BIOMAGNETIC TECHNOLOGIES INC
10-K/A, 1995-04-27
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS
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<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                               FORM 10-K/A NO. 2
(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended                  September 30, 1994

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                      to 

Commission File Number:                    1-10285

                        BIOMAGNETIC TECHNOLOGIES, INC.
            -----------------------------------------------------
            (Exact name of registrant as specified in its charter)

           California                                          95-2647755
- -------------------------------                          ----------------------
(State or other jurisdiction of                          (I.R.S. Employer 
incorporation or organization)                           Identification Number)

9727 Pacific Heights Boulevard,       
San Diego, California                                         92121-3719
- -------------------------------                               ----------
    (Address of principal                                     (Zip Code)
    executive offices)


Registrant's telephone number, including area code          (619) 453-6300

Securities registered pursuant to Section 12(b) of the Act:   None 

Securities registered pursuant to Section 12(g) of the Act:   Common Stock,
                                                              No Par Value
                                                              Per Share
                                                              ----------------
                                                              (Title of Class)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.      [X]

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
         [X] Yes [  ] No

The aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of January 6, 1995
was $8,767,675, based on the closing price on that date on the Nasdaq National
Market.

The number of shares outstanding of the registrant's Common Stock, no par
value, as of January 6, 1995 was 10,027,697 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

1.       Certain portions of Registrant's Annual Proxy Statement to be filed
         pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
         amended, in connection with the Annual Meeting of Shareholders to be
         held February 17, 1995 are incorporated by reference into Part III of
         this report.

2.       Registrant's Annual Report of its Employee Stock Purchase Plan for the
         fiscal year ended September 30, 1994 is incorporated by reference into
         Exhibit 99.1.
<PAGE>   2
3.       Items contained in the above-referenced documents which are not
         specifically incorporated by reference are not included in this
         report.
<PAGE>   3
                                    PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 
                 FORM 8-K.

         (a)     The following documents are filed as part of this report.

                 (1)      Financial Statements

                          Reference is made to the Index to Consolidated
                          Financial Statements under Item 8 in Part hereof,
                          where these documents are listed.

                 (2)      Financial Statement Schedule required by Item 8 on
                          page 37 of this report.

                 (3)      Exhibits - see (c) below.

         (b)     Reports on Form 8-K during the fourth quarter:

                 None

         (c)     Exhibits

                 The following documents are exhibits to this Form 10-K/A No. 2:







                                      29
<PAGE>   4

<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION OF DOCUMENT
- -------                           -----------------------
<S>              <C>
  3.1 (1)        Articles of Incorporation of the Company, as amended.
  3.2 (1)        Bylaws of the Company, as amended.
+10.6 (4)        The Company's 1987 Stock Option Plan, as amended.
+10.7 (4)        Form of Incentive Stock Option and related exercise documents.
+10.8 (1)        The Company's 1985 Incentive Stock Option Plan, as amended.
+10.9 (1)        Form of Incentive Stock Option and related exercise documents.
+10.10 (1)       The Company's 1985 Non-Qualified Stock Option Plan, as amended.
+10.11 (1)       Form of Non-Qualified Stock Option and related exercise 
                 documents.
+10.12 (1)       The Company's 1984 Incentive Stock Option Plan, as amended.
+10.13 (1)       Form of Incentive Stock Option and related exercise documents.
 10.17 (1)       Option Agreement dated July 16, 1986 between the Company and 
                 Quantum Design, Inc.
 10.22 (1)       Agreement to subordinate debt of S.H.E. GmbH.
+10.36 (1)       Form of Indemnification Agreements for directors and officers.
 10.39 (2)       Purchase and Distributorship Agreement dated January 22, 1990 
                 between the Company and Sumitomo Metal Industries, Ltd. (with 
                 certain confidential portions omitted).
 10.40 (2)       Two Sets Purchase Agreement dated January 22, 1990 between 
                 the Company and Sumitomo Metal Industries, Ltd. (with certain 
                 confidential portions omitted).
 10.41 (2)       License and R & D Agreement dated January 22, 1990 between 
                 the Company and Sumitomo Metal Industries, Ltd.
 10.42 (2)       Stock Purchase Agreement dated January 22, 1990 between the 
                 Company and Sumitomo Metal Industries, Ltd.
 10.43 (2)       Registration Rights Agreement dated January 22, 1990 between 
                 the Company and Sumitomo Metal Industries, Ltd.
+10.44 (2)       Amended and Restated Executive Employment Agreement dated 
                 March 21, 1990 between the Company and Stephen O. James.
 10.45 (3)       Memorandum of Understanding dated January 18, 1991 between 
                 the Company and Sumitomo Metal Industries, Ltd. (with certain 
                 confidential portions omitted).
</TABLE>




                                      30
<PAGE>   5

<TABLE>
<S>              <C>
 10.46 (3)       New R & D Program for Small MSR (Supplementary Agreement to 
                 License and R & D Agreement) dated February 28, 1991 between 
                 the Company and Sumitomo Metal Industries, Ltd., and 
                 Memorandum (not dated) modifying the agreement.
 10.47 (3)       Agreement Relating to Magnetically Shielded Rooms dated 
                 March 28, 1991 between the Company and Vacuumschmelze GmbH 
                 (with certain confidential portions omitted).
 10.48 (3)       Exclusive Patent and Technology License Agreement dated 
                 July 15, 1991 between the Company and Stanford University 
                 (with certain confidential portions omitted).
+10.49 (6)       Biomagnetic Technologies, Inc. 1992 Employee Stock Purchase 
                 Plan.
+10.51 (6)       Waiver and Release of Special Bonus, dated August 2, 1991, 
                 between the Company and William Black.
+10.55 (5)       Employment Agreement, dated July 12, 1993, between the 
                 Company and James V. Schumacher.
+10.56 (5)       Form of Trust Agreement between the Company and James V. 
                 Schumacher.
+10.57 (7)       Amendment to Option Agreements between the Company and 
                 Stephen O. James (numbered originally as Exhibit 10.3).
 10.58 (5)       Real Estate Lease, dated April 3, 1989, between the Company 
                 and Cornerstone Income Properties, plus First and Second 
                 Amendments to the Real Estate Lease.
 10.59 (8)       Form of 10% Secured Promissory Note, dated May 2, 1994 
                 (subsequently converted into 10% Senior Secured Promissory
                 Note set forth in Exhibit 10.62).
 10.60 (8)       Form of Security Agreement, dated May 2, 1994 (superseded by 
                 Security Agreement set forth in Exhibit 10.62).
 10.61 (8)       Form of Subscription Agreement, dated May 31 and June 15, 
                 1994, between the Company and certain holders of 10% senior 
                 secured promissory notes.
 10.62 (8)       Form of Security Agreement, dated May 31 and June 15, 1994, 
                 between the Company and certain holders of 10% senior secured 
                 promissory notes.
 10.63 (8)       Form of 10% Senior Secured Promissory Note.
 10.64 (8)       Form of Purchase Option Agreement, as amended.
 10.67           Magnetically Shielded Room (MSR) Development and Production 
                 Program Agreement, dated June 6, 1994 (with certain 
                 confidential portions omitted).
 10.68 (9)       Letter Agreement between the Company and Dassesta 
                 International S.A. regarding the purchase of 25,000,000 Shares 
                 of Common Stock of the Company.
 10.69 (9)       Loan and Security Agreement with a bank dated December 13, 
                 1994.
 10.70 (9)       Schedule to Loan and Security Agreement dated December 13, 
                 1994.
</TABLE>





                                       31
<PAGE>   6
<TABLE>
<S>              <C>
    11 (9)       Computation of Net Loss per Share.
    21 (9)       Subsidiary of the Company (Biomagnetic Technologies GmbH).
    23 (9)       Consent of Independent Accountants -- Price Waterhouse LLP.
    24 (9)       Power of Attorney.
    99 (9)       Annual Report of the Biomagnetic Technologies, Inc. 1992 
                 Employee Stock Purchase Plan.
</TABLE>
__________________________

(1)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Registration Statement filed pursuant to
         the Securities Act of 1933 on Form S-1, Registration Statement No.
         33-29095, filed June 7, 1989, as amended by Amendment No. 1, filed
         June 13, 1989, Amendment No. 2, filed July 21, 1989 and Amendment No.
         3, filed July 28, 1989.

(2)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Fiscal 1990 Form 10-K.

(3)      These exhibits were previously filed as a part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Fiscal 1991 Form 10-K.

(4)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Fiscal 1992 Form 10-K.

(5)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Fiscal 1993 Form 10-K.

(6)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Registration Statement filed pursuant to
         the Securities Act of 1933 on Form S-1, Registration Statement No.
         33-46758, filed March 26, 1992, as amended by Amendment No. 1, filed
         May 8, 1992.

(7)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to the same numbered exhibits (except as
         otherwise indicated) in the Registration Statement filed pursuant to
         the Securities Act of 1933 on Form S-8, Registration Statement No.
         33-68136 filed August 27, 1993.

(8)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to the same numbered exhibits (except as
         otherwise indicated) in the Registration Statement filed pursuant to
         the Securities Act of 1933 on Form S-1, Registration Statement No.
         33-81294, filed July 8, 1994.

(9)      These exhibits were previously filed as part of, and are hereby
         incorporated by reference to, the same numbered exhibits (except as
         otherwise indicated) in the Fiscal 1994 Form 10-K, as amended.

+        Management contract or compensatory plan or arrangement.

Supplemental Information

Preliminary Proxy Statement information had been filed with the Securities and
Exchange Commission effective January 11, 1995. No Annual Report or Proxy
materials have been sent to shareholders as of the date of this report. The
Annual Report and Proxy material will be furnished to the Company's
shareholders subsequent to the filing of this report and the Company will
furnish such material to the Securities and Exchange Commission at that time.





                                       32
<PAGE>   7

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


BIOMAGNETIC TECHNOLOGIES, INC.



<TABLE>
<S>      <C>                                                   <C>
By       /s/ James V. Schumacher                               April 20, 1995
   -------------------------------------------------           -------------- 
         James V. Schumacher, President and Chief                   Date
         Executive Officer and Director
         (Principal Executive Officer)
</TABLE>





                                       33
<PAGE>   8
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacitities and on the dates indicated.



                                                                       
<TABLE>
<S>      <C>                                                      <C>    
By       /s/ James V. Schumacher                                  April 20, 1995
  -------------------------------------------------               --------------
         James V. Schumacher, President and Chief                      Date
         Executive Officer and Director
         (Principal Executive Officer)


By       /s/ Peter L. Millikin                                    April 20, 1995
  -----------------------------------------------------           --------------
         Peter L. Millikin, Vice President & Controller                Date
         (Principal Financial and Accounting Officer)


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         R. Scott Asen, Director                                       Date


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         Jerry C. Benjamin, Director                                   Date


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         William C. Black, Jr., Director                               Date


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         Michael E. Faherty, Director                                  Date


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         Gerald D. Knudson, Director                                   Date


                         *
By                                                                April 20, 1995
  -------------------------------------------------               --------------
         Alfred S. LeBlang, Director                                   Date


*By      /s/ James V. Schumacher                                  April 20, 1995
   ----------------------------------------------------           --------------
         James V. Schumacher                                           Date
         (Attorney-in-Fact)
</TABLE>





                                       34

<PAGE>   1
                                 EXHIBIT 10.67

                MAGNETICALLY SHIELDED ROOM (MSR) DEVELOPMENT AND
                PRODUCTION PROGRAM AGREEMENT, DATED JUNE 6, 1994
                  (WITH CERTAIN CONFIDENTIAL PORTIONS OMITTED)


<PAGE>   2
                        MAGNETICALLY SHIELDED ROOM (MSR)
                       DEVELOPMENT AND PRODUCTION PROGRAM
                                   AGREEMENT
                                     6/6/94



This agreement is between Biomagnetic Technologies ("BTi") of San Diego,
California and Amuneal Manufacturing Corporation ("AMC") of Philadelphia,
Pennsylvania.

AMC agrees to develop and build an MSR and BTi agrees to the payment schedule
as outlined in the Proposal Package attached.  The package consists of the
following:


1.)      MSR Development and Production Program Proposal dated June 6, 1994

2.)      MSR Specification A8050-081 Rev 4

3.)      MSR Test and Performance Specification TPSMSR-04   05.05.94


                                            
Biomagnetic Technologies, Inc.             Amuneal Manufacturing Corp.

    /S/ D. Scott Buchanan                        /S/ Larry Maltin              
- -------------------------------            ----------------------------
    D. Scott Buchanan, Ph.D.                    Larry Maltin
    Vice President                              President & CEO
    Adv. Dev. and Applications


    June 6, 1994                                 June 7,  1994
- -------------------------------            ----------------------------
Date                                       Date
                      






                                       1
<PAGE>   3
                        MAGNETICALLY SHIELDED ROOM (MSR)
                       DEVELOPMENT AND PRODUCTION PROGRAM
                                  JUNE 6, 1994



THE PROGRAM WOULD CONSIST OF TWO MAJOR PROJECTS:

1.  Design, Development and Engineering of a new custom MSR to meet or exceed
    BTi MSR Specification 8050-081 (Rev. 4) dated 5/1/94, attached.

2.  Fabrication and Installation of a standard production version of the BTi
    MSR at selected sites in the United States.

PROJECTS:

 1. ENGINEERING PROJECT

      a.     This part of the Program will encompass documented design,
             development and engineering of a XXX -layer XXXXXXXl, XXX layer
             XXXXXXXXX MSR (inside dimensions:  156" x 114" x 96" high) with
             the following major features: 

             (1)   outer XXXXXXXXX structure, to allow installation of the MSR 
                   against two or three adjacent walls;

             (2)   XXX layers of XXXXXXXX, XXX layer of XXXXXXXX, installed on
                   an XXXXXXXX structure, such that MSR could be assembled with
                   or without XXXXXXXX layer;

             (3)   automatic sliding door, with fail-safe to open safety
                   feature;

             (4)   automatic degaussing system.

      b.     The MSR will be designed and engineered specifically to meet or
             exceed BTi MSR Specification 8050-081 (Rev. 4) covering: 

             (1)   Shielding Performance Minimums;

             (2)   Physical Properties;

             (3)   Features;

             (4)   Installation;

             (5)   TUV/CSA/UL Approvals.

      c.     MSR Specification 8050-081 (Rev. 4) is incorporated herewith as
             the reference specification for the project.  It is understood by
             AMC that following an initial Design Review to finalize all
             specifications  and features, a Revision 5 Specification will be
             generated as the reference document to be followed for this
             project.





                                       2
<PAGE>   4
      d.     The engineering project will incorporate a Hazard Analysis of the
             Automatic Sliding Door, similar and/or equivalent to that done for
             the BTi Patient Table.

      e.     The product of the Engineering Project will be an MSR Production
             Package, to include: 

             (1)   Bill of Materials;

             (2)   All required component, assembly and installation drawings,
                   programming, and required documentation;

             (3)   All required production and annealing fixtures;

             (4)   The MSR Test Specification;

             (5)   Automatic Sliding Door Hazard Analysis;

             (6)   Required Regulatory approvals, or at least applications in
                   process for same.

      f.     The engineering package (items 1, 2, 4 ,5 ,6 above) will be placed
             in an escrow vault and be revised on periodic basis by AMC.

      g.     Completion of the Engineering Project would take XXXX weeks from
             BTi's authorization to proceed.  Project milestones would include:

             (1)   Initial Design Review to finalize MSR Specification to be
                   conducted by telephone or fax, if possible, travel only as
                   required (XXX weeks ARO);

             (2)   Complete Conceptual Drawings of MSR, including all major
                   components (XXXX weeks ARO);

             (3)   Second Design Review to review and have BTi approve the MSR
                   design, door operation, hazard analysis, regulatory approval
                   status, etc.  Two sets of drawings to be sent by overnight
                   delivery, meeting at BTi.  AMC is responsible for AMC travel
                   expenses;

             (4)   Complete Engineering Production Package for Major Components
                   (XXXX weeks ARO);

             (5)   Complete Final Engineering Package and Final Design Review
                   (XXXX weeks ARO).  Two sets of drawings to be sent by
                   overnight delivery, meeting at Amuneal.  BTi is responsible
                   for BTi travel expenses.

      h.     The cost for the Engineering Project would be XXXX.  Terms would
             be: 

             (1)   XX with purchase order;





                                       3
<PAGE>   5
             (2)   XX upon completion of the Conceptual Drawings and second
                   Design Review;

             (3)   XX upon completion of the Major Component Engineering
                   Package;

             (4)   XX upon completion of the Engineering Project;

             (5)   Payments to be net 30 days after mutual satisfaction of
                   milestone, except 1. h. (1).

      i.     Changes to the proposal, specification, and test procedure can be
             done only with written mutual consent signed by BTi cognizant
             engineer and AMC designated representative.

      j.     MSR Design Rights:

             (1)   BTi is entitled to XXXXXXX rights to the specific "BTi MSR
                   Configuration" which will result from the development to be
                   funded by BTi.  That means that AMC cannot build an
                   identical MSR (size, penetrations, door, features, etc.) for
                   anyone else from this Engineering Package, without express
                   prior agreement from BTi.  Should a requirement arise for an
                   identical MSR, and BTi would agree that "its" MSR can be
                   sold to that customer, then we would agree to the following:

                   (a)    The MSR cannot be sold for less than the price
                          charged to BTi for Unit #1; and

                   (b)    BTi would be entitled to a reasonable "license fee",
                          to be negotiated at that time.

             (2)   The design concept (XXX layers of XXXXXX on a XXXXXXXXX
                   structure, a proprietary method for installation of the
                   XXXXX panels, and other techniques previously developed by
                   Amuneal) belongs to Amuneal.  BTi is not paying for that,
                   but rather the development of a specific configuration to
                   meet BTi's performance and operating requirements.

             (3)   The sliding door is a new development, which would be done
                   as part of the BTi MSR project and funded by BTi.  The "BTi
                   Door" would "belong" to BTi.

2.  PRODUCTION MSR UNITS

      a.     Based on the Engineering Project documentation, Amuneal would
             fabricate a complete set of MSR components, to include: 

             (1)   all required XXXXXX panels, penetrations, and joining 
                   components;

             (2)   all required XXXXXX structural components and accessories;





                                       4
<PAGE>   6
             (3)   fully assembled automatic sliding door and associated
                   controls;

             (4)   MSR Finish Kit.

      b.     Assembly and pre-test of MSR #1 will be performed at Amuneal, with
             aluminum in the floor only to determine if XX layers of XXXXX will
             meet specification.  XXXXXX will be installed on walls and ceiling
             before shipment to customer site.  BTi will be present for tests.

      c.     The complete MSR kit would be delivered by truck to any site in
             the Continental U.S., and installed by an AMC Installation Team
             (working supervisor and three others).

      d.     Upon completion of installation, the shielding performance would
             be tested and certified jointly by Amuneal and BTi
             representatives.

      e.     Delivery of the first production MSR to the installation site
             would be XXXX weeks from receipt of BTi's Purchase Order, after
             completion of the Engineering Project.  Subsequent units would be
             supplied in XXXX weeks ARO.  Installation time for the second and
             subsequent production units would be XXX weeks maximum.

      f.     The price of the first production MSR, delivered, fully installed
             and tested would be XXXXXX payable: (1)   XX upon receipt of
             purchase order;

             (2)   XX upon delivery of the MSR kit to the installation site;

             (3)   XX upon completion of installation and testing;

             (4)   Payments to be net 30 days from mutual satisfaction of
                   milestone except 2f(1).

             Subsequent units, based on an intended order quantity of XX units
             over a two year period starting from the completion of
             installation of the first MSR, are priced at XXXXXX for a XXX
             layer MSR and XXXXXXX for an MSR with XXX layers plus one layer of
             XXXXXXXX.  AMC agrees to share, on a 50-50 basis, cost reductions
             accomplished by volume considerations or otherwise, by reductions
             in unit price charged to BTi.

      g.     BTi has right to take the engineering package out of escrow to a
             second supplier if one of the following occurs: 

             (1)   AMC goes out of business;

             (2)   AMC goes out of MSR business;

             (3)   Non-performance - AMC 10 days late on XX or more deliveries
                   over 1 year period.





                                       5
<PAGE>   7
      h.     The estimated additional cost for installation in Western Europe
             would be XXXXXX.  To cover incremental costs for freight, travel
             (both airlines and local), per diem in Europe and other related
             costs.

      i.     Warranty:  a one (1) year warranty on performance, workmanship,
             parts and labor will be provided.

      j.     BTi has the right to terminate this agreement with no further
             obligations upon the following conditions: (1)   Any engineering
             project (para. 1. g.) milestone is late by more than 4 weeks
             without written prior mutual agreement,

             (2)   The first production MSR fails to meet performance
                   specification at AMC during test phase.





                                       6
<PAGE>   8
AMUNEAL MANUFACTURING CORP.
4737 DARRAH STREET, PHILADELPHIA, PA  19124-2075



                       TEST AND PERFORMANCE SPECIFICATION

                          MAGNETICALLY SHIELDED ROOMS

                                     (BTI)

1.  This specification shall apply to magnetically shielded rooms (MSR) to be
constructed by Amuneal Manufacturing Corporation for Biomagnetic Technologies
Inc. (BTi)


2.  The frequency response of each MSR shall be measurable in any axis, and
shall meet the values specified in BTi MSR Specification Control Document
A8050-081.  Demonstration of compliance shall require that the measured values
exceed the required values by an amount equal to or greater than the total
instrumentation error.


3.  TEST METHOD I.   This method shall be utilized to measure
XXXXXXXXXXXXXXXX.

3.1.  DETECTOR.  A XXXXXXXXXXXXX shall be employed which meets the
following minimum specifications:

             Frequency response:      xxxxxxxxxxxxxxxxxxx
             Noise:                   xxxxxxxxxxxxxxxxxxx
             Absolute accuracy:       xxxxxxxxxxxxxxxxxxx

3.2  MEASURING INSTRUMENTS:  xxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxx

3.3  METHOD.   A xxxxxxxxxxxxxxx measurement of the xxxxxxxxxxxxxxxx    shall
be made at the center of the location of the MSR, at a distance of
xxxxxxxxxxxxxxxxxxxxxx from the floor, and at a location outside the MSR which
will be accessible after the MSR has been erected.

3.3(a) A total of xxxxxxxxxxxxx readings shall be logged in each xxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.

3.3(b) A xxxxxxxxx vector network may be employed to perform the same
purpose, and a xxxxxxx hour recording may be done in lieu of the logged





                                       7
<PAGE>   9
method.  The recording bandwidth shall be at least xxxxxxxxx, and the chart
speed shall be at least xxxxxxxx.

3.3(c) In all cases, the determination of shielding factor shall be by a
xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.


4.  TEST METHOD II.  This method shall be used to measure xxxxxxxxxxxxxx in the
range of xxxxxxxxxxxxxxx.

4.1  DETECTOR.  A xxxxxxxxxxxxxxxxx shall be employed which meets the
following minimum specifications:

             Frequency response:      xxxxxxxxxxxxxxxxxxxxxxxx
             Noise:                   xxxxxxxxxxxxxxxxxxxxxxxx
             Absolute accuracy:       xxxxxxxxxxxxxxxxxxxxxxxx

4.2  MEASURING INSTRUMENTS:  xxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxx

4.3  METHOD.  A source shall be placed not less than xxxxxxxxxxxxxx from the
xxxxxxxxxxxxxxxx of the MSR under test.  If the location of the room is such
that two sites on mutually xxxxxxxxxxxxxxxx are available, then one test site
for each xxxxxxxxxxx shall be selected so that the site is approximately
xxxxxxxxxxxxx off the horizontal centerline of the xxxxxxxxxx and so that the
axes of the source and the sensor are located at xxxxxxxxxxxxxxxx above the
xxxxxxxxxxx.

4.3(a) The value of the xxxxxxxxxxx inside the MSR shall be measured with the
xxxxxxxxxxxxxxxxxxxxxx.  This value shall be compared to the
xxxxxxxxxxxxxxxxxxxxxxxxxxxx for the same xxxxxxxxxxxxxxxxxxxxxxxxxxx of the
xxxxxxxxxxxxxxxxxxx and the xxxxxxxxxxxxxxx.  The xxxxxxxxxxxx of these
xxxxxxxxxxxxxxx shall determine the shielding factor.


5.  TEST METHOD III. This method shall be used to measure xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxx in the range of xxxxxxxxxxxxxxxxxxxxx.

5.1  DETECTOR.  The detector shall be a xxxxxxxxxxxxxxxxx, which has no
component part of its structure or appurtenances made of any xxxxxxxxxxxxxxxxx
other than the xxxxxxxxxxxxxxxxxxxxxxxxxx and which   meets the following
specifications.

5.1(a) For use from xxxxxxxxxxxxxxxxxxx:

             Frequency response:      xxxxxxxxxxxxxxxxxxxxxxxxx
             Linearity:               xxxxxxxxxxxxxxxxxxxxxxxxx
             Noise: (wideband)        xxxxxxxxxxxxxxxxxxxxxxxxx





                                       8
<PAGE>   10
             Sensitivity:             xxxxxxxxxxxxxxxxxxxxxxxxx

5.1(b) For use from xxxxxxxxxxxxxxxxxx:

             Frequency response:      xxxxxxxxxxxxxxxxxxxxxxxxx
             Linearity:               xxxxxxxxxxxxxxxxxxxxxxxxx
             Noise: (wideband)        xxxxxxxxxxxxxxxxxxxxxxxxx
             Sensitivity:             xxxxxxxxxxxxxxxxxxxxxxxxx

5.1(c) For use from xxxxxxxxxxxxxxxxxx:

             Frequency response:      xxxxxxxxxxxxxxxxxxxxxxxxx
             Linearity:               xxxxxxxxxxxxxxxxxxxxxxxxx
             Noise: (wideband)        xxxxxxxxxxxxxxxxxxxxxxxxx
             Sensitivity:             xxxxxxxxxxxxxxxxxxxxxxxxx

5.2  MEASURING INSTRUMENTS.  xxxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxxx
                             xxxxxxxxxxxxxxxxxxxxxxxxx

5.3  METHOD. A source shall be placed not less than xxxxxxxxxxxxxxx from the
xxxxxxxxxxxxxxxxxx of the MSR.  If the location of the room is such that two
sites on mutually xxxxxxxxxxxxxxxxxx are available, then one test site for each
xxxxxxxxxx shall be selected so that the site is approximately xxxxxxxxxxxxxx
off the horizontal centerline of the xxxxxxxx and so that the axes of the
source and the sensor are located at xxxxxxxxxxxxxxx above the xxxxxxxxxx.

5.3(a) The value of the xxxxxxxxx inside the MSR shall be measured with the
xxxxxxxxxxxxxxxxxxxxx.  This value shall be compared to the xxxxxxxxxxxxxxxxx,
for the same xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx of the xxxxxxxxxxx and the
xxxxxxxxxxxxxxxxxx the xxxxxxxxx of these xxxxxxxxxxxxxx shall determine the
shielding factor.

5.3(b) At xxxxxxxxx both methods II and III shall be performed in order to
obtain a correlation between measurements in the lower and upper portions of
the spectrum.


6.  SOURCE.  A magnetic field source capable of generating fields at a
distance of not less than xxxxxxxxx meters in compliance with the following
table shall be used for all shielding tests:





                                       9
<PAGE>   11
                                    TABLE I


    Frequency                         Field (Oersted)
                                      (Test level at unshielded detector)

                                      Minimum               Maximum

    xxxxxxxxxxxxxxxxxxx               xxxxxxxxx                 xxxxxxxxx
    xxxxxxxxxxxxxxxxxxx               xxxxxxxxx                 xxxxxxxxx
    xxxxxxxxxxxxxxxxxxx               xxxxxxxxx                 xxxxxxxxx
    xxxxxxxxxxxxxxxxxxx               xxxxxxxxx                 xxxxxxxxx
    xxxxxxxxxxxxxxxxxxx               xxxxxxxxx                 xxxxxxxxx


7.  GENERAL.  The detector shall in all cases be aligned coaxially with the
source, and shall always be no less than xxxxxxxxx from the inner surface of
the innermost magnetic shielding xxxxx and wherever possible shall be placed at
the xxxxxxxxxxx of the MSR.


8.  ALTERNATIVE METHOD.  xxxxxxxxxxxxxxxxx may be made for frequencies
between xxxxxxxxxxxxx and xxxxxxxxxxxxxxxxx by a xxxxxxxxxxxxxxxxxxxx with a
xxxxxxxxxxxx whose characteristics are matched to a detector so that the
detector output is essentially constant with respect to a
xxxxxxxxxxxxxxxxxxxxxxx to the xxxxxxxxxxxxxxx.  The xxxxxxxxxxxxxxx shall be
identified by matching numbers, and the xxxxxxx points shall be identified on
the detector by any permanent labeling or xxxxxxxxxxx shall be provided for the
xxxxxxxxxxxxxxxx and for the detector and permanently attached to each by any
permanent labeling or marking means.  The limits of validity of any such tests 
shall be determined by the frequency response of the two elements in 
combination.


9.  XXXXXXXXX TESTING.  An xxxxxxxxxxxxx test will be performed with a
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx which will tune the xxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxx.

9.1  While outside the MSR, the xxxxxx will be tuned to a strong station in the
frequency band.

9.2  The xxxxxxxxxxx is then taken into the MSR and the xxxxxxxxxxxx.  The
xxxxxxxxxxx should no longer be xxxxxxxxxxx.  Testing is continued by
xxxxxxxxxxxxxxx placing the xxxxxxxxxxxxxxxxxxxx into the
xxxxxxxxxxxxxxxxx, and xxxxxxxxxxxxxxxxxxx.  The xxxxxxxx should still not
xxxxxxxxxxxxxx to which xxxxxxxxxxxxxxx.

9.3  The xxxxxx is then xxxxxxxx and the xxxxxxxxxxxxx should xxxxxxxxxxxxx
again.





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<PAGE>   12
9.4  ALTERNATIVE TEST.  A xxxxxxxxxxxxxxxxxxxxxxxxxxxxx may be used to measure
the xxxxxxxxxxxxxxxxxxxxxxxxxx of the xxxxxxxxxxxxxxxxxxx to on the
xxxxxxxxxxxxxxxx.  The xxxxxxxxxxxx of the xxxxxxxxxxxxxx is measured on the
xxxxxxxxxxxxxx of the MSR, and then xxxxxxxxxx the xxxxxxxxxxxx of MSR
xxxxxxxxxxxxxxxxxxxxx.





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