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/JOSEPH G. DASTI President and Director June 26, 1996
- ------------------------- (Principal Executive Officer)
Joseph G. Dasti
/S/ JOHN P. O'MALLEY III Executive Vice President- June 26, 1996
- ------------------------- Finance (Principal Financial
John P. O'Malley III and Accounting Officer)
/S/ DONALD W. ARTHUR Director June 26, 1996
- --------------------------
Donald W. Arthur
/S/ DAVID L. BLOOM, M.D. Director June 26, 1996
- --------------------------
David L. Bloom, M.D.
/S/ JOHN A. FARAONE Director June 26, 1996
- --------------------------
John A. Faraone
/S/ JOSEPH ZAPPALA Director June 26, 1996
- --------------------------
Joseph Zappala
<PAGE>
EXHIBIT INDEX
NMR OF AMERICA, INC.
Annual Report on Form 10-KSB
for Fiscal Year Ended March 31, 1996
EXHIBIT NO. DESCRIPTION
2 Agreement and Plan of Merger dated as
of May 20, 1996 by and among Medical
Resources, Inc, MRI Sub, Inc. and
Registrant +
3 (i) Certificate of Incorporation **
(ii) Certificate of Ownership of NMR of
Delaware, Inc. ****
(iii) By-laws ****
4 Indenture dated as of July 1, 1986
between Company and The Trust Company
of New Jersey including form of
Debenture **
10 (i) Form of 8% Subordinated Note **
(ii) Agreement between Image Sub, Inc. and
Imaging Associates, P.A., and
amendments thereto **
(iii) Certificate and Agreement of Limited
Partnership of NMR Associates I, a New
Jersey limited partnership **
(iv) Certificate and Agreement of Limited
Partnership of MR Associates I, a
Pennsylvania limited partnership **
(v) Certificate and Agreement of Limited
Partnership of MR Associates of
Allentown, a Pennsylvania limited
partnership **
(vi) Certificate and Agreement of Limited
Partnership of MR Associates of
Morristown, a New Jersey limited
partnership **
(vii) 1986 Incentive Stock Option and Non-
statutory Option Plan **
(viii) Certificate of Limited Partnership of
MR Partners of Greenbelt, a Maryland
limited partnership **
<PAGE>
EXHIBIT NO. DESCRIPTION
(ix) Certificate and Agreement of Limited
Partnership of MR Associates of
Chicago, an Illinois limited
partnership **
(x) Acquisition Agreement among Registrant,
Diagnostic Network, Incorporated (DNI)
and NMR Newco, Inc. ***
(xi) Plan of Reorganization and Agreement of
Merger dated as of June 26, 1987 among
Registrant, DNI and NMR Newco., Inc. ***
(xii) Rights Agreement dated as of December
23, 1988 between Registrant and
American Stock Transfer and Trust
Company dated December 23, 1988 *****
(xiii) Amendments No. 1, 2, 3 and 4 to Rights
Agreement between the Registrant and
American Stock Transfer & Trust
Company dated as of December 23, 1988+
(xiv) Certificate and Agreement of Limited
Partnership of Garden State Imaging
Partners, a Delaware limited
partnership *******
(xv) Certificate and Agreement of Limited
Partnership of Harford County Imaging
Partners, a Delaware limited
partnership *******
(xvi) Certificate and Agreement of Limited
Partnership of Accessible MRI, a
Delaware limited partnership *******
(xvii) Stock Purchase Agreement dated January
21, 1994 among Registrant, Eduardo
Nijensohn, M.D. and John A. Gall, M.D. ******
(xviii) Agreement and Plan of Reorganization,
dated January 21, 1994, among the
Registrant and Eduardo Nijensohn, M.D. ******
(xix) Second Amended and Restated Employment
Agreement, dated December 12,
1995 between the Registrant and
John P. O'Malley +
<PAGE>
EXHIBIT NO. DESCRIPTION
(xx) Asset Purchase Agreement dated January
5, 1995 by and between Advanced
Specialty Imaging, L.P. and the
Registrant ********
(xxi) Agreement to Acquire Partnership
Interests dated February 10, 1995 among
the Registrant, Parvez H. Shirazi and
Golf Western Imaging Corporation ********
(xxii) Agreement and Plan of Merger dated
April 11, 1995, as amended, by and
among the Registrant, NMR Sub., Inc. and
Morgan Medical Holdings, Inc. ***********
(xxiii) Asset Purchase Agreement among C.D.
Acquisition, Inc., a wholly owned
subsidiary of the Registrant, and Central
Diversey M.R.I. Center, Inc ***********
(xxiv) Second Amended and Restated Employment
Agreement dated December 13, 1995
between the Registrant and Joseph G.
Dasti +
11 Computation of Shares Used for Earnings
Per Share Calculation +
21 Subsidiaries
------------
Imaging Newworks, Inc. -- Delaware
Diagnostic Networks of Texas, Inc. -- Texas
Oak Lawn Imaging Center, Inc. -- Illinois
Oak Lawn Magnetic Resonance
Imaging Center, Inc. -- Illinois
Morgan Medical Holdings, Inc. -- Colorado
Morgan Medical Corporation -- Florida
C.D. Acquisition, Inc. -- Illinois
23 (i) Consent of Coopers & Lybrand, L.L.P.+
27 Financial Data Schedules +
<PAGE>
- ------------
* Incorporated by reference from Company's Registration Statement on Form S-18
(File No. 2-85281-NY).
** Incorporated by reference from Company's Registration Statement on Form S-1
(File No. 33-5567).
*** Incorporated by reference from Company's Current Report on Form 8-K for
July 1, 1987.
**** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1989.
***** Incorporated by reference from the Company's Current Report on Form 8-K
for December 23, 1988.
****** Incorporated by reference from the Company's Current Report on Form 8-K
dated January 21, 1994, as amended.
******* Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1994.
******** Incorporated by reference from Company's Current Report on Form 8-K
dated January 1, 1995.
********* Incorporated by reference from Company's Current Report on Form 8-K
dated September 15, 1995.
********** Incorporated by reference from Company's Current Report on Form 8-K
dated February 1, 1996, as amended by a report on Form 8-K/A.
*********** Incorporated by reference to Exhibit A of Joint Proxy
Statement/Prospects forming part of the Company's Registration Statement on
Form S-4 (Registration No. 33-61601).
+ Filed herewith.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDICAL RESOURCES, INC.,
MRI SUB, INC.
and
NMR OF AMERICA, INC.
Dated as of May 20, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 THE MERGER.......................................... 1
SECTION 1.1 The Merger........................................ 1
SECTION 1.2 Stockholders' Meetings............................ 2
SECTION 1.3 Consummation of the Merger;
Effective Date.................................... 2
SECTION 1.4 Effect of the Merger.............................. 2
ARTICLE 2 CONVERSION AND CANCELLATION OF SECURITIES............ 2
SECTION 2.1 Conversion of Shares; Treatment of
Warrants, Options and Convertible
Securities........................................ 2
(a) Common Stock................................. 2
(b) Warrants..................................... 3
(c) Options...................................... 3
(d) Convertible Securities....................... 5
SECTION 2.2 Appraisal Rights.................................. 5
SECTION 2.3 Surrender and Payment............................. 5
SECTION 2.4 Common Stock of Sub............................... 6
SECTION 2.5 Closing........................................... 6
ARTICLE 3 CERTIFICATES OF INCORPORATION AND BY-LAWS ........... 6
SECTION 3.1 Certificate of Incorporation
and By-Laws....................................... 6
SECTION 3.2 Directors and Officers of Sub..................... 6
ARTICLE 4 CERTAIN PROVISIONS RELATING TO SHARES................ 6
SECTION 4.1 No Fractional Shares of
MRI Common Stock.................................. 6
SECTION 4.2 MRI to Make Merger Consideration
Available......................................... 7
SECTION 4.3 Dividends; Transfer Taxes; Voting
Rights............................................ 7
SECTION 4.4 Abandoned Property; Lost Certificates............. 8
SECTION 4.5 Taking of Necessary Action;
Further Action.................................... 8
SECTION 4.6 Closing of NMR's Transfer Books................... 8
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF NMR................ 9
SECTION 5.1 Organization and Qualification;
Subsidiaries...................................... 9
SECTION 5.2 Certificates of Incorporation
and By-Laws....................................... 9
SECTION 5.3 Capitalization.................................... 9
SECTION 5.4 Authority......................................... 10
SECTION 5.5 No Conflict; Required Filings
and Consents...................................... 11
SECTION 5.6 Permits; Compliance............................... 12
SECTION 5.7 Reports; Financial Statements..................... 12
i
<PAGE>
SECTION 5.8 Absence of Certain Changes or Events.............. 13
SECTION 5.9 Absence of Litigation............................. 14
SECTION 5.10 Taxes............................................. 14
SECTION 5.11 Certain Business Practices........................ 14
SECTION 5.12 Brokers........................................... 14
SECTION 5.13 Board Recommendation.............................. 15
SECTION 5.14 Books and Records................................. 15
SECTION 5.15 No Undisclosed Liabilities........................ 15
SECTION 5.16 Contracts......................................... 15
SECTION 5.17 Disclosure........................................ 15
SECTION 5.18 Affiliates........................................ 16
ARTICLE 6 REPRESENTATIONS AND WARRANTIES
OF MRI AND SUB....................................... 16
SECTION 6.1 Organization and Qualification;
Subsidiaries...................................... 16
SECTION 6.2 Certificate of Incorporation and
By-Laws........................................... 16
SECTION 6.3 Capitalization.................................... 16
SECTION 6.4 Authority......................................... 17
SECTION 6.5 No Conflict; Required Filings
and Consents...................................... 18
SECTION 6.6 Permits; Compliance............................... 19
SECTION 6.7 Reports; Financial Statements..................... 19
SECTION 6.8 Absence of Certain Changes or Events.............. 20
SECTION 6.9 Absence of Litigation............................. 20
SECTION 6.10 Taxes............................................. 20
SECTION 6.11 Certain Business Practices........................ 21
SECTION 6.12 Brokers........................................... 21
SECTION 6.13 Books and Records................................. 21
SECTION 6.14 Contracts......................................... 21
SECTION 6.15 No Undisclosed Liabilities........................ 21
SECTION 6.16 Board Recommendation.............................. 22
SECTION 6.17 Disclosure........................................ 22
ARTICLE 7 COVENANTS............................................ 22
SECTION 7.1 Affirmative Covenants of NMR and MRI.............. 22
SECTION 7.2 Negative Covenants of NMR......................... 23
SECTION 7.3 Negative Covenants of MRI......................... 26
SECTION 7.4 Access and Information............................ 29
SECTION 7.5 Confidentiality................................... 29
SECTION 7.6 No Solicitation of Business
Transactions by NMR; Fee Payable
for Violation..................................... 29
SECTION 7.7 Additional Affirmative Covenant of MRI............ 31
SECTION 7.8 Directors' and Officers'
Indemnification................................... 31
ii
<PAGE>
ARTICLE 8 ADDITIONAL AGREEMENTS................................ 31
SECTION 8.1 Meetings of Stockholders.......................... 31
SECTION 8.2 Registration Statement; Proxy Statement........... 32
SECTION 8.3 Appropriate Action; Consents; Filings............. 33
SECTION 8.4 Affiliates........................................ 35
SECTION 8.5 Public Announcements.............................. 35
SECTION 8.6 NASDAQ Listing.................................... 35
SECTION 8.7 Existing Executive Employment
Arrangements...................................... 35
SECTION 8.8 Disclosure Schedules.............................. 35
SECTION 8.9 Financial Advisors................................ 35
ARTICLE 9 CLOSING CONDITIONS................................... 36
SECTION 9.1 Conditions to Obligations of
Each Party Under This Agreement................... 36
(a) Effectiveness of the
Registration Statement.................. 36
(b) Stockholder Approval.................... 36
(c) No Order................................ 36
(d) HSR Act................................. 36
SECTION 9.2 Additional Conditions to
Obligations of MRI................................ 36
(a) Representations and
Warranties.............................. 36
(b) Agreements and Covenants................ 37
(c) Consents and Approvals.................. 37
(d) Opinion of NMR's Counsel................ 37
(e) No NMR Material Adverse
Effect.................................. 37
(f) Stockholders Rights
Agreement............................... 37
(g) Appraisal Rights........................ 37
(h) Certificates............................ 37
(i) Affiliates' Letters..................... 37
SECTION 9.3 Additional Conditions to Obligations
of NMR............................................ 38
(a) Representations and
Warranties.............................. 38
(b) Agreements and Covenants................ 38
(c) Consents and Approvals.................. 38
(d) Opinion of Counsel to
MRI..................................... 38
(e) No MRI Material Adverse
Effect.................................. 38
(f) Certificates............................ 39
(g) Tax Opinion............................. 39
iii
<PAGE>
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER.................... 39
SECTION 10.1 Termination....................................... 39
SECTION 10.2 Effect of Termination............................. 40
SECTION 10.3 Amendment......................................... 40
SECTION 10.4 Waiver............................................ 41
SECTION 10.5 Fees, Expenses and Other Payments................. 41
ARTICLE 11 GENERAL PROVISIONS................................... 42
SECTION 11.1 Effectiveness of Representations,
Warranties and Agreements......................... 42
SECTION 11.2 Notices........................................... 42
SECTION 11.3 Certain Definitions............................... 43
SECTION 11.4 Headings.......................................... 45
SECTION 11.5 Severability...................................... 45
SECTION 11.6 Entire Agreement.................................. 45
SECTION 11.7 Assignment........................................ 45
SECTION 11.8 Parties in Interest............................... 45
SECTION 11.9 Failure or Indulgence Not Waiver;
Remedies Cumulative............................... 45
SECTION 11.10 Governing Law..................................... 46
SECTION 11.11 Counterparts...................................... 46
SECTION 11.12 Determination of Market Value..................... 46
Schedule 9.2(d)............................................................ 1
Schedule 9.3(d)............................................................ 1
Section 9.2(g) of NMR Disclosure Schedule.................................. 1
SECTION 9.3(g) OF MRI DISCLOSURE SCHEDULE.................................. 5
-----------------------------------------
Exhibit 8.7A...........................................NMR Executive Agreements
Exhibit 8.7B..........................Non-Competition and Consulting Agreements
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of May __, 1996 (the
"Agreement"), by and among MEDICAL RESOURCES, INC., a Delaware corporation
("MRI"), MRI SUB, INC., a Delaware corporation and wholly-owned subsidiary of
MRI ("Sub"), and NMR OF AMERICA, INC., a Delaware corporation ("NMR") (Sub and
NMR being hereinafter collectively referred to as the "Constituent
Corporations").
WHEREAS, the respective Boards of Directors of MRI, Sub, and
NMR have each determined that it is advisable and for the benefit and in the
best interests of their corporations and their respective stockholders that NMR
be acquired by MRI (the "Acquisition") by means of a merger of NMR with and into
Sub, with Sub being the surviving corporation, on the terms and conditions
hereinafter set forth (the "Merger");
WHEREAS, the Board of Directors of MRI has determined that the
Acquisition is consistent with and in furtherance of the long-term business
strategy of MRI and is fair to, and in the best interests of, MRI and the
holders of MRI Common Stock, as hereinafter defined, and has approved and
adopted this Agreement and has approved the Merger and the other transactions
contemplated hereby and recommended approval and adoption of the Agreement and
approval of the Merger by the stockholders of MRI; and
WHEREAS, the Board of Directors of NMR has determined that the
Acquisition is fair to, and in the best interests of, NMR and the holders of NMR
Common Stock, as hereinafter defined, and has approved and adopted this
Agreement and has approved the Merger and the other transactions contemplated
hereby and recommended approval and adoption of the Agreement and approval of
the Merger by the stockholders of NMR;
WHEREAS, for federal income tax purposes, it is intended that
the Merger qualify as a reorganization under the provisions of Section
368(a)(1)(A) and 368(a)(2)(D);
NOW, THEREFORE, in consideration of the premises, the mutual
covenants, representations and warranties herein contained, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto intending to be bound hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Subject to the terms and conditions
hereof, on the Effective Date (as defined in Section 1.3), NMR shall be merged
with and into Sub in accordance with the applicable provisions of the laws of
the State of Delaware ("Delaware Law"); Sub, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall continue its corporate existence
under Delaware Law; the separate existence of NMR shall
<PAGE>
thereupon cease; and its corporate existence shall be merged into and
transferred to the Surviving Corporation.
SECTION 1.2 STOCKHOLDERS' MEETINGS. To the extent consistent
with the fiduciary duty of their respective Boards of Directors, each of NMR and
MRI shall, as soon as practicable, take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-Laws to convene a
meeting of its stockholders to consider and vote upon the approval of the Merger
(together, the "Stockholders' Meetings") and to solicit proxies with respect to
such meeting. The Boards of Directors of each of NMR and MRI has recommended
that its stockholders approve the Merger.
SECTION 1.3 CONSUMMATION OF THE MERGER; EFFECTIVE DATE. As
soon as practicable following the Closing (as that term is hereinafter defined
in Section 2.5), the parties hereto will file with the Secretary of State of the
State of Delaware a Certificate of Merger in such form as required by, and
executed in accordance with, the relevant provisions of Delaware Law. The Merger
shall become effective at such time (the "Effective Time") as the Certificate of
Merger shall have been duly filed with the Secretary of State of the State of
Delaware (the "Effective Date").
SECTION 1.4 EFFECT OF THE MERGER. Upon the effectiveness of
the Merger, the Surviving Corporation shall succeed, without any other action,
to all rights and property of each of the Constituent Corporations, and shall be
subject to all the debts and liabilities of each of the Constituent Corporations
in the same manner as if the Surviving Corporation had itself incurred them, all
with the effect set forth in Delaware law. Without limiting the generality of
the foregoing, following effectiveness of the Merger, the Surviving Corporation
shall assume responsibility, either directly or indirectly, for the
administration of NMR's 401(K) Plan.
ARTICLE 2
CONVERSION AND CANCELLATION
OF SECURITIES
SECTION 2.1 CONVERSION OF SHARES; TREATMENT OF WARRANTS,
OPTIONS AND CONVERTIBLE SECURITIES. As of the Effective Date, by virtue of the
Merger and without any action on the part of the holders thereof:
(a) COMMON STOCK. (i) On the Effective Date, the
shares of NMR's Common Stock, $.01 par value (the "NMR Common Stock"), issued
and outstanding immediately prior to the Effective Date, other than Dissenting
Shares (as hereinafter defined) and other than any shares of NMR Common Stock
held by MRI, Sub or NMR,
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shall, by virtue of the Merger automatically and without any action on the part
of the holder thereof, become and be converted into the right to receive shares
of fully paid and nonassessable Common Stock, $.01 par value, of MRI (the "MRI
Common Stock"). The shares of MRI Common Stock issuable in the Merger are
sometimes collectively referred to hereinafter as the "Merger Consideration" and
the ratio of 0.6875 shares of MRI Common Stock to one share of NMR Common Stock
is herein referred to as the "Exchange Ratio."
(ii) Capital Stock Held by NMR, MRI or Sub. On the
Effective Date, each share of capital stock of NMR held in the treasury of NMR,
or by MRI or Sub immediately prior to the Effective Date shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
automatically cancelled and retired and cease to exist and no securities or
other consideration shall be payable in respect thereof.
(b) WARRANTS. Each warrant to acquire shares of NMR
Common Stock (a "Warrant") that is outstanding and unexercised at the Effective
Date 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 MRI
Common Stock the holder of such Warrant would have received in the Merger
pursuant to Section 2.1(a) had such holder exercised such Warrant in full
immediately prior to the Effective Date, and the price per share of MRI Common
Stock issuable after the Effective Date upon exercise of such Warrant shall
equal the price per share of NMR Common Stock under such Warrant as in effect
prior to the Effective Date divided by the Exchange Ratio. Without limiting the
generality of the foregoing, following effectiveness of the Merger, MRI shall be
bound by and subject to all registration rights contained in each Warrant and
such rights shall apply against MRI with the same legal force and effect as they
applied against NMR prior to effectiveness of the Merger. After the Effective
Date, MRI shall issue to each holder of a Warrant a new warrant containing the
foregoing terms and all other terms set forth in each Warrant, including without
limitation, all registration rights; PROVIDED, HOWEVER, that the failure of MRI
to so issue new warrants in substitution of Warrants shall not limit the rights
of the holder hereunder or thereunder and each such Warrant will be deemed
amended to substitute MRI in place of NMR and the terms and conditions of each
such Warrant shall be applicable to MRI in the same manner as they would be
applicable to NMR if the Merger had not occurred.
(c) OPTIONS. At the Effective Date, each stock option
("NMR Option") outstanding on the date hereof pursuant to the 1986 Incentive
Stock Option and Nonstatutory Option Plan ("NMR Plan") shall be deemed to
constitute and shall automatically be converted into stock options ("New
Options") exercisable for shares of MRI Common Stock and each NMR Option shall
be administered in accordance with the terms and conditions provided for in the
NMR
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Plan under which the corresponding NMR Option was granted and the stock option
agreement by which it was evidenced, including terms and provisions regarding
exercisability. The number of shares of MRI Common Stock covered by each New
Option shall be the number of shares of MRI Common Stock which the holder of the
NMR Option would have received in the Merger pursuant to Section 2.1(a) had such
holder exercised the NMR Option in full immediately prior to the Effective Date,
without regard to vesting; provided, however, that the number of shares of MRI
Common Stock that may be purchased upon exercise of a New Option shall not
include any fractional share interest which shall be cashed out upon exercise
for an amount of cash (without interest) determined by multiplying such
fractional share interest by the average reported last sale price of MRI Common
Stock on the NASDAQ system for the five (5) trading days ending on the close of
business on the last business day immediately preceding the date of such
exercise. The exercise price per share of MRI Common Stock subject to a New
Option shall equal the exercise price per share (subject to the adjustments
provided for in the NMR Option) of NMR Common Stock subject to the corresponding
NMR Option so converted divided by the Exchange Ratio. Without limiting the
rights of holders of NMR Options, as soon as practicable after the Effective
Date, MRI shall issue to the holders of such NMR Options appropriate instruments
evidencing New Options and confirming the rights of such holders with respect to
MRI Stock on the terms and conditions provided by this Section 2.1, upon
surrender of the outstanding instruments representing such NMR Option; provided,
however, that MRI shall not be obligated to issue any shares of MRI Stock, until
such time as the shares of MRI Stock issuable upon exercise of New Options shall
have been registered with the Securities and Exchange Commission (the "SEC")
pursuant to an effective registration statement and authorized for quotation on
the NASDAQ--National Market System and for sale by any appropriate state
securities regulators, which MRI shall use its best efforts to effect as
promptly as practicable, but in no event more than 15 days after the Effective
Date, and MRI shall use its best efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as the NMR Options remain
outstanding. At or prior to the Effective Date, MRI shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of MRI
Common Stock for delivery upon exercise of New Options. Notwithstanding the
requirements of the NMR Plan, so long as a registration statement covering the
MRI Common Stock underlying the New Option is effective, if any holder of a New
Option sells any or all of the shares of MRI Common Stock covered by such New
Option in a brokers transaction prior to the exercise of such New Option ("Short
Sale"), MRI shall, upon written notice to MRI of such Short Sale by the holder
or his or her broker, cause its transfer agent to issue in the name of holder
and deliver to the holder's broker within three business days a certificate
evidencing such shares to be applied against the Short Sale and upon receipt of
payment against delivery of the shares,
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the holder will direct his or her broker to authorize payment directly to MRI of
the exercise price from the proceeds of such Short Sale.
(d) CONVERTIBLE SECURITIES. The obligations of NMR
under each 8% Convertible Subordinated Debenture due 2001 of NMR (a "Debenture")
(including, without limitation, the due and punctual payment of the principal of
(and premium, if any) and interest thereon) that is outstanding at the Effective
Date shall, by virtue of the Merger and without any action on the part of NMR or
MRI, be assumed in full by, and become the obligations of, the Surviving
Corporation which shall comply after the Effective Date with all requirements of
the Indenture, dated as of July 1, 1986 (the "Indenture") pursuant to which the
Debentures were issued. Each Debenture that is outstanding at the Effective Date
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 for that number of shares of MRI Common Stock that the
holder of such Debenture would have received in the Merger pursuant to Section
2.1(a) had such holder converted such Debenture in full immediately prior to the
Effective Date, and the price per share of MRI Common Stock issuable after the
Effective Date upon conversion of such Debenture shall equal the "conversion
price" under such Debenture in effect prior to the Effective Date divided by the
Exchange Ratio. MRI shall, and shall cause the Surviving Corporation to, comply
with any and all requirements of, and execute and deliver any and all agreements
required by, the Indenture pertaining to a merger or consolidation of NMR.
SECTION 2.2 APPRAISAL RIGHTS. Holders of shares of NMR Common
Stock, who duly exercise and perfect appraisal rights under Section 262 of the
Delaware General Corporation Law (such shares referred to herein as "Dissenting
Shares") shall have the appraisal rights set forth in Section 262 of the
Delaware General Corporation Law and no other rights; provided, however, that
Dissenting Shares beneficially and legally owned by the holder thereof at the
Effective Date who shall, after the Effective Date, withdraw the demand for
appraisal or lose the right of appraisal as provided in such law, shall be
deemed to be converted as of the Effective Date, into the right to receive the
Merger Consideration set forth in Section 2.1 hereof.
SECTION 2.3 SURRENDER AND PAYMENT. After the Effective Date,
each holder of a certificate that formerly represented shares of NMR Common
Stock, issued and outstanding on the Effective Date (other than any Dissenting
Shares and shares held by NMR, MRI or Sub) shall be entitled, upon surrender
thereof to the Surviving Corporation, to receive the Merger Consideration for
each share of MRI Common Stock theretofore represented by the certificate so
surrendered as provided in Section 2.1 hereof, and the certificate so
surrendered shall forthwith be cancelled.
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SECTION 2.4 COMMON STOCK OF SUB. Each share of common stock,
par value $.01 per share, of Sub issued and outstanding on the Effective Date
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.
SECTION 2.5 CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place, unless the
parties shall otherwise agree, at the offices of Werbel McMillin & Carnelutti,
711 Fifth Avenue, New York, New York 10022 at 10:00 A.M. local time (i) as soon
as practicable after the day on which the last condition set forth in Article 9
shall have been fulfilled or waived or (ii) at such other time as NMR and MRI
may mutually agree (the "Closing Date").
ARTICLE 3
CERTIFICATES OF INCORPORATION and BY-LAWS
SECTION 3.1 CERTIFICATE OF INCORPORATION AND BY-LAWS. As of
the Effective Date, the Certificate of Incorporation and By-laws of Sub as in
effect on the Effective Date shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until thereafter amended as provided by
law.
SECTION 3.2 DIRECTORS AND OFFICERS OF SUB. The directors and
officers of Sub at the Effective Time shall be the initial directors and
officers of the Surviving Corporation and shall hold office from the Effective
Time until the respective successors are duly elected or appointed and qualified
in the manner provided in the Certificate of Incorporation or By-Laws of the
Surviving Corporation or as otherwise provided by law.
ARTICLE 4
CERTAIN PROVISIONS RELATING TO SHARES
SECTION 4.1 NO FRACTIONAL SHARES OF MRI COMMON STOCK. No
fractional shares of MRI Common Stock shall be issued by MRI in the Merger. Each
stockholder of NMR who otherwise would be entitled to a fractional interest in
any share of MRI Common Stock shall receive an amount of cash (without interest)
determined by multiplying the average reported last sale price of MRI Common
Stock on the NASDAQ system for the five (5) trading days ending on the close of
business on the second (2) business day before the Stockholders' Meeting of NMR
(the "Fair Market Value") by the fractional share interest to which such holder
would otherwise be entitled. Unless and until the certificate which immediately
prior to the Effective Date represented shares of NMR Common Stock (the
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"Certificates") shall have been surrendered, the holder of any Certificate
representing a fraction of a share of MRI Common Stock shall not be entitled to
receive the cash payment described in this Section 4.1 for such fraction of a
share. Such payment shall be remitted, without interest, after the surrender of
the Certificates held by such holder as provided in Section 4.2.
SECTION 4.2 MRI TO MAKE MERGER CONSIDERATION AVAILABLE. MRI
shall designate its stock transfer agent to act as exchange agent (the "Exchange
Agent") in connection with the Merger. As soon as practicable after the
Effective Date, MRI shall make available and, subject to Section 4.1, each
holder of a Certificate shall be entitled to receive, upon surrender to the
Exchange Agent of such Certificate for cancellation and subject to any required
withholding of taxes under any applicable federal income tax laws ("Backup
Withholding"), the aggregate number of shares of MRI Common Stock into which the
shares of NMR Common Stock, previously represented by each Certificate shall
have been converted in the Merger. Until so surrendered and exchanged, each
Certificate (other than Certificates representing any Dissenting Shares or
shares of the capital stock of NMR held by NMR, MRI or Sub) shall represent
solely the right to receive the Merger Consideration into which the shares of
NMR Common Stock it represented prior to the Effective Date shall have been
converted pursuant to Section 2.1, less any Backup Withholding. As soon as
practicable after the Effective Date, MRI shall cause the Exchange Agent to mail
a transmittal form to each holder of a Certificate advising such holder of the
procedure for surrendering to the Exchange Agent such Certificates for payment
in accordance with this Section 4.2.
SECTION 4.3 DIVIDENDS; TRANSFER TAXES; VOTING RIGHTS. (a) No
dividends or distributions that are otherwise payable on MRI Common Stock will
be paid to persons entitled to receive MRI Common Stock until such persons
surrender their Certificates. Upon such surrender, there shall be paid to the
person in whose name MRI Common Stock shall be issued, any dividends or
distributions which shall have become payable with respect to MRI Common Stock
between the Effective Date and the time of such surrender. After such surrender,
there shall be paid to the person in whose name the MRI Common Stock shall be
issued any dividends or distributions on MRI Common Stock which shall have a
record date prior to such surrender and a payment date after such surrender, and
such payment shall be made on such payment date.
(b) If shares of MRI Common Stock are to be issued or
delivered to any person other than the person in whose name the Certificate
surrendered for exchange is registered, it shall be a condition of the exchange
that the person requesting such exchange shall deliver to the Exchange Agent all
documents required to evidence and effect such transfer, and pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance or
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delivery of a certificate representing such shares of MRI Common Stock to other
than the registered owner of the Certificate surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
SECTION 4.4 ABANDONED PROPERTY; LOST CERTIFICATES.
Notwithstanding anything to the contrary contained herein, neither the Exchange
Agent nor any party hereto shall have any liability to a holder of a Certificate
for the payment of the Merger Consideration to be issued in accordance with the
provisions hereof if such Merger Consideration is paid to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to three (3) years after the
Effective Date (or immediately prior to such earlier date on which any payment
in respect thereof would otherwise escheat to or become the property of any
governmental unit or agency), the payment in respect of such Certificates shall,
to the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims of interest of any person previously
entitled thereto. Lost Certificates shall be treated in accordance with the
normal procedures of the Exchange Agent.
SECTION 4.5 TAKING OF NECESSARY ACTION; FURTHER ACTION. Sub,
MRI and NMR shall each take all such action as may be necessary or appropriate
in order to effectuate the Merger as promptly as possible, subject to all of the
terms and conditions hereof. If, at any time after the Effective Date, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of the Constituent Corporations, the officers and directors of such
corporation are fully authorized in the name of such corporation or otherwise to
take, and shall take, all such action.
SECTION 4.6 CLOSING OF NMR'S TRANSFER BOOKS. On the Effective
Date, the stock transfer books of NMR shall be closed and no transfer of shares
of capital stock of NMR shall thereafter be made, except for transfers of
Dissenting Shares, as permitted by law. If, after the Effective Date,
certificates representing shares of NMR Common Stock are presented to the
Surviving Corporation, they shall, subject to the provisions of Section 4.4
hereof, be cancelled and exchanged for the Merger Consideration provided in
Section 2.1 hereof.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NMR
Except as set forth in the Disclosure Schedule to be delivered
by NMR to MRI (the "NMR Disclosure Schedule"), which shall identify exceptions
by specific Section references, NMR hereby represents and warrants to MRI that:
SECTION 5.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each
of NMR and its subsidiaries is a corporation or limited partnership, as the case
may be, duly incorporated (if a corporation), duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
be in good standing, or to have such power and authority, or to be duly
qualified and in good standing, as the case may be, would not have a NMR
Material Adverse Effect. The term "NMR Material Adverse Effect" as used in this
Agreement shall mean any event, change or effect that, individually or when
taken together with all other such events, changes or effects, would be
materially adverse to the condition (financial or otherwise), prospects,
properties, assets, business or operations of NMR and its subsidiaries, taken as
a whole, at the time of such event, change or effect; provided, however, that
for purposes of this Agreement, any change occurring between the date of this
Agreement and the Effective Date in the amount of cash held by NMR as a direct
result of payment of expenses relating to the Merger (including the payments to
Joseph G. Dasti and John P. O'Malley referred to in Section 7.7) shall not be
deemed an NMR Material Adverse Effect.
SECTION 5.2 CERTIFICATES OF INCORPORATION AND BY-LAWS. NMR has
heretofore furnished to MRI complete and correct copies of the Certificates of
Incorporation and the By-Laws or the equivalent organizational documents, in
each case as amended or restated, of NMR and each subsidiary. Neither NMR nor
any subsidiary is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws or certificate of limited partnership, or equivalent
organizational document, as the case may be.
SECTION 5.3 CAPITALIZATION. As of the date of this Agreement,
the authorized capital stock of NMR consists of (i) 30,000,000 shares of NMR
Common Stock, of which: (v) 6,273,683 shares of NMR Common Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, common
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law, NMR's Certificate of Incorporation or By-Laws or, any agreement to which
NMR is a party or is bound or otherwise; (w) 430,797 shares of NMR Common Stock
are held in the treasury of NMR; (x) 454,222 shares of NMR Common Stock are
reserved for future issuance in connection with NMR's outstanding Convertible
Subordinated Debentures (the "Debt Securities"); (y) 1,480,409 shares of NMR
Common Stock are reserved for future issuance pursuant to (1) outstanding
employee stock options (collectively the "NMR Employee Stock Options") granted
pursuant to the 1986 Incentive Stock Option and Non-Statutory Option Plan, as
amended, (the "Employee Option Plan"), and (2) outstanding stock purchase
warrants or other rights to purchase NMR Common Stock (the "NMR Warrants" and,
together with NMR Employee Stock Options, collectively the "Stock Options"); and
(z) 57,337 shares of NMR Common Stock issued to the trustee of NMR's 401(K) Plan
and (ii) 500,000 shares of preferred stock, par value $.05 per share ("NMR
Preferred Stock"), of NMR, of which no shares are issued or outstanding. Each of
the outstanding shares of capital stock of, or other equity interests in, each
of NMR's subsidiaries is duly authorized and validly issued and, if applicable,
fully paid and nonassessable, and such shares or other equity interests owned by
NMR or any subsidiary of NMR are owned free and clear of all security interests,
liens, claims, pledges, agreements, limitations on NMR's or any subsidiary's
voting rights, charges or other encumbrances of any nature whatsoever. As of the
date of this Agreement, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which NMR or any of its subsidiaries is a party relating to the
issued or unissued capital stock or other securities of NMR or any of its
subsidiaries or obligating NMR or any of its subsidiaries to grant, issue or
sell any shares of the capital stock or other securities of NMR or any of its
subsidiaries, by sale, lease, license or otherwise, except (A) as disclosed in
Section 5.3 of the NMR Disclosure Schedule and (B) for NMR's existing stock
option plans to the extent stock options for such shares thereunder have not yet
been granted. As of the date of this Agreement, except as set forth in Section
5.3 of the NMR Disclosure Schedule, there are no obligations, contingent or
otherwise, of NMR or any of its subsidiaries to (x) repurchase, redeem or
otherwise acquire any shares of NMR Common Stock or NMR Preferred Stock, or the
capital stock of, or other equity interests in, any subsidiary of NMR or (y)
(other than advances to subsidiaries in the ordinary course of business) provide
funds to, or make any investment in (in the form of a loan, capital contribution
or otherwise), or provide any guarantee with respect to the obligations of, any
subsidiary of NMR or any other person.
SECTION 5.4 AUTHORITY. NMR has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (other than
with respect to
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the Merger, the approval and adoption of this Agreement by the holders of the
NMR Common Stock in accordance with Delaware Law). The execution and delivery of
this Agreement by NMR and the consummation by NMR of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of NMR are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than, with respect to the approval and adoption of this Agreement, by the
holders of a majority of the outstanding shares of NMR Common Stock in
accordance with Delaware Law). This Agreement has been duly executed and
delivered by NMR and, assuming the due authorization, execution and delivery
thereof by MRI and Sub, constitutes the legal, valid and binding obligation of
NMR, enforceable against NMR in accordance with its terms, 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).
SECTION 5.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a)
The execution and delivery of this Agreement by NMR does not, and the
performance of this Agreement by NMR and the consummation of the transactions
contemplated hereby will not, excepting any shareholder votes required by
Delaware Law, (i) conflict with or violate the Certificate of Incorporation or
ByLaws, or the equivalent organizational documents, in each case as amended or
restated, of NMR or any of its subsidiaries, (ii) conflict with or violate any
federal, state, foreign or local law, statute, ordinance, rule, regulation,
order, judgment, arbitration award or decree (collectively, "Laws") or NMR
Permit (as hereinafter defined) in effect as of the date of this Agreement and
applicable to NMR or any of its subsidiaries or by which any of their respective
properties is bound or subject to including, without limitation, Section 203 of
Delaware Law or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of NMR or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
order, decree, franchise or other instrument or obligation to which NMR or any
of its subsidiaries is a party or by which NMR or any of its subsidiaries or any
of their respective properties is bound or is subject to, except for any such
conflicts or violations described in clause (ii) or breaches, defaults, events,
rights of termination, amendment, acceleration or cancellation or liens or
encumbrances described in clause (iii) that would not have a NMR Material
Adverse Effect. The Board of Directors of NMR has taken all actions necessary
under Delaware Law, including approving the transactions contemplated in this
Agreement, to ensure that Section
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203 of Delaware Law does not, or will not, apply to the transactions
contemplated in this Agreement. The Board of Directors of NMR has taken all
actions necessary or appropriate to preclude the triggering or applicability of
the provisions of NMR's Stockholders' Rights Agreement to the Merger and
transactions contemplated hereby.
(b) The execution and delivery of this Agreement by
NMR does not, and the performance of this Agreement by NMR and the ownership and
operation of the business and properties of NMR and its subsidiaries by the
Surviving Corporation following the Effective Date will not, as of the date of
this Agreement, require NMR or any of its subsidiaries to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any governmental or regulatory authority ("Governmental Entities"), except
(i) for applicable requirements, if any, of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), state securities or blue sky laws ("Blue Sky
Laws") the Hart-Scott-Rodino Antitrust Improvements Act ("HSR Act"), the New
Jersey Industrial Site Recovery Act ("ISRA"), the NASD, the Philadelphia Stock
Exchange and the filing and recordation of appropriate merger documents as
required by Delaware Law and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, either individually or in the aggregate, prevent NMR from performing
its obligations under this Agreement or otherwise have a NMR Material Adverse
Effect.
SECTION 5.6 PERMITS; COMPLIANCE. Each of NMR and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "NMR
Permits"), and there is no action or proceeding or, to the knowledge of NMR,
investigation pending or threatened regarding suspension or cancellation of any
NMR Permits, except where the failure to possess, or the suspension or
cancellation of, such NMR Permits would not have a NMR Material Adverse Effect.
Neither NMR nor any of its subsidiaries is in conflict with, or in default or
violation of (a) any Law or any rule of professional conduct applicable thereto
and applicable to NMR or any of its subsidiaries or by which any of their
respective properties is bound or subject to or (b) any of NMR Permits, except
for any such conflicts, defaults or violations which would not have a NMR
Material Adverse Effect.
SECTION 5.7 REPORTS; FINANCIAL STATEMENTS. (a) Since April 1,
1995, (x) NMR has filed timely all forms, reports, statements and other
documents required to be filed with (i) the Securities and Exchange Commission
(the "SEC") including, without
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limitation, (A) all Annual Reports on Form 10-KSB, (B) all Quarterly Reports on
Form 10-QSB, (C) all proxy statements relating to meetings of stockholders
(whether annual or special), (D) all Current Reports on Form 8-K, (E) all other
reports or registration statements and (F) all amendments and supplements to all
such reports and registration statements (collectively referred to as the "SEC
Reports") and (ii) any other applicable state securities authorities and (y) NMR
has filed all forms, reports, statements and other documents required to be
filed with any other applicable federal or state regulatory authorities, except
where the failure to file any such forms, reports, statements or other documents
referred to in this clause (ii) would not have a NMR Material Adverse Effect
(all such forms, reports, statements and other documents in clauses (x) and (y)
of this Section 5.7(a) being referred to herein, collectively, as the
"Reports"). The Reports, including all Reports filed after the date of this
Agreement and prior to the Effective Date, (i) were or will be prepared in all
material respects in accordance with the requirements of applicable Law
(including, with respect to the SEC Reports, the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such SEC Reports) and (ii) did not at the time they were filed, or
will not at the time they are filed, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the SEC
Reports filed prior to or after the date of this Agreement (i) have been or will
be prepared in accordance with the published rules and regulations of the SEC
and generally accepted accounting principles and (ii) fairly present or will
fairly present the consolidated financial position of NMR and its subsidiaries
as of the respective dates thereof and consolidated results of operations and
cash flows for the periods indicated (including reasonable estimates of normal
and recurring year-end adjustments), except that (A) any unaudited interim
financial statements were or will be subject to normal and recurring year-end
adjustments and (B) any pro forma financial information contained in such
consolidated financial statements is not necessarily indicative of the
consolidated financial position of NMR and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and cash flows for the
periods indicated.
SECTION 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. During the
period commencing April 1, 1995, and ending on the date of this Agreement, there
has not been (a) a NMR Material Adverse Effect or (b) any change by NMR or its
subsidiaries in their accounting methods, principles or practices.
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SECTION 5.9 ABSENCE OF LITIGATION. In addition to the NMR
Disclosure Schedule, except as disclosed in the SEC Reports filed prior to the
date of this Agreement, there is no claim, action, suit, litigation, proceeding,
arbitration or, to the knowledge of NMR, investigation of any kind, at law or in
equity (including actions or proceedings seeking injunctive relief), pending or,
to the knowledge of NMR, threatened in writing against NMR or any of its
subsidiaries or any properties or rights of NMR or any of its subsidiaries
(except for claims, actions, suits, litigations, proceedings, arbitrations, or
investigations which, individually or in the aggregate, would not reasonably be
expected to have a NMR Material Adverse Effect), and neither NMR nor any of its
subsidiaries is subject to any continuing order of, consent decree, or, the
knowledge of NMR, continuing investigation by, any Governmental Entity, or any
judgment, order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders,
except for matters which, individually or in the aggregate, would not have a NMR
Material Adverse Effect.
SECTION 5.10 TAXES. Except for such matters that would not
have a NMR Material Adverse Effect and are disclosed in Section 5.10 of the NMR
Disclosure Schedule (a) NMR and its subsidiaries have timely filed or will
timely file all returns and reports required to be filed by them with any taxing
authority with respect to Taxes for any period ending on or before the Effective
Date, taking into account any extension of time to file granted to or obtained
on behalf of NMR and its subsidiaries, (b) all Taxes shown to be payable on such
returns or reports that are due prior to the Effective Date have been paid or
will be paid when due, (c) as of the date hereof, no deficiency for any material
amount of Tax has been asserted or assessed by a taxing authority against NMR or
its subsidiaries, (d) all liability for Taxes of NMR or its subsidiaries that
are or will become due or payable with respect to periods covered by the
financial statements referred to in Section 5.7(b) hereof have been paid or
adequately reserved for on such financial statements and (e) no Tax return or
reports of NMR or any of its subsidiaries are under examination.
SECTION 5.11 CERTAIN BUSINESS PRACTICES. As of the date
hereof, except for such actions which would not have a NMR Material Adverse
Effect, neither NMR nor any of its subsidiaries nor, to the knowledge of NMR,
any directors, officers, agents or employees of NMR or any of its subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to government officials or employees, or (iii) made any other unlawful payment.
SECTION 5.12 BROKERS. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or
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commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of NMR.
SECTION 5.13 BOARD RECOMMENDATION. The Board of Directors of
NMR, at a meeting duly called and held, has by requisite vote under applicable
Laws (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, and the transactions contemplated thereby, taken
together, are fair to and in the best interests of the stockholders of NMR, and
(ii) resolved to recommend that the holders of the shares of NMR Common Stock
approve this Agreement and the transactions contemplated herein, including the
Merger.
SECTION 5.14 BOOKS AND RECORDS. The books of account and other
financial records of NMR and its subsidiaries 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 consolidated
financial statements of NMR contained in the SEC Reports. The minute books of
NMR contain accurate records of all meetings, and accurately reflect all other
corporate action of the shareholders and directors of NMR.
SECTION 5.15 NO UNDISCLOSED LIABILITIES. There are no
liabilities of NMR or any of its subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the
consolidated financial statements contained in the NMR SEC Reports;
(b) liabilities incurred in the ordinary course of
business consistent with past practice since March 31, 1995; and
(c) liabilities which either individually or
collectively would not have an NMR Material Adverse effect.
SECTION 5.16 CONTRACTS. Listed on Section 5.16 of the NMR
Disclosure Schedule are all contracts and agreements of NMR and its
subsidiaries, oral (in which case a summary thereof should be provided) and
written, including, but not limited to, employment contracts, leases and
management agreements, which require the payment by or to NMR or an NMR
subsidiary of more than $50,000 annually ($25,000 in the case of employment
contracts).
SECTION 5.17 DISCLOSURE. No representation or warranty of NMR
in this Agreement or any document, certificate or statement issued in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein and
therein, in the light of the circumstances in which they were made, not
misleading.
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SECTION 5.18 AFFILIATES. Concurrently with the execution and
delivery of this Agreement, NMR has delivered to MRI a letter identifying all
persons who, to the knowledge of NMR, may be deemed to be affiliates of NMR
under Rule 145 of the Securities Act, including, without limitation, all
directors and executive officers of NMR.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MRI AND SUB
Except as set forth in the Disclosure Schedule to be delivered
by MRI and Sub to NMR (the "MRI Disclosure Schedule"), which shall identify
exceptions by specific Section references, MRI and Sub hereby represent and
warrant to NMR that:
SECTION 6.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each
of MRI, Sub and their subsidiaries is a corporation or limited partnership, as
the case may be, duly incorporated (if a corporation), duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where the failure to be in good standing, or to have such power and
authority, or to be duly qualified and in good standing, as the case may be,
would not have a MRI Material Adverse Effect. The term "MRI Material Adverse
Effect" as used in this Agreement shall mean any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, would be materially adverse to the condition (financial or otherwise),
prospects, properties, assets, business or operations of MRI and all of its
subsidiaries, taken as a whole, at the time of such event, change or effect.
SECTION 6.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. MRI has
heretofore furnished to NMR complete and correct copies of the Certificates of
Incorporation and the By-Laws or the equivalent organizational documents in each
case, as amended or restated, of MRI and each subsidiary. Neither MRI nor any
subsidiary is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws or Certificate of Limited Partnership, or equivalent
organizational documents, as the case may me.
SECTION 6.3 CAPITALIZATION. As of the date of this Agreement,
the authorized capital stock of MRI consists of (a) 20,000,000 shares of MRI
Common Stock and (b) 100,000 shares of preferred stock, par value $.01 per share
("MRI Preferred Stock"). As of the date of this Agreement: (i) 8,970,262 shares
of MRI
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Common Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, common law, MRI's Certificate of Incorporation or
By-Laws, or any agreement to which MRI is a party or is bound or otherwise; (ii)
265,000 shares of MRI Common Stock are held in treasury; and (iii) 1,307,125
shares of MRI Common Stock are reserved for future issuance pursuant to
outstanding stock options and warrants issued to certain officers, employees,
directors, consultants and other persons. As of the date of this Agreement, 128
shares of MRI Preferred Stock are issued and outstanding. The shares of MRI
Common Stock to be issued in the Merger have been duly authorized and, when
issued in accordance with the Merger, will be validly issued, fully paid and
nonassessable. Each of the outstanding shares of capital stock of, or other
equity interests in, each of MRI's subsidiaries is duly authorized and validly
issued and, if applicable, fully paid and nonassessable. As of the date of this
Agreement, there are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which MRI or any of its subsidiaries is a party relating to the issued or
unissued capital stock or other securities of MRI to grant, issue or sell any
shares of the capital stock or other securities of MRI or any of its
subsidiaries, by sale, lease, license or otherwise, except (A) as disclosed in
Section 6.3 of the MRI Disclosure Schedule and (B) for options to purchase MRI
Common Stock under MRI's existing stock option plans to the extent stock options
for such shares thereunder have not yet been granted. As of the date of this
Agreement, there are no obligations, contingent or otherwise, of MRI or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of MRI
Common Stock.
SECTION 6.4 AUTHORITY. Each of MRI and Sub has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated hereby
(other than with respect to the Merger, the approval and adoption of this
Agreement by the holders of the MRI Common Stock in accordance with applicable
law or the rules of the NASD). The execution and delivery of this Agreement by
MRI and Sub and the consummation by MRI and Sub of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of MRI or Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than,
with respect to the approval and adoption of this Agreement, by the holders of a
majority of the outstanding shares of MRI Common Stock in accordance with
Delaware Law). This Agreement has been duly executed and delivered by MRI and
Sub and, assuming the due authorization, execution and delivery thereof by NMR,
constitutes a legal, valid and binding obligation of MRI and Sub enforceable
against MRI and Sub in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other laws affecting the enforcement of
creditors' rights in general from time
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to time in effect and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 6.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a)
The execution and delivery of this Agreement by MRI and Sub does not, and the
performance of this Agreement by MRI and Sub and the consummation of the
transactions contemplated hereby will not, excepting any shareholder votes
required by applicable law or the rules of the NASD, (i) conflict with or
violate the Certificate of Incorporation or By-Laws, as amended or restated, of
MRI or Sub, (ii) conflict with or violate any Laws or MRI Permit (as hereinafter
defined) in effect as of the date of this Agreement applicable to MRI or Sub or
by which any of their respective properties is bound or subject to, including,
without limitation, Section 203 of Delaware Law or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on the properties or assets of MRI or Sub pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit, order,
decree, franchise or other instrument or obligation to which MRI or Sub is a
party or by which MRI or Sub or any of their respective properties is bound or
subject to, except for any such conflicts or violations described in clause (ii)
or breaches, defaults, events, rights of termination, amendment, acceleration or
cancellation or liens or encumbrances described in clause (iii) that would not
have a MRI Material Adverse Effect. The Board of Directors of MRI has taken all
actions necessary under Delaware Law, including approving the transactions
contemplated in this Agreement, to ensure that Section 203 of Delaware Law does
not, or will not, apply to the transactions contemplated in this Agreement. As
used herein, "MRI Permit" shall mean all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary for MRI and its subsidiaries to own, lease and
operate its properties and to carry on its business as it is now being
conducted.
(b) The execution and delivery of this Agreement by
MRI and Sub does not, and the performance of this Agreement by MRI and Sub will
not, as of the date of this Agreement, require MRI or any subsidiary of MRI to
obtain any consent, approval, authorization or permit of, or to make any filing
with or notification to, any Governmental Entities, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
HSR Act and ISRA and the filing and recordation of appropriate merger documents
as required by Delaware Law and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, either individually or in the aggregate,
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prevent either MRI or Sub from performing its obligations under this Agreement
or otherwise have a MRI Material Adverse Effect.
SECTION 6.6 PERMITS; COMPLIANCE. Each of MRI and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "MRI
Permits"), and there is no action or proceeding or, to the knowledge of MRI,
investigation pending or threatened regarding suspension or cancellation of any
MRI Permits, except where the failure to possess, or the suspension or
cancellation of, such MRI Permits would not have a MRI Material Adverse Effect.
Neither MRI nor any of its subsidiaries is in conflict with, or in default or
violation of (a) any Law or any rule of professional conduct applicable thereto
and applicable to MRI or any of its subsidiaries or by which any of their
respective properties is bound or subject to or (b) any of MRI Permits, except
for any such conflicts, defaults or violations which would not have a MRI
Material Adverse Effect.
SECTION 6.7 REPORTS; FINANCIAL STATEMENTS. (a) Since January
1, 1996, MRI and its subsidiaries have timely filed (i) all forms, reports,
statements and other documents required to be filed with (A) the SEC, including,
without limitation, (1) all Annual Reports on Form 10-K, (2) all Quarterly
Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on Form 8-K,
(5) all other reports or registration statements and (6) all amendments and
supplements to all such reports and registration statements (collectively, the
"MRI SEC Reports") and (B) any other applicable state securities authorities and
(ii) all forms, reports, statements and other documents required to be filed
with any other applicable federal or state regulatory authorities, except where
the failure to file any such forms, reports, statements or other documents
referred to in this clause (ii) would not have a MRI Material Adverse Effect
(all such forms, reports, statements and other documents in clauses (i) and (ii)
of this Section 6.6(a) being referred to herein, collectively, as the "MRI
Reports"). The MRI Reports, including all MRI Reports filed after the date of
this Agreement and prior to the Effective Date (x) were or will be prepared in
all material respects in accordance with the requirements of applicable Law
(including, with respect to the MRI SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such MRI SEC Reports) and (y) did not at the time they
were filed, or will not at the time they are filed, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the MRI SEC
Reports filed prior to, on or after the date of this Agreement (i) have been or
will be prepared in accordance with the published rules and regulations of the
SEC and generally accepted accounting principles and (ii) fairly present or will
fairly present the consolidated financial position of MRI and its subsidiaries
as of the respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated (including reasonable estimates of
normal and recurring year-end adjustments), except that (A) any unaudited
interim financial statements were or will be subject to normal and recurring
year-end adjustments and (B) any pro forma financial information contained in
such consolidated financial statements is not necessarily indicative of the
consolidated financial position of MRI and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and cash flows for the
periods indicated.
SECTION 6.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. During the
period commencing January 1, 1996 and ending on the date of this Agreement,
there has not been (a) a MRI Material Adverse Effect or (b) any change by MRI or
its subsidiaries in their accounting methods, principles or practices.
SECTION 6.9 ABSENCE OF LITIGATION. In addition to the MRI
Disclosure Schedule, except as disclosed in the SEC Reports filed prior to the
date of this Agreement, there is no claim, action, suit, litigation, proceeding,
arbitration or, to the knowledge of MRI, investigation of any kind, at law or in
equity (including actions or proceedings seeking injunctive relief), pending or,
to the knowledge of MRI, threatened in writing against MRI or any of its
subsidiaries or any properties or rights of MRI or any of its subsidiaries
(except for claims, actions, suits, litigations, proceedings, arbitrations, or
investigations which, individually or in the aggregate, would not reasonably be
expected to have a MRI Material Adverse Effect), and neither MRI nor any of its
subsidiaries is subject to any continuing order of, consent decree, or, the
knowledge of MRI, continuing investigation by, any Governmental Entity, or any
judgment, order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders,
except for matters which, individually or in the aggregate, would not have a MRI
Material Adverse Effect.
SECTION 6.10 TAXES. Except for such matters that would not
have a MRI Material Adverse Effect and are disclosed in Section 6.10 of the MRI
Disclosure Schedule (a) MRI and its subsidiaries have timely filed or will
timely file all returns and reports required to be filed by them with any taxing
authority with respect to Taxes for any period ending on or before the Effective
Date, taking into account any extension of time to file granted to or
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obtained on behalf of MRI and its subsidiaries, (b) all Taxes shown to be
payable on such returns or reports that are due prior to the Effective Date have
been paid or will be paid when due, (c) as of the date hereof, no deficiency for
any material amount of Tax has been asserted or assessed by a taxing authority
against MRI or its subsidiaries, (d) all liability for Taxes of MRI or its
subsidiaries that are or will become due or payable with respect to periods
covered by the financial statements referred to in Section 6.7(b) hereof have
been paid or adequately reserved for on such financial statements and (e) no Tax
return or reports of MRI or any of its subsidiaries are under examination.
SECTION 6.11 CERTAIN BUSINESS PRACTICES. As of the date
hereof, except for such actions which would not have a MRI Material Adverse
Effect, neither MRI nor any of its subsidiaries nor, to the knowledge of MRI,
any directors, officers, agents or employees of MRI or any of its subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to government officials or employees, or (iii) made any other unlawful payment.
SECTION 6.12 BROKERS. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of MRI.
SECTION 6.13 BOOKS AND RECORDS. The books of account and other
financial records of MRI and its subsidiaries are in all material respects
complete and correct, are maintained in accordance with good business practices
and all Laws applicable to MRI, and are accurately reflected in the consolidated
financial statements of MRI contained in the SEC Reports. The minute books of
MRI contain accurate records of all meetings, and accurately reflect all other
corporate action of the shareholders and directors of MRI.
SECTION 6.14 CONTRACTS. Listed on Section 6.14 of the MRI
Disclosure Schedule are all contracts and agreements of MRI and its
subsidiaries, oral (in which case a summary thereof should be provided) and
written, including, but not limited to, employment contracts, leases and
management agreements, which require the payment by or to MRI or an MRI
subsidiary of more than $50,000 annually ($25,000 in the case of employment
contracts).
SECTION 6.15 NO UNDISCLOSED LIABILITIES. There are no
liabilities of MRI or any of its subsidiaries 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
financial statements contained in the MRI SEC Reports;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1995; and
(c) liabilities which either individually or collectively would not
have an MRI Material Adverse effect.
SECTION 6.16 BOARD RECOMMENDATION. The Board of Directors of MRI, at a
meeting duly called and held, has by requisite vote under applicable laws, (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, and the transactions contemplated thereby, taken together,
are fair to and in the best interests of the stockholders of MRI, and (ii)
resolved to recommend that the holders of the shares of MRI Common Stock approve
this Agreement and the transactions contemplated herein, including the Merger.
SECTION 6.17 DISCLOSURE. No representation or warranty of MRI or Sub in
this Agreement or in any document, certificate or statement issued in connection
herewith contains any untrue statement of a material fact, or omits to state any
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE 7
COVENANTS
SECTION 7.1 AFFIRMATIVE COVENANTS OF NMR AND MRI. (a) Each of NMR and MRI
hereby covenants and agrees that, during the period commencing on the date
hereof and continuing until the Effective Date unless otherwise expressly
contemplated by this Agreement or consented to in writing by the other party, it
will and will cause its subsidiaries to:
(i) operate its business only in the usual and ordinary course
consistent with past practices;
(ii) use its best efforts to preserve substantially intact its
business organizations, maintain its rights and franchises, retain the
services of its key employeesZ and maintain its relationships with its
customers and suppliers, and otherwise operate its business in a
manner that breaches no Material Contract (as defined);
(iii) use its best efforts to maintain and keep its business
relationships intact and unimpaired, and its
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properties and assets in as good repair and condition as at
present, ordinary wear and tear excepted;
(iv) use its best efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained;
(v) promptly advise the other party of the commencement of, or
threat or (to the extent that such threat comes to its knowledge), any
claim, action, suit, proceeding or investigation against, relating to
or involving it or any of its directors, officers, employees, agents
or consultants in connection with its businesses or the transactions
contemplated hereby;
(vi) provide the other party with unaudited quarterly
consolidating balance sheets and income statements and unaudited
quarterly statements of cash position for each fiscal quarter
following the date of this Agreement as soon as practicable following
the end of each such fiscal quarter and provide the other party with
monthly management reports; and
(vii) promptly provide the other party with copies of any and all
reports or documents filed with the Securities and Exchange
Commission.
(b) NMR will cause its transfer agent to make stock transfer records
relating to, and stockholder lists of, NMR available to the extent
reasonably necessary to effectuate the intent of this Agreement.
SECTION 7.2 NEGATIVE COVENANTS OF NMR. Except as expressly contemplated by
this Agreement or otherwise consented to in writing by MRI, from the date of
this Agreement until the Effective Date, NMR will not do, and will not permit
any of its subsidiaries to do, any of the following:
(a) (i) increase the compensation payable to or to become payable to
any director, officer or employee earning more than $75,000 or being
increased to more than $75,000 (provided, however, that NMR may increase
the compensation of any employee consistent with NMR's customary annual
salary increase practices which, in any event, shall not exceed 10% of an
employee's salary and provided further that NMR and MRI shall consult and
mutually agree upon any transition bonuses and provided further that on the
Effective Date, NMR may pay to Joseph G. Dasti and John P. O'Malley the
termination payments which are a condition to the effectiveness of their
respective Non-Competition and Consulting Agreements referred to in Section
8.7); (ii) grant any severance or termination pay (other than pursuant to
the normal severance policy of it or its subsidiaries as in effect on the
date of this Agreement) to, or enter into any employment or severance
agreement with, any director, officer or employee other than employment
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agreements entered into with the consent of MRI, which consent shall not be
unreasonably withheld); or (iii) establish, adopt, enter into or amend any
employee benefit plan or arrangement except as may be required by
applicable Law;
(b) declare or pay any dividend on, or make any other distribution
(however characterized) in respect of, outstanding shares of its capital
stock, except for dividends by its subsidiaries to it or another of its
subsidiaries in accordance with past practice;
(c) (i) redeem, purchase or otherwise acquire any shares of its or any
of its subsidiaries' capital stock or equity interest or any securities or
obligations convertible into or exchangeable for any shares of its or its
subsidiaries' capital stock or equity interest (other than any such
acquisition directly from any of its wholly-owned subsidiaries in exchange
for capital contributions or loans to such subsidiaries), or any options,
warrants or conversion or other rights to acquire any shares of its or its
subsidiaries' capital stock or any such securities or obligations (except
in connection with the exercise of outstanding stock options or stock
purchase warrants referred to herein, in accordance with their terms or, in
connection with the conversion of convertible debentures, in accordance
with their terms); (ii) effect any reorganization or recapitalization; or
(iii) split, combine or reclassify any of its or its subsidiaries' capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its or its
subsidiaries' capital stock;
(d) except as otherwise provided by the last paragraph of this Section
7.2, (i) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its or its
subsidiaries' capital stock or other securities (including shares held in
treasury), any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to acquire, any
such shares (except for the issuance of shares upon the exercise of
outstanding stock options, stock purchase warrants or the conversion of
outstanding convertible debentures, in accordance with their terms or the
issuance of shares consistent with past practices to the trustee of NMR's
401 (K) Plan); (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; or (iii) subject to Section 2.1(c), take
any action to accelerate the vesting of any of the stock options;
(e) except as otherwise provided by the last paragraph of this Section
7.2, acquire or agree to acquire, by
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merging or consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division (other than a wholly-owned subsidiary) thereof, or otherwise
acquire or agree to acquire any assets of any other person (other than the
purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice) in each case which are
material, individually or in the aggregate, to it and its subsidiaries,
taken as a whole;
(f) except as otherwise provided by the last paragraph of this Section
7.2, sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its assets or any assets of any of its
subsidiaries outside of the ordinary course of business; provided, however,
that the foregoing shall not prohibit NMR from proceeding with the
dissolution of Austin MRI Partners, L.P. or pledging any assets to secure
obligations permitted to be incurred by Section 7.1(i) hereof;
(g) propose or adopt any amendments to its Certificate of
Incorporation or By-Laws, except as otherwise provided in Section 7.2(g) of
NMR's Disclosure Schedule, or its Stockholders Rights Agreements;
(h) (i) change any of its methods of accounting in effect, or (ii)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $50,000), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the
taxable year ended March 31, 1996, except as may be required by Law or
generally accepted accounting principles;
(i) except as set forth in Section 7.2(i) of the NMR Disclosure
Schedule to be provided to MRI by the Due Diligence Date (as defined) or in
conjunction with any of the transactions permitted under the last paragraph
of this Section, incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except (i) obligations arising from establishment of a
line of credit or similar arrangement not exceeding $6.5 million in the
aggregate and borrowings under such line of credit or similar arrangement
not in excess of $500,000; or (ii) in the ordinary course of business
consistent with past practice and not in excess of $100,000 in the
aggregate;
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(j) enter into any material arrangement, agreement or contract with
any third party, other than professional services agreements with
radiologists, which provides for an exclusive arrangement with that third
party or is substantially more restrictive on NMR, or substantially less
advantageous to NMR, than arrangements, agreements or contracts existing on
the date hereof;
(k) amend any of the material terms or provisions of its capital
stock;
(l) except as set forth in Section 7.2(l) of the NMR Disclosure
Schedule, to be delivered to MRI by the Due Diligence Date (i) make any
capital expenditures individually in excess of $50,000 or in the aggregate
in excess of $100,000, (ii) 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, or (iii) enter into any leases of
personal property involving individually in excess of $50,000 annually or
in the aggregate in excess of $100,000 annually; and
(m) agree in writing or otherwise to do any of the foregoing.
Notwithstanding anything contained in the foregoing Section 7.2 or any
other provision of this Agreement, NMR or affiliates may, (A) without the
consent of MRI, (i) effect the sale of the business of the Cape Coral, Florida
facility in the event Cape Coral Hospital exercises its option to purchase such
business pursuant to the existing ground lease between a subsidiary of NMR and
Cape Coral Hospital, (ii) immediately, prior to the Effective Date, transfer
ownership to Mr. Dasti (or his designee) of the "key man" life insurance policy
owned by NMR, which insures Mr. Dasti's life and transfer ownership to Mr.
O'Malley (or his designee) of the "key man" life insurance policy owned by MRI,
which insures Mr. O'Malley's life, (iii) restructure the financial terms of any
outstanding indebtedness of NMR on terms which are more favorable to NMR than
what then exists and (iv) renew existing or enter into new professional services
agreements with radiologists, in accordance with past practices; and (B) with
the prior written consent of MRI, (i) become a joint venturer with Illinois
Masonic Medical Center to operate a diagnostic imaging center pursuant to the
terms of that certain Agreement dated April 21, 1993 among Illinois Masonic
Medical Center, MR Associates of Chicago and Imaging Networks, Inc., or (ii)
enter into a joint venture arrangement with Parrish Medical Center for the
installation and operation of magnetic resonance imaging equipment.
SECTION 7.3 NEGATIVE COVENANTS OF MRI. Except as expressly contemplated by
this Agreement or otherwise consented to in writing by NMR, from the date of
this Agreement until the Effective Time, MRI will not do, and will no permit any
of its subsidiaries to do, any of the following:
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(a) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock, except for dividends
by its subsidiaries to it or another of its subsidiaries in accordance with
past practice;
(b) (i) redeem, purchase or otherwise acquire any shares of its or any
of its subsidiaries' capital stock or equity interest or any securities or
obligations convertible into or exchangeable for any shares of its or its
subsidiaries' capital stock or equity interest (other than any such
acquisition directly from any of its wholly-owned subsidiaries in exchange
for capital contributions or loans to such subsidiaries), or any options,
warrants or conversion or other rights to acquire any shares of its or its
subsidiaries' capital stock or any such securities or obligations (except
in connection with the exercise of outstanding stock options or stock
purchase warrants referred to herein, in accordance with their terms or, in
connection with the conversion of convertible debentures, in accordance
with their terms); (ii) effect any reorganization or recapitalization; or
(iii) split, combine or reclassify any of its or its subsidiaries' capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its or its
subsidiaries' capital stock;
(c) propose or adopt any amendments to its Certificate of
Incorporation or By-Laws, except as otherwise provided in Section 7.2(c) of
MRI's Disclosure Schedule;
(d) (i) change any of its methods of accounting in effect, or (ii)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $50,000), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the
taxable year ended December 31, 1995, except as may be required by Law or
generally accepted accounting principles;
(e) enter into any material arrangement, agreement or contract with
any third party, other than radiology contracts which provides for any
exclusive arrangement with that third party or is substantially more
restrictive on MRI, or substantially less advantageous to MRI, than
arrangements, agreements or contracts existing on the date hereof;
PROVIDED, HOWEVER, that MRI shall be permitted to renew existing or enter
into new professional services agreements with radiologists in accordance
with past practice.
(f) amend any of the material terms or provision of its capital stock;
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(g) (i) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its or its
subsidiaries' capital stock or other securities (including shares held in
treasury), any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to acquire, any
such shares (except for the issuance of shares upon the exercise of
outstanding stock options, stock purchase warrants or the conversion of
outstanding convertible debentures, in accordance with their terms or (ii)
amend or otherwise modify the terms of any such rights, warrants or
options, the effect of which shall be to make such terms more favorable to
the holders thereof; PROVIDED, HOWEVER, that until the earlier to occur of
(A) July 31, 1996 or (B) the date upon which NMR and MRI shall have
submitted written responses to the SEC's initial comments to the
Registration Statement (as such term is defined in Section 8.2) (such
earlier date is herein referred to as the "Transaction Termination Date")
the Company may enter into definitive agreements relating to Permitted
Transactions (as that term is defined herein below), and consummate such
transactions thereafter; a "Permitted Transaction" is one or more
acquisitions by MRI of entities related to MRI's core businesses with
aggregate consideration in the form of cash, securities or notes, not
exceeding $15,000,000 (excluding the assumption of debt of the acquired
entities).
(h) other than in connection with Permitted Transactions in which
definitive agreements are entered into on or prior to the Transaction
Termination Date (which Permitted Transactions may be consummated after
such date), acquire or agree to acquire, by merging or consolidating with,
by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division (other than a wholly-owned
subsidiary) thereof, or otherwise acquire or agree to acquire any assets of
any other person (other than the purchase of assets from suppliers or
vendors in the ordinary course of business and consistent with past
practice) in each case which are material, individually or in the
aggregate, to it and its subsidiaries, taken as a whole;
(i) other than in connection with Permitted Transactions in which
definitive agreements are entered into on or prior to the Transaction
Termination Date (which Permitted Transactions may be consummated after
such date), sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any of its assets or any assets of any of its
subsidiaries outside of the ordinary course of business;
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(j) agree in writing or otherwise to do any of the foregoing.
SECTION 7.4 ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Date or earlier termination of this Agreement, each of MRI and NMR
shall, and shall cause its subsidiaries to (i) afford the other party and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, the "Representatives") access upon
reasonable prior notice to its officers, employees, agents, properties, offices
and other facilities and to the books and records thereof and (ii) furnish
promptly to the other party and its Representatives such information concerning
the business, properties, contracts, records and personnel of it and its
subsidiaries (including, without limitation, financial, operating and other data
and information) as may be requested, from time to time, by the other party. All
of such data and information shall be subject to the terms and conditions of the
confidentiality agreement each signed for the benefit of the other party dated
May 1, 1996 (the "Confidentiality Agreement").
SECTION 7.5 CONFIDENTIALITY. The parties will comply with all of their
respective obligations under the Confidentiality Agreement.
SECTION 7.6 NO SOLICITATION OF BUSINESS TRANSACTIONS BY NMR; FEE PAYABLE
FOR VIOLATION. (a) Between the date hereof and the earlier to occur of (i)
termination of this Agreement in the event that this Agreement is terminated
pursuant to Sections 10.1(a), 10.1(b), 10.1(c), 10.1(d) or 10.1(i); (ii) January
31, 1997 in the event that this Agreement is terminated pursuant to Section
10.1(e) and (iii) three months following the date this Agreement terminates, but
no later than January 31, 1997, in the event this Agreement terminates pursuant
to Section 10.1(f), 10.1(g) or 10.1(h) (the "No-Shop Period"), neither NMR nor
MRI (the "Target Company," as the case may be) shall, nor shall it permit any of
its principals, agents or representatives to initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action intended to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Business Transaction
(as hereinafter defined), or enter into discussions or negotiate with any person
or entity in furtherance of such inquiries or to obtain a Business Transaction,
or agree to or endorse any Business Transaction, or authorize or permit any of
its officers, directors or employees or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by its or any of its subsidiaries to take any such
action; PROVIDED, HOWEVER, that nothing contained in this subsection (a) shall
prohibit the Board of Directors of the Target Company from (i) furnishing
information to, or entering into discussions or
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negotiations with, any persons or entity in connection with an unsolicited bona
fide proposal by such person or entity to enter into a Business Transaction if,
and only to the extent that (A) the Board of Directors of the Target Company,
after consultation with independent legal counsel (which may include its
regularly engaged outside legal counsel), determines in good faith that such
action is required for the Board of Directors of the Target Company to comply
with its fiduciary duties to stockholders imposed by Delaware Law and (B) prior
to furnishing such information to, or entering into discussions or negotiations
with, such person or entity, the Target Company (x) provides written notice to
the other party (the "Other Party") to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity and, unless the Target Company receives the written advice of counsel
from the Target Company's independent counsel that disclosure would violate
Delaware law, promptly notify the Other Party of all relevant terms of any such
inquiries and proposals received relating to any of such matters, and (y)
receives from such person or entity an executed confidentiality agreement on
terms no less favorable to NMR or MRI than those contained in the
Confidentiality Agreement between NMR and MRI; or (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Business Transaction. For
purposes of this Agreement, "Business Transaction" shall be defined as any
merger, acquisition, whether in the form of a consolidation, share exchange or
otherwise having an aggregate value of $35 million or more; or any sale,
transfer, lease or other disposition of 50% or more of the assets of the Target
Company and its subsidiaries or 50% of the capital stock of the Target Company,
in each case, in a transaction or related series of transactions.
(b) If the Target Company publicly announces its intention to or
enters into an agreement providing for a Business Transaction on or prior
to the end of the No-Shop Period (the "Transaction Event"), the Target
Company shall pay to the Other Party, in consideration of the time, effort
and resources expended in connection herewith, $2,000,000 (less any amounts
paid by the Target Company to the Other Party pursuant to Section 10.5(c))
plus any fees and expenses incurred in connection with collecting such
amount (the "Transaction Fee"). The Transaction Fee shall be payable no
later than ten business days after the Transaction Event and shall be made
by wire transfer of immediately available funds to an account designated by
the Other Party.
SECTION 7.7 ADDITIONAL AFFIRMATIVE COVENANT OF MRI. MRI agrees that it
shall, simultaneous with the Effective Date, make a capital contribution to NMR
in such amount, if any, as shall be necessary to permit NMR to make the
termination payments to Joseph G. Dasti and John P. O'Malley which are a
condition to the effectiveness of their respective Non-Competition and
Consulting Agreements referred to in Section 8.7.
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SECTION 7.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION. In the event the
Merger shall become effective, then from and after the Effective Date, MRI 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
Date, an officer, director, employee or agent of MRI or NMR (the "Indemnified
Parties") against (i) all losses, claims, damages, cost, expenses, liability or
judgment or amounts paid wit 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 MRI or NMR, whether pertaining to
any matter existing or occurring at or prior to the Effective Date, and whether
asserted or claimed prior to, at or after, the Effective Date (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 MRI 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).
ARTICLE 8
ADDITIONAL AGREEMENTS
SECTION 8.1 MEETINGS OF STOCKHOLDERS. NMR and MRI shall each, promptly
after the date of this Agreement, take all action necessary in accordance with
Delaware Law, NASDAQ and their respective Certificates of Incorporation and
By-Laws to convene the Stockholders' Meeting of its stockholders to act on this
Agreement. NMR and MRI shall each use its reasonable best efforts to solicit
from their respective stockholders proxies in favor of the approval and adoption
of this Agreement and to secure the vote or consent of stockholders required by
Delaware Law or NASDAQ to approve and adopt this Agreement, unless otherwise
required by the applicable fiduciary duties of the directors of NMR or MRI, as
determined by such directors in good faith after consultation with independent
legal counsel.
SECTION 8.2 REGISTRATION STATEMENT; PROXY STATEMENT. (a) As promptly as
practicable after the execution of this Agreement, MRI shall prepare and file
with the SEC a registration statement on Form S-4 (the registration statement,
together with the amendments thereto, being the "Registration Statement"),
containing a proxy statement/prospectus, in connection with the
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registration under the Securities Act of the MRI Common Stock constituting the
Merger Consideration and the other transactions contemplated by the Agreement.
As promptly as practicable after the execution of this Agreement, NMR and MRI
shall prepare and file with the SEC a Joint Proxy Statement that will be the
same proxy statement/prospectus contained in the Registration Statement, and a
form of proxy, in connection with the votes of NMR's and MRI's stockholders with
respect to the Merger (such proxy statement/prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to NMR's and MRI's stockholders, being the "Proxy Statement"). Each of
MRI and NMR will use all reasonable best efforts to have or cause the
Registration Statement to become effective as promptly as practicable, and shall
take any action required to be taken under any applicable federal or state
securities laws in connection with the issuance of shares of MRI Common Stock in
the Merger. Each of MRI and NMR shall furnish all information concerning it and
the holders of its capital stock as the other may reasonably request in
connection with such actions. As promptly as practicable after the Registration
Statement shall have become effective, NMR and MRI shall mail the Proxy
Statement to their respective stockholders. The Proxy Statement shall include
the recommendations of NMR's and MRI's Board of Directors in favor of the Merger
unless otherwise required by the applicable fiduciary duties of the directors of
NMR or MRI, as determined by such directors in good faith after consultation
with independent legal counsel. The parties shall use their best efforts to file
the Registration Statement and Proxy Statement no later than eight weeks
following the date of this Agreement.
(b) The information supplied by MRI to NMR for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The information
supplied by MRI for inclusion in the Proxy Statement to be sent to the
stockholders of NMR and MRI in connection with the Stockholders Meetings
shall not, at the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders, at the time of the
Stockholders' Meetings or at the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Date any event or circumstance relating to
MRI or any of its affiliates, or its or their respective officers or
directors, should be discovered by MRI which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, MRI shall promptly inform NMR. All documents that MRI is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and
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substance in all material respects with the applicable requirements of
the Securities Act and the rules and regulations thereunder and the
Exchange Act and the rules and regulations thereunder.
(c) The information supplied by NMR for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by NMR
for inclusion in the Proxy Statement in connection with the Stockholders'
Meetings shall not, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to stockholders, at the time
of the Stockholders' Meetings or at the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
If at any time prior to the Effective Date any event or circumstance
relating to NMR or any of its respective affiliates, or to their respective
officers or directors, should be discovered by NMR which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, NMR shall promptly inform MRI. All documents that NMR is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
SECTION 8.3 APPROPRIATE ACTION; CONSENTS; FILINGS. (a) NMR and MRI shall
each use their best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate, satisfy the conditions to, and
make effective the transactions contemplated by this Agreement, (ii) obtain from
any Governmental Entities or other persons any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
MRI or NMR or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein, including, without limitation, the Merger,
(iii) make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act and the rules and regulations
thereunder, and any other applicable federal or state securities laws, and (B)
any other applicable Law; provided that MRI and NMR shall cooperate with each
other in connection with the making of all such filings, including providing
copies of all such documents to the nonfiling party and its advisors prior to
filing and, if requested, to accept all reasonable additions, deletions or
changes suggested in connection
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therewith. To assist in obtaining necessary consents from NMR's lenders, MRI Sub
agrees to offer the type and nature of collateral, guaranty and other security
at Closing to secure NMR's existing indebtedness which is no less favorable to
NMR's present lenders than the assets which currently secure the NMR
indebtedness. NMR and MRI shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law (including all information required to be included in the
Proxy Statement and the Registration Statement) in connection with the
transactions contemplated by this Agreement.
(b) Without limiting the application of Article X hereof and subject
to the respective fiduciary obligations of the directors of NMR and MRI,
each of NMR and MRI agree to cooperate and use their best efforts
vigorously to contest and resist any action, including administrative or
judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary
or permanent) (an "Order") that is in effect and that restricts, prevents
or prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by
vigorously pursuing all available avenues of administrative and judicial
appeal; PROVIDED, HOWEVER, that in no event shall either party take, or be
required to take, any action that would have a NMR Material Adverse Effect
or a MRI Material Adverse Effect.
(c) Each of NMR and MRI shall give (or shall cause their respective
subsidiaries to give) any notices to third parties, and use, and cause
their respective subsidiaries to use, its best efforts to obtain any third
party consents (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement, (ii) disclosed or required to
be disclosed in the NMR Disclosure Schedule or the MRI Disclosure Schedule,
as the case may be, (iii) otherwise required under any contracts, licenses,
leases or other agreements in connection with the consummation of the
transactions contemplated herein or (iv) required to prevent a NMR Material
Adverse Effect from occurring prior to or after the Effective Date or a MRI
Material Adverse Effect from occurring prior to or after the Effective
Date.
(d) In the event that either party shall fail to obtain any third
party consent described in subsection (c) above, such party shall use its
best efforts, and shall take any such actions reasonably requested by the
other party hereto, to minimize any adverse effect upon NMR and MRI, their
respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result, after the Effective Date,
from the failure to obtain such consent.
SECTION 8.4 AFFILIATES. NMR will advise its affiliates (as such term is
defined in Rule 405 under the
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Securities Act) of the resale restrictions imposed by federal securities laws,
including Rule 145 under the Securities Act on the shares of MRI Common Stock
received by them pursuant to the Merger, and will use its best efforts to obtain
from each such affiliate a letter stating that such affiliate is aware of such
restrictions.
SECTION 8.5 PUBLIC ANNOUNCEMENTS. Unless otherwise required by applicable
Law or stock exchange requirements or the requirements of the NASD (and in that
event only if time does not permit), MRI and NMR shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Merger and the transactions contemplated thereby and shall not
issue any such press release or make any such public statement prior to such
consultation.
SECTION 8.6 NASDAQ LISTING. MRI shall use its best efforts to cause the
shares of MRI Common Stock to be issued in connection with the Merger to be
approved for quotation on the NASDAQ-National Market System prior to the
Effective Date.
SECTION 8.7 EXISTING EXECUTIVE EMPLOYMENT ARRANGEMENTS. NMR shall enter
into agreements with Messrs. Joseph G. Dasti and John P. O'Malley in the form
annexed hereto as Exhibit 8.7A (the "NMR Executive Agreements"). MRI shall enter
into non-competition and consulting agreements with Messrs. Dasti and O'Malley
in the form annexed hereto as Exhibit 8.7B (the "NonCompetition and Consulting
Agreements").
SECTION 8.8 DISCLOSURE SCHEDULES. Each of NMR and MRI shall deliver their
Disclosure Schedules to the other within fifteen business days from the date of
this Agreement.
SECTION 8.9 FINANCIAL ADVISORS. Each of NMR and MRI shall retain a
nationally recognized investment banking firm to render its written opinion to
its Board of Directors to the effect that the terms of the Merger are fair, from
a financial point of view, to such party and its stockholders. The firm retained
by NMR is referred to herein as "NMR's Financial Advisor" and the firm retained
by MRI is referred to herein as "MRI's Financial Advisor."
ARTICLE 9
CLOSING CONDITIONS
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Date of the following conditions, any or all of which may
be
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waived, in whole or in part, to the extent permitted by applicable Law:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated by the SEC. 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.
(b) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite votes of the stockholders of
each of NMR and MRI.
(c) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(d) HSR ACT. The waiting period under the HSR Act, if applicable,
shall have expired or been terminated.
SECTION 9.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MRI. The obligations of
MRI to effect the Merger and the other transactions contemplated herein are also
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions (any of which may be waived by MRI in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of NMR contained in this Agreement shall be true and correct in all
material respects as of the Effective Date as though made on and as of the
Effective Date, except as expressly permitted or contemplated by this
Agreement, and the aggregate effect of all differences in the
representations and warranties of NMR between those as of the date of this
Agreement and those as of the Effective Date does not and will not have an
NMR Material Adverse Effect. MRI shall have received a certificate of the
President or Executive Vice President-Finance of NMR to such effect.
(b) AGREEMENTS AND COVENANTS. NMR shall have performed or complied
with all agreements and covenants required by this Agreement to be
performed or complied with by it in all material respects prior to the
Effective Date. MRI shall have
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received a certificate of the President or Executive Vice President-Finance
of NMR to such effect.
(c) CONSENTS AND APPROVALS. All material consents, approvals and
authorizations legally required to be obtained to consummate the Merger
shall have been obtained from all required Governmental Entities and any
other third party.
(d) OPINION OF NMR'S COUNSEL. MRI shall have received an opinion,
dated the Effective Date, of McCarter & English, counsel to NMR, in form
and substance reasonably satisfactory to MRI substantially in the form set
forth as Schedule 9.2(d).
(e) NO NMR MATERIAL ADVERSE EFFECT. Since December 31, 1995, there
shall have been no NMR Material Adverse Effect nor shall there have
occurred prior to the Effective Date any change, occurrence or circumstance
in the business, results of operations or financial condition of NMR or any
of its subsidiaries likely to have, individually or in the aggregate, a NMR
Material Adverse Effect. MRI shall have received a Certificate of each of
the President and the Chief Financial Officer of NMR to such effect.
(f) STOCKHOLDERS RIGHTS AGREEMENT. The Board of Directors of NMR shall
not have amended or modified the NMR Stockholders Rights Agreement, except
as contemplated by this Merger Agreement, and shall have taken whatever
action is necessary so as not to trigger the rights under such agreement.
(g) APPRAISAL RIGHTS. The holders of more than ten (10%) percent of
the issued and outstanding shares of NMR Common Stock shall not have
demanded appraisal rights in respect of the Merger.
(h) CERTIFICATES. MRI shall have received such certificates from
officers and representatives of NMR as it shall have reasonably requested,
including those matters set forth in Section 9.2(h) of the NMR Disclosure
Schedule.
(i) AFFILIATES' LETTERS. NMR shall have obtained from each person who
is an "affiliate" (as such term is defined in Rule 144 of the Securities
Act) of NMR an executed letter agreement to the effect that such person
will not sell or otherwise transfer any shares of MRI Common Stock received
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.
SECTION 9.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF NMR. The obligations of
NMR to effect the Merger and the other transactions contemplated in this
Agreement are also subject to the satisfaction, on or prior to the Closing Date,
of each of the
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following conditions (any of which may be waived by NMR in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of MRI contained in this Agreement shall be true and correct in all
material respects as of the Effective Date, except as expressly permitted
or contemplated by the terms of this Agreement and the aggregate effect of
all differences in the representations and warranties of MRI between those
as of the date of this Agreement and those as of the Effective Date does
not and will not have an MRI Material Adverse Effect. In the event this
Agreement is assigned by Sub pursuant to Section 11.7 of this Agreement,
any representation or warranty made by MRI in this Agreement with respect
to Sub shall be deemed to have been made by MRI with respect to such entity
and shall be true and correct in all material respects as of the Effective
Date and NMR shall have received a certificate of a Co-President or Senior
Vice President (or equally senior officer) to such effect.
(b) AGREEMENTS AND COVENANTS. MRI shall have performed or complied
with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Date. NMR
shall have received a certificate of a Co-President or Senior Vice
President (or equally senior officer) of MRI to such effect.
(c) CONSENTS AND APPROVALS. All material consents, approvals and
authorizations legally required to be obtained to consummate the Merger
shall have been obtained from and made with all required Governmental
Entities and any other third party
(d) OPINION OF COUNSEL TO MRI. NMR shall have received an opinion,
dated the Effective Date, of Werbel McMillin & Carnelutti, A Professional
Corporation, counsel to MRI, in form and substance reasonably satisfactory
to NMR, substantially in the form set forth as Schedule 9.3(d).
(e) NO MRI MATERIAL ADVERSE EFFECT. Since December 31, 1995, there
shall have been no MRI Material Adverse Effect nor shall there have
occurred prior to the Effective Date any change, occurrence or circumstance
in the business, results of operations or financial condition of MRI or any
MRI subsidiary likely to have, individually or in the aggregate, a MRI
Material Adverse Effect. NMR shall have received a Certificate of a
Co-President or Senior Vice President (or equally senior officer) of MRI to
such effect.
(f) CERTIFICATES. NMR shall have received such certificates from
officers and representatives of MRI as it shall have reasonably requested,
including those set forth in Section 9.3(f) of the MRI Disclosure
Statement.
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(g) TAX OPINION. NMR shall have received an opinion of NMR's tax
counsel that the Merger will be treated as a tax-free exchange to NMR
stockholders.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 TERMINATION. This Agreement may be terminated at
any time prior to the Effective Date, whether before or after approval of this
Agreement and the Merger by the stockholders of each of NMR and MRI:
(a) by mutual written consent of MRI and NMR;
(b) by MRI, if any representation or warranty made by NMR in this
Agreement shall not have been true when made and such breach would have or
would be reasonably likely to have an NMR Material Adverse Effect or the
failure of NMR to satisfy its obligations under Section 9.2(b);
(c) by NMR, if any representation or warranty made by MRI in this
Agreement shall not have been true when made and such breach would have or
would be reasonably likely to have an MRI Material Adverse Effect or the
failure of MRI to satisfy its obligations under Section 9.3(b);
(d) by either MRI or NMR, if there shall be any Order which is final
and nonappealable preventing the consummation of the Merger, except if the
party relying on such Order has not complied with its obligations under
Section 8.3(b);
(e) by either MRI or NMR, if the Effective Date shall not have
occurred before December 31, 1996; provided, however, that the right to
terminate this Agreement pursuant to this Section 10.1(e) shall not be
available to any party whose (or whose affiliates(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 Date to occur on or before such date;
(f) by either MRI or NMR, if the Agreement shall fail to receive the
requisite votes for approval and adoption by the stockholders of each of
NMR and MRI at the Stockholders' Meeting or if any of the conditions
specified in Section 9.1 shall not have been met in all material respects
or waived prior to such time as such condition can no longer be satisfied;
(g) by either MRI or NMR, (i) at any time prior to 11:59 p.m. New York
City time on June 19, 1996 (or at such later date as mutually agreed upon
by the parties hereto) (the "Due Diligence Date"), if the results of its
due diligence investigation
39
<PAGE>
of the other party's affairs and business operations make it inadvisable or
undesirable in such party's sole and reasonable discretion to proceed with
the transactions contemplated hereby; or (ii) if the written fairness
opinion by MRI's or NMR's Financial Advisor is not delivered to the
appropriate party by June 14, 1996;
(h) by MRI or NMR at any time prior to the Effective Date if (i) in
the case of termination by MRI, any of the conditions specified in Section
9.2(a) and 9.2(c) through (i) shall not have been met or waived prior to
such time as such condition can no longer be satisfied or (ii) in the case
of termination by NMR, any of the conditions specified in Section 9.3(a)
and 9.3(c) through (g) shall not have been met or waived prior to such time
as such condition can no longer be satisfied; or
(i) if a Transaction Event occurs, in which event the Target Company
shall pay to the Other Party the amounts set forth in Section 7.6(b).
The right of any party hereto to terminate this Agreement pursuant to this
Section 10.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 10.2 EFFECT OF TERMINATION. Subject to the provisions of Section
11.1(b), in the event of the termination of this Agreement pursuant to Section
10.1, this Agreement shall forthwith become void, there shall be no liability on
the part of MRI or NMR or any of their respective officers or directors to the
other and all rights and obligations of any party hereto shall cease.
Notwithstanding the foregoing, nothing herein shall relieve any party of
liability for failure to perform or comply with any obligation under Sections
7.4 and 7.5 of this Agreement prior to the termination hereof.
SECTION 10.3 AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors at any time prior to the Effective Date;
PROVIDED, HOWEVER, that, after approval of the Merger by the stockholders of
each of NMR and MRI, no amendment may be made which would reduce the amount or
change the type of consideration into which each share of NMR Common Stock shall
be converted pursuant to this Agreement upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 10.4 WAIVER. At any time prior to the Effective Time, any party
hereto may a) extend the time for the performance of any of the obligations or
other acts of the other
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party hereto, b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant hereto
and c) waive compliance by the other party with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 10.5 FEES, EXPENSES AND OTHER PAYMENTS. (a) Except as provided in
Sections 7.6(b) or 10.5(c), all Expenses (as defined in paragraph (b) of this
Section 10.5) incurred by the parties hereto shall be borne solely and entirely
by the party which has incurred such Expenses; PROVIDED, HOWEVER, that the
allocable share of each of MRI and NMR for all Expenses related to drafting,
preparing, printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement shall be one-half. Each
party shall disclose to the other any agreement with respect to such Expenses
and shall advise the other as to the then current Expenses during the course of
the transaction contemplated hereby.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement and the Proxy
Statement and the mailing of the Proxy Statement, the solicitation of
stockholder approvals and all other matters related to the closing of the
transactions contemplated herein.
(c) If this Agreement shall be terminated (i) by NMR pursuant to
Section 10.1(c), (ii) by MRI pursuant to Section 10.1(b) (either of such
events in (i) and (ii) shall be deemed a "Breach Event"), or (iii) by
either party pursuant to Section 10(f) for the sole reason that the Merger
is not approved by the stockholders (a "Non-Approval Event"), then the
other party shall pay to the non-breaching party (NMR in (i), MRI in (ii)
and the party whose stockholders approved the Merger in (iii) are herein
referred to as a "Non-Breaching Party"), in consideration of the time,
effort and resources expended in connection herewith, an amount equal to,
in the case of a Breach Event, the sum of $2,000,000, and, in the case of a
Non-Approval Event, $1,000,000, plus in all such cases any fees or expenses
incurred by the NonBreaching Party in connection with the collection of
such amount (the "Collection Expenses").
(d) Any payment required to be made pursuant to Section 10.5(c) shall
be made to the Non-Breaching Party entitled
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<PAGE>
to receive such payment not later than ten (10) days after delivery to the
other party of notice of demand for payment and an itemization setting
forth in reasonable detail all Collection Expenses, if any, of the
Non-Breaching Party and shall be made by wire transfer of immediately
available funds to an account designated by the Non-Breaching Party in the
notice of demand for payment delivered pursuant to this Section 10.5(d).
ARTICLE 11
GENERAL PROVISIONS
SECTION 11.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as set forth in Section 11.1(b), the representations, warranties and
agreements of each party hereto shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement.
(b) Notwithstanding anything to the contrary contained herein, the
representations, warranties and agreements in this Agreement shall
terminate at the Effective Date or upon the termination of this Agreement
pursuant to Article 10, except that the agreements set forth in Articles 1,
2, 3 and 4 shall survive the Effective Date and those set forth in Sections
7.4, 7.5, 7.6 (to the extent provided therein), 10.2, 10.5 and Article 11
hereof shall survive termination.
SECTION 11.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to MRI:
Medical Resources, Inc.
155 State Street
Hackensack, New Jersey
Attention: Mr. William D. Farrell
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<PAGE>
and
Medical Resources, Inc.
2701 N. Rocky Point Drive
Suite 650
Tampa, Florida 33607
Attention: Mr. Robert J. Adamson
with a copy to:
Werbel McMillin & Carnelutti
711 Fifth Avenue
New York, New York 10022
Attention: Stephen M. Davis, Esq.
Telecopier No.: (212) 832-3353
(b) If to NMR:
NMR of America, Inc.
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
Attention: Mr. Joseph G. Dasti
with a copy to:
McCarter & English
4 Gateway Center
Newark, New Jersey 07102
Attention: Peter S. Twombly, Esq.
Telecopier No.: (201) 624-7070
SECTION 11.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
(c) "control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of
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<PAGE>
the power to direct or cause the direction of the management or policies of
a person, whether through the ownership of stock or as trustee or executor,
by contract or credit arrangement or otherwise;
(d) "knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of NMR, MRI or Sub, as the case may be,
has actual knowledge of such matter;
(e) "Laws" shall mean 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, or requirements
under the Medicare Anti-Kickback Statute, the Medicaid Patient and Program
Protection Act of 1987, P.L. 103-432, 1994 HR 5252 (known as Stark II) and
the Florida Patient Self Referral Act of 1992.
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(g) "subsidiary" or "subsidiaries" of NMR, MRI or any other person,
means any corporation, partnership, joint venture or other legal entity of
which NMR, MRI or such other person, as the case may be (either alone or
through or together with any other subsidiary), controls or owns, directly
or indirectly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity or, which by contract or agreement, has the power to control
such corporation or other legal entity, or which otherwise constitutes a
"subsidiary" as defined in Regulation S-X ss. 210.1-02(w). A "significant
subsidiary" shall mean any entity constituting a significant subsidiary
under Regulation S-X, ss. 210.1-02(v).
(h) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies, payable to any federal, state, local or foreign taxing authority or
agency, including, without limitation, i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and gains taxes, ii) customs duties, imposts,
charges, levies or other similar assessments of any kind, and iii)
interest, penalties and additions to tax imposed with respect thereto.
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SECTION 11.4 HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 11.5 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 11.6 ENTIRE AGREEMENT. This Agreement (together with
the Exhibits and Schedules hereto) and the Confidentiality Agreement constitute
the entire agreement of the parties and supersede all prior agreements and
undertakings, both written and oral, between the parties, or any of them, with
respect to the subject matter hereof.
SECTION 11.7 ASSIGNMENT. This Agreement shall not be assigned
by operation of law or otherwise; PROVIDED that Sub may assign this Agreement in
its sole discretion to any entity which is, either directly or indirectly, a
wholly-owned subsidiary of MRI.
SECTION 11.8 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 11.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE. No failure or delay on the part of any party hereto in the exercise
of any right hereunder shall impair such right or be construed to be a waiver
of, or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 11.10 GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
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SECTION 11.11 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 11.12 DETERMINATION OF MARKET VALUE. If any
calculation of market price or value per share of common stock required to be
made by this Agreement becomes incapable of calculation in accordance with the
terms of this Agreement due to the failure of sales of the common stock to be
reported on the NASDAQ system, then for purposes of making such calculation,
reference shall be made to (i) reported sale prices for comparable periods if
the common stock is quoted on a national exchange, or (ii) the average of the
mean between each days' highest "bid" price and lowest "asked" price for
comparable periods if the common stock is quoted over-the-counter or (iii) book
value per share of common stock based on most recent quarterly financial report
or, if more recent, annual report or financial statement of the issuer of such
shares.
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IN WITNESS WHEREOF, MRI, Sub and NMR have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
MEDICAL RESOURCES, INC.
By: /s/ ROBERT J. ADAMSON
------------------------------------
Name: Robert J. Adamson
Title: Co-President
By: /s/ WILLIAM D. FARRELL
------------------------------------
Name: William D. Farrell
Title: Co-President
MRI SUB, INC.
By: /s/ ROBERT J. ADAMSON
-------------------------------------
Name: Robert J. Adamson
Title: Co-President
By: /s/ WILLIAM D. FARRELL
-------------------------------------
Name: William D. Farrell
Title: Co-President
NMR OF AMERICA, INC.
By: /s/ JOSEPH G. DASTI
-------------------------------------
Name: Joseph G. Dasti
Title: President and
Chief Executive Officer
47
Amendment No. 1 to Right Agreement
dated as of December 23, 1988
Agreement entered into as of this 12th day of May, 1990 between NMR of
America, Inc., a Delaware corporation (the "Company") and American Stock
Transfer & Trust Company (the "Rights Agent").
WHEREAS, as of December 23, 1988 the Company and the Rights Agent entered
into the Rights Agreement; and
WHEREAS, on May 12, 1990 the Board of Directors authorized an amendment to
the Rights Agreement to increase the Purchase Price (as defined therein) from $8
to $15.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
1. The Purchase Price, so defined in the Rights Agreement, is herewith
amended to be $15.
2. In all other respects the Rights Agreement is herewith ratified,
approved, confirmed and adopted.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and the respective corporate seal to be hereunto affixed and attested,
all as of the day and year first a above written.
NMR of America, Inc.
By: /s/ MARINA P. ZAZENIS
--------------------------
Marina P. Zazenis
President
American Stock Transfer &
Trust Company
By: /s/
--------------------------
<PAGE>
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
DATED AS OF DECEMBER 23, 1988
Agreement entered into as of this 7th day of February, 1991 between NMR of
America, Inc., a Delaware corporation (the "Company") and American Stock
Transfer & Trust Company (the "Rights Agent").
WHEREAS, as of December 23, 1988 the Company and the Right Agent entered
into the Rights Agreement; and
WHEREAS, as of May 12, 1990 the Company and the Rights Agent entered into
Amendment No.1 to the Rights Agreement whereby the Purchase Price (as defined in
the Rights Agreement) was increased from $8.00 to $15.00; and
WHEREAS, by action taken by the Board of Directors of the Company on August
13, 1990 the Board of Directors authorized a redemption of the outstanding
rights, however, such action has not been completed by the Board of Directors in
that the redemption price has not been paid to the shareholders of the
Corporation and the Board of Directors has, on February 7, 1991, adopted a
resolution revoking the action taken on August 13, 1990; and
WHEREAS, in any event, the Company's Board of Directors desires to
reinstate the Shareholders Rights Plan under the terms contained in the
Agreement dated as of December 23, 1988, as amended, a copy of which together
with Amendment No. 1 thereto is attached hereto.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company and the Rights Agent agree that the action heretofore taken
by the Board of Directors of the Corporation on August 13, 1990 is revoked and
rescinded and in all respects the Rights Agreement is reinstated as if such
action of the Board of Directors on August 13, 1990 had not been taken and such
action is to be treated as a nullity.
2. In any event, the Rights Agreement dated as of December 23, 1988 and as
amended by Amendment No. 1 thereto dated May 12, 1990 is reinstated and
re-executed in the form of the Rights Agreement and Amendment No. 1 thereto
attached hereto.
3. In all other respects, the Rights Agreement is herewith ratified,
approved, confirmed and adopted.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed all as of the day and year first above written.
NMR of America, Inc.
By: /s/ JOSEPH G. DASTI
--------------------------
Joseph G. Dasti
President
American Stock Transfer &
Trust Company
By: /s/ HERBERT J. LEMMER
--------------------------
<PAGE>
AMENDMENT NO. 3 TO RIGHTS AGREEMENT
DATED AS OF DECEMBER 23, 1988
This Amendment is entered into as of this 19th day of December, 1995,
between NMR of America, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Rights Agent");
WHEREAS, as of December 23, 1988, the Company and the Rights Agent entered
into the Rights Agreement; and
WHEREAS, the Board of Directors of the Company has authorized an amendment
to the Rights Agreement to extend the term of the Rights Agreement and the Final
Expiration Date (as such term is defined in the Rights Agreement) from December
23, 1995 to December 23, 2002.
NOW THEREFORE, In consideration of the premises and the mutual agreements
set forth herein, the parties hereto hereby agree as follows:
1. The term of the Rights Agreement is hereby extended to December 23,
2002.
2. The Final Expiration Date (as such term is defined in the Rights
Agreement) is hereby extended to December 23, 2002.
3. In all other respects, the Rights Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and the year first above written.
NMR OF AMERICA, INC.
By: /s/ JOSEPH G. DASTI
--------------------------
Name: Joseph G. Dasti
Title: President
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ HERBERT J. LEMMER
--------------------------
Name: Herbert J. Lemmer
Title: Vice President
<PAGE>
AMENDMENT NO. 4 TO RIGHTS AGREEMENT
DATED AS OF DECEMBER 23, 1988
This Amendment is entered into as of this ______ day of April, 1996,
between NMR of America, Inc., a Delaware corporation (The "Company"), and
American Stock Transfer & Trust Company (the "Rights Agent").
WHEREAS, as of December 23, 1988, the Company and the Rights Agent entered
into the Rights Agreement; and
WHEREAS, the Board of Directors of the Company has authorized an amendment
to the Rights Agreement to (i) reduce to 15% the percentage of the outstanding
Common Stock required to be beneficially owned by a person in order for such
person to become an "Acquiring Person" under the Rights Agreement, and (ii) to
provide the Company the right to exchange the outstanding and exercisable Rights
for shares of Common Stock or other securities.
NO THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereto hereby agree as follows:
1. Section 1(a) of the Rights Agreement is hereby amended to read in its
entirety as follows:
"(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such
term is hereinafter defined) and Associates (as such term is hereinafter
defined) of such Person, without the prior approval of the Company, shall
be the Beneficial Owner (as such term is hereinafter defined) of securities
representing 15% or more of the shares of Common Stock then outstanding or
who was such a Beneficial Owner at any time after the date hereof, whether
or not such Person continues to be the Beneficial Owner of securities
representing 15% or more of the outstanding shares of Common Stock; but
shall not include (i) the Company, (ii) any subsidiary of the Company (as
such term is hereinafter defined), (iii) any employee benefit plan of the
Company or any of its subsidiaries or (iv) any entity holding securities of
the Company organized, appointed or established by the Company or any of
its subsidiaries for or pursuant to the terms of any such plan."
2. EXCHANGE. The Rights Agreement is hereby further amended by adding a new
Section 24A, which shall read in its entirety as follows:
<PAGE>
"24A. EXCHANGE. (a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof.
Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other than
the Company, any subsidiary of the Company, any employee benefit plan of
the Company or any of its subsidiaries, or any entity holding shares of
Common Stock organized, appointed or established by the Company or any of
its subsidiaries for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial
Owner of 50% or more of the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24A and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of
Common Stock equal to the number of such Rights held by such holder. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their
last addresses shown on the records of the Company. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of Common Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will
be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient treasury shares or
authorized but unissued shares of Common Stock to permit any exchange of
Rights as contemplated in accordance with this Section 24A, the Company
shall substitute, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, a common stock equivalent (as defined in
Section 11(a)(iii)). If there are unavailable sufficient shares of Common
Stock
-2-
<PAGE>
and/or common stock equivalents, then the Company shall take all such
action as may be necessary to authorize additional shares of Common Stock
or common stock equivalents for issuance upon exchange of the Rights,
including the calling of a special meeting of shareholders. In the event
the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Stock and/or
common stock equivalents, the Rights shall be exchanged for the number of
shares of Common Stock available for issuance upon exchange of the Rights,
pro rata based on the number of Rights (other than Rights which have become
void pursuant to the provisions of Section 7(e) hereof) held by each holder
of Rights. The Board of Directors may, but shall not be required to,
establish procedures to allocate the right to receive Common Stock and
common stock equivalents upon exchange of the Rights among holders of
Rights.
(d) The Company shall not be required to issue fractional shares of
Common Stock or to distribute certificates which evidence fractional shares
of Common Stock in connection with the exchange of the Rights. In lieu of
such fractional shares, the Company may, at the election of the Company,
pay to the registered holders of the Rights with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in
cash equal to the same fraction of the current market price of a share of
Common Stock. For the purposes of this paragraph (d), the current market
price of a share of Common Stock shall be the closing price of a share of
Common Stock (as determined pursuant to the second sentence of Section
11(d) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24A."
3. In all other respects, the Rights Agreement shall remain in full force
and effect.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and the year first above written.
NMR OF AMERICA, INC.
By /s/ JOSEPH DASTI
--------------------------
Name: Joseph Dasti
Title: President
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By /s/ HERBERT J. LEMMOR
--------------------------
Name: Herbert J. Lemmor
Title: Vice President
-4-
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT dated December 13, 1995 between NMR OF AMERICA, INC., a
Delaware corporation (the "Employer") and JOHN P. O'MALLEY III, residing at 8
Webster Avenue, Summit, New Jersey 07901 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employer and Employee have previously entered into that
certain Amended and Restated Employment Agreement, dated as of June 21, 1994
(the "Existing Agreement"); and
WHEREAS, based upon the continued efforts of the Employee which have
resulted in improved earnings and expanded business opportunities for the
Employer, the Compensation Committee of the Board of Directors of the Employer,
pursuant to extensive consideration at numerous meetings duly called and held,
has recommended to the full Board of Directors of the Employer that the Existing
Agreement be amended and restated with respect to certain matters, including,
without limitation, the amount of the Employee's compensation, the duration of
Employee's contract and the payment of performance bonuses to Employee; and
WHEREAS, the Board of Directors of the Employer, following consideration of
the recommendations of the Compensation Committee, at a meeting duly called and
held on September 14, 1995, has unanimously approved the recommendations of the
Compensation Committee to amend and restate the Existing Agreement in the manner
set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the provisions for termination as
hereinafter provided, Employer agrees to and does hereby employ Employee as
Executive Vice President-Finance and Chief Financial Officer of Employer and
Employee agrees to serve Employer in such capacities for a term expiring June
20, 2000 (the "Initial Term of Employment"). Thereafter, this Agreement shall
continue for successive one (1) year periods (each one year period hereinafter
referred to as the "Extended Term of Employment") unless the Employer or the
Employee elects to terminate this Agreement as provided below. If either the
Employer or the Employee elects to terminate this Agreement upon the expiration
of the Initial Term of Employment, or the Extended Term of Employment, such
party shall provide the other party with written notice of election to terminate
at least ninety (90) days prior to the last day of the Initial Term of
Employment or the Extended Term of Employment, as the case may be. As used
herein, the term "Termination Date" shall mean the last day of the Initial Term
of Employment, except that if this Agreement shall
<PAGE>
be extended as provided above, the Termination Date shall be the last day of the
Extended Term of Employment.
2. EMPLOYEE'S DUTIES. Employee shall perform such executive, administrative
and supervisory duties as may be assigned to him by Employer's Board of
Directors, not inconsistent with the duties customarily performed by the
Executive Vice President-Finance and Chief Financial Officer of a corporation of
the size and engaged in the business of Employer. Employee shall devote
substantially his full time, labor, attention and best ability to the
performance of his duties hereunder, except for customary vacations and
reasonable absence due to illness or to other incapacity, and except for such
reasonable time as Employee may be required to devote to his other business
interests, it being understood that such business interests will not interfere
with the ability of the Employee to devote substantially his full time to the
business activities of Employer.
3. COMPENSATION. Employer shall pay to Employee and Employee shall accept
from Employer as compensation for his Services hereunder:
(a) A salary at the annual rate of $175,000, effective as of September
15, 1995, to be payable in equal monthly or more frequent installments,
less the usual required deductions, which annual salary shall be subject to
increase on each anniversary date of this agreement at the sole discretion
of the Board of Directors of the Employer.
(b) (i) A quarterly performance bonus with respect to each fiscal
quarter of the Employer commencing with the fiscal quarter ending September
30, 1995 (the "Initial Quarter") equal to (A) 3.65% of the first $224,000
of quarterly pretax income, if any, of the Employer in excess of pretax
income of $450,000, plus (B) 2.38% of the first $226,000 of quarterly
pretax income, if any, of the Employer in excess of pretax income of
$674,000, plus (C) 1.62% of the first $225,000 of quarterly pretax income,
if any, of the Employer in excess of pretax income of $900,000, plus (D)
1.35% of all quarterly pretax income, if any, of the Employer in excess of
pretax income of $1,125,000. For purposes of this agreement, "quarterly
pretax income" shall mean with respect to each fiscal quarter of Employer,
the sum of (y) the Employer's income before income taxes, but without
taking into account any unusual, non-recurring items recognized during such
quarter ("Ordinary Pretax Income"), and (z) any amount of the performance
bonus payable under this Section 3(b) for such fiscal quarter which has
been accrued as an expense and included in Employer's payroll and related
expenses for such quarter in arriving at the amount of Employer's income
before income taxes. For purposes of this agreement, Ordinary Pretax Income
for any quarter shall be as reported on a consolidated basis in the
Employer's quarterly
-2-
<PAGE>
report filed with the Securities and Exchange Commission for such
fiscal quarter ("Quarterly Report"), except that Ordinary Pretax Income of
Employer for the fourth quarter of any fiscal year of Employer shall equal
Ordinary Pretax Income for such fiscal year as reported in the Employer's
audited financial statements included in its annual report filed with the
SEC, less the aggregate Ordinary Pretax Income reported by Employer in the
three Quarterly Reports during such fiscal year.
(ii) Any bonus payable to Employee with respect to any quarter
shall be paid to Employee no later than forty-five (45) days following
the last day of such quarter, except that any bonus payable with
respect to the fourth quarter of any fiscal year of Employer shall be
paid no later than ninety (90) days after the end of such fiscal year;
PROVIDED, HOWEVER, that Employee may, in his sole discretion, elect to
defer payment and receipt of any performance bonus payable by Employer
hereunder for a period of up to one year following the date on which
such bonus payment would otherwise be payable.
(c) Such other and further compensation or benefits as Employer's
Board of Directors may, in its discretion, award to Employee from time to
time under any bonus, stock purchase, stock option, profit sharing or other
employee benefit plan that may hereafter be adopted.
4. EMPLOYMENT EXPENSES, VACATIONS AND OTHER BENEFITS.
(a) Employee shall be entitled to reimbursement from Employer for
reasonable expenses incurred by him in connection with the performance of
his duties hereunder upon the receipt of vouchers therefor in accordance
with such procedures as Employer has heretofore or may hereafter establish.
(b) Employee shall be entitled to reasonable vacations as may be
allowed by Employer in accordance with its general practices and
commensurate with Employee's position and office.
(c) Employee shall be entitled to receive health and medical insurance
and other insurance and benefits on the same basis as such insurance and
benefits are afforded employees of Employer.
5. TERMINATION AND SEVERANCE. Notwithstanding any other provision of this
agreement to the contrary:
(a) This agreement may be terminated by Employer for cause only if
Employee is convicted of any crime constituting a felony under any state or
federal law.
(i) In the event this agreement is terminated by Employer for
cause, Employer shall pay Employee all salary and
-3-
<PAGE>
performance bonus payable to Employee pursuant to Sections 3(a)
and 3(b) of this agreement through the date of termination.
(ii) In the event this agreement is terminated by Employer
without cause, Employee shall be entitled to receive, within seven (7)
calendar days after receiving notice of such termination, (A) a lump
sum cash severance payment equal to the present value (assuming a
discount rate of five percent (5%) per annum) of the aggregate salary
that would otherwise have been paid to Employee by Employer pursuant
to Section 3(a) of this agreement (at the rate in effect at the time
notice of termination is given) for the period from the date the
Employee ceases to be employed by the Employer to the Termination
Date, and (B) a lump sum cash payment equal to the bonus payable to
Employee pursuant to Section 3(b) of this agreement (calculated on the
basis of the Employer's quarterly pretax income as defined in Section
3(b) for the fiscal quarter immediately preceding the time notice of
termination was given, as adjusted to account for any anticipated
increases in quarterly pretax income in any subsequent fiscal quarter
which are anticipated to be attributable to any merger, consolidation
or other transaction involving the Employer which is completed prior
to or pending at the time such notice of termination was given) for
the period from the date the Employee ceases to be employed by the
Employer to the Termination Date.
(iii) In the event this agreement is terminated by Employer
without cause, during the period from the date the Employee ceases to
be employed by the Employer to the Termination Date, the Employer
shall also provide to the Employee health, medical and life insurance
benefits at the same level and on the same basis as such benefits are
afforded employees of the Employer. If Employee elects, such benefits
will be in lieu of any such benefits required to be provided by
Employer by Section 4980B of the Internal Revenue Code ("COBRA"). In
the event Employee shall become employed by any entity which provides
to Employee the same or substantially similar health, medical and life
insurance benefits as are required to be supplied by Employer pursuant
to this Section 5(a), Employer's obligation to provide such benefits
shall terminate.
(iv) Any amounts payable to Employee pursuant to this Section
5(a) shall be in addition to any salary, bonus or other accrued
compensation due to Employee subsequent to the giving of notice of
termination of employment by Employer and prior to the date Employee
ceases to be employed by the Employer.
(b) This agreement may be terminated by Employee for cause if Employer
materially breaches any provision of this agreement, including, without
limitation, Employer's reduction of any salary or reduction or termination
of any performance bonus payable to Employee.
-4-
<PAGE>
(i) In the event this agreement is terminated by Employee for
cause, Employee shall be entitled to receive, within seven (7)
calendar days after receiving notice of such termination, (A) a lump
sum cash severance payment equal to the present value (assuming a
discount rate of five percent (5%) per annum) of the aggregate salary
that would otherwise have been paid to Employee by Employer pursuant
to Section 3(a) of this agreement (at the rate in effect at the time
notice of termination is given) for the period from the date the
Employee ceases to be employed by the Employer to the Termination
Date, and (B) a lump sum cash payment equal to the bonus payable to
Employee pursuant to Section 3(b) of this agreement (calculated on the
basis of the Employer's quarterly pretax income as defined in Section
3(b) for the fiscal quarter immediately preceding the time notice of
termination was given, as adjusted to account for any anticipated
increases in quarterly pretax income in any subsequent fiscal quarter
which are anticipated to be attributable to any merger, consolidation
or other transaction involving the Employer which is completed prior
to or pending at the time such notice of termination was given) for
the period from the date the Employee ceases to be employed by the
Employer to the Termination Date.
(ii) In the event this agreement is terminated by Employee for
cause, during the period from the date the Employee ceases to be
employed by the Employer to the Termination Date, the Employer also
shall provide to the Employee health, medical and life insurance
benefits at the same level and on the same basis as such benefits are
afforded employees of the Employer. If Employee elects, such benefits
will be in lieu of any such benefits required to be provided by
Employer by COBRA. In the event Employee shall become employed by any
entity which provides to Employee the same or substantially similar
health, medical and life insurance benefits as are required to be
supplied by Employer pursuant to this Section 5(b), Employer's
obligation to provide such benefits shall terminate.
(iii) Any amounts payable to Employee pursuant to this Section
5(b) shall be in addition to any salary, bonus or other accrued
compensation due to Employee subsequent to the giving of notice of
termination of employment by Employer and prior to the date Employee
ceases to be employed by the Employer.
(iv) Subject to the limitations set forth above, in the event
this agreement is terminated by Employee for cause, in addition to any
other remedies specified herein, Employee shall be entitled to pursue
against Employer any and all remedies legally available to him
consistent with the terms of this agreement.
(c) (i) If a Change of Control (as defined below) of the Employer
shall occur during the term of this agreement, the
-5-
<PAGE>
Employee shall have the right to terminate this agreement upon thirty
(30) days prior written notice to Employer if, at any time after such
Change in Control, any of the following shall occur without the prior
written consent of the Employee:
(A) the assignment to the Employee of any duties materially
inconsistent with, or the material reduction of the powers or functions
associated with, the Employee's position, duties and responsibilities with
the Employer immediately prior to the Change in Control;
(B) the failure by the Employer or any successor to the Employer to
award the Employee annual increases in base salary substantially consistent
with annual salary increases granted by the Employer prior to the Change in
Control;
(C) the assignment to the Employee by the Employer or any successor to
the Employer of a principal office for the performance of his duties
hereunder which is more than 25 miles from the principal office of Employee
immediately prior to the Change in Control;
(D) the failure by the Employer or any successor to the Employer to
continue in effect any employee benefit or bonus plan or arrangement in
which the Employee participated immediately prior to the Change in Control
(except that the Employer or any successor to the Employer may establish
plans or arrangements providing substantially similar benefits), or the
taking of any action which would adversely affect the Employee's
participation in or materially reduce the Employee's benefits under, any of
the foregoing;
(E) the failure by the Employer or any successor to the Employer to
provide the Employee with substantially the same number of paid vacation
and sick days to which the Employee was entitled immediately prior to the
Change in Control.
(ii) In the event Employee shall terminate this agreement
pursuant to this Section 5(c), Employee shall be entitled to receive
the severance payment and bonus and be provided the benefits set forth
in Section 5(a) in the case of Employer's termination of Employee
without cause.
(iii) A Change of Control shall be deemed to have occurred if (i)
any person or group (as such terms are used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) is
or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of Employer representing 25% or more of the combined voting
power of the Employer's then outstanding securities; or (ii) during
any period of two consecutive years, individuals who at the beginning
of such
-6-
<PAGE>
period constitute the Board cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for
election by Employer's stockholders, of each new director was approved
by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
(d) If Employee shall be prevented by illness, accident or disability
from discharging his duties hereunder for a period of six (6) months during
the term of this agreement, Employer may terminate Employee's employment
hereunder at the end of such period. If, thereafter, Employee is again able
to fully perform his duties hereunder and, by notice, requests
reemployment, he shall be so reemployed by Employer under the terms of this
agreement at the same position, or a position of comparable duties and
responsibilities.
(e) In the event of Employee's death during the term hereof, his right
to all further payments of his salary shall cease, except that his legal
representatives shall be entitled to receive his salary and pro rata
portion of his performance bonus for the period up to the date of his death
and one year thereafter.
6. ISSUANCE OF WARRANT UPON TERMINATION BY EMPLOYEE; ACCELERATION OF
VESTING OF RESTRICTED SHARES.
(a) Upon termination of this agreement by Employee pursuant to Section
5(b) or 5(c) above, or by Employer for any reason other than for cause
pursuant to Section 5(a) above, in addition to any other rights available
to Employee, any option to purchase shares of the capital stock of Employer
previously issued to Employee pursuant to any stock option plan of Employer
shall, to the extent permissible under such plan, become immediately
exercisable to the extent such options are not exercisable at the time of
termination. In the event the terms of the plan do not permit such options
to become immediately exercisable, Employer shall (i) promptly issue to
Employee, but in no event later than seven (7) calendar days after notice
of such termination has been given by Employer or Employee, as appropriate,
a non-transferable stock purchase warrant ("Warrant") which shall be
immediately exercisable for a period of five (5) years by Employee for the
purchase of the same number of shares of capital stock of Employer as was
subject to such option and at the same per share exercise price set forth
in such option, and (ii) if Form S-3 is available for use by the Employer,
grant to Employee the right to demand that the Employer, upon thirty (30)
days' prior written notice, register under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of capital stock of Employer
received by Employee upon exercise of the Warrant, and to keep the
registration statement filed by Employer effective for a period
-7-
<PAGE>
of two years from the date such registration statement is declared
effective by the Securities and Exchange Commission ("SEC"), or, if Form
S-3 is not available for use by the Employer, grant to Employee the right
to require, upon thirty (30) days' prior written notice, that Employer
include in any registration statement covering shares of the same class of
capital stock of Employer filed by the Employer with the SEC under the
Securities Act (other than a registration statement on Form S-8 or Form
S-4) such number of shares of capital stock of Employer as are then held by
Employee pursuant to the exercise of the Warrant.
(b) Upon termination of this agreement by Employee pursuant to Section
5(b) or 5(c) above, or by Employer for any reason other than for cause
pursuant to Section 5(a) above, in addition to any other rights available
to Employee, any remaining vesting periods in respect of restricted or
similar stock grants made to Employee shall be automatically accelerated
such that the shares granted shall become immediately vested in favor of
the Employee.
7. RESTRICTIONS.
(a) During the term of Employee's employment hereunder and for a
period of one (1) year thereafter, Employee will not, directly or
indirectly, as principal, agent, employee, officer, director or shareholder
(except as an investor in securities of publicly owned corporations so long
as Employee's ownership of stock of any one company does not exceed 5% of
the outstanding stock of said company) engage in any business or enterprise
in the United States which is competitive with the business heretofore
conducted or hereafter conducted by Employer or any present subsidiary or
affiliate of Employer, including any business or enterprise involving
magnetic resonance imaging or other diagnostic imaging procedure; PROVIDED,
HOWEVER, that the restrictions contained in this Section 7 shall not apply,
and shall be of no force and effect, in the event Employer terminates this
agreement without cause; and PROVIDED, FURTHER, that nothing contained in
this Section 7(a) shall prevent Employee from engaging in any business or
enterprise as principal, agent, employee, officer, director or shareholder
of any entity which, as its primary business, performs clinical laboratory
services or engages in the testing, development or manufacturing of
pharmaceutical products.
(b) If, in any judicial proceeding, the duration or scope of any
covenant or agreement of Employee contained in this Section 7 shall be
adjudicated to be invalid or unenforceable, the parties agree that this
agreement shall be deemed amended to reduce such duration or scope to the
extent necessary to permit enforcement of such covenant or agreement, such
amendment to apply only with respect to the operation of
-8-
<PAGE>
such covenant or agreement in the particular jurisdiction in which
such adjudication is made.
(c) Employee acknowledges that Employer's business and marketing
methods, referral contacts, physician relationships, vendor relationships,
projections and budgets, costs and expenses, constitute good and valuable
trade secrets of Employer and Employee will not at any time during the term
of this agreement or thereafter, without the consent of Employer, disclose
the same to any person, firm or corporation except on behalf of Employer.
(d) For a period of one (1) year after termination or cessation of
Employee's employment with the Employer for any reason whatsoever, Employee
shall not, without the prior written consent of the Employer, solicit for
employment, either on his own behalf or on behalf of any other person or
entity, any person who is employed by the Employer or by any entity owned
or otherwise affiliated with Employer.
(e) The parties hereto acknowledge and agree that money damages would
constitute an inadequate remedy in the event of a breach of this Section 7,
and that, in addition to any other remedies which may be available, the
obligations of Employee under this Section 7 shall be specifically
enforceable.
8. INSURANCE. During the term of this agreement, Employer shall maintain at
all times an insurance policy or policies insuring against the death of
Employee, naming Employee's estate as beneficiary of such policy or policies and
providing for death benefits payable to Employee's estate of not less than
$200,000.
9. ENTIRE AGREEMENT. This agreement contains the entire agreement between
the parties hereto in regard to Employee's employment by Employer and there have
been no oral or other agreements of any kind whatsoever as a condition precedent
or inducement to the signing of this agreement or otherwise concerning this
agreement or the subject matter hereof, nor shall any change, addition or
amendment be made hereto or to any of the terms, covenants or conditions hereof
except by written agreement signed by the parties hereto.
10. BENEFITS OF AGREEMENT. This agreement shall be legally binding upon and
shall inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns, and shall be governed in all respects
by the laws of the State of New Jersey. Without in any way limiting the
foregoing, the obligations of the Employer under this agreement shall be binding
upon any successors or assigns of the Employer, including any entity which
succeeds to the rights and
-9-
<PAGE>
duties of Employer under this agreement as a result a Change in Control.
11. EFFECTIVENESS OF AGREEMENT. This agreement shall become effective as of
September 15, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day
and year first above written.
NMR OF AMERICA, INC.
Attest:
/s/ JOHN MCCUE By: /s/ JOSEPH G. DASTI
- -------------------------------- --------------------------------
John McCue, Assistant Secretary Name: Joseph G. Dasti
Title: President
Witness:
/s/ JOHN P. O'MALLEY III
- -------------------------- --------------------------------
John P. O'Malley III
-10-
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT dated December 13, 1995 between NMR OF AMERICA, INC., a
Delaware corporation (the "Employer"), and JOSEPH G. DASTI, residing at 28-I
Morris Avenue, Summit, New Jersey 07901 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employer and Employee have previously entered into that
certain Amended and Restated Employment Agreement, dated as of June 21, 1994
(the "Existing Agreement"); and
WHEREAS, based upon the continued efforts of the Employee which have
resulted in improved earnings and expanded business opportunities for the
Employer, the Compensation Committee of the Board of Directors of the Employer,
pursuant to extensive consideration at numerous meetings duly called and held,
has recommended to the full Board of Directors of the Employer that the Existing
Agreement be amended and restated with respect to certain matters, including,
without limitation, the amount of the Employee's compensation, the duration of
Employee's contract and the payment of performance bonuses to Employee; and
WHEREAS, the Board of Directors of the Employer, following consideration of
the recommendations of the Compensation Committee, at a meeting duly called and
held on September 14, 1995, has unanimously approved the recommendations of the
Compensation Committee to amend and restate the Existing Agreement in the manner
set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the provisions for termination as
hereinafter provided, Employer agrees to and does hereby employ Employee as
Executive Vice President-Finance and Chief Financial Officer of Employer and
Employee agrees to serve Employer in such capacities for a term expiring June
20, 2000 (the "Initial Term of Employment"). Thereafter, this Agreement shall
continue for successive one (1) year periods (each one year period hereinafter
referred to as the "Extended Term of Employment") unless the Employer or the
Employee elects to terminate this Agreement as provided below. If either the
Employer or the Employee elects to terminate this Agreement upon the expiration
of the Initial Term of Employment, or the Extended Term of Employment, such
party shall provide the other party with written notice of election to terminate
at least ninety (90) days prior to the last day of the Initial Term of
Employment or the Extended Term of Employment, as the case may be. As used
herein, the term "Termination Date" shall mean the last day of the Initial Term
of Employment, except that if this Agreement shall
<PAGE>
be extended as provided above, the Termination Date shall be the last day of the
Extended Term of Employment.
2. EMPLOYEE'S DUTIES. Employee shall perform such executive, administrative
and supervisory duties as may be assigned to him by Employer's Board of
Directors, not inconsistent with the duties customarily performed by the
Executive Vice President-Finance and Chief Financial Officer of a corporation of
the size and engaged in the business of Employer. Employee shall devote
substantially his full time, labor, attention and best ability to the
performance of his duties hereunder, except for customary vacations and
reasonable absence due to illness or to other incapacity, and except for such
reasonable time as Employee may be required to devote to his other business
interests, it being understood that such business interests will not interfere
with the ability of the Employee to devote substantially his full time to the
business activities of Employer.
3. COMPENSATION. Employer shall pay to Employee and Employee shall accept
from Employer as compensation for his services hereunder:
(a) A salary at the annual rate of $225,000, effective as of September 15,
1995, to be payable in equal monthly or more frequent installments, less the
usual required deductions, which annual salary shall be subject to increase on
each anniversary date of this agreement at the sole discretion of the Board of
Directors of the Employer.
(b) (i) A quarterly performance bonus with respect to each fiscal quarter
of the Employer commencing with the fiscal quarter ending September 30, 1995
(the "Initial Quarter") equal to (A) 3.65% of the first $224,000 of quarterly
pretax income, if any, of the Employer in excess of pretax income of $450,000,
plus (B) 2.38% of the first $226,000 of quarterly pretax income, if any, of the
Employer in excess of pretax income of $674,000, plus (C) 1.62% of the first
$225,000 of quarterly pretax income, if any, of the Employer in excess of pretax
income of $900,000, plus (D) 1.35% of all quarterly pretax income, if any, of
the Employer in excess of pretax income of $1,125,000. For purposes of this
agreement, "quarterly pretax income" shall mean with respect to each fiscal
quarter of Employer, the sum of (y) the Employer's income before income taxes,
but without taking into account any unusual, non-recurring items recognized
during such quarter ("Ordinary Pretax Income"), and (z) any amount of the
performance bonus payable under this Section 3(b) for such fiscal quarter which
has been accrued as an expense and included in Employer's payroll and related
expenses for such quarter in arriving at the amount of Employer's income before
income taxes. For purposes of this agreement, Ordinary Pretax Income for any
quarter shall be as reported on a consolidated basis in the Employer's quarterly
-2-
<PAGE>
report filed with the Securities and Exchange Commission for such fiscal quarter
("Quarterly Report"), except that Ordinary Pretax Income of Employer for the
fourth quarter of any fiscal year of Employer shall equal Ordinary Pretax Income
for such fiscal year as reported in the Employer's audited financial statements
included in its annual report filed with the SEC, less the aggregate Ordinary
Pretax Income reported by Employer in the three Quarterly Reports during such
fiscal year.
(ii) Any bonus payable to Employee with respect to any quarter shall be
paid to Employee no later than forty-five (45) days following the last day of
such quarter, except that any bonus payable with respect to the fourth quarter
of any fiscal year of Employer shall be paid no later than ninety (90) days
after the end of such fiscal year; PROVIDED, HOWEVER, that Employee may, in his
sole discretion, elect to defer payment and receipt of any performance bonus
payable by Employer hereunder for a period of up to one year following the date
on which such bonus payment would otherwise be payable.
(c) Such other and further compensation or benefits as Employer's Board of
Directors may, in its discretion, award to Employee from time to time under any
bonus, stock purchase, stock option, profit sharing or other employee benefit
plan that may hereafter be adopted.
4. EMPLOYMENT EXPENSES, VACATIONS AND OTHER BENEFITS.
(a) Employee shall be entitled to reimbursement from Employer for
reasonable expenses incurred by him in connection with the performance of his
duties hereunder upon the receipt of vouchers therefor in accordance with such
procedures as Employer has heretofore or may hereafter establish.
(b) Employee shall be entitled to reasonable vacations as may be allowed by
Employer in accordance with its general practices and commensurate with
Employee's position and office.
(c) Employee shall be entitled to receive health and medical insurance and
other insurance and benefits on the same basis as such insurance and benefits
are afforded employees of Employer.
5. TERMINATION AND SEVERANCE. Notwithstanding any other provision of this
agreement to the contrary:
(a) This agreement may be terminated by Employer for cause only if Employee
is convicted of any crime constituting a felony under any state or federal law.
(i) In the event this agreement is terminated by Employer for cause,
Employer shall pay Employee all salary and
-3-
<PAGE>
performance bonus payable to Employee pursuant to Sections 3(a) and 3(b) of this
agreement through the date of termination.
(ii) In the event this agreement is terminated by Employer without cause,
Employee shall be entitled to receive, within seven (7) calendar days after
receiving notice of such termination, (A) a lump sum cash severance payment
equal to the present value (assuming a discount rate of five percent (5%) per
annum) of the aggregate salary that would otherwise have been paid to Employee
by Employer pursuant to Section 3(a) of this agreement (at the rate in effect at
the time notice of termination is given) for the period from the date the
Employee ceases to be employed by the Employer to the Termination Date, and (B)
a lump sum cash payment equal to the bonus payable to Employee pursuant to
Section 3(b) of this agreement (calculated on the basis of the Employer's
quarterly pretax income as defined in Section 3(b) for the fiscal quarter
immediately preceding the time notice of termination was given, as adjusted to
account for any anticipated increases in quarterly pretax income in any
subsequent fiscal quarter which are anticipated to be attributable to any
merger, consolidation or other transaction involving the Employer which is
completed prior to or pending at the time such notice of termination was given)
for the period from the date the Employee ceases to be employed by the Employer
to the Termination Date.
(iii) In the event this agreement is terminated by Employer without cause,
during the period from the date the Employee ceases to be employed by the
Employer to the Termination Date, the Employer shall also provide to the
Employee health, medical and life insurance benefits at the same level and on
the same basis as such benefits are afforded employees of the Employer. If
Employee elects, such benefits will be in lieu of any such benefits required to
be provided by Employer by Section 4980B of the Internal Revenue Code ("COBRA").
In the event Employee shall become employed by any entity which provides to
Employee the same or substantially similar health, medical and life insurance
benefits as are required to be supplied by Employer pursuant to this Section
5(a), Employer's obligation to provide such benefits shall terminate.
(iv) Any amounts payable to Employee pursuant to this Section 5(a) shall be
in addition to any salary, bonus or other accrued compensation due to Employee
subsequent to the giving of notice of termination of employment by Employer and
prior to the date Employee ceases to be employed by the Employer.
(b) This agreement may be terminated by Employee for cause if Employer
materially breaches any provision of this agreement, including, without
limitation, Employer's reduction of any salary or reduction or termination of
any performance bonus payable to Employee.
-4-
<PAGE>
(i) In the event this agreement is terminated by Employee for cause,
Employee shall be entitled to receive, within seven (7) calendar days after
receiving notice of such termination, (A) a lump sum cash severance payment
equal to the present value (assuming a discount rate of five percent (5%) per
annum) of the aggregate salary that would otherwise have been paid to Employee
by Employer pursuant to Section 3(a) of this agreement (at the rate in effect at
the time notice of termination is given) for the period from the date the
Employee ceases to be employed by the Employer to the Termination Date, and (B)
a lump sum cash payment equal to the bonus payable to Employee pursuant to
Section 3(b) of this agreement (calculated on the basis of the Employer's
quarterly pretax income as defined in Section 3(b) for the fiscal quarter
immediately preceding the time notice of termination was given, as adjusted to
account for any anticipated increases in quarterly pretax income in any
subsequent fiscal quarter which are anticipated to be attributable to any
merger, consolidation or other transaction involving the Employer which is
completed prior to or pending at the time such notice of termination was given)
for the period from the date the Employee ceases to be employed by the Employer
to the Termination Date.
(ii) In the event this agreement is terminated by Employee for cause,
during the period from the date the Employee ceases to be employed by the
Employer to the Termination Date, the Employer also shall provide to the
Employee health, medical and life insurance benefits at the same level and on
the same basis as such benefits are afforded employees of the Employer. If
Employee elects, such benefits will be in lieu of any such benefits required to
be provided by Employer by COBRA. In the event Employee shall become employed by
any entity which provides to Employee the same or substantially similar health,
medical and life insurance benefits as are required to be supplied by Employer
pursuant to this Section 5(b), Employer's obligation to provide such benefits
shall terminate.
(iii) Any amounts payable to Employee pursuant to this Section 5(b) shall
be in addition to any salary, bonus or other accrued compensation due to
Employee subsequent to the giving of notice of termination of employment by
Employer and prior to the date Employee ceases to be employed by the Employer.
(iv) Subject to the limitations set forth above, in the event this
agreement is terminated by Employee for cause, in addition to any other remedies
specified herein, Employee shall be entitled to pursue against Employer any and
all remedies legally available to him consistent with the terms of this
agreement.
(c) (i) If a Change of Control (as defined below) of the Employer shall
occur during the term of this agreement, the
-5-
<PAGE>
Employee shall have the right to terminate this agreement upon thirty (30) days
prior written notice to Employer if, at any time after such Change in Control,
any of the following shall occur without the prior written consent of the
Employee:
(A) the assignment to the Employee of any duties materially inconsistent
with, or the material reduction of the powers or functions associated with, the
Employee's position, duties and responsibilities with the Employer immediately
prior to the Change in Control;
(B) the failure by the Employer or any successor to the Employer to award
the Employee annual increases in base salary substantially consistent with
annual salary increases granted by the Employer prior to the Change in Control;
(C) the assignment to the Employee by the Employer or any successor to the
Employer of a principal office for the performance of his duties hereunder which
is more than 25 miles from the principal office of Employee immediately prior to
the Change in Control;
(D) the failure by the Employer or any successor to the Employer to
continue in effect any employee benefit or bonus plan or arrangement in which
the Employee participated immediately prior to the Change in Control (except
that the Employer or any successor to the Employer may establish plans or
arrangements providing substantially similar benefits), or the taking of any
action which would adversely affect the Employee's participation in or
materially reduce the Employee's benefits under, any of the foregoing;
(E) the failure by the Employer or any successor to the Employer to provide
the Employee with substantially the same number of paid vacation and sick days
to which the Employee was entitled immediately prior to the Change in Control.
(ii) In the event Employee shall terminate this agreement pursuant to this
Section 5(c), Employee shall be entitled to receive the severance payment and
bonus and be provided the benefits set forth in Section 5(a) in the case of
Employer's termination of Employee without cause.
(iii) A Change of Control shall be deemed to have occurred if (i) any
person or group (as such terms are used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of Employer representing 25% or more
of the combined voting power of the Employer's then outstanding securities; or
(ii) during any period of two consecutive years, individuals who at the
beginning of such
-6-
<PAGE>
period constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
Employer's stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.
(d) If Employee shall be prevented by illness, accident or disability from
discharging his duties hereunder for a period of six (6) months during the term
of this agreement, Employer may terminate Employee's employment hereunder at the
end of such period. If, thereafter, Employee is again able to fully perform his
duties hereunder and, by notice, requests reemployment, he shall be so
reemployed by Employer under the terms of this agreement at the same position,
or a position of comparable duties and responsibilities.
(e) In the event of Employee's death during the term hereof, his right to
all further payments of his salary shall cease, except that his legal
representatives shall be entitled to receive his salary and pro rata portion of
his performance bonus for the period up to the date of his death and one year
thereafter.
6. ISSUANCE OF WARRANT UPON TERMINATION BY EMPLOYEE; ACCELERATION OF
VESTING OF RESTRICTED SHARES.
(a) Upon termination of this agreement by Employee pursuant to Section 5(b)
or 5(c) above, or by Employer for any reason other than for cause pursuant to
Section 5(a) above, in addition to any other rights available to Employee, any
option to purchase shares of the capital stock of Employer previously issued to
Employee pursuant to any stock option plan of Employer shall, to the extent
permissible under such plan, become immediately exercisable to the extent such
options are not exercisable at the time of termination. In the event the terms
of the plan do not permit such options to become immediately exercisable,
Employer shall (i) promptly issue to Employee, but in no event later than seven
(7) calendar days after notice of such termination has been given by Employer or
Employee, as appropriate, a non-transferable stock purchase warrant ("Warrant")
which shall be immediately exercisable for a period of five (5) years by
Employee for the purchase of the same number of shares of capital stock of
Employer as was subject to such option and at the same per share exercise price
set forth in such option, and (ii) if Form S-3 is available for use by the
Employer, grant to Employee the right to demand that the Employer, upon thirty
(30) days' prior written notice, register under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of capital stock of Employer received
by Employee upon exercise of the Warrant, and to keep the registration statement
filed by Employer effective for a period
-7-
<PAGE>
of two years from the date such registration statement is declared effective by
the Securities and Exchange Commission ("SEC"), or, if Form S-3 is not available
for use by the Employer, grant to Employee the right to require, upon thirty
(30) days' prior written notice, that Employer include in any registration
statement covering shares of the same class of capital stock of Employer filed
by the Employer with the SEC under the Securities Act (other than a registration
statement on Form S-8 or Form S-4) such number of shares of capital stock of
Employer as are then held by Employee pursuant to the exercise of the Warrant.
(b) Upon termination of this agreement by Employee pursuant to Section 5(b)
or 5(c) above, or by Employer for any reason other than for cause pursuant to
Section 5(a) above, in addition to any other rights available to Employee, any
remaining vesting periods in respect of restricted or similar stock grants made
to Employee shall be automatically accelerated such that the shares granted
shall become immediately vested in favor of the Employee.
7. RESTRICTIONS.
(a) During the term of Employee's employment hereunder and for a period of
one (1) year thereafter, Employee will not, directly or indirectly, as
principal, agent, employee, officer, director or shareholder (except as an
investor in securities of publicly owned corporations so long as Employee's
ownership of stock of any one company does not exceed 5% of the outstanding
stock of said company) engage in any business or enterprise in the United States
which is competitive with the business heretofore conducted or hereafter
conducted by Employer or any present subsidiary or affiliate of Employer,
including any business or enterprise involving magnetic resonance imaging or
other diagnostic imaging procedure; provided, however, that the restrictions
contained in this Section 7 shall not apply, and shall be of no force and
effect, in the event Employer terminates this agreement without cause; and
provided, further, that nothing contained in this Section 7(a) shall prevent
Employee from engaging in any business or enterprise as principal, agent,
employee, officer, director or shareholder of any entity which, as its primary
business, performs clinical laboratory services or engages in the testing,
development or manufacturing of pharmaceutical products.
(b) If, in any judicial proceeding, the duration or scope of any covenant
or agreement of Employee contained in this Section 7 shall be adjudicated to be
invalid or unenforceable, the parties agree that this agreement shall be deemed
amended to reduce such duration or scope to the extent necessary to permit
enforcement of such covenant or agreement, such amendment to apply only with
respect to the operation of
-8-
<PAGE>
such covenant or agreement in the particular jurisdiction in which such
adjudication is made.
(c) Employee acknowledges that Employer's business and marketing methods,
referral contacts, physician relationships, vendor relationships, projections
and budgets, costs and expenses, constitute good and valuable trade secrets of
Employer and Employee will not at any time during the term of this agreement or
thereafter, without the consent of Employer, disclose the same to any person,
firm or corporation except on behalf of Employer.
(d) For a period of one (1) year after termination or cessation of
Employee's employment with the Employer for any reason whatsoever, Employee
shall not, without the prior written consent of the Employer, solicit for
employment, either on his own behalf or on behalf of any other person or entity,
any person who is employed by the Employer or by any entity owned or otherwise
affiliated with Employer.
(e) The parties hereto acknowledge and agree that money damages would
constitute an inadequate remedy in the event of a breach of this Section 7, and
that, in addition to any other remedies which may be available, the obligations
of Employee under this Section 7 shall be specifically enforceable.
8. INSURANCE. During the term of this agreement, Employer shall maintain at
all times an insurance policy or policies insuring against the death of
Employee, naming Employee's estate as beneficiary of such policy or policies and
providing for death benefits payable to Employee's estate of not less than
$200,000.
9. ENTIRE AGREEMENT. This agreement contains the entire agreement between
the parties hereto in regard to Employee's employment by Employer and there have
been no oral or other agreements of any kind whatsoever as a condition precedent
or inducement to the signing of this agreement or otherwise concerning this
agreement or the subject matter hereof, nor shall any change, addition or
amendment be made hereto or to any of the terms, covenants or conditions hereof
except by written agreement signed by the parties hereto.
10. BENEFITS OF AGREEMENT. This agreement shall be legally binding upon and
shall inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns, and shall be governed in all respects
by the laws of the State of New Jersey. Without in any way limiting the
foregoing, the obligations of the Employer under this agreement shall be binding
upon any successors or assigns of the Employer, including any entity which
succeeds to the rights and
-9-
<PAGE>
duties of Employer under this agreement as a result a Change in Control.
11. EFFECTIVENESS OF AGREEMENT. This agreement shall become effective as of
September 15, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day
and year first above written.
NMR OF AMERICA, INC.
Attest:
/s/ JOHN MCCUE By: /s/ JOHN P. O'MALLEY
- ------------------------------- ----------------------------
John McCue, Assistant Secretary Name: John P. O'Malley III
Title: Executive Vice
President-Finance
Witness:
/s/ JOSEPH G. DASTI
- -------------------------- ----------------------------
Joseph G. Dasti
-10-
NMR OF AMERICA, INC., AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF SHARES USED FOR EARNINGS PER SHARE CALCULATION
YEARS ENDED MARCH 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE INFORMATION:
Net income per consolidated
statements of income $1,777,377 $2,433,912 $1,367,500
========== ========== ==========
Weighted average number of
outstanding shares 5,721,462 4,890,791 4,757,102
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 149,032 127,161 --
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures -- -- --
---------- ---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 5,870,494 5,017,952 4,757,102
========== ========== ==========
PRIMARY EARNINGS PER SHARE:
Primary net income per share $ .30 $ .49 $ .29
========== ========== ==========
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF SHARES USED FOR EARNINGS PER SHARE CALCULATION
YEARS ENDED MARCH 31,
--------------------------------------
1996(1) 1995 1994(1)
--------------------------------------
FULLY DILUTED EARNINGS PER SHARE INFORMATION:
Net income per consolidated
statements of income $1,777,377 $2,433,912 $1,367,500
Add: Interest savings from proceeds
of conversion of outstanding
convertible debentures,
net of minority
interest and taxes 206,016 220,255 372,517
---------- ---------- ----------
Net income (loss) used to compute fully
diluted earnings per share $1,983,393 $2,654,167 $1,740,017
========== ========== ==========
Weighted average number of
outstanding shares 5,721,462 4,890,791 4,757,102
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 149,032 217,553 221,934
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures 454,222 481,556 506,444
---------- ---------- ----------
Weighted average number of shares
used to compute fully diluted
earnings per share 6,324,716 5,589,900 5,485,480
========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Fully diluted net income per share $.31 $.47 $.32
========== ========== ==========
- ----------
(1) The Company's calculation of fully diluted earnings per share for the
year ended March 31, 1996 and 1994 is antidilutive in comparison to its
calculation of primary earnings per share. As such, the Company has
presented its primary earnings per share on the face of its consolidated
statement of operations for both the primary and fully diluted earnings per
share presentation.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
NMR of America, Inc. and Subsidiaries on Form S-8 (No. 33-42519 and No.
33-88014) of our report dated June 21, 1996, on our audits of the consolidated
financial statements of NMR of America, Inc. and Subsidiaries as of March 31,
1996 and 1995, and for the three years in the period ended March 31, 1996, which
report is included in the Company's Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,782,315
<SECURITIES> 0
<RECEIVABLES> 14,182,008
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,070,377
<PP&E> 31,832,051
<DEPRECIATION> 17,381,581
<TOTAL-ASSETS> 47,073,686
<CURRENT-LIABILITIES> 9,800,862
<BONDS> 17,705,118
0
0
<COMMON> 67,051
<OTHER-SE> 20,922,211
<TOTAL-LIABILITY-AND-EQUITY> 47,073,686
<SALES> 0
<TOTAL-REVENUES> 23,833,897
<CGS> 0
<TOTAL-COSTS> 19,134,656
<OTHER-EXPENSES> 287,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677,698
<INCOME-PRETAX> 2,733,798
<INCOME-TAX> 956,421
<INCOME-CONTINUING> 1,777,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,777,377
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
