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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A-2
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ____________________
Commission file number:0-24092
Positron Corporation
(Name of small business issuer in its charter)
Texas 76-0083622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16350 Park Ten Place, Houston, Texas 77084
(address of principal executive offices)
Issuer's telephone number: (281) 492-7100
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Redeemable Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes X No _______
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B 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.[X]
Issuer's revenues for fiscal year ended December 31, 1996: $3,575,000
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As of March 11, 1997, there were 4,562,259 shares of the Registrant's
Common Stock, $.01 par value outstanding. The aggregate market value of Common
Stock held by non-affiliates of the Registrant, as of March 11, 1997 was
approximately $4,707,212.
Documents incorporated by reference: None
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PART I
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, CERTAIN FROWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD MATERIALLY DIFFER. FACTORS
THAT COULD CAUSE OF CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED IN "ITEM 1. DESCRIPTION OF BUSINESS - RISK ASSOCIATED WITH
BUSINESS ACTIVITIES" AND "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES".
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Positron Corporation (the "Company") was incorporated in the State of
Texas on December 20, 1983, and commenced commercial operations in 1986. The
Company designs, manufacturers, markets and services, advanced medical imaging
devices utilizing positron emission tomography ("PET") technology under the
trade-name POSICAM/TM/ systems. Unlike other currently available imaging
technologies, PET technology permits the measurement of the biological processes
of organs and tissues as well as producing anatomical and structural images.
POSICAM/TM/ systems, which incorporate patented and proprietary technology,
enable physicians to diagnose and treat patients in the areas of cardiology,
neurology and oncology. The United States Food and Drug Administration approved
the initial POSICAM/TM/ system for marketing in 1985, and as of December 31,
1996, the Company has sold twenty (20) POSICAM/TM/ systems, of which fifteen
(15) are in leading medical facilities in the United States, two (2) are
installed in international medical institutions and three (3) are no longer
operational. The Company presently markets its POSICAM/TM/ systems at list
prices ranging from approximately $1.0 million to $1.8 million depending upon
the configuration and equipment options of the particular system.
The following table provides summary information regarding the
Company's installed base of POSICAM/TM/ systems, which were operational as of
December 31, 1996:
<TABLE>
<CAPTION>
Date of
--------
Site Location Clinical Application Installation
- ---- -------- -------------------- ------------
<S> <C> <C> <C>
PROTOTYPE:
- ----------
U.T. Health Science Center Houston, TX Neurology/Cardiology 1985
POSICAM/TM/ SYSTEMS:
- ---------------------
Saint Joseph's Hospital Atlanta, GA Cardiology 1988
Cleveland Clinic Foundation Cleveland, OH Neurology/Cardiology 1988
Memorial Hospital Jacksonville, FL Oncology/Cardiology 1988
Kennestone Hospital Marietta, GA Cardiology 1989
Medical City Dallas Dallas, TX Cardiology 1990
Yale/Veterans Adm. New Haven, CT Neurology/Oncology/Cardiology 1991
Beth Israel New York, NY Cardiology 1991
Our Lady of The Lake Baton Rouge, LA Cardiology 1992
Crawford Long Hospital Atlanta, GA Cardiology 1992
Hermann Hospital Houston, TX Neurology/Oncology/Cardiology 1993
Hadassah Medical Organization Jerusalem, Israel Neurology/Oncology/Cardiology 1995
Bio-Metabolic, Inc. Detroit, MI Cardiology/Oncology 1995
Bergan Mercy Hospital Omaha, NE Cardiology/Oncology 1995
Buffalo Cardiology & Pulmonary
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Associates Buffalo Cardiology 1995
University of Madrid Madrid, Spain Cardiology/Oncology/Neurology 1995
Baptist Hospital Nashville, TN Cardiology/Oncology 1996
</TABLE>
PET technology is an advanced imaging technique, which permits the
measurement of the biological processes of organs and tissues as well as
producing anatomical and structural images. Other advanced imaging techniques,
such as magnetic resonance imaging ("MRI") and computerized axial tomography
("CAT") scans, produce anatomical and structural images, but do not image or
measure biological processes. The ability to measure biological abnormalities in
tissues and organs allows physicians to detect disease at an early stage and
provides physicians with information, which would otherwise be unavailable, to
diagnose and manage the treatment of disease. The Company believes that PET
technology can lower the total cost of managing certain diseases by providing a
means for early diagnosis and reduction of expensive invasive or unnecessary
procedures, such as angiograms or biopsies which in addition to being costly and
painful, may not be necessary or appropriate.
Commercial utilization of PET technology commenced in the mid-1980s and the
Company is one of three commercial manufacturers of PET imaging systems in the
United States. Although the other two major manufacturers are substantially
larger, the Company believes that its POSICAM/TM/ systems have proprietary
operational and performance characteristics, which give it, certain performance
advantages over other commercially available PET systems. Such performance
advantages include the POSICAM systems high count-rate sensitivity, which
results in faster imaging, an enhanced ability to use certain types of
radiopharmaceuticals, which minimize patient exposure to radiation and its
ability to minimized false positive and false negative diagnoses of disease. The
industry in which the Company is engaged is, however, subject to rapid and
significant technological change. There can be no assurance that the POSICAM/TM/
systems can be upgraded to meet future innovations in the PET industry or that
new technologies will not emerge, or existing technologies will not be improved,
which would render the Company's products obsolete or non-competitive. See "Item
1. Description of Business - Risks Associated with Business Activities--
Substantial Competition and effects of Technological Change." Based on industry
information, the Company estimates that 67 PET systems are currently
commercially installed in the United States. Of the PET systems currently
operational in the United States, 15 systems were sold by the Company. The
Company believes that the other two major manufacturers of commercial PET
systems have together 37 currently operational PET systems.
The Company's primary focus to date has been on the clinical cardiology
market, where its POSICAM/TM/ systems have been used to assess diseases, such as
the effect of arterial blockages and heart damage due to heart attacks. In 1994
and 1995 the Company made technological advances which allowed it to market its
products to the neurological and oncological markets. Neurological applications
of POSICAM/TM/ systems include diagnoses of certain brain disorders, such as
epileptic seizures, dementia, stroke, Alzheimer's disease, Pick's disease and
Parkinson's disease. In oncology, POSICAM/TM/ systems are used in the diagnosis
and evaluation of tumors of the bone and various organs and tissues such as the
brain, liver, colon and breast.
The Company has expanded its marketing efforts to include Europe, as well
as certain Asian and Middle Eastern markets. The Company currently has a
distribution agreement with Elscint, Ltd. ("Elscint") for the distribution of
its products in Europe, Asia and the Middle East. Elscint is an Israel-based,
international medical diagnostic equipment manufacturer, and one of the leading
distributors of nuclear medicine products.
Additionally, in January 1997, the Company entered into a sales and
marketing agreement with Beijing Aerospace Chang Feng Medical ("Chang Feng") to
sell the Company's products in the Peoples Republic of China ("PRC"). The
initial term of the agreement is for twelve (12) months. Thereafter, the
agreement is renewable at the mutual agreement of the parties. Chang Feng is
Beijing, PRC based and is the largest supplier if CT and MRI imaging technology
in the PRC and is a joint venture partner with General Electric Company for the
manufacture and distribution of CT and MRI products.
MEDICAL IMAGING INDUSTRY OVERVIEW
Diagnostic imaging allows a physician to assess disease, trauma r
dysfunction without the necessity of surgery. The diagnostic imaging industry
includes ultrasound, X-ray, MRI, CAT scans, and nuclear medicine (which includes
PET technology and single-photon emission computed tomography ("SPECT")). MRI
technology uses powerful magnetic fields to provide anatomical and structural
images of the brain, the spine and other soft tissues,
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as well as determining the location and size of tumors. CAT scans use X-ray
beams to obtain anatomical and structural images of bones and organs. Nuclear
medicine focuses on providing information about the function and biological
processes of organs and tissues through the use of radiopharmaceuticals.
The first prototype PET scanner was developed in the mid 1970s and the
first commercial PET scanner was constructed in 1978. In addition to the
estimated 67 PET systems currently operational in the United States, an
additional 88 PET systems are in commercial use outside of the United States.
PET TECHNOLOGY
The PET imaging process begins with the injection of a radiopharmaceutical
(a drug containing a radioactive agent) by a trained medical person into a
patient's bloodstream. The injected radiopharmaceutical undergoes a process of
radioactive decay, whereby positrons (positively charged electrons) are
converted into light energy, or photons. These photons are detected by the
POSICAM systems. The source of the photons is determined and is reconstructed
into a color image of the scanned organ utilizing proprietary computer software.
Since the concentration of the radiopharmaceutical is determined by certain
functional processes in the organ, such as blood flow, metabolism or other
biochemical processes, the brightness or color at each point in the PET image
directly maps the vitality of the respective function at that point within the
organ.
The Company believes market timing for PET is substantially strengthened as
the nation's healthcare system evolves toward a concept of improved patient
outcome and appropriateness of treatment at reduced costs. Healthcare
consolidation is occurring at a rapid pace in anticipation of becoming more
competitive and able to attract payor contracts. Third party payors are
beginning to monitor provider outcomes. Those providers who do not perform
within norms will lose patients as third party payors shift to others who
conform with standardized treatments with expected results. The Company believes
the accuracy of PET will enable clinicians to achieve improved outcome. See,
however, "Item 1. Description of Business--Risks Associated with Business
Activities."
PET imaging is an accurate non-invasive method of diagnosing or assessing
the severity of coronary artery disease. Unlike other imaging technologies, PET
technology allows a physician to determine whether blood flow to the heart
muscle is normal, thereby identifying narrowed coronary arteries, and whether
damaged heart muscle is viable and may benefit from treatment such as bypass
surgery or angioplasty.
In neurology, PET imaging is now being used as a surgical planning tool to
locate the source of epileptic disturbances in patients with uncontrollable
seizures. A 1994 study has shown that a PET examination may offer an effective
alternative to the traditional method of diagnosis, which involves a surgical
procedure in which the surface of the brain is exposed and electrodes are
applied for a period of up to one week to map electrical activity. In other
neurological applications, PET is used in the diagnosis of dementia, Alzheimer's
disease, Pick's disease and Parkinson's disease and in the evaluation of stroke
severity.
In oncology, PET imaging is currently used to measure the metabolism of
tumor masses after surgery or chemotherapy. Clinical experience has shown the
PET is more accurate than CAT scans or MRI in determining the effectiveness of
chemotherapy and radiotherapy in the treatment of cancer. Scans used t assess
suspected breast cancer are still in the experimental stage. Whole body scans,
however, are now routinely performed with PET to survey the body for cancer.
The Company believes that PET imaging can lower the total cost of managing
certain diseases by providing a means for early diagnosis and reduction of
unnecessary follow-up invasive procedures which can be costly and painful. The
Company estimates that the cost to the patient for PET procedures ranges between
$1,500 and $2,200 for cardiac applications and between $1,800 and $3,000 for
neurology and oncology applications. In contrast, the traditional technique for
diagnosing coronary artery disease is an angiogram, an invasive procedure in
which a catheter is inserted into the vessels of a patient's heart to assess the
degree of coronary artery blockage, and generally costs between $5,000 and
$7,500. In cases where a PET scan indicates the need for surgery, it is
anticipated that a follow-up angiogram would be performed for cardiac surgical
planning. The traditional alternative to PET scans in neurology and oncology
applications is a biopsy or other invasive surgical procedure, which would
typically be more costly and painful than a PET scan.
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The radiopharmaceuticals (together with the radioactive substances
contained therein) employed in PET scanning are used by the organ in its natural
processes (such as blood flow and metabolism) without affecting its normal
function, and quickly dissipates from the body. Radiopharmaceuticals used in PET
procedures expose patients to a certain amount of radiation, which exposure is
measured in units of rads. Exposure to radiation can cause damage to living
tissue, and the greater the radiation exposure the greater the potential for
damage. Certain PET procedures expose a patient to less radiation than would be
associated with other imaging technologies. A PET cardiac scan, using the
radiopharmaceutical Rubidium-82 results in exposure of approximately 0.096 rad,
while a neurology PET scan results I exposure of approximately 0.39 rad. In
contrast, a typical chest X-ray results in exposure of approximately 0.15 rad
and a CAT scan results in exposure to between approximately 0.5 rad and 4.0 rad,
depending on the procedure.
Radiopharmaceuticals used in PET technology can be created from many
natural substances including carbon, oxygen, nitrogen and fluorine. The PET
procedure to be performed determines the type of radiopharmaceutical.
Radiopharmaceuticals are made ready for use at a clinic or hospital by either a
cyclotron or generator. Cyclotrons require an initial capital investment of
approximately $2 million, additional capital investment for site preparation,
and significant annual operating expenses. A generator requires an initial
capital investment of approximately $50,000, no additional capital investment
for site preparation, and monthly operating expenses of approximately $25,000.
While POSICAM/TM/ systems have been designed to be used with both cyclotron and
generator processed radiopharmaceuticals, they have proprietary design features
which enhance their ability to use generator processed radiopharmaceuticals,
thereby allowing a clinic or hospital which intends to focus on certain cardiac
PET applications to avoid the significant capital and operating expenses
associated with a cyclotron.
MARKETING STRATEGY
The Company initially targeted clinical cardiology as its marketing
strategy based on research conducted at the University of Texas Health Science
Center in Houston, Texas which showed the commercial potential of clinician
cardiology applications of PET imaging.
The Company estimates that here are approximately 2,100 potential sites in
the United States for cardiac PET systems alone. This estimate is based on a
potential user base of approximately 900 hospitals with over 350 beds each,
approximately 50 cardiology groups with 15 or more doctors each, and 1,200 free-
standing diagnostic imaging centers and mobile facilities.
The Company believes that it has a competitive advantage in the cardiac Pet
market. POSICAM/TM/ systems have the ability to produce accurate images by using
generator produced radiopharmaceuticals which can be obtained without the
significant initial capital investment associated with cyclotron produced
radiopharmaceuticals. The Company also believes that the high count-rate
sensitivity of the POSICAM/TM/ systems, which results in faster imaging, the
ability of the POSICAM/TM/ system to use generator produced radiopharmaceuticals
which minimize patient exposure to radiation and certain proprietary design
features of the POSICAM/TM/ systems which minimize false positive and false
negative diagnoses of disease give the Company additional competitive advantage.
See "Item 1. Description of Business--Risk Associated with Business Activities."
Historically, the PET neurology market has been primarily research-
oriented, but recent development have expanded the use to clinical applications
including the identification of the source of uncontrollable epileptic seizures,
the diagnosis of such neurological disorders as dementia, Alzheimer's disease,
and the determination of stroke severity. Six POSICAM/TM/ system sites that
initially utilized PET in cardiology are now expanding their use to neurological
applications. In oncology, work is being conducted at major cancer and other
medical centers, utilizing POSICAM/TM/ imaging to determine tumor size, monitor
tumor therapy, and evaluate the effectiveness of radiotherapy and chemotherapy.
The Company utilizes a direct sales force of three account executives to
market its products in the United Stares, and ahs entered into third party
distribution arrangements in order to penetrate foreign markets. Additionally,
the Company has relied on referrals from users of the Company's existing base of
installed scanners, clinical presentations at professional conferences by
customers of the Company, and published articles in trade journals to market its
systems.
<PAGE>
In July 1993, the Company entered in an equipment distribution agreement
with Elscint in an effort to increase the market presence and sales of its
POSICAM/TM/ systems in Europe, Asia and certain areas of the Middle East.
Elscint is an international medical diagnostic equipment manufacturer with
distribution subsidiaries located in the world's major markets. The equipment
distribution agreement was for an initial term of two years and continues
thereafter on a year-to-year basis. The Company may terminate the distribution
agreement at any time, since at the end of the initial two-year term, Elscint
had not placed orders for at least three (3) POSICAM/TM/ systems. The
distribution agreement contains no minimum purchase requirements by Elscint. To
date one purchase order for a POSICAM/TM/ HZL system has been received under the
Elscint agreement.
Additionally, in January 1997, the Company entered into a sales and
marketing agreement with Beijing Aerospace Chang Feng Medical ("Chang Feng") to
sell the Company's products in the Peoples Republic of China ("PRC"). The
initial term of the agreement is for twelve (12) months. Upon expiration of the
initial term, the agreement is renewable upon the mutual consent of the parties.
Pursuant to the agreement Chang Feng is required to use its "best commercial
efforts" to sell a minimum of two POSICAM systems during the initial term of the
agreement.
THE POSICAM/TM/ SYSTEM
At the heart of the POSICAM/TM/ system is its detector assembly which
detects positron emissions and electronic circuits which pinpoint the location
of those positron emissions. POSICAM systems are easy to use and are not
physically confirming thereby not intimidating to patients. POSICAM scans are
commonly performed on an outpatient basis.
The Company's systems currently have the highest count rate sensitivity in
the PET industry. Count rate sensitivity of an imaging system is its ability to
detect, register and assimilate the greatest number of meaningful positron
emission events in the shortest period of time. The higher count rate
sensitivity of the POSICAM/TM/ systems results in superior diagnostic accuracy
as measured by fewer false positives and false negatives. Further benefits of
high count rate sensitivity include faster imaging and the ability to use short
half-life radiopharmaceuticals, which reduces patient exposure to radiation and
may reduce the capital cost to some purchasers by eliminating the need for a
cyclotron for certain cardiac applications.
The detector assembly consists of crystals, which scintillate (give off
light) when exposed to positron emissions, and photomultiplier tubes, which are
coupled to they crystals and convert the scintillations into electrical
impulses. The Company employs its own patented staggered crystal array design
for the POSICAM/TM/ detectors which unlike competing PET systems, permits the
configuration of the detector crystals into overlapping series to create a
higher quality image by eliminating image sampling gaps. This feature is
important since under-sampling or gaps in sampling can contribute to an
inaccurate diagnosis. The crystal array design also reduces "dead time" (the
time interval following the detection and registering of a positron emission
during which a subsequent even cannot be detected).
The POSICAM/TM/ system currently creates the most and, the most finely
spaced, image slices in the PET industry. An image slice is a cross-sectional
view that is taken at an arbitrary angle to the angle of the organ being scanned
and is not necessarily the angle, which a physician wishes to view. The POSICAM
computer can then adjust the cross-sectional view to create an image from any
designed angle. The high number of finely spaced image slices created by the
POSICAM/TM/ system enhances the accuracy of the created image.
An integral part of a POSICAM/TM/ system is its proprietary data
acquisition microprocessor and its application system software. The Company's
software can reconstruct an image in five seconds or less. The Company has
expended substantial effort and resources to develop the computer software to
insure that it is user-friendly and clinically oriented. The only personnel
needed to perform clinical studies with the POSICAM/TM/ systems are a trained
nurse, a trained technician and an overseeing physician for patient management
and safety.
POSICAM/TM/ HZ AND HZL. In addition to the basic POSICAM/TM/ system, the
Company offers two advanced versions of its basic system which are known as the
POSICAM/TM/ HZ and the POSICAM/TM/ HZL. Oncologists and neurologists require
enhanced resolution and a large field of view to detect small tumors and
otherwise scan large organs, such as the liver. The POSICAM/TM/ HZ and HZL
employ new detector concepts to satisfy these needs while maintaining the high
count rate sensitivity of the basic POSICAM/TM/. In May 1991, the Company
received approval
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from the FDA to market the POSICAM/TM/ HZ and in May 1993, the Company received
a patent for the innovative light guide and detector staggering concepts used in
the POSICAM/TM/ HZ and HZL. In July 1993 the Company received FDA approval to
market in the United States the POSICAM/TM/ HZL, which has an even larger field
of view than the POSICAM/TM/ HZ facilitating whole body scanning and the
scanning of large organs. As the market for PET systems matures and price
sensitivity among purchasers increases, the Company believes that interest in
the POSICAM/TM/ HZ, a low cost version of the POSICAM/TM/ HZL, will
increase/(1)/. The Company believes that the special features of the POSICAM/TM/
HZL enhance its usefulness in oncology and neurology applications. /(1)/
CYCLOTRON DISTRIBUTION. Since certain cardiac and all neurological and
oncological applications require the use of cyclotron processed
radiopharmaceuticals, the Company entered into a distribution agreement with
Oxford Instruments Inc. ("Oxford") to be its exclusive North American cyclotron
distributor. Under the distribution agreement the Company is able to market,
install, service and maintain Oxford's cyclotrons. The distribution agreement
gives Oxford the right to terminate the agreement at any time after March 1,
1994, if at that time the Company had not placed orders for at least two
cyclotrons. As of that date, the Company had received only one order for a
cyclotron. As a result, Oxford currently has the right to terminate the
distribution agreement upon written notice to the Company. As of March 15, 1997,
the Company has not received notice from Oxford indicating a desire to terminate
the distribution agreement. The Company believes that if Oxford were to
terminate the distribution agreement, it could enter into comparable
distribution arrangements with other cyclotron manufacturers. /(1)/
CUSTOMER SERVICE AND WARRANTY
The Company has eight (8) field service engineers located throughout the
United States, who have primary responsibility for supporting and maintaining
the Company's installed equipment base. In addition, the field engineers are
involved in site planning, customer training, sales of hardware upgrades, sales
and administration of service contracts, telephone technical support and
customer service.
The company typically provides a one-year warranty to purchasers of a
POSICAM/TM/ system. However, in the past, the Company offered multi-year
warranties to facilitate sales of its systems. Following the warranty period,
the Company offers purchasers a comprehensive service contract under which the
Company provides all parts and labor, system software upgrades and unlimited
service calls. The service revenues to the Company under its standard service
contract range from approximately $120,000 to $200,000 per year. The Company
currently provides service to all of its POSICAM/TM/ systems, ten (10) of which
are under formal service contracts. One (1) of the service contracts is
automatically renewed on a month-to-month basis and one (1) automatically renews
on a year-to-year basis. Of the remaining eight (8) service contracts, three (3)
expire during 1997, four (4) expire in 1998, and one (1) expires in 1999. The
Company is currently negotiating to extend all of the service contracts, which
expire in 1997; however, there can be no assurances that such extension will be
obtained.
The Company's service goal is to maintain maximum system uptime. The
Company's service organization seeks to resolve problems within 24 hours of
receipt of a service call. Success of a clinical site is largely dependent on
patient volume during normal working hours and therefore equipment uptime and
reliability are key factors in this success. The average uptime for all
installed POSICAM/TM/ systems during each of 1995 and 1996, was approximately
98%.
The Company has established a program to train doctors, nurses and
technicians, many of whom are unfamiliar with PET imaging, in the operation of
the Company's system and in the interpretation of PET images. In addition, the
Company has arrangements with physicians and nurses knowledgeable of the
Company's systems to provide training to physicians and nurses who will be
involved with newly installed systems.
COMPETITION
The Company believes that PET technology is a cost-effective diagnostic
tool as compared to other imaging techniques. The Company faces competition from
two (2) other commercial manufacturers of Pet systems as well as from other
imaging technologies, primarily SPECT and MRI. The Company does not believe that
MRI and CAT scan imaging represent significant competing technologies. The
Company views MRI and CAT scan imaging to be complementary technologies to PET,
in that PET and MRI and CAT scans each provide information not available from
the other.
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The Company's primary competition comes from two major commercial
manufacturers of PET systems, General Electric Company ("GE") and Siemens
Medical Systems Inc. ("Siemens") (in a joint venture with CTI, Inc. of
Knoxville, Tennessee). GE and Siemens have substantially greater financial,
technological and personnel resources than the Company. See "Item 1. Description
of Business--Risk Associated with Business Activities--Substantial Competition
and Effects of Technological Change and General Electric Transaction". On
addition, two Japanese manufacturers, Hitachi and Shimadzu, have manufactured
and sold Pet scanners in Japan but not in the United States. In general, the
Company believes that the Japanese PET systems are not currently competitive
with the products of the Company and its two major United States competitors.
The Company believes that it is currently competitive in each of the
primary competitive factors in the PET cardiology market, which are scanner
performance (in terms of count rate sensitivity and "dead time"), the ability to
scan short half-life radiopharmaceuticals (in particular, those which are
generator produced and do not require the purchase of a cyclotron), user-
friendly, clinically-oriented computer software, equipment up-time and customer
service.
Competition in the market for diagnostic imaging systems in general is
intense and is expected to increase. The market is characterized by rapid
technological innovation in terms of enhancements in the PET industry as well as
improvements in competing technologies and the emergence of new technologies.
See "Item 1. Description of Business--Risk Associated with Business Activities--
Substantial Competition and Effects of Technological Change."
The primary competing technology in the nuclear medicine industry is SPECT.
The Company believes that the primary reason that SPECT competes with PET is the
lower cost of the SPECT systems. A SPECT system can cost between $175,000 and
$750,000 as compared with $1.0 million to $1.8 million (depending on
configuration and equipment options) for a POSICAM/TM/ system. However, the
Company believes its POSICAM/TM/ systems are a better diagnostic tool in that
the Company's systems are able to create more accurate images the SPECT imaging.
Unlike SPECT, the radioactive substances used by the Company's systems are based
on naturally occurring substances within the body and allow the POSICAM/TM/
systems to directly measure the metabolic processes and changes occurring within
the scanned organ, thus providing a more accurate image. In addition, unlike
SPECT, POSICAM/TM/ systems are able to correct for image deficiencies created by
absorption of photon by the body. Additionally, POSICAM/TM/ systems have higher
and more uniform resolution then SPECT imagers allowing POSICAM/TM/ systems to
image smaller objects without blurring. POSICAM/TM/ systems, in addition to
being more accurate, can complete a scan in as little as 45 minutes, while SPECT
may require as many as three separate scans spaced over 24 hours.
High field MRI technology, an advanced version of MRI, is in the
development stage, but is a potential competitor to PET in certain neurology and
oncology applications. Presently, high field MRI may be useful in performing
certain research (non-clinical) applications such as blood flow studies to
perform "brain mapping" to localize the portions of the brain associated with
individual functions (such as motor activities and vision). However, high field
MRI does not have the capability to assess metabolism. The Company cannot
presently predict the future competitiveness of high field MRI.
Several manufacturers of SPECT systems are now offering multi-head systems,
which have been modified to operate in coincidence mode, similar to a PET
scanner. These systems achieve spatial resolutions similar to that of PET
scanners, but their sensitivity and count rate are only a small fraction of that
achieved by true PET scanners, making the images "noisy" and more difficult to
interpret. The Company believes these systems are useful for only a very limited
class of clinical PET studies using only the FDG radiotracer /(1)/. In addition,
SPECT coincidence systems offer limited, if any, corrections for patient
attenuation and scatter, which affects the accuracy if diagnosis. As a result,
the Company believes that there will be a very limited research market for this
type of coincidence imaging system /(1)/.
THIRD-PARTY REIMBURSEMENT
POSICAM systems are purchased or leased primarily by medical institutions,
which provide health care services to their patients. Such institutions or
patients typically bill or seek reimbursement from various third-party payors
such as Medicare, Medicaid, other governmental programs and private insurance
carriers for the charges
<PAGE>
associated with the provided healthcare services. The Company believes that the
market success of PET imaging depends largely upon obtaining favorable coverage
and reimbursement policies from such programs and carriers.
MEDICARE/MEDICAID REIMBURSEMENT. Prior to March 1995, Medicare and Medicaid did
not provide reimbursement for certain PET imaging. Decisions as to such policies
for major new medical procedures are typically Made by the U.S. Health Care
Financing Administration ("HCFA"), based in part on recommendations made to it
by the Office of Health Technology Assessment ("OHTA"). Historically OHTA has
not completed an evaluation of a procedure unless all of the devices and/or
drugs used in the procedure have received approval or clearance for marketing by
the FDA. Decisions as to the extent of Medicaid coverage for particular
technologies are made separately by the various state Medicaid programs, but
such programs tend to follow Medicare national coverage policies.
In November 1989, OHTA commenced a review of PET imaging for cardiac scans
using the generator produced radiopharmaceutical, Rubidium-82. This was preceded
in 1988 by the FDA's approval of Rubidium-82 for patient imaging. In 1994 HCFA
received OHTA's findings, and began evaluating the final issues relative to
coverage of PET imaging utilizing Rubidium-82 for Medicare and Medicaid
reimbursement. On March 23, 1995, the Company was informed that HCFA advised the
drug manufacturer, Bracco Diagnostics, Inc., of the decision to reimburse
Rubidium-82 for use as a PET myocardial perfusion-imaging agent.
Additional isotopes for PET imaging such as Fluro-Deoxy-Glucose ("DG") are
awaiting FDA approval. FDG has been under review since 1991. FDG is currently
prepared and administered under state regulations governing the practices of
pharmacy and medicine. Since the individual states regulate the production of
FDG under their own laws, the drug cannot be transported across state lines
without FDA approval.
In February 1995, the FDA announced that cyclotron based PET
radiopharmaceuticals such as FDG would be regulated under the provisions of the
Federal Food, Drug and Cosmetic Act, which stipulates that new drugs must be the
subject of approved new drug applications ("NDA's") or abbreviated new drug
applications. This regulation requires that a cyclotron facility must have FDA
approval before selling clinical radiopharmaceuticals for usage by PET
facilities. The Company believes that most of the cardiac applications of its
POSICAM/TM/ systems involve the use of Rubidium-82, which is produced by a
generator rather than manufactured by a cyclotron. Therefore, the Company
believes that the announced regulations concerning cyclotron-manufactured
radiopharmaceuticals will not have a significant impact upon cardiac
applications of its POSICAM/TM/ systems. However, as of March 15, 1997, the
Company is unable to predict the overall impact of the new regulations on other
applications of its POSICAM/TM/ system, which involve the use of cyclotron,
manufactured radiopharmaceuticals.
PRIVATE INSURER REIMBURSEMENT. The Company estimates that there are 1,500
private third-party insurance carriers in the United States. Most of these
carriers currently consider PET imaging to be an investigational procedure and
do not reimburse for procedures involving PET imaging. In 1992, however, the
National Blue Cross and Blue Shield Association recommended that Pet imaging be
covered for evaluation of radiotherapy and chemotherapy, and for selection of
patients for surgical excision of the source of uncontrollable epileptic
seizures. State Blue Cross and Blue Shield plans in Nebraska, Iowa, California
and Florida have recently adopted official payment policies concerning PET
cardiology applications. Aetna and Foundation Health Plan of Sacramento now
cover oncologic, cardiac and neurologic PET imaging applications, and Lincoln
National Life Insurance Company has developed a national policy for coverage of
neurological PET imaging applications. In addition, the Company believes that
approximately 650 private insurance carriers, while they do not have broad Pet
reimbursement policies, reimburse for PET scans on a case-by-case basis.
If third-party coverage for PET procedures using the POSICAM/TM/ system
remains unavailable, it will likely have a material adverse effect on the
Company's business, financial condition and results of operations /(1)/. Certain
federal health care reforms are currently being considered by Congress, one of
which would make cost effectiveness a criteria for Medicare and other third-
party payor reimbursement. At this time, the Company is unable to predict what
additional legislation or regulation, if any, relating tot he health care
industry or third-party coverage and reimbursement may be enacted in the future
or what effect such legislation or regulation would have on the Company /(1)/.
MANUFACTURING
<PAGE>
The Company assembles its POSICAM/TM/ scanners in a 7,000 square foot area
of its 30,000 square foot corporate facility located in Houston, Texas. Scanners
are generally produced by assembling parts furnished to the Company by outside
suppliers. A typical POSICAM system can generally be assembled in two months and
requires one month of testing before delivery.
An essential component of the Company's POSICAM/TM/ systems is bismuth
germinate oxide ("BGO") crystals which detect the positron emissions forming the
basis for a PET image, and photomultiplier tubes, which convert the light energy
emitted by such crystals into electrical impulses for use in the image
reconstruction process. BGO crystals are specially manufactured and are
available from a supplier located in the United States, that is a subsidiary of
a Japanese company and another supplier located in France. While the Company
primarily relies on a single source for its BGO crystals, it has in the past
purchased crystals from the second manufacturer and believes that it could
resume such purchases at acceptable prices without significant delays. The
Company purchases photomultiplier tubes from a French supplier. In the event
that the supply of France photomultiplier tubes were to be interrupted, the
Company believes it has the ability to source similar product from an alternate
manufacturer in France /(1)/. The Company believes that multiple vendor sources
exist in the United States for all other parts, for which no individual vendor
is critical to production /(1)/.
The Company maintains an active quality-assurance program, which includes
manufacturing product in small lots, tracking all defects and failures,
conducting area meetings, and maintaining thorough documentation and a well-kept
facility. Each assembler of a part is responsible for maintaining his or her
area of assembly and assuring that parts have been properly inspected and
tested. The Company believes that it is in compliance with all government
regulations regarding the manufacturing of its POSICAM/TM/ systems.
The Company has not historically experienced a material production and
delivery backlog. The Company currently has in place a production and delivery
system capable of producing and delivering up to three POSICAM/TM/ systems per
month. If the Company experienced a significant increase in the sales volume of
its POSICAM/TM/ systems, the Company would be required to implement certain
modifications to its existing production and delivery systems.
RESEARCH AND DEVELOPMENT
The Company's POSICAN systems are based upon proprietary technology
initially developed at the University of Texas Health Science Center ("UTHSC")
in Houston, Texas under a $24 million research program begun in 1979 and funded
by UTHSC and The Clayton Foundation for Research (the "Clayton Foundation"), a
Houston-based, non-profit organization. Further product development and
commercialization of the system has been funded by the Company.
The Company's research and development expenses for the years ended
December 31, 1995 and 1996 were $2,481,000 and $2,227,000, respectively. In
addition to the Company's sponsored and funded research and development
programs, the Company in the past has supplemented its research and development
with a technology transfer agreement with UTHSC and currently is participating
in a collaborative research efforts with selected clinical and research
customers, and research grants funded through the federal government's Small
Business Innovative Research ("SBIR') program.
The Company intends to continue its research into new scintillator material
and detectors, which is expected to focus on improving "dead-time" and
sensitivity. The Company also intends to investigate new electronics and
configurations in order to improve the system's performance and reduce the size
of the cost of the scanners. Additionally, the Company intends to explore new
Computer architecture to reduce the systems' cost and reduce the scanning time
per patient.
The Company has developed a neurology software analysis package with the
Yale/Veterans Administration PET Center to provide imaging tools for the
neurologist. The Company intends to continue its cooperative development efforts
with leading research institutions to improve neurology and oncology imaging.
The Company offers a clinical cardiology software package, which displays images
and facilitates the diagnosis of coronary artery disease and tissue viability.
The Company has a continuing program of enhancing and improving its
software, which is aided by its collaboration with practicing physicians, and
researchers who provide technical and practical advice to the Company
<PAGE>
based upon their clinical experiences with the POSICAM(TM) systems and efforts
to improve clinical procedures. The Company has received input from clinical
users and research collaborators, and the Company is conducting research and
development on new software products. The Company expects that this research and
development will result in new neurology and oncology analysis packages and
clinical computer protocols and improvements in date acquisition and image
reconstruction software.
PATENT AND ROYALTY ARRANGEMENTS
The Company acquired the know-how and patent rights or positron imaging
(the "Licensed Technology") from the Clayton Foundation, K. Lance Gould (a
director of the Company) and Nizar A. Mullani (formerly a director of the
Company). The Company is currently obligated to pay royalties of 3% of the gross
revenues from sales, uses, leases, licensing or rentals of the Licensed
Technologies, 1% to each of the Clayton Foundation, K. Lance Gould and Nizar A.
Mullani.
Two of the Company's patents, issued in January 1986 and February 1987 and
expiring in January 2003 and February 2004, respectively, relate to the
staggered crystal array design of its POSICAM systems. One additional patent
issued in June 1987 and expiring in June 2004 relates to technology, which the
company, by obtaining the patent, has reserved the right to use. The Company
maintains certain of its patents in Germany and has applied for certain patents
in Japan. In May 1993, the Company received an additional patent, which expires
in May 2010, relating to the innovative light guide and detector staggering
concepts used in its POSICAM(TM) HZ system.
The Company seeks to protect its trade secrets and proprietary know how
through confidentiality agreements with its employees and consultants. The
Company requires each employee and consultant to enter into a confidentiality
agreement containing provisions prohibiting the disclosure of confidential
information to anyone outside the Company, and requiring disclosure to the
company of any ideas, developments, discoveries or investigations conceived
during employment or service as a consultant and the assignment to the Company
of patents and proprietary rights to such matters related to the business and
technology of the Company.
GOVERNMENT REGULATIONS
The Company's POSICAM(TM) systems and radiopharmaceuticals used in
connection with them are subject to regulation by the FDA. The FDA regulates and
approves the clinical testing, manufacture, labeling, distribution and promotion
of medical devices in the United States prior to their commercialization. In
addition, various foreign countries in which the Company's products are or may
be marketed, impose certain regulatory requirements.
The Company's POSICAM(TM) systems are regulated as medical devices by the
FDA and require pre-market clearance by the FDA. Pursuant to the Medical Device
Amendments of May 1976, the FDA classifies medical devices in commercial
distribution as a class I, class II, or class III device. This classification
scheme is based on the controls necessary to reasonably ensure the safety and
effectiveness of the medical devices. Class I devices are those devices whose
safety and effectiveness can reasonably be ensured through general controls,
such as adequate labeling, pre-market notification and adherence to the Good
Manufacturing Practice ("GMP") regulations. Class II devices are those devices
whose safety and effectiveness can reasonably be assured through the use of
special controls, such as performance standards, post market surveillance,
patient registries and FDA guidelines. Class III devices require pre-market
approval from the FDA and are generally devices, which support or sustain human
life or present a potential risk of illness or injury. The POSICAM systems are
considered to be class II devices. However, as of March 15, 1997, the FDA has
not promulgated a performance standard for PET systems. Therefore, POSICAM(TM)
systems are not currently subject to such controls, nor are they subject to post
market surveillance, patient registries and FDA guides.
Before it can be commercially marketed L/C class II device must be approved
by the FDA. If a medical device is "substantially equivalent" to a legally
marketed class II device, the manufacturer or distributor may seek FDA clearance
by filing what is known as a 510(k) pre-market notification which must be
supported by data and test results. If the FDS determines that the device is
substantially equivalent, then it may be marketed in the United States.
<PAGE>
The FDA may, however, require additional date or additional test results, or may
determine that a device is "not substantially equivalent." Request for
additional date or test results or a "not substantially equivalent"
determination could delay the Company's market introduction of new products and
could have a material adverse effect on the Company's financial results and
operations. The FDA is not required to respond to 510(k) pre-market
notifications within a specific time period. The FDA has recently began
requiring a more rigorous demonstration of substantial equivalence and in many
cases the time periods required for product approvals has increased. If the FDA
determines that a new product is "not substantially equivalent," then the
manufacturer must undergo a lengthy Pre-Marketing Approval process which
generally involves clinical trials and submission of data to prove safety and
effectiveness before approval is granted.
The Company's original POSICAM(TM) system received 510(k) clearance in
September 1985. In November 1989, the Company was granted 510(k) clearance for a
modified POSICAM(TM) system, and also received approval for a mobile van
configuration. In 1991, the Company applied for and received 510(k) clearance of
its POSICAM(TM) HZ system, and in July 1993 the Company received 510(k) approval
for the POSICAM(TM) HZL.
The Company is also required to register as a medical device manufacturer
with the FDA. As such, the Company may be inspected from time to time by the FDA
for compliance with the FDA's GMP regulations. These regulations require that
the Company manufacture its products and maintain its documents in a prescribed
manner with respect to manufacturing, testing and control activities. Further,
the Company is required to comply with various FDA labeling requirements. The
Medical Device Reporting regulation required that the Company provide
information to the FDA on deaths or serious injuries alleged to have been
associated with the use of its devices, as well as product malfunctions that
would likely cause or contribute to death or serious injury if the malfunction
were to recur. To date, no such deaths, injuries or product malfunctions have
occurred. In addition, the FDA prohibits an approved device from being marketed
for unapproved applications. To date the Company has not received any notices of
noncompliance from the FDA concerning GMP regulations.
At the end of February 1995, the FDA conducted a GMP compliance inspection
at the Company's manufacturing facility. As a result of that inspection in April
1995, the Company received the first FDA warning letter in its operating
history. Several issues were noted for corrective action in that letter. The
Company has expeditiously taken action to address the FDA's concerns. In
February 1996, the FDA began a follow-up inspection of the Company's corrective
actions. As of December 1, 1997, the Company has not been informed of the result
of that inspection. If the FDA finds that the Company has not corrected the
deficiencies noted in the warning letter it could, among other things, issue
another warning letter, prohibit new product introductions, institute a product
recall or prohibit the Company from shipping products until all deficiencies are
corrected to the FDA's satisfaction. The Company is cooperating fully and
intends to continue to work with the FDA in all compliance matters. In February
1997, the FDA began another routine inspection of the company's operation
facility. As of December 1, 1997, the Company has not been informed of the
results of that inspection.
The Company believes that it currently complies with all applicable
regulations regarding the manufacture and sale of medical devices, although such
regulations are subject to change and depend heavily on administrative
interpretations. The Company also is subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing
practices, fire hazard control, and disposal of hazardous or potentially
hazardous substances.
The Company is required under Texas law to register with the Texas
Department of Health with respect to the Company's maintaining
radiopharmaceuticals on premises for testing and for research and development
purposes. The Texas Department of Health has the authority to inspect the
Company's records and facilities to ensure compliance with these regulations.
The Company has in the past received notice of minor violations, which have been
satisfactorily resolved with no punitive action. The Company believes that
adequate measures have been taken to prevent their recurrence.
Sales of medical devices outside of the United States may be subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain approval by a foreign country may be longer than that
required for FDA approval and the requirements may differ.
PET imaging centers must comply with regulations promulgated, in most
states, by an agency of the state government, under authority delegated by the
Nuclear Regulatory Commission governing the possession and use of
<PAGE>
radiopharmaceuticals for medical diagnostic procedure. In order to secure
approval, a PET imaging center must submit an acceptable site for its scanner,
employ adequate radiation safety and quality procedures, and provide a nuclear
physician who meets certain training and experience standards. Cyclotrons are
considered industrial devices and are therefore not covered by any FDA
regulations. Currently, there are no state or federal regulations concerning the
sale, marketing, or ownership of cyclotrons. However, operational licenses are
required by state radiation regulatory divisions. The licensing and/or
registration of cyclotrons by a state is typically handled by the state's
Department of Health, Bureau Radiation Control.
Many states have "certificate of need" regulations that require a purchaser
or user of expensive diagnostic equipment such as PET systems to obtain
regulatory approval before it may purchase and install such equipment. A primary
purpose of thesis regulations is to contain health costs by restricting the
number of similar units in a particular locality. The Company has yet to
experience a situation where a customer was unable to obtain such approval.
However, restrictions of this mature may increase in the future through the
passage of legislation and the adoption of regulatory changes as a part of
overall health care reform.
BACKLOG
The Company's backlog at December 31, 1996, consisted of purchase orders
for two POSICAM(TM) systems totaling approximately $2.1 million. Additionally,
in January and February 1997, the Company received orders for four (4) systems.
The Company expects to deliver these systems during 1997.
PRODUCT LIABILITY AND INSURANCE
Medical device companies are subject to a risk of product liability and
other liability claims in the event that the use of their products results in
personal injury claims. The Company has not experienced any product liability
claims to date. The Company maintains liability insurance with coverage of $2
million per occurrence and an annual aggregate maximum of $3 million.
EMPLOYEES
As of March 15, 1997, the Company employed thirty-six (36) full-time
persons, twelve (12) are employed in the Company's engineering department,
eleven (11) in sales, marketing and field service, seven (7) in manufacturing
and six (6) in the executive and administration department. The Company believes
that its relationship with its employees is satisfactory.
On January 1, 1996, the Company entered into an employment agreement with
Werner J. Haas, Ph.D. pursuant to which Dr. Haas agreed to serve as President
and Chief Executive Officer of the Company for a term of two years. The
employment agreement provided for the payment of an annual base salary of
$200,000, bonuses in an amount of be determined at the discretion of ht Board of
Directors o the Company, and participation ion any employee benefit plan adopted
by the Company for its employees.
On February 18, 1997, Dr. Haas informed the Board of Directors of the
Company that he considered his contract to have been terminated by the Company
without cause as a result of the Company's failure to pay the February 15, 1997
payroll to any of its management level employees and specifically to him. Dr.
Haas has demanded that the Company pay to him all past due salary as well as the
nine months severance pay specified in his employment agreement if his contract
is determined to have been terminated without cause. Additionally, Dr. Haas
resigned his position as a member of the Company's Board of Directors. The
Company has indicated to Dr. Haas that it believes no amounts are due him under
his employment agreement. As of March 15, 1997, the company is unable to predict
the outcome of the disagreement between Dr. Haas and the Company.
Gary B. Wood, Ph.D., currently Chairman of the company's Board of
Directors, has assumed the duties of President and Chief Executive Officer until
selection of a replacement for Dr. Haas.
FORWARD LOOKING STATEMENTS
<PAGE>
The Company's statements in the foregoing discussion not relating solely to
historical matters are forward looking statements and are based upon numerous
assumptions that could prove not to be accurate. Accordingly, actual events and
results may materially differ from anticipated results.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
HISTORY OF LOSSES. To date the Company has been unable to sell POSICAM(TM)
systems at quantities sufficient to be profitable. Consequently, the Company has
sustained substantial losses. Net losses for the years ended December 31, 1995
and 1996 were $5,028,000 and $6,375,000, respectively. At December 31, 1996, the
Company had an accumulated deficit of approximately $44,505,000. There can be no
assurance that the Company will ever achieve the level of revenues needed to be
profitable in the future, if profitability is achieved, that it will be
sustained. Due to the sizable sales price of each POSICAM(TM) system and the
limited number of systems that are sold or placed in service in each fiscal
period, the Company's revenues have fluctuated, and may likely continue to
fluctuate, significantly from quarter to quarter and from year to year.
WORKING CAPITAL DEFICIENCY. At December 31, 1996, the Company had cash and
cash equivalents in the amount of $382,000 compared to $102,000 at December 31,
1995. During certain times in 1996 and the first quarter of 1997, the Company
has been unable to meet certain of its obligations as they came due. As a result
of the Company's liquidity problem certain management level employees have
deferred payment of salaries through March 15, 1997 totaling $135,000.
Additionally, the Company is in arrears to many of its vendors and suppliers. As
of March 31, 1997, such amount owed to vendors and suppliers totaled
approximately $1,100,000.
As a result of the Company's liquidity problems, its auditors, Coopers &
Lybrand, L.L.P., have added an emphasis paragraph to their opinion on the
Company's financial statements indicating that substantial doubt exists about
the Company's ability to continue as a going concern. In conjunction with the
financing of the proposed acquisition of GE's PET assets and technology, the
Company anticipates that it will secure working capital financing totaling
approximately $7 million to fund its ongoing operations until such times as the
sales of its and GE's PET systems generate sufficient cash flow to fund
operations, however, no assurances can be given that the Company will
successfully complete such financing (See "Item 1. Risk Associated with Business
Activities - General Electric Transaction"). It is the Company's intention to
utilize a portion of such working capital funds to significantly reduce the
level of its past due obligations to its employees, vendors, and suppliers.
Additionally, the Company believes that it will reach cash flow break-even at
the point at which it is selling approximately fifteen (15) systems per year,
however no assurance can be given that the Company will ever reach such break-
even level of sales. (See Item 6. "Management's Discussion and Analysis or Plan
of Operation--Liquidity and Capital Resources".)
In the event that the Company is unable to complete its acquisition of GE's
PET assets and technology, it will be necessary for it to enhance its financial
position by means of raising capital by the sale of additional equity
securities, the placement of additional debt or increased sales of its
POSICAM(TM) systems. Although the Company has been actively pursuing the above
financing alternatives in connection with its proposed acquisition of GE's PET
assets, no assurances can be given that the Company will be able to successfully
alleviate its current financial difficulties or that it will be able to continue
as a gong concern in the absence of obtaining such financing.
The Company currently has no shares of Common Stock available for issuance
and all authorized shares have either been issued or reserved for issuance in
respect of outstanding options and warrants or convertible securities. The lack
of such available shares significantly restricts the Company's ability to raise
additional capital through the sale of equity securities. The Company believes
that its shareholders will approve an increase in the number of authorized
common shares at its Annual Meeting; however, no assurances can be given that
such additional shares will be authorized in adequate time to allow the Company
to issue such equity securities.
GENERAL ELECTRIC TRANSACTION. In July 1996, the Company and General
Electric Company ("GE") entered into an Acquisition Agreement (the "Agreement"),
which initially expired on January 4, 1997, pursuant to which the Company agreed
to purchase a portion of GE's product line relating to the design, engineering,
and manufacture of certain PET equipment and related cyclotron systems (the
"Business"). Under the terms of the Agreement, the Company agreed to (I)
purchase from GE all of the capital stock of its wholly owned Swedish
subsidiary, and (ii) purchase or license from GE substantially all of its assets
which are used principally in the conduct of Business. Additionally, the Company
and GE entered into a Sales and Marketing Agreement (the "Marketing Agreement")
<PAGE>
pursuant to which, subject to the conditions and limitations set forth therein
GE agrees to purchase on an exclusive basis, and the Company agreed to supply to
GE, certain PET equipment and related cyclotron systems (collectively the "PET
Products"). The initial term of the Marketing Agreement was for five (5) years.
Subject to the conditions set forth therein, GE agreed that, during the initial
term of the Marketing Agreement, GE would not, directly or indirectly engage in
the design, engineering or manufacturing of PET Products.
In exchange for the sale by GE of the assets described above and the
capital stock of its Swedish subsidiary, as well as the performance by GE of its
obligations under the Marketing Agreement, the Company agreed to pay to GE cash
of $25 million, subject to certain specified adjustments. Additionally, the
Company agreed to issue to GE a number of shares of its Common Stock (the
"Acquisition Stock") which, would equal 10% of the Common Stock outstanding
immediately after consummation of the acquisition and issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and related common stock purchase warrants
and the issuance and exercise of the GE Option (described below). The Company
also agreed to issue to GE an option (the "GE Option") to purchase a number of
shares of Common Stock which, upon exercise and conversion into shares of the
Company's Common Stock, would equal 15% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and the issuance, exercise and conversion
of the GE Option. The GE option was initially exercisable for three (3) years at
an exercise price of $4.25. On January 4, 1997, GE and the Company agreed to
extend the expiration date of the Agreement until March 31, 1997.
The acquisition is subject to the satisfaction or waiver of certain
conditions precedent, including the Company's procurement of financing upon
terms and conditions acceptable to the Company and the approval by the Company's
shareholders of certain terms of the acquisition, including the issuance of the
Acquisition Stock and GE Option. Under certain circumstances, if the Agreement
is terminated and the termination is not due to a breach by GE of its
representations, warranties or covenants set forth in the Agreement the Company
is required to pay to GE a termination fee of $1.5 million if the Company enters
into certain specified transactions within two (2) years of the date of
termination of the Agreement.
As of March 31, 1997, the Company has not obtained commitments for the
financing required to complete the acquisition, nor has it obtained shareholder
approval of the issuance of the Acquisition Stock, the GE Option or the
Agreement. There is no assurance that the Company will be able to procure the
required financing or that it will be successful in obtaining shareholder
approval of the transaction. Failure of the Company to close the acquisition of
the Business is likely to have a material adverse effect on the Company's
ability to continue as a going concern. See "Item1. Description of Business--
Risk Associated with Business Activities" and "Item 6. Management's Discussion
and Analysis or Plan of Operation--Liquidity and Capital Resources".
Closing of the GE Acquisition did not occur on March 31, 1997, nor has GE
agreed to extend the Agreement beyond March 31, 1997. On April 10, 1997, GE
informed the Company that it was exercising its right to terminate the Agreement
and that it will pursue other options for its PET business. GE remains open to
discussing a transaction on revised terms, if and only if. (i) a prompt closing
and payment of the full purchase price are assured, (ii) the transaction
continues to make business sense for both parties, and (iii) all necessary
details can be agreed upon by parties. The Company and GE have no binding
agreement to proceed with these discussions, nor can any assurances be given
that if they do proceed, any workable agreement will be reached by the parties.
NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS: POSSIBLE
DELISTING OF SECURITIES FROM THE NASDAQ SYSTEMS. The Company's Common Stock is
currently listed on the NASDAQ SmallCap Market. The Board of Governors of the
National Association of Securities Dealers, Inc. (the "NASD") has established
certain standards for the continued listing of a security on the NASDAQ SmallCap
Market. The standards required for the Company to maintain such listing include,
among other things, that the Company have total capital and surplus of at least
$1,000,000. As of December 31, 1996, the Company had a total capital and surplus
deficit of $658,000. The Company does not currently meet the minimum
requirements necessary to maintain its NASDAQ stock market listing and will not
meet those requirements until such time as it is able to raise capital by sale
of additional equity securities or increased sales of its POSICAM(TM) systems.
There can be no assurances that the Company will ever meet the capital and
surplus requirements needed to maintain its NASDAQ SmallCap Market System
listing.
In the event that the Company is unable to satisfy NASDAQ's maintenance
requirements, trading would be conducted in the "pink sheets" or the NASD's
Electronic Bulletin Board. In the absence of the Common Stock being
<PAGE>
quoted on the NASDAQ SmallCap Market, as the Company does not have $2,000,000 in
net tangible assets, trading in the Common Stock would be covered by rules
promulgated under the Exchange Act for non-NASDAQ and non-exchange listed
securities. Under such rules, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from these rules if the market price is at least $5.00 per share. As of
March 14, 1997, the closing price of the Company's Common Stock was $2.093.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include, in general, an equity
security listed on the NASDAQ Market and an equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000,if such issuer has been
in continuous operation for three (3) years, (ii) net tangible assets of at
least $5,000,000, if such user has been in continuous operation for less than
three years, (iii) average revenue of at least $6,000,000, for the preceding
three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock was subject to the regulations on penny
stock, the market liquidity for the Common Stock be severely affected by
limiting the ability of broker/dealers to sell the Common Stock in the public
market. There is no assurance that trading in the Company's securities will not
be subject to these or other regulations that would adversely effect the market
for such securities.
NASDAQ SHAREHOLDER APPROVAL REQUIREMENT. In general, the rules governing
the listing of the Company's Common Stock on the NASDAQ SmallCap Market require
approval by the Company's Common Stockholders of any transaction, other than a
public offering, involving the sale or issuance by the Company of its Common
Stock, or securities convertible into or exercisable for Common Stock, at a
price less than the greater of book or market value, which equals more than 20%
of the issued and outstanding Common Stock. Under ordinary circumstances, the
Company would have been required to obtain such shareholder approval before
proceeding with the Company's private placement of Series A Preferred Stock.
However, on February 9, 1966, the NASD granted the Company an exception to the
shareholder requirement. In order to be entitled to receive the exception, the
Company's Board of Directors, and the members thereof comprising the Company's
Audit Committee, determined that the delay in proceeding with the Company's
March, 1966 private placement of Series A Preferred Stock that would be
necessary in order to obtain the required shareholder approval would seriously
jeopardize the financial viability of the Company. The exception granted by the
NASD required the Company to mail to all of its shareholders a letter alerting
the shareholders to the Company's omission in seeking the required shareholder
approval and that its Audit Committee has expressly approved the Company's
reliance on such exception. The Company's reliance on such exception may have an
adverse affect on the public trading price of its Common Stock.
DILUTION. In connection with the issuance of the Series A and Series B
Preferred Stock, the Company issued 1,266,690 warrants which are convertible
into its Common Stock and warrants to purchase its Common Stock. The exercise of
these warrants would be materially dilutive to the current issued and
outstanding shares of Common Stock. As of March 15, 1997, a total of 4,168 of
these warrants have been exercised and converted into Common Stock of the
Company.
SUBSTANTIAL COMPETITION AND EFFECTS OF TECHNOLOGICAL CHANGE. The industry
in which the Company is engaged is subject to rapid and significant
technological change. There can be no assurance that POSICAM(TM) systems can be
upgraded to meet future innovations in the PET industry or that new technologies
will not emerge, or existing technologies will not be improved, which would
render the Company's products obsolete or non-competitive. The Company faces
competition in the United States PET market primarily from General Electric
Company and Siemens Medical Systems, Inc., two major commercial manufacturers,
each of which has significantly greater financial and technical resources and
production and marketing capabilities than the Company. In addition, there can
be no assurance that other established medical concern, any of which would
likely have greater resources than the Company, will not enter the market. The
Company also faces competition from other imaging technologies which are more
firmly established and have a greater market acceptance, including single-photon
emission computed tomography ("SPECT'). There can be no assurance that the
Company will be able to compete successfully against any of its competitors.
<PAGE>
NO ASSURANCE OF MARKET ACCEPTANCE. The POSICAM(TM) systems involve new
technology that competes with more established diagnostic techniques. The
purchase and installation of a PET system involves a significant capital
expenditure on the part of the purchaser. A potential purchaser of a PET system
must have an available patient base that is large enough to provide the
utilization rate needed to justify such capital expenditure. There can be no
assurance that PET technology or the Company's POSICAM systems will be accepted
by the target markets or that the Company's sales of POSICAM(TM) systems will
increase or that the Company will ever be profitable.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company holds certain patent and
trade secret rights relating to various aspects of its PET technology, which are
of material importance to the Company and its future prospects. There can be no
assurance, however, that the Company's patents will provide the meaningful
protection from competitors. Even if a competitor's products were to infringes
on patents held by the Company, it would be costly for the Company to enforce
its rights and the enforcement of its rights would divert funds and resources
from the Company's operations. Furthermore, there can be no assurance that the
Company's products will not infringe on any patents of others.
The Company requires each employee and/or consultant to enter into a
confidentiality agreement, but there can be no assurance that these agreements
will provide meaningful protection or adequate remedies for the Company's trade
secrets or proprietary know-how in the event of unauthorized use or disclosure
of such information or that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and proprietary know-how.
GOVERNMENT REGULATION. The Company's POSICAM(TM) systems and the
radiopharmaceuticals used in connection with them are subject to regulation by
the FDA. The FDA regulates and must approve the clinical testing, manufacturing,
labeling, distribution, and promotion of medical devices in the United States.
There can be no assurance that any additional product or enhancement that the
Company may develop will be approved by the FDA. Delays in receiving regulatory
approval could have a material adverse effect on the Company's business. In
addition, various foreign countries in which the Company's products are or may
be marketed impose additional regulatory requirements. Further, the Company's
operations and the operations of PET systems are subject to regulation under
federal and state health safety laws, and purchasers and users of PET systems
are subject to federal and state laws and regulations regarding the purchase of
medical equipment such as PET systems. All laws and regulations, including those
specifically applicable to the Company, are subject to change. The Company
cannot predict what effect changes in laws and regulations might have on its
business. Failure to comply with applicable laws and regulator requirements
could have material adverse effect on the Company's business, financial
conditions, results of operations and cash flows.
CERTAIN FINANCING ARRANGEMENTS. In order to sell its POSICAM(TM) systems,
the Company has from time to time found it necessary to participate in ventures
with certain customers or otherwise assist customers in their financing
arrangements. The venture arrangements have involved lower cash prices for the
Company's systems in exchange for interests in the ventures, thus exposing the
Company to the attendant business risks of the ventures. The Company has, in
certain instances, sold its systems to financial intermediaries, which have, in
turn, leased the system to user. Such transactions may not give rise to the same
economic benefit to the Company as would have occurred had the Company made a
direct cash sale at its normal market prices on normal sale terms. There can be
no assurance that the Company will not find it necessary to enter similar
transactions to effect future sales. The nature and extent of the Company's
interest in such ventures or the existence of remarketing or similar obligations
could require the Company to account for such transactions as financing
arrangements rather than "sales" for financial reporting purposes. Such
treatment could have the effect of delaying the recognition of revenue on such
transactions and may increase the volatility of the Company's financial results.
PRODUCT LIABILITY AND INSURANCE. The use of the Company's products entails
risks of product liability. There can be no assurance that product liability
claims will not be successfully asserted against the Company. The Company
maintains liability insurance coverage in the amount of $2 million per
occurrence and an annual aggregate maximum of $3 million. However, there can be
no assurance that the Company will be able to maintain such insurance in the
future or, if maintained, that such insurance will be sufficient in amount to
cover any successful product liability claims. Any uninsured liability could
have a material adverse effect on the Company.
NO DIVIDENDS. The Company has never paid cash dividends on its Common
Stock and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Series A Preferred Stock and Series B
<PAGE>
Preferred Stock Statements of Designation prohibit the payment of Common Stock
dividends until all required dividends have been paid on each series of
preferred stock. As of December 31, 1966, approximately $185,000 of preferred
stock dividends are undeclared and unpaid by the Company.
- ----------------------
/(1)/ This statement is a forward-looking statement that involves risks and
uncertainties. Accordingly, no assurances can be given that the actual
events and results will not be materially different from the
anticipated events and results described in the forward-looking
statement. See "Item 1. Description of Business--Risks Associated with
Business Activities" for a description of various factors that could
materially affect the ability of the Company to achieve the anticipated
results described in the forward-looking statement.
Item 2. DESCRIPTION OF PROPERTY
The Company occupies a 30,000 square foot facility in Houston, Texas.
That facility includes area for system assembly and testing, a computer room for
hardware and software product design, and office space. The facility is leased
through June 2000. The current lease rate is approximately $25,000 per month and
increases to approximately $35,000 per month beginning in July 1998. The Company
estimates the space to be sufficient for the foreseeable future.
Item 3. LEGAL PROCEEDINGS
No legal proceedings are currently pending against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year.
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In December 1993, the Company completed an initial public offering of
1,750,000 shares of Common Stock and 1,946,775 redeemable warrants (the
"Redeemable Warrants") to purchase Common Stock (the "Initial Public Offering").
Prior to the Initial Public Offering there was no public market for Company's
Common Stock. The Company's Common Stock and Redeemable Warrants are currently
traded on the NASDAQ SmallCap Market under the symbols POSI and POSIW,
respectively. See "Item 1. Description of Business - Risks Associated with
Business Activities."
The following sets forth the range of the high and low reported
closing sales prices for the Company's Common Stock for the four quarters of
1996 and 1995, all as reported on the NASDAQ SmallCap Market.
<TABLE>
<CAPTION>
1996 1995
------ ------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $3.438 $1.375 $5.250 $1.875
Second Quarter 4.188 3.250 4.750 3.625
Third Quarter 5.500 2.000 5.000 2.875
Fourth Quarter 3.250 1.500 5.125 1.000
</TABLE>
There were approximately 250 holders or record of shares of Common
Stock as of March 15, 1997. The Company estimates that there were also
approximately 800 beneficial holders of Common Stock as of March 15, 1997.
The Company has never paid cash dividends on its Common Stock. The
Company does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Series A Preferred Stock and Series B Preferred Stock
Statements of Designation prohibit the payment of Common Stock dividends until
all required dividends have been paid on each series of preferred stock. As of
December 31, 1996, approximately $185,000 of preferred stock dividends are
undeclared and unpaid by the Company.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was incorporated in December 1983 and commenced commercial
operations in 1986. Since that time, the Company has generated revenues
primarily from the sale and serve of the Company's POSICAM(TM) systems; 15 of
which are currently in operation in leading medical facilities in the United
States. In addition the Company has sold and installed two (2) POSICAM(TM)
system internationally. Three (3) systems are no longer operational. Of the 15
POSICAM(TM) systems currently operating in the United States, nine (9) are in
use at sites which are primarily dedicated to clinical cardiology, one (1) is
primarily dedicated to oncology and five (5) are in use in multi-disciplinary
research/clinical sites.
GENERAL ELECTRIC TRANSACTION. In July 1996, the Company and General
Electric Company ("GE") entered into an Acquisition Agreement ("Agreement"),
which initially expired on January 4, 1997, pursuant to which the Company agreed
to purchase a portion of GE's product line relating to the design, engineering
and manufacture of certain PET equipment and related cyclotron systems (the
"Business"). Under the terms of the Agreement, the Company agreed to (i)
purchase from GE all of the capital stock of its wholly-owned Swedish
subsidiary, and (ii) purchase or license from GE substantially all of its assets
which are used principally in the conduct of Business. Additionally, the
Company and GE entered into a Sales and Marketing Agreement (the "Marketing
Agreement") pursuant to which, subject to the conditions and limitations set
forth therein, GE agreed to purchase on an exclusive basis, and the Company
agreed to supply to GE, certain PET equipment and related cyclotron systems
(collectively the "PET Products"). The initial term of the Marketing Agreement
was for five (5) years. Subject to the conditions
<PAGE>
set forth therein, GE agreed that, during the initial term of the Marketing
Agreement, GE would not, directly or indirectly engage in the design,
engineering or manufacture of PET products.
In exchange for the sale of GE of the assets described above and the
capital stock of its Swedish subsidiary, as well as the performance by GE of its
obligations under the Marketing Agreement, the Company agreed to pay to GE cash
of $25 million, subject to certain specified adjustments. Additionally, the
Company agreed to issue to GE a number of shares of its Common Stock (the
"Acquisition Stock") which, would equal 10% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and related common stock purchase warrants
and the issuance and exercise of the GE Option(described below). The Company
also agreed to issue to GE an option (the "GE Option") to purchase a number
shares of Common Stock which, upon exercise and conversion into shares of the
Company's Common Stock, would equal 15% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and the issuance, exercise and conversion
of the GE Option. The GE Option was initially exercisable for three (3) years
at an exercise price of $4.25. On January 4, 1997, GE and the Company agreed to
extend the expiration date of the Agreement until March 31, 1997.
The acquisition is subject to the satisfaction or waiver of certain
conditions precedent, including the Company's procurement of financing upon
terms and conditions acceptable to the Company and the approval by the Company's
shareholders of certain terms of the acquisition, including the issuance of the
Acquisition Stock and GE Option. Under certain circumstances, if the Agreement
is terminated and the termination is not due to a breach by GE of its
representations, warranties or covenants set forth in the Agreement the Company
is required to pay to GE a termination fee of $1.5 million if the Company enters
into certain specified transactions within two (2) years of the date of
termination of the Agreement.
As of March 31, 1997, the Company had not obtained commitments for the
financing required to complete the acquisition, nor has it obtained shareholder
approval of the issuance of the Acquisition Stock, the GE Option or the
Agreement. There is no assurance that the Company will be able to procure the
required financing or that it will be successful in obtaining shareholder
approval of the transaction. Failure of the Company to close the acquisition of
the Business is likely to have a material adverse effect on the Company's
ability to continue as a going concern. See "Item 1. Description of Business -
Risk Associated with Business Activities" and Item 6. Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources".
On April 10, 1997, GE informed the Company that it was exercising its
right to terminate the Agreement and that it will pursue other options for the
its PET business. GE remains open to discussing a transaction on revised terms,
if and only if, (i) a prompt closing and payment of the full purchase price are
assured, (ii) the transaction continues to make business sense for both parties,
and (iii) all necessary details can be agreed upon by the parties. The Company
and GE have no binding agreement to proceed with these discussions, nor can any
assurances be given that if they do proceed, any workable agreement will be
reached by the parties.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Total revenue decreased $1,752,000 or 32.9% from $5,327,000 for the year ended
December 31, 1995 to $3,575,000 for the year ended December 31, 1996.
Revenue from system sales decreased from $3,310,000 for 1995, to
$650,000 for the same period in 1996, a decrease of $2,660,000 or 80.4%.
Included in 1996 results is a sale of a refurbished system at $650,000 compared
to 1995 which included three sales of the HZ series systems.
In the third quarter of 1995, the Company shipped its first system
under a fee-per-scan contract. This system was installed and operable in the
fourth quarter of 1995. Under the terms of the contract, the Company retains
ownership to the POSICAM(TM) system and recognizes revenue based on the number
of patients scanned on a daily basis. Fee-per-scan revenue for 1996 was $415,000
compared to $68,000 in 1995.
Service revenue increased $561,000 or 28.8% from $1,949,000 for the
year ended December 31, 1995, to $2,510,000 for the 1996 period. The increase
was attributable to the booking of a system upgrade of $750,000 in
<PAGE>
1996, offset by two service contracts which were not renewed in 1996 as well as
reductions in the price of certain other service contracts.
Gross profit in 1996 was $1,477,000 compared to $1,859,000 for 1995, a
decrease of $382,000 or 20.5%. The decrease in gross profit resulted from a
$1,000,000 non-recurring warranty reserve booked in the first quarter of 1996 in
anticipation of possible losses to be incurred on the exchange of a scanner,
explained below, and a reduction in gross profit due to three HZ sales in the
1995 period versus the sale of a refurbished system in 1996. These decreases
were offset by an increase of $750,000 for the system upgrade mentioned above,
the cost of which was booked in the fourth quarter of 1995, and an increase in
gross profit of $201,000 for the fee-per-scan system in 1996 as compared to
1995.
The Company was notified by the customer who purchased the initial
production model HZL series scanner that the scanner was not performing to
certain of the contracted for specifications. These specifications are higher
than those customarily provided by purchasers of the HZL scanner. Additionally,
the scanner has experienced certain reliability problems related to detector
module failures which are currently being corrected by the Company. The Company
has agreed with the customer to replace the scanner with a new scanner if it is
unable to bring the existing scanner up to the contracted specifications. If
necessary, the Company anticipates that the defective scanner will be replaced
in mid-1997. If the replacement scanner does not meet the contracted
specifications, the customer could, among other things, return the system and
demand a full refund of the approximate net purchase price of $1,500,000; or, a
request a discount (partial refund) form the contracted purchase price. In
anticipation of the potential losses to be realized in correcting these problems
the Company increased its reserve for replacement of the scanner by $1 million
in the first quarter of 1996.
Due to the severe financial difficulties being experienced by the
Company as of December 1, 1997 it has not made the necessary upgrade nor has it
replaced the aforementioned scanner. The Company and the Customer have agreed
to defer ultimate resolution of this matter until such time as the Company is
financially stronger. The Company anticipates that the ultimate future cash
costs of replacing the scanner will be significantly less than the $1 million
reserve. A possible solution to the problem includes the completion and
installation of a partially complete HZL scanner currently in inventory. The
Company estimates that an additional $200,000 would have to be spent to complete
and install this machine./(1)/ Alternatively, the Company is discussing the
possibility of refunding a portion of the purchase price to the customer. The
Company anticipates that such refund would not exceed $500,000./(1)/
The Company believes that the cash required to fund either of the two
mentioned alternatives will be available from operations or from the above
mentioned financings. If the Company is unable to complete the mentioned
financings or if operations do not generate sufficient cash flow to finance the
purchase of the inventory required to complete the HZL system in inventory it is
likely to have a material adverse effect on the Company's ability to remain a
going concern.
Total operating expense increased $659,000 or 9.6% from $6,831,000 for
the year ended December 31, 1995, to $7,490,000 for the same period in 1996.
Research and development expense decreased $254,000 or 10.2% from
$2,481,000 in 1995 to $2,227 in 1996, principally due to reduced personnel and
program material costs.
Selling and marketing expense decreased $453,000 or 29.8% from
$1,518,000 for the year ended December 31, 1995, to $1,065,000 for the same
period in 1996. The decrease is due principally to lower sales commissions in
1996 versus 1995 combined with a reduction in the number of sales and marketing
personnel.
General and administrative expenses increased $1,366,000 or 48.2% from
$2,832,000 in 1995 to $4,198,000 for the same period 1996 period. The increase
is attributable to an increase in the reserve for doubtful accounts of
approximately $760,000, as well as increased professional fees, property taxes
and public relations costs. The Company's sales contract with the University of
Madrid requires payment to the Company based upon the number of clinical scans
performed at the PET center. To date, the Company has received payment of
approximately $188,000 upon shipment of the scanner has not received any
additional payments on the University's account. In anticipation of the
possibility that the $813,000 balance owed by the University of Madrid would not
be paid, the Company increased its allowance for doubtful accounts for the
Madrid system to approximately $813,000 in the fourth quarter of 1996.
<PAGE>
Other income and (expense) increased $306,000, or 546.4% from
($56,000) in 1995 to $362,000 in 1996. The increase resulted principally from
interest expense exceeding interest income as a result of the Company's short-
term borrowing to finance its operations as well as significantly lower invested
excess cash.
As a result of the above reasons, the Company's loss increased 26.8%
or $1,347,000 from $5,028,000 in 1995 to $6,375,000 in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Total revenue for the year ended December 31, 1995 was $5,327,000 a decrease of
$754,000 or 12,4% from $6,081,000 for the year ended December 31, 1994.
Revenue from system sales decreased $690,000 or 17.3% from $4,000,000
in 1994 compared to $3,310,000 in 1995. Revenue for 1994 included approximately
$2,000,000 related to the sale of a cyclotron and $1,900,000 related to the sale
of one POSICAM(TM) system. Revenue for 1995 included three POSICAM(TM) system
sales with an average selling price of approximately $1,100,000 each.
In the second quarter of 1995, the Company shipped its first
POSICAM(TM) system under a fee per scan contract. Under the terms of the
contract, the Company retains ownership to the POSICAM(TM) system and recognizes
revenue and cost based upon the number of patients scanned on a monthly basis.
Fee per scan revenue was $68,000 in 1995 compared to $0 in 1994. (See "Item 1.
Description of Business - Risk Associated with Business Activities - Certain
Financing Arrangements.")
Service revenue in 1995 was $1,949,000, a decrease of $132,000 or 6.3%
from the 1994 total of $2,081,000. The decrease was principally due to the non-
renewal of two service contracts included in 1994 being offset by one new
contract for which the service revenue period began in January, 1995.
Gross profit decreased form $2,664,000 in 1994 to $1,859,000 in 1995,
a decrease of 30.2% or $805,000. The decrease is principally attributable to
the lower average system selling prices.
Operating expense increased $108,000 or 1.6% from $6,723,000 in 1994
to $6,831,000 in 1995. The increase was principally attributable to increased
emphasis placed on various marketing programs in 1995 and increased selling
costs in 1995 offset by lower research and development costs.
Research and development expenditures decreased $196,000 or 7.3% from
$2,677,000 in 1994 to $2,481,000 in 1995. The decrease was due to a special
one-time compensation payment made in 1994 as well as two research grants
awarded in 1994 which were not present in 1995 being offset by increased labor
costs in 1995 related to research and development of the Company's HZ series
POSICAM(TM) system.
Selling and marketing expense increased by 195% or $248,000 to
$1,518,000 in 1995, from $1,270,000 in 1994. The increase was principally due
to stronger emphasis placed on various marketing programs, including market
analysis of changes in the managed care portion of the health care industry.
Additionally, sales commissions and travel related to additional system sales
increased in 1995 over 1994.
General and administrative expense increased 2.0% or $56,000, from
$2,776,000 in 1994 to $2,832,000 in 1995. The increase was principally due to
higher general and administrative salaries in 1995 as well as increased
manufacturing administrative costs, offset by a decrease in the 1995
compensation accrual.
Other income and (expense) increased $354,000 from income of $298,000
in 1994 to an expense of $56,000 in 1995. The increase resulted principally
from interest expense exceeding interest income as a result of the Company's
need to borrow short-term funds to finance its operations as well as
significantly lower invested excess cash.
As a result of the above reasons, the Company's loss increased 33.7%
or $1,267,000 from $3,761,000 in 1994 to $5,028,000 in 1995.
NET OPERATING LOSS CARRY FORWARDS
<PAGE>
The Company has accumulated a significant net operating loss carry forward which
may be used to reduce taxable income and related income taxes in future years.
Since the closing of the Company's 1993 initial public offering and the sale in
February, March and May of 1996 of 3,075,318 Shares of Series A Convertible
Preferred Stock, each resulted in more than a 50% change in the ownership
percentages of shareholders, the provisions of Section 382 of the Internal
Revenue Code severely limit the annual utilization of the net operating loss
carry forwards. In addition, the utilization of the losses to reduce future
income taxes is dependent upon the generation of sufficient taxable income prior
to the expiration of the net operating loss carry forwards. The carry forwards
will begin to expire in the year 1999.
LIQUIDITY AND CAPITAL RESERVES
Since its inception the Company has been unable to sell its
POSICAM(TM) systems in sufficient quantities to be profitable. Consequently, the
Company has sustained substantial losses. Net losses for the years ended
December 31, 1996 and 1995 were $6,375,000 and $5,028,000, respectively. The
Company had an accumulated deficit of $44,505,000 at December 31, 1996. Due to
the sizable prices of the Company's systems and the limited number of systems
sold or placed in service each year, the Company's revenues have fluctuated
significantly year to year.
At December 31, 1996, the Company had cash and cash equivalents in the
amount of $382,000 compared to $102,000 at December 31, 1995. During certain
times in 1996 and the first quarter of 1997, the Company has been unable to meet
certain of its obligations as they came due. As a result of the Company's
liquidity problem certain management level employees have deferred payment of
salaries through March 15, 1997 totaling $135,000. Additionally, the Company is
in arrears to many of its vendors and suppliers. As of March 31, 1997, such
amount owed to vendors and suppliers totaled approximately $1,100,000. This
amount excludes the nine months severance demand made by Dr. Haas. See comments
under Employees above.
As a result of the Company's liquidity problems, its auditors, Coopers
& Lybrand, L.L.P., have added an explanatory paragraph to their opinion on the
Company's financial statements indicating that substantial doubt exists about
the Company's ability to continue as a going concern. In conjunction with the
financing of the proposed acquisition of GE's PET assets and technology, the
Company anticipates that it will secure working capital financing totaling
approximately $7 million to fund its ongoing operations until such time as the
sales of its and GE's PET systems generate sufficient cash flows to fund
operations, however, no assurances can be given that the Company will
successfully complete such financing (See Item 1. Risk Associated with Business
Activities - General Electric Transaction"). It is the Company's intention to
utilize a portion of such working capital funds to significantly reduce the
level of its past due obligations to its employees, vendors and suppliers./(1)/
Additionally, the Company believes that it will reach cash flow break-even at
the point at which it is selling approximately fifteen (15) systems per year,
however no assurance can be given that the Company will ever reach such break-
even level of sales /(1)/.
Due to it current liquidity problems, the Company currently is unable
to fulfill its commitment to manufacture the systems in its order backlog. As
mentioned above, the Company believes that it will be successful in securing the
working capital necessary to fund the manufacture of these orders.
In the event that he Company is unable to complete its acquisition of
GE's PET assets and technology, it will be necessary for it to enhance its
financial position by means of raising capital by the sale of additional equity
securities, the placement of additional debt or increased sales of its
POSICAM(TM) systems. Although the Company has been actively pursuing the above
financing alternatives in connection with its proposed acquisition of GE's PET
assets, no assurances can be given that the Company will be able to successfully
alleviate its current financial difficulties or that it will be able to continue
as a going concern in the absence of obtaining such financing./(1)/
The Company currently has no shares of Common Stock available for
issuance and all authorized shares have either been issued or reserved for
issuance in respect of outstanding options and warrants or convertible
securities. The lack of such available shares significantly restricts the
Company's ability to raise additional capital through the sale of equity
securities. The Company believes that its shareholders will approve an increase
in the number of authorized common shares at its Annual Meeting, no assurance
can be given that such additional shares will be authorized in adequate time to
allow the Company to issue such equity securities.
<PAGE>
Prior to the issuance of Series A Preferred Stock in February and
March 1996, discussed below, the Company also experienced significant liquidity
problems and was unable to pay certain of its obligations within their standard
terms. As such the Company borrowed a total of $1,313,000 during the last
fiscal quarter of 1995 and first quarter of 1996 from Ro-Tech, Ltd., ("Uro-
Tech") and affiliate of the Company, discussed below.
URO-TECH LOAN. During the last quarter of 1995 and the first quarter
of 1996, in order to fund its activities, the Company borrowed a total of
$1,313,000 from Uro-Tech, Ltd., (the "Uro-Tech Loan"). The Uro-Tech Loan, as
amended, bears interest at 13.8% per annum and matures on March 31, 1997. On
March 31, 1997, Uro-Tech agreed to an extension of the loan agreement until
April 30, 1997; all other terms and conditions of the agreement remain
unchanged. The Uro-Tech Loan is collateralized by liens and security interests
encumbering most of the Company's assets including the Company's know-how,
patents and proprietary rights pertaining to its PET technology. In connection
with the loan from Uro-Tech, the Company granted Uro-Tech warrants to purchase
67,500 shares of Common Stock, at an exercise price of $2.00 per share
exercisable through February 7, 2001. The Company anticipates that the Uro-tech
Loan will be repaid with a portion of the proceed of the funding of the
acquisition of the PET assets and technology of GE./(1)/
BF&E LOAN. On February 7, 1996, the Company entered into a lending
facility with Boston Financial & Equity Corporation pursuant to which the
Company may borrow up to 80% of its outstanding qualified accounts receivable
(the "BF&E Loan"). The maximum amount available under the BF&E Loan is
$1,000,000 and the BF&E Loan is collateralized by liens and security interests
encumbering most of the Company's assets including the Company's know-how,
patents and proprietary rights pertaining to its Pet technology. As of March
14, 1997 the available borrowing capacity under the BF&E Loan was approximately
$213,000 and $213,000 was outstanding under the BF&E Loan. The BF&E Loan, as
amended, bears interest at 13.8% per year and matures on March 31, 1997. On
March 31, 1997, BF&E agreed to an extension of the loan agreement until April
30, 1997, all other terms and conditions of the agreement remain unchanged. In
connection with the BF&E Loan, the Company granted warrants to BF&E to purchase
45,000 shares of Common Stock, at an exercise price of $2.00 per share
exercisable through February 2001. The warrants contain standard anti-dilution
provisions and registration rights with respect to the shares of Common Stock
issuable upon exercise thereof. The Company anticipates that the BF&E Loan will
be repaid with a portion of the proceeds of the funding of the acquisition of
the PET assets and technology of GE./(1)/
PRIVATE PLACEMENT OF SERIES A PREFERRED STOCK. In February, March
and May of 1996, the Company issued 3,975,318 shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock $1.00 par value ("Series A Preferred
Stock") and Redeemable Common Stock Purchase Warrants to purchase 1,537,696
shares of the Company's Common Stock. The net proceeds of the private placement
were approximately $2,972,000. Each share of the Series A Preferred Stock is
immediately convertible into one share of Common Stock. Each Redeemable Common
Stock Purchase Warrant is exercisable at a price of $2.00 per share of Common
Stock. As a result of the private placement of Series A Preferred Stock, the
Company currently does not have any available authorized shares of Common Stock
available for issuance.
In conjunction with the issuance of the aforementioned Series A
Preferred Stock, Uro-Tech, converted $650,000 of the amount payable to it into
433,329 shares of Series A Preferred Stock and 216,671 Redeemable Stock Purchase
Warrants.
PRIVATE PLACEMENT OF SERIES B PREFERRED STOCK. In July 1996, the
Company issued 25,000 shares of Series B 8% Cumulative Convertible Redeemable
Preferred Stock $1.00 par value ("Series B Preferred Stock") and Common Stock
Purchase Warrants to purchase up to 100,000 shares of its Common Stock, par
value $.01 per share. The Series B Preferred Stock plus Common Stock Purchase
Warrants sold for approximately $50.00 per share of Series B Preferred Stock.
Subject to adjustment for certain anti-dilution events, each share of Series B
Preferred Stock is initially convertible into 25 shares of Common Stock and each
Common Stock Purchase Warrant is exercisable for one share of Common Stock at an
exercise price of $2.00 per share. Each share of the Series B Preferred Stock
has a liquidation preference of $50.00 and is junior to the outstanding Series A
Preferred Stock. The Series B Preferred Stock and the Common Stock Purchase
Warrants are not convertible or exercisable until such time as the Company''
shareholders approve an amendment to its Articles of Incorporation increasing
the amount of the authorized Common Stock by at least 2,500,000 shares.
Both of the Series A and Series B Preferred Stocks contain
restrictions on the payables of dividends on the Company's Common Stock.
<PAGE>
PROFUTURES LOAN. On November 14,1 1996, in order to fund its
activities, the Company obtained a loan facility of $1,400,000 from ProFutures
Bridge Capital, L.P. (the "ProFutures Loan"). The ProFutures Loan bears
interest at a rate of 12% until April 1, 1997, at which time the rate increases
to 15%. If any debt remains outstanding after November 30, 1997, the interest
rate will increase to 18% per annum. The ProFutures Loan is secured by liens
and security interest encumbering all of the assets of the Company, including
know-how, patents and proprietary rights pertaining to its PET technology. In
addition, the Company granted ProFutures Bridge Capital, L.P. a ten year warrant
to purchase 250,000 shares of its common stock at an exercise price of $2.40 per
share. Since the ProFutures Loan was not repaid on or before April 1, 1997, the
Company was required to grant ProFutures additional warrants for the purchase of
and additional 100,000 shares of its common stock. The exercise price of such
additional warrants was determined based upon the average closing price for the
Company's common stock for the ten (10) trading days prior to April 1, 1997,
which was $1.91. The Company anticipates that the ProFutures Loan will be
repaid with a portion of the proceeds of the funding of the acquisition of the
PET assets and technology of GE./(1)/
HEALTH CARE REFORMS
The Company believes that expansion of the use of PET will ultimately
depend upon favorable coverage and reimbursement policies by Medicare, Medicaid
and third-party medical insurance companies. The Company believes that these
reimbursement policies will likely be influenced by the current movement towards
health care reform./(1)/
FUTURE TRENDS
The Company believes that as the market for PET systems matures,
competition among the manufacturers of PET systems will force the price of PET
systems down./(1)/ The Company intends to continue its program of value
engineering, which is designed to reduce the Company's cost of manufacturing a
PET system./(1)/ The Company believes that the average cost of producing a PET
system will decrease as volume increases./(1)/ The Company also believes that
through a value-engineering program and other cost reductions, it will be able
to maintain its current gross margins on sales of its systems./(1)/ However,
there can be no assurance that the Company can maintain its gross margin in the
face of increasing price pressures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, Earnings Per Share, which establishes specific computation,
--------------------------------
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock in order to simplify the
computation of earnings per share and make it compatible with the standards of
other countries and with that of the International Standards committee. SFAS
128 is effective for financial statements of both interim and annual periods
ending after December 15, 1997.
In March 1996, the FASB issued SFAS No. 129, Disclosure of Information
---------------------------------------
about Capital Structure, which applies to all entities and is effective for
- -----------------------
financial statement periods ending after December 15, 1997.
The Company is currently evaluating it alternatives under SFAS No. 128
and SFAS No. 129; however, their impact on operating results when initially
adopted is expected to be immaterial.
- -------------------------------
/(1)/ This statement is a forward-looking statement that involves risks and
uncertainties. Accordingly, no assurance can be given that the actual
events and results will not be materially different from the anticipated
events and results described in the forward-looking statement. See "Item
1. Description of Business--Risks Associated with Business Activities" and
"--Third-Party Reimbursement" for a description of various factors that
could affect the ability of the Company to achieve the anticipated results
described in the forward-looking statement.
Item 7. FINANCIAL STATEMENTS
The required Financial Statements and the notes thereto are contained
in a separate section of this report beginning with the page following the
signature page.
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements exist between the Company and Coopers & Lybrand
L.L.P. on any matters 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
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company
consist of the following individuals:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------
<S> <C> <C>
Gary B. Wood, Ph.D. 47 Director, Chairman of the Board and
Interim Chief Executive Officer
K. Lance Gould, M.D. 57 Director
John H. Laragh, M.D. 69 Director
Ronald B. Schilling,
Ph.D. 56 Director
William S. Kiser,
M.D. 68 Director
Werner J. Haas, Ph.D. 59 Director, President and Chief
Executive Officer (resigned
effective February 1, 1997)
Howard R. Baker 45 Executive Vice President
David O. Rodrigue 49 Chief Financial Officer and Secretary
Richard Hitchens 53 Vice President Engineering (resigned
as an officer of the Company effective
October 1, 1996)
</TABLE>
Gary B. Wood, Ph.D., has served as director and Chairman of the Board
of Directors of the Company since April 1990. From October 1, 1994 to December
31, 1995, he also acted as President and Chief Executive Officer of the Company
pending the selection of a new President and Chief Executive Officer. Upon the
resignation of Dr. Werner J. Haas in February 1997, Dr. Wood again assumed the
duties of President and CEO pending the selection of a new President and CEO.
He is President of Concorde Financial Corporation, a private investment
management and consulting firm which he founded in 1981 and is the founder,
chairman and a principal shareholder of OmniMed Corporation, a venture capital
investment firm founded in 1986. Dr. Wood is also the founder and Chairman of
Uro-Tech Management Corporation (a wholly owned subsidiary of OmniMed) founded
in 1983. Both OmniMed and Uro-Tech specialize in investing in the biotechnology
and healthcare industries. Dr. Wood holds a BS and MS in Electrical Engineering
(with special emphasis in Biomedical Instrumentation), and an interdisciplinary
Doctorate of Philosophy from Texas Tech University. Certain of the entities
controlled by Dr. Wood are principal shareholders of the Company.
K. Lance Gould, M.D., one of the inventors of the Company's POSICAMJ
system, has served as a director and as Special Medical Consultant to the
Company since 1984. For more than the last five years, Dr. Gould has served
<PAGE>
as a Professor of Medicine at the University of Texas Medical School in Houston.
Dr. Gould holds a BA in Physics from Oberlin College and a M.D. from Western
Reserve Medical School.
John H. Laragh, M.D. has served as a director since December 1993.
Dr. Laragh has been Chief of the Division of Cardiology of the Department of
Medicine at the Cornell University Medical College since 1976, and Director of
the Cardiovascular Center at the New York Hospital Cornell Medical Center since
1975. Dr. Laragh holds a BA and a M.D. from Cornell University.
Ronald B. Schilling, Ph.D., has served as a director since March 1995.
Since 1992 he has served as President and Chief Executive Officer of Prime-X,
General Imaging, Inc., a sensor imaging technology company, and served as a
consultant to other medical technology companies. From 1987 to 1992, Dr.
Schilling was Senior Vice President and General Manager at Toshiba America
Medical Systems, Inc., a medical technology company. Dr. Schilling holds a
B.S.E.E. in electrical engineering from City College of New York, an M.S.E.E.
from Princeton University, and Ph.D. from the New York Polytechnic Institute.
William S. Kiser, M.D. has served as a Director of the Company since
December 1995. Dr. Kiser has served as Vice Chairman and Chief Medical Officer
of Primary Health Systems of Wayne, PA since September 1994. Prior to his
current position he was associated with the Cleveland Clinic Foundation where
his last position was Chairman, Board of Governors, Executive Vice President and
Chief Executive from 1977 to 1989.
Howard R. Baker has served the Company as Executive Vice President
since January 1996. Prior to that time, he was Vice President, Sales from
August 1992 and Regional Sales Manager from 1990 until August 1992. Mr. Baker
holds a BA degree from Queens College in New York.
David O. Rodrigue has served the Company as Chief Financial Officer
and Secretary since October 1993. From May to October 1993, he was an
independent financial consultant. From June 1992 to May 1993, he served as Vice
President and Chief Financial Officer of SRG Holdings, Inc., a privately held
distributor of industrial sealing products. From April 1991 to May 1992, Mr.
Rodrigue served as Vice President Finance and Administration of Oil Field Rental
Service Company, Inc., a subsidiary of Enterra Corporation, a publicly traded
company. Mr. Rodrigue holds a BS degree in Economics and an MBA degree from
Louisiana State University. He is also a Certified Public Accountant in the
State of Texas.
Item 10. EXECUTIVE COMPENSATION
The following tables set forth certain information with respect to
compensation paid by the Company during the years ended 1996, 1995 and 1994 and
certain information regarding stock options issued to certain of the individuals
who have acted during 1996 in the capacity of executive officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
---------------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Options/ All Other
Name and Principal Fiscal Salary Bonus Compensation Stock Award(s) SARs LTIP Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($) (x)
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary B. Wood Ph.D. 1996 13,750 19,800 98,000 (i) yen yen -
President and Chief 1995 165,000 28,333 86,083 (ii) - 53,636(v) yen -
Executive Officer (October 1994 55,000 105,333(iii) yen 10,500(iv) yen -
1, 1994 to December 31,
1995 and February 1, 1997
to present)
Werner J. Haas, Ph.D. 1996 204,800 16,600 (xi) 2,339
(Resigned as CEO effective 1995 N/A
February 1, 1997) 1994 N/A
Richard E. Hitchens 1996 115,500 8,500 $1,856
Vice President, Engineering 1995 111,150 18,950 13,500 (vi) yen 10,000 (iv) yen 2,149
(resigned as VP effective 1994 108,625 yen 31,500 (vi) yen 45,000 (v) yen 2,027
October 1, 1996)
Howard R. Baker 1996 153,500 10,700 yen 12,500 (iv) yen 2,375
Executive Vice President 1995 101,200 24,900 102,000(viii) 22,500 (ix) 1,980
1994 76,825 yen yen 1,625
David O. Rodrigue 1996 96,100 13,695 yen yen yen yen
Chief Financial Officer and 1995 92,625 10,000 yen yen 10,000 (iv) yen yen
Secretary 1994 88,500 5,000 yen yen 10,000 (iv) yen yen
</TABLE>
- -----------------
(i) Represents (a) $80,000 in consulting fees paid to Dr. Wood and (b)
$18,000 in directors fees.
(ii) Represents (a) $73,333 in consulting fees paid to Dr. Wood and (b)
$12,750 in directors fees.
(iii) Represents (a) $83,333 in consulting fees assigned to Dr. Wood and (b)
$22,000 in directors fees.
(iv) Represent options to acquire Common Stock awarded under the 1994
Incentive and Non-statutory Option Plan.
(v) Represents options to acquire 3,636 shares of Common Stock awarded under
the 1994 Plan in 1995 and 50,000 options to acquire common stock issued
connection with Mr. Wood's acting as interim CEO during 1995.
(vi) Represents $13,500 and $31,500 in 1995 and 1994, respectively in partial
payment of a one-time parity payment made by the Company to certain of
its officers and key employees.
(vii) Represents options to acquire 26,393 shares of Common Stock awarded under
the 1987 Plan and options to acquire 18,607 shares of Common Stock
awarded under the 1994 Incentive and Non-statutory Option Plan.
(viii) Represents $90,000 in commissions in 1995 and $12,000 in 1995 and
$35,000 in 1994, respectively in partial payment of a one time parity
payment made by the Company to certain of its officers and key employees.
(ix) Represents options to acquire 15,081 shares of Common Stock awarded under
the 1987 Plan and options to acquire 7,419 shares of Common Stock awarded
under the 1994 Incentive and Non-statutory Option Plan.
(x) These amounts represent the Company's matching contributions under its
401(k) plan. See "Item 10. Executive CompensationC401(k) Plan.
(xi) These amounts represent the Company's reimbursement of certain of Dr.
Haas' living expenses during the period he served as President and CEO of
the Company.
<PAGE>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Individual Grants
-----------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- ----------------------------------- ----------- ----------------------------- ----------- --------------
Name Options/ Percent of Total Options/SARs Exercise or Expiration Date
SARs Granted to Employees in Fiscal Base Price
Granted (#) Year ($/Sh)
<S> <C> <C> <C> <C>
Gary B. Wood, Ph.D. 0 N/A N/A N/A
Richard E. Hitchens 0 N/A N/A N/A
Howard R. Baker 0 N/A N/A N/A
David O. Rodrigue 0 N/A N/A N/A
</TABLE>
Aggregated Option/SAR
Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
-------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) ______________(d) ______________ (e)
Number of Unexercised Value of Unexercised In-the-Money
Options/SARs at Fiscal Year- Options/SARs at Fiscal Year-End
End
- -------------------------- ------- ---------- ------------------ -------------- ------------ --------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized (#) (#) ($) ($)
Exercise (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Gary B. Wood, Ph.D. 0 0 71,440 0 0/(i)/ 0/(i)/
Richard E. Hitchens 0 0 55,000 0 0/(i)/ 0/(i)/
Howard R. Baker 0 0 35,000 0 0/(i)/ 0/(i)/
David O. Rodrigue 0 0 20,000 0 0/(i)/ 0/(i)/
</TABLE>
___________________
(i) Based upon the exercise price in effect on December 31, 1996 and the
closing price of $1.625 for the Company's Common Stock on December 31,
1996, as reported on the NASDAQ National Market System.
COMPENSATION OF DIRECTORS
The Company reimburses its directors for their reasonable expenses
associated with attending meetings of the Board of Directors. The Company also
compensates each director who is not a full time employee of the Company in the
amount of $12,500 per year. The Chairman of the Board also receives an
additional annual retainer of $2,000 per year and each director who is not a
full time employee of the Company and who is a member of a committee of the
board receives an additional $500 per committee meeting attended, not to exceed
$2,500 during any calendar year. Any director who is not a full time employee
of the Company and who is serving as the chairman of a committee of the board
receives an additional $2,000 per year for such services. For purposes of the
above described director compensation, Dr. Wood, while serving as interim
President and Chief Executive Officer, has not been considered a full time
employee of the Company. Due to the financial liquidity problems the Company is
experiencing, no cash payments were made to any of the directors during 1996
for their services as directors of the Company. As of October 15, 1997
approximately $125,000 was owed to Directors.
<PAGE>
Pursuant to the 1994 Incentive and Non-statutory Option Plan (the
"1994 Plan"), each non-employee director is automatically granted a one time
stock option to purchase 10,500 shares of Common Stock at the time such person
is elected to the Board of Directors. In addition, pursuant to the 1994 Plan,
each non-employee director upon his reelection at the Annual Shareholder Meeting
will automatically receive an option to purchase a number of shares of Common
Stock equal to the quotient derived by dividing $15,000 by the fair market value
of Common Stock on the date of the grant. All options so granted under the 1994
Plan to non-employee directors are automatically granted as of the first
business day following the date such person is elected or reelected, as
applicable, as a director and have an exercise price no less than the fair
market value of Common Stock determined as of the business day preceding the
date of the grant.
One-third of the options granted to non-employee directors under the
1994 Plan are exercisable as of the date of the grant, an additional one-third
of such options becomes exercisable upon the first anniversary of such date with
the remaining one-third becoming exercisable upon the second anniversary of such
date. If a non-employee director ceases to be a director for any reason other
than as a result of death, disability or not being reelected as a director (in
the case where such person is willing to serve as a director but such person has
not been renominated for election or, if renominated, the shareholders failed to
reelect such person as a director) then that director's option will become void
to the extent it is not then exercisable and the portion, if any, of the option
that is exercisable at such time will remain exercisable for the lesser of the
remaining term of the option or one year. In addition, if any non-employee
director ceases to be a director as a result of death, disability or not being
reelected as a director (in the case where such person is willing to serve as a
director but such person has not been renominated for election or, if
renominated, the shareholders failed to reelect such person as a director) then
the option held by that director to the extent not then exercisable, will become
fully vested and exercisable and the options will remain exercisable for a
period of the lesser of the remainder of the term of the option or one year.
EMPLOYMENT AGREEMENT
On January 1, 1996, the Company entered into an employment agreement
with Werner J. Haas, Ph.D. pursuant to which Dr. Haas agreed to serve as
President and Chief Executive Officer of the Company for a term of two years.
The employment agreement provided for the payment of an annual salary of
$200,000, bonuses in an amount to be determined at the discretion of the Board
of Directors of the Company, and participation in any employee benefit plan
adopted by the Company for its employees.
The employment agreement provided that the Company could terminate the
employment agreement for cause (as defined in the agreement), in which case no
compensation or benefits would be paid under the employment agreement
thereafter. If the employment agreement was terminated for reasons other than
for cause, Dr. Haas would be entitled to (i) receive the full amount of his
salary and all benefits for the remainder of the term and (ii) the immediate
vesting of any unvested Company stock options he holds.
On February 18, 1997, Dr. Haas informed the Board of Directors of the
Company that he considered his contract to have been terminated by the Company
without cause as a result of the Company's failure to pay the February 15, 1997
payroll to any of its management level employees and, more specifically, to him.
Dr. Haas has demanded that the Company pay him all past due salary as well as
the nine months severance pay specified in his employment agreement if his
contract is determined to have been terminated without cause. Additionally, Dr.
Haas resigned his position as a member of the Company's Board of Directors. The
Company has indicated to Dr. Haas that it believes no amounts are due him under
his employment agreement. As of August 15, 1997 The Company is unable to
predict the outcome of the disagreement between Dr. Haas and the Company.
Dr. Wood assumed the duties of President and Chief Executive Officer
upon the resignation of Dr. Haas.
1987 STOCK OPTION PLAN
The Company has in effect an Amended and Restated 1987 Stock Option
Plan (the "1987 Plan") which was adopted by the Board of Directors and
shareholders of the Company effective June 1, 1987, and which was amended
<PAGE>
on March 13, 1991, and further amended in March 1992, September 1992 and
November 1993. The plan currently provides for options up to a total of 188,522
shares of Common Stock. The 1987 Plan provides that incentive options which
satisfy the requirements of Section 422 of the Internal Revenue Code may be
granted to executives and other key employees (including officers who may be
members of the Board of Directors) of the Company and that nonqualified options
may be granted to such directors, executive employees and other key employees
(including officers who may be members of the Board of Directors of the
Company), each as the Board of Directors shall determine from time to time. If
any options granted under the 1987 Plan expire or terminate without being
exercised, the shares covered thereby are added back to the shares reserved for
issuance under the 1987 Plan.
The Compensation Committee of the Board of Directors administers the
1987 Plan. The 1987 Plan provides that options may be granted at no less than
75% of the fair market value of the Common Stock on the date of the grant (or
110% of the fair market value for options granted to participants who own 10% or
more of the Company's outstanding Common Stock).
The Compensation Committee determines, at its discretion, the persons
to be granted options, option prices, date of grant and vesting periods,
although no option may extend for longer than ten years (five years for
incentive stock options granted to 10% or greater stockholders). Payment of the
exercise price is made by check or in such other form as may be acceptable to
the Board of Directors including, under certain circumstances, the delivery of
Common Stock. No options may be granted under the 1987 Plan after June 1, 1997.
Options are not transferable by the optionee, other than by will or
the applicable laws of descent and distribution. In the event of termination of
employment, the option expires on the earlier of its stated expiration or three
months (six months in the case of the optionee's death) after termination of
employment.
In the event of a recapitalization, reorganization or other change in
the Company's capital structure or a merger or consolidation or the sale or
transfer of all or part of its assets, the 1987 Plan provides for adjustment of
the shares of Common Stock covered by the 1987 Plan and outstanding options
granted pursuant to the 1987 Plan.
The 1987 Plan may be amended at any time by the Board of Directors,
provided that amendments increasing the number of shares issuable under the 1987
Plan and amendments changing the eligibility of participants require the
approval of the holders of at least a majority of the outstanding Common Stock.
In November 1993 the Board of Directors canceled all of the
outstanding options under the 1987 Plan. Concurrently with such cancellation,
the Company entered into agreements with the holders of the canceled options
providing for the reissuance of such options at an exercise price of $6.1875 per
share. In April 1994, the Company issued options replacing the previously
canceled options and issued additional options for a total of 185,229 shares of
Common Stock at an exercise price of $6.1875 per share. All of such options
vested on January 1, 1995.
On February 23, 1995, the exercise price of all outstanding options
under the 1987 Plan was amended to reflect a new exercise price of $2.625 per
share, which was the market price of the Common Stock on such date. In
addition, on such date an additional 62,500 options were awarded under the 1987
Plan at the $2.625 exercise price leaving only 12,431 options available for
future awards under the 1987 Plan.
1994 INCENTIVE AND NON-STATUTORY OPTION PLAN
On June 3, 1994, the shareholders of the Company approved the 1994
Incentive and Non-statutory Option Plan (the A1994 Plan@). The 1994 Plan is an
arrangement under which certain individuals may be granted options for incentive
stock options and Non-statutory stock options as described below. Subject to
adjustment as set forth in the 1994 Plan, the aggregate number of shares of the
Company's Common Stock that may be the subject of awards is 610,833. Of the
610,833 shares of Common Stock available under the 1994 Plan 160,000 have been
reserved for issuance to non-employee directors. As of December 31, 1996,
345,481 options had been granted to employees and 113,724 options had been to
non-employee directors.
<PAGE>
The Compensation Committee of the Board of Directors administers the
1994 Plan. The Compensation Committee consists of two or more directors who,
except for automatic grants for non-employee directors under Section 7 of the
1994 Plan, are not eligible and have not, within a one year prior to the
appointment of the Compensation Committee, received equity securities of the
Company under the 1994 Plan or any other incentive plan of the Company. The
Compensation Committee currently consists of Dr. Schilling and Dr. Gould.
Under the 1994 Plan, the Compensation Committee has wide discretion
and flexibility, enabling the Compensation Committee to administer the 1994 Plan
in the manner that it determines is in the best interest of the Company. The
Compensation Committee has the authority to designate recipients of options
under the 1994 Plan, to interpret and construe the provisions of the 1994 Plan
and any options granted thereunder, and to do all things necessary or
appropriate to administer the 1994 Plan in accordance with its terms.
401(k) PLAN
The Company has a 401(k) Retirement Plan and Trust (the "401(k) Plan")
which became effective as of January 1, 1989. Employees of the Company who have
completed one-quarter year of service and have attained age 21 are eligible to
participate in the 401(k) Plan. Subject to certain statutory limitations, a
participant may elect to have his or her compensation reduced by up to 20% and
have the Company contribute such amounts to the 401(k) Plan on his or her behalf
("Deferral Contributions"). The Company makes contributions in an amount equal
to 25% of the participant's Deferral Contributions up to 6% of his or her
compensation ("Employer Contributions"). Additionally, the Company may make such
additional contributions as it shall determine each year in its discretion. All
Deferral and Employer Contributions made on behalf of a participant are
allocated to his or her individual accounts and such participant is permitted to
direct the investment of such accounts.
A participant is fully vested in the current value of that portion of
his or her accounts attributable to Deferral Contributions. A participant's
interest in that portion of his or her accounts attributable to Employer
Contributions is generally fully vested after five years of employment.
Distributions under the 401(k) Plan are made upon termination of employment,
retirement, disability and death. In addition, participants may make withdrawals
in the event of severe hardship or after the participant attains age 592.
The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, so that contributions made under the 401(k) Plan,
and income earned on contributions, are not taxable to participants until
withdrawal from the 401(k) Plan.
The Company's contributions to the 401(k) Plan for the accounts of
Messrs. Haas, Hitchens, Baker and Rodrigue were $2,339, $1,856, $2,375 and $0,
in 1996, and $0, $2,148, $1,980, and $0 in 1995, respectively. The Company's
contributions to the 401(k) Plan on behalf of all employees in the years ended
December 31, 1996 and 1995 was $36,306 and $34,585 respectively. Dr. Wood is
not eligible to participate in the Company's 401(k) Plan.
POLICY WITH RESPECT TO $1 MILLION DEDUCTION LIMIT
It is the Company's policy, where practical, to avail itself of all
proper deductions under the Internal Revenue Code. Amendments to the Internal
Revenue in 1993, limit, in certain circumstances, the deductibility of
compensation in excess of $1 million paid to each of the five highest paid
executives in one year. The total compensation of the executive officers did
not exceed this deduction limitation in Fiscal 1996, and is unlikely to exceed
it in 1997.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 15,
1997, regarding the ownership of Common Stock of: (i) each person who is known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock; (ii) each director and executive officer of
the Company; and (iv) all executive officers and directors of the Company as a
group. Included in the "Number of Shares of Common Stock" are shares
attributable to options or warrants that are exercisable as of, or will be
exercisable within 60 days after, December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME OF BENEFICIAL SHARES OUTSTANDING SHARES OF OUTSTANDING SHARES OF OUTSTANDING
OWNER/(1)/ OF COMMON COMMON SERIES A SERIES A SERIES B SERIES B
--------- STOCK STOCK PREFERRED PREFERRED PREFERRED PREFERRED
----- ----- STOCK STOCK STOCK STOCK
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Josephthal, Lyon & Ross/(2)/ 833,700 19.7% 392,000 14.6%
200 Park Avenue
New York, NY 10002
Auer & Co./(3)/ 600,000 14.2% 400,000 14.8%
c/o ASB Capital Mgt.
1101 Pennsylvania Avenue NW,
Suite 300
Washington, DC 20004
Clarion Capital Corp./(4)/ 350,000 8.8% 233,333 8.7%
Ohio Savings Plaza, Suite
1801
1801 East Ninth Street
Cleveland, OH 44114
DHB Capital 100,000 100%
OmniMed Corporation/(5)/ 1,314,132 29.1% 433,333 16.1%
5430 LBJ Freeway
Dallas, Texas 75240
Martin E. Zimmerman/(6)/ 341,549 9.3% - -
303 East Wacker Drive
Chicago, Illinois 60601
K. Lance Gould, M.D./(7)/ 103,830 2.8% - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
Gary B. Wood, Ph.D./(8)/ 1,419,464 28.3% - -
Concorde Financial
Corporation
5430 LBJ Freeway
Dallas, Texas 75240
F. David Rollo M.D., Ph.D., 11,709 * - -
FACNP/(10)/
Positron Corporation
16350 Park Ten Place
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Houston, Texas 77084
John H. Laragh, M.D./(11)/ 31,709 * - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
Ronald B. Schilling, 8,709 * - -
Ph.D./(12)/
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
William S. Kiser, M.D./(13)/ 5,500 * - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
Werner J. Haas, Ph.D./(14)/ 66,666 1.8% - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
Richard E. Hitchens/(15)/ 41,228 1.1% - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
Howard R. Baker/(16)/ 25,039 * - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
David O. Rodrigue/(17)/ 10,000 * - -
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084
All Directors and Executive 1,655,449 31.0% 433,333 16.9%
Officers
as a Group (10 persons)
</TABLE>
- -------------
* Less than 1%
(1) Except as otherwise indicated, each stockholder has sole investment and
sole voting power with respect to the shares of Common Stock or Series A
Preferred Stock shown.
(2) Josephthal Lyon & Ross Incorporated ("Josephthal"), was the underwriter of
the Company's December 1993 initial public offering. Includes 588,000
shares issuable upon the conversion of 392,000 shares of Series A 8%
Cumulative Convertible Redeemable Preferred Stock and 196,000 warrants to
purchase Common Stock acquired upon the cancellation of the Underwriter's
Warrants.
<PAGE>
(3) Includes 600,000 shares issuable upon the conversion of 400,000 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock and 200,000
warrants to purchase Common Stock.
(4) Includes 350,000 shares issuable upon the conversion of 233,333 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock and 166,667
warrants to purchase Common Stock.
(5) Includes 440,067 shares of Common Stock owned by Uro-Tech, Ltd., a Texas
limited partnership, the general partner of which is Uro-Tech Management
Corporation, a wholly owned subsidiary of OmniMed Corporation ("OmniMed").
Includes 156,565 shares of Common Stock issuable upon the exercise of
Series E Warrants held by Uro-Tech, Ltd. Includes 650,000 shares issuable
upon the conversion of 433,329 shares of Series A 8% Cumulative Convertible
Redeemable Preferred Stock and 216,671 warrants to purchase Common Stock
acquired upon the conversion $650,000 in principal amount of the Uro-Tech
Loan. Also includes 67,500 shares issuable upon the conversion of warrants
acquired in connection with the Uro-Tech Loan. Dr. Wood is Chairman of the
Board of Directors, and beneficially owns 63.7% of the outstanding voting
securities, of OmniMed. All shares beneficially owned by OmniMed have been
included in the total number of shares beneficially owned by Dr. Wood.
(6) Includes 214,708 shares of Common Stock held by LINC Income Partners II,
L.P., a limited partnership, the general partner of which is LINC
Scientific Management, Inc., a subsidiary of the LINC Group, Inc. ("LINC
Group"). Also includes 126,841 shares held by LINC Venture Lease Partners
II, L.P., a limited partnership, the general partner of which is LINC
Venture Lease Management Corporation, a subsidiary of the LINC Group.
Martin E. Zimmerman beneficially owns in excess of 51% of the outstanding
voting securities of the LINC Group.
(7) Includes 9,936 shares of Common Stock issuable upon exercise of a warrant
held by Dr. Gould, and 11,709 shares of Common Stock issuable upon exercise
of an option awarded to Dr. Gould under the 1994 Plan and 250,000 shares of
Common Stock issuable upon exercise of an option awarded to Dr. Gould for
services rendered by Dr. Gould in connection with the sale of a POSICAM/TM/
system.
(8) Includes 39,819 shares of Common Stock held by Concorde 1985 Venture
Investors ("Concorde"). Concorde is a Texas general partnership, the
managing general partner of which is Concorde Capital Corporation, a Texas
corporation of which Dr. Wood beneficially owns 90% of the issued and
outstanding stock. Also includes 7,304 shares of Common Stock issuable
upon exercise of a warrant held by Dr. Wood and 50,000 shares of Common
Stock issuable upon exercise of an option granted to Mr. Wood on March 24,
1995. Includes 7,000 shares of Common Stock issuable upon the exercise of
an option granted to Dr. Wood in June 1994 and 1,209 shares of Common Stock
issuable up to exercise of an option granted to Dr. Wood in June 1995.
Includes 1,314,132 shares of Common Stock beneficially owned by OmniMed.
Dr. Wood owns 63.7% of the outstanding voting securities of OmniMed.
(9) Includes 3,908 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Guezuraga and 26,109 shares of Common Stock issuable upon
exercise of an option awarded to Mr. Guezuraga under the 1994 Plan.
(10) Includes 11,709 shares of Common Stock issuable upon exercise of options
awarded to Dr. Rollo under the 1994 Plan.
(11) Includes 11,709 shares of Common Stock issuable upon exercise of options
awarded to Dr. Laragh under the 1994 Plan and 20,000 shares of Common Stock
issuable upon exercise of an option awarded to Dr. Laragh on March 24,
1995.
(12) Includes 8,709 shares of Common Stock issuable upon exercise of options
award to Mr. Schilling under the 1994 Plan.
<PAGE>
(13) Includes 3,500 shares of Common Stock issuable upon exercise of options
awarded to Dr. Kiser under the 1994 Plan.
(14) Includes 66,666 shares of Common Stock issuable upon exercise of options
awarded to Dr. Haas under the 1994 Plan.
(15) Includes 26,393 shares of Common Stock issuable upon exercise of options
awarded to Mr. Hitchens under the 87 Plan and 14,302 shares of Common Stock
issuable upon exercise of options awarded to Mr. Hitchens under the 1994
Plan.
(16) Includes 15,081 shares of Common Stock issuable upon exercise of options
awarded to Mr. Baker under the 87 Plan and 9,958 shares of Common Stock
issuable upon exercise of options awarded to Mr. Baker under the 1994 Plan.
(17) Includes 20,000 shares of Common Stock issuable upon exercise of options
awarded to Mr. Rodrigue under the 1994 Plan.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ROYALTY PAYMENTS
In 1984, the Company licensed for use in the United States the know-
how and patent rights relating to positron imaging (the "Licensed Technology")
possessed by the Clayton Foundation, K. Lance Gould (a current director of the
Company) and Nizar A. Mullani (a former director of the Company). The Company
is currently obligated to pay royalties of 3% of the gross revenues from sales,
uses, leases, licensing or rentals of the Licensed Technologies, 1% to each of
the Clayton Foundation, K. Lance Gould and Nizar A. Mullani. The Company has
not made any royalty payments since 1993. As of August 15, 1997 approximately $
225,000 was owned to the aforementioned individuals for past due royalties.
CONVERSION OF DEBT
On January 15, 1993, the Company and Dr. K. Lance Gould entered into
an agreement (the AGould Agreement) pursuant to which (I) Dr. Gould exchanged a
9% Convertible Promissory Note in the principal amount of $281,250 issued to him
on December 22, 1988 for a new 9% Convertible Promissory Note in the principal
amount of $281,250, (2) in exchange for past due royalties in the amount of
$36,951 and accrued interest in the amount of $101,643, the Company issued Dr.
Gould a second 9% Convertible Promissory Note in the principal amount of
$138,594 with an original maturity date of October 31, 1993 (which was
subsequently extended to December 15, 1993), (3) the Company issued to Dr. Gould
a warrant expiring July 25, 1996, to purchase 9,936 shares of Common Stock at an
exercise price of $25.59 per share, and (4) the Company agreed to pay Dr.
Gould=s legal fees in the amount of $15,125 in connection with the negotiation
of the Gould Agreement. Pursuant to the conversion features of these 9%
Convertible Promissory Notes, upon the closing of the Company's initial public
offering, the 9% Convertible Promissory Notes converted into 50,889 shares of
Common Stock.
In November 1993, the Company entered into an agreement with Dr. Gould
under which the Company became obligated to extend loans to Dr. Gould in order
to provide him with funds to satisfy his personal income tax liability arising
out of the conversion of his 9% Convertible Promissory Notes into Common Stock.
Such agreement was entered into by the Company in consideration of certain
concessions made by Dr. Gould concerning the conversion terms under his 9%
Convertible Promissory Notes. Pursuant to the agreement, the loans, would be on
substantially the following terms if made: (i) limited to a principal amount not
to exceed $175,000, (ii) interest payable at the rate of six percent per annum,
(iii) an initial term of three years, (iv) limited recourse against the
borrower, and (v) collateralized by Common Stock owned by the borrower. In
accordance with such agreement, on April 15, 1994, the
<PAGE>
Company extended a $165,817 loan to Dr. Gould. The current outstanding balance
is $165,817. In April 1997 the Company and Dr. Gould agreed to a one-year
extension of his loan.
CONSULTANTS
The Company and Dr. Wood have entered into a Consulting Agreement
whereby Dr. Wood provides certain managerial, financial, marketing and
organizational services to the Company. The Company incurred fees of
approximately $80,000 and $73,000 in 1996 and 1995, respectively. In January
1995, the Company and Dr. Wood agreed to extend the term of such consulting
agreement to December 31, 1998.
The Company entered into a Consulting Agreement with Dr. Gould in
August 1984. On January 15, 1993, pursuant to the Agreement, the Company and
Dr. Gould entered into a new consulting agreement (the "Gould Consulting
Agreement") effective upon the closing of the Company's initial public offering.
The Gould Consulting Agreement provided for a term of ten years (which term was
reduced by agreement in May 1993 to three years) and provides for the Company to
pay him consulting fees at an annual rate of $80,000, payable monthly, subject
to adjustment based upon changes in the consumer price index. In addition the
Company reimburses Dr. Gould for approved expenses in connection with rendered
services. In the event that the Company fails to make payments to Dr. Gould
when due under the Gould Consulting Agreement or fails to make any required
royalty payments to Dr. Gould, the Company may be required, at Dr. Gould's
option to convey to Dr. Gould a 0.5% royalty on sales of POSICAMJ systems.
URO-TECH LOAN
During the last quarter of 1995 and the first quarter of 1996, in
order to fund its activities the Company borrowed a total of $1,313,000 from
Uro-Tech, Ltd. , (the AUroTech Loan). The Uro-Tech Loan, as amended, bears
interest at 13.8% per annum and matures on December 31, 1997, and is secured by
liens and security interests encumbering most of the Company's assets including
the Company's know-how, patents and proprietary rights pertaining to its PET
technology. In connection with the loan from Uro-Tech, the Company granted
Uro-Tech warrants to purchase 67,500 shares of Common Stock, at an exercise
price of $2.00 per share exercisable through February 7, 2001.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant (incorporated herein
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
3.2 By-laws of the Registrant, as amended (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
4.1 Specimen Stock Certificate (incorporated herein by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
4.2 Form of Redeemable Warrant (included as part of Exhibit 10.71)
4.3 Statement of Designation Establishing Series A 8% Cumulative
Convertible Redeemable Preferred Stock of Positron Corporation,
dated February 28, 1996 (incorporated herein by reference to
Exhibit 4.3 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
4.4 Warrant Agreement dated as of February 29, 1996, between Positron
Corporation and Continental Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 4.4 of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
4.5 Specimen Redeemable Warrant Certificate to Purchase Shares of
Common Stock (incorporated herein by reference to Exhibit 4.5 of
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
4.6 Stock Purchase Warrant dated as of February 7, 1996 issued by
Positron Corporation to Boston Financial & Equity Corporation
(incorporated herein by reference to Exhibit 4.6 of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
<PAGE>
4.7* Statement of Designation Establishing Series B 8% Cumulative
Convertible Redeemable Preferred Stock of Positron Corporation,
dated July 9, 1996.
4.8* Form of Warrant Agreement dated as of July 10, 1996, between
Positron Corporation and Brooks Industries Profit Sharing Plan.
10.1 Lease Agreement dated as of July 1, 1991, by and between Lincoln
National Pension Insurance Company and Positron Corporation
(incorporated herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.2 Agreement dated as of March 1, 1993, by and between Positron
Corporation and Oxford Instruments (UK) Limited (incorporated
herein by reference to Exhibit 10.2 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.3 International Distribution Agreement dated as of November 1, 1992,
by and between Positron Corporation and Batec International , Inc.
(incorporated herein by reference to Exhibit 10.3 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.4+ 1994 Incentive and Nonstatutory Option Plan.
10.5+ Amended and Restated 1987 Stock Option Plan (incorporated herein
by reference to Exhibit 10.5 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.6+ Retirement Plan and Trust (incorporated herein by reference to
Exhibit 10.6 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.7 Amended and Restated License Agreement dated as of June 30, 1987,
by and among The Clayton Foundation for Research, Positron
Corporation, K. Lance Gould, M.D., and Nizar A. Mullani
(incorporated herein by reference to Exhibit 10.7 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.8 Clarification Agreement to Exhibit 10.7 (incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.9 Royalty Assignment dated as of December 22, 1988, by and between
K. Lance Gould and Positron Corporation (incorporated herein by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.10 Royalty Assignment dated as of December 22, 1988, by and between
Nizar A. Mullani and Positron Corporation (incorporated herein by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.11 Royalty Assignment dated as of December 22, 1988, by and between
The Clayton Foundation and Positron Corporation (incorporated
herein by reference to Exhibit 10.12 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.12+ Stock Purchase Warrant dated October 31, 1993, issued to Gary B.
Wood (incorporated herein by reference to Exhibit 10.15 to the
Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.13 Amendment No. 1 to Exhibit 10.22 (incorporated herein by reference
to Exhibit 10.23 to the Company's Registration Statement on Form
SB-2 (File No. 33-68722)).
10.14+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and K. Lance Gould, M.D. (incorporated herein
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.15 Stock Purchase Warrant dated February 25, 1993, issued to K. Lance
Gould (incorporated herein by reference to Exhibit 10.26 to the
Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.16+ Consulting Agreement dated February 23, 1995, effective December
15, 1994, by and between Positron Corporation and F. David Rollo,
M.D. Ph.D., FACNP.
10.17+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.31 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.18+ Consulting Agreement dated as of November 12, 1993, by and between
Positron Corporation and OmniMed Corporation (incorporated herein
by reference to Exhibit 10.35 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.19 Contract No. 1318 dated as of December 30, 1991, by and between
Positron Corporation and The University of Texas Health Science
Center at Houston (incorporated herein by reference to Exhibit
10.39 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.20+ Letter Agreement dated July 30, 1993 between Positron Corporation
and Howard Baker (incorporated herein by reference to Exhibit
10.52 to the Company's Registration Statement on
<PAGE>
Form SB-2 (File No. 33-68722)).
10.21 Technology Transfer Agreement dated as of September 17, 1990, by
and between Positron Corporation and Clayton Foundation for
Research (incorporated herein by reference to Exhibit 10.54 to the
Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.22 Stock Purchase Warrant dated as of October 31, 1993 issued to
Gerald Hillman (incorporated herein by reference to Exhibit 10.56
to the Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.23 Stock Purchase Warrant dated as of October 31, 1993 issued to The
Dover Group (incorporated herein by reference to Exhibit 10.57 to
the Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.24 Stock Purchase Warrant dated as of October 31, 1993 issued to John
Wilson (incorporated herein by reference to Exhibit 10.63 to the
Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.25+ Stock Purchase Warrant dated as of October 31, 1993 issued to
Robert Guezuraga (incorporated herein by reference to Exhibit
10.64 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.26 Stock Purchase Warrant dated as of October 31, 1993 issued to
Richard Ronchetti (incorporated herein by reference to Exhibit
10.65 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.27 Form of Amended and Restated Registration Rights Agreement dated
as of November 3, 1993, by and among Positron and the other
signatories thereto (1993 Private Placement) (incorporated herein
by reference to Exhibit 10.73 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.28 Registration Rights Agreement dated as of July 31, 1993, by and
among Positron and the other signatories thereto (other than the
1993 Private Placement) (incorporated herein by reference to
Exhibit 10.74 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.29 Software Licenses dated as of March 1, 1993, by and between
Positron Corporation and Oxford Instruments (UK) Limited
(incorporated herein by reference to Exhibit 10.81 to the
Company's Registration Statement on Form SB-2 (File No. 33-
68722)).
10.30 Distribution Agreement dated as of June 1, 1993, by and between
Positron Corporation and Elscint, Ltd. (incorporated herein by
reference to Exhibit 10.82 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.31+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Richard E. Hitchens (incorporated herein
by reference to Exhibit 10.83 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.32+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Howard R. Baker (incorporated herein by
reference to Exhibit 10.84 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.33 Amended and Restated Warrant Agreement dated as of April 14, 1994,
by and between Positron Corporation and Continental Stock Transfer
and Trust Company (including form of Warrant Certificate).
10.34 First Amendment to Amended and Restated Registration Rights
Agreement, dated as of November 19, 1993, by and among Positron
Corporation and the other signatories thereto (incorporated herein
by reference to Exhibit 10.91 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.35 Agreement made and entered into as of October 31, 1993, by and
between Positron Corporation and Nizar A. Mullani (incorporated
herein by reference to Exhibit 10.97 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.36 Agreement made and entered into as of October 31, 1993, by and
between Positron Corporation and K. Lance Gould (incorporated
herein by reference to Exhibit 10.98 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.37 Agreement made and entered into as of November 15, 1993, by and
between Positron Corporation and Nizar A. Mullani (incorporated
herein by reference to Exhibit 10.100 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.38 Agreement made and entered into as of November 15, 1993, by and
between Positron Corporation and K. Lance Gould (incorporated
herein by reference to Exhibit 10.101 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
<PAGE>
10.39 First Amendment made and entered as of January 25, 1994, by and
between Emory University d/b/a Crawford Long Hospital and Positron
Corporation (incorporated herein by reference to Exhibit 10.102 of
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1993).
10.40+ Employment Agreement dated January 1, 1996 by and between Werner
J. Haas, Ph.D. and Positron Corporation (incorporated herein by
reference to Exhibit 10.40 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.41 Loan and Security Agreement made as of November 14, 1995, between
Positron Corporation and Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.41 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.42 First Modification and Extension Agreement made as of January 3,
1996, by Positron Corporation and Uro-Tech, Ltd. (incorporated
herein by reference to Exhibit 10.42 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.43 Second Modification and Extension Agreement made as of February
26, 1996 by Positron Corporation and Uro-Tech, Ltd. (incorporated
herein by reference to Exhibit 10.43 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.44 Uro-Tech Loan Conversion Agreement dated as of November 14, 1995,
between Positron Corporation and Uro-Tech, Ltd. (incorporated
herein by reference to Exhibit 10.44 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.45 Promissory Note dated September 14, 1995, in the principal amount
of $1,500,000 payable to Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.45 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.46 Promissory Note dated September 14, 1995, in the principal amount
of $1,000,000 payable to Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.46 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.47 Revolving Finance agreement with Boston Financial & Equity
Corporation (incorporated herein by reference to Exhibit 10.47 of
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
10.48 Security Agreement Boston Financial & Equity Corporation
(incorporated herein by reference to Exhibit 10.48 of the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1995).
10.49 Supplement to Security Agreement Security Interest in Inventory
(incorporated herein by reference to Exhibit 10.49 of the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1995).
10.50 Inter-Creditor Agreement (incorporated herein by reference to
Exhibit 10.50 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995).
10.51* Loan Agreement between Positron Corporation and ProFutures Bridge
Capital Fund, L.P. dated November 1, 1996.
10.52* Promissory Note dated November 14, 1996, in the principal amount
of $1,400,000 payable to ProFutures Bridge Capital Fund, L.P.
10.53* InterCreditor Agreement dated November 14, 1996 among Uro-Tech,
Ltd., Boston Financial & Equity Corporation and ProFutures Bridge
Capital Fund, L.P.
10.54* Amendment to BF&E loan
10.55* Amendment to Uro-Tech loan
10.56* Acquisition Agreement between General Electric Company and
Positron Corporation dated July 15, 1996.
10.57* Purchase and Distribution Agreement between General Electric
Company and Positron Corporation.
10.58** Sales and Marketing Agreement With Beijing Chang Feng Medical.
11.1* Statement Regarding Computation of Per Share Loss.
23.0 Consent of Coopers & Lybrand, L.L.P.
- -------------
* Previously filed
** Filed herewith
+ Management contract or compensatory plan or arrangement identified
pursuant to Item 13(a).
<PAGE>
(b) Form 8-K Reports:
No current report on Form 8-K was filed by the Company during the fourth
quarter of 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
Date: December 30, 1997 By: /s/ GARY B. WOOD, PH.D.
------------------------------------
Gary B. Wood, Ph.D.
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
/s/ GARY B. WOOD, PH.D. December 30, 1997
- ---------------------------------------
Gary B. Wood, Ph.D.
Chairman of the Board, President and
Chief Executive Officer; Director
(Principal Executive Officer)
/s/ DAVID O. RODRIGUE December 30, 1997
- ---------------------------------------
David O. Rodrigue
Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer)
/s/ K. LANCE GOULD, M.D. December 30, 1997
- ----------------------------------------
K. Lance Gould, M.D.
Director
/s/ F. DAVID ROLLO, M.D., PH.D. December 30, 1997
- ----------------------------------------
David Rollo, M.D., Ph.D.
Director
/s/ JOHN H. LARAGH, M.D. December 30, 1997
- ----------------------------------------
John H. Laragh, M.D.
Director
/s/ RONALD B. SCHILLING, PH.D. December 30, 1997
- ----------------------------------------
Ronald B. Schilling, Ph.D.
Director
/s/ WILLIAM S. KISER, M.D. December 30, 1997
- ----------------------------------------
William S. Kiser, M.D.
Director
42
<PAGE>
EXHIBIT 10.58
INTERNATIONAL MARKETING AND SALES REPRESENTATION AGREEMENT
----------------------------------------------------------
THIS INTERNATIONAL MARKETING AND SALES REPRESENTATION AGREEMENT (this
"Agreement") is made and entered into as of the 3rd day of January, 1997 by and
between POSITRON CORPORATION, a corporation organized and existing under the
laws of the state of Texas, United States of America ("U.S.A."), having its
principal office at 16350 Park Ten Place, Houston, Texas, U.S.A. (hereinafter
referred to as "Positron"), and BEIJING AERO-SPACE CHANG FENG MEDICAL DEVICES
CO., LTD., a company organized and existing under the laws of the People's
Republic of China ("PRC"), having its principal office at No. 3, 820-1 Jingouhe
Road, Haidan, Beijing, PRC (hereinafter referred to as "Chang Feng").
RECITALS
--------
A. Positron is engaged in the business of designing, manufacturing,
marketing and selling, under the trademark "POSICAM", medical diagnostic
scanners utilizing proprietary Positron Emissions Tomography ("PET") imaging
technology.
B. Positron desires to sell its POSICAM systems to hospitals and other
medical facilities in the PRC.
C. Chang Feng possesses certain knowledge and experience relevant to
the marketing and sale of medical equipment, including medical imaging machines,
in the PRC.
D. Positron desires to appoint Chang Feng as an independent marketing
and sales representative for Positron's POSICAM systems in the PRC pursuant to
the terms and conditions set forth in this Agreement, and Chang Feng desires to
accept such appointment.
E. Positron and Chang Feng contemplate that upon identifying and
testing the market for Positron's POSICAM machines in the PRC under this
Agreement, Positron and Chang Feng will commence good faith negotiations
directed towards the establishment of further business arrangements between
Positron and Chang Feng, including a distributor relationship and/or the
formation of an equity joint venture for the manufacture of PET machines in the
PRC.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
.1.APPOINTMENT OF SALES REPRESENTATIVE
- --------------------------------------
1.1 Appointment. Subject to the terms and conditions of this
-----------
Agreement, Positron hereby appoints Chang Feng on a non-exclusive basis to
solicit orders on Positron's behalf in the Territory with respect to the
products identified and described in
<PAGE>
Schedule 1 to this Agreement (the "Products"), and Chang Feng hereby accepts
- ----------
such appointment. In connection with such appointment, Chang Feng is authorized
to (i) market and sell the Products to hospitals and other medical facilities
located in the Territory, (ii) receive purchase orders for Products from
customers and transmit such purchase orders to Positron for acceptance, and
(iii) install the Products at the customer's facility and provide product
support services.
1.2 Territory. Chang Feng shall act as a marketing and sales
---------
representative for the Products in the PRC, excluding the Hong Kong and Macau
regions and Taiwan Province (the "Territory"). The Territory may be expanded
from time to time as agreed by Positron and Chang Feng. Chang Feng shall not
engage in any marketing, sales or other activities with respect to the Products
outside the Territory without the prior written consent of Positron.
1.3 Term of Appointment. Unless terminated earlier pursuant to Article 11
-------------------
hereof, this Agreement and Chang Feng's appointment hereunder shall commence as
of the date hereof and shall continue for a period of twelve (12) months
thereafter (the "Initial Term"). Upon the expiration of the Initial Term, this
Agreement and Chang Feng's appointment hereunder may be renewed or extended upon
the mutual agreement of the parties.
1.4 Authority to Perform Agreement. Change Feng hereby represents and
------------------------------
warrants to Positron that it possesses (i) a valid current business license
issued by the Beijing State Administration for Industry and Commerce, a copy of
which shall be provided to Positron contemporaneously with the execution of this
Agreement, (ii) all requisite import/export authority from PRC governmental
authorities necessary for the performance by Chang Feng of its obligations under
this Agreement, and (iii) all requisite authority from PRC governmental
authorities to deal in foreign exchange and process payments for the Products.
1.5 Covenant Not to Compete. During the term of this Agreement, Chang Feng
-----------------------
shall not design or manufacture, directly or indirectly, in the Territory any
products which are substantially similar to the Products.
2. MINIMUM ORDER COMMITMENT
------------------------
Chang Feng agrees that it shall use its best commercial efforts to solicit
and obtain no less than three (3) purchase orders for Products (including at
least two (2) orders for POSICAM PET cameras) during the Initial Term of this
Agreement.
3. PRODUCTS AND PRICING
--------------------
3.1 Change in Product Line. From time to time during the term of this
----------------------
Agreement, Positron may, upon prior written notice to Chang Feng and subject to
Chang Feng's reasonable approval, amend Schedule 1 to this Agreement to add new
----------
2
<PAGE>
product(s) which Positron determines to offer for sale in the Territory.
Notwithstanding the foregoing, Positron may amend Schedule 1 to include the
----------
products currently listed on Schedule 2 to this Agreement at any time upon prior
----------
written notice to Chang Feng. Positron may discontinue the sale of any of the
Products upon ninety (90) days prior written notice to Chang Feng of such
discontinuance, in which event Schedule 1 shall be amended accordingly.
----------
3.2 Orders for Products. Chang Feng shall transmit orders for Products
-------------------
by submitting to Positron a written purchase order duly executed by the
customer, in the form attached to this Agreement as Exhibit A, identifying the
---------
customer, the Products ordered, the installation location, requested delivery
date(s), any export/import information required to enable Positron to fill the
order, and any other relevant information. Chang Feng acknowledges that it is
familiar with Positron's standard payment terms as set forth in Exhibit A and
---------
agrees to inform each customer in the Territory of such payment terms prior to
submitting the purchase order to Positron. All orders for Products are subject
to acceptance in writing by Positron at its office in Houston, Texas, U.S.A. All
orders for Products hereunder are subject to Positron's standard terms and
conditions of sale as in effect at the time of acceptance of the purchase order
for such Products. In the event of any inconsistency between such standard terms
and conditions and the terms of this Agreement, the terms of this Agreement
shall govern.
3.3 Pricing. Positron's export prices for the Products as of the date
-------
of this Agreement are listed on Schedule 1. If a purchase order is accepted by
----------
Positron, the prices for Products covered by such purchase order shall be based
on Positron's then current export price quotation, F.O.B. Houston, as in effect
on the date of Positron's acceptance. Accordingly, the customer shall be
responsible for the payment of any and all taxes (including VAT), duties,
tariffs, costs, fees and charges of any nature imposed in the Territory in
connection with the purchase or import of the Products. Positron may from time
to time increase or decrease its prices for the Products, such change to be
effective immediately upon Chang Feng's receipt of written notice thereof, which
may be in the form of an amendment to Schedule 1.
----------
3.4 Shipment of Products. It shall be the responsibility of Positron
--------------------
to render invoices for, and to effect the collection of payment with respect to,
all shipments of the Products. Unless the customer requests otherwise, all
Products ordered through Chang Feng shall be packed for shipment and storage in
accordance with Positron's standard commercial practices. It is Chang Feng's
obligation to notify Positron of any special packaging requirements (which shall
be at the customer's expense). Positron shall deliver Products into the
possession of a common carrier designated by Positron or Chang Feng at
Positron's manufacturing facility no later than the date specified for such
delivery on the relevant purchase order for such Products and no earlier than
the date three (3) days prior to such specified date. Chang Feng acknowledges
that risk of loss and damage to a Product shall pass to the customer upon the
delivery of such Products to the common carrier designated by the customer.
-3-
<PAGE>
3.5 Governmental Approvals. The shipment of orders to the customer shall be
----------------------
subject to the right and ability of Positron or Chang Feng to obtain any
required licenses and permits, under all applicable statutes, rules and
regulations of the United States government and its agencies and
instrumentalities. Chang Feng hereby agrees to assist Positron in obtaining any
such required licenses or permits by supplying such documentation or information
as may be requested by Positron. Chang Feng shall be responsible for obtaining
all governmental approvals and licenses necessary to import the Products into
the Territory, including without limitation, any necessary permits from the
Ministry of Health.
4. COMPENSATION OF SALES REPRESENTATIVE; OPTION TO PURCHASE
--------------------------------------------------------
AND RESELL PRODUCTS
-------------------
4.1 Sales Commission. As consideration for the services to be performed by
----------------
Chang Feng under this Agreement, Positron agrees to pay to Chang Feng, in United
States Dollars or such other currency as may be required by applicable
regulations, a commission equal to twenty-five percent (25%) of the F.O.B.
price for orders for Products which are solicited by Chang Feng and received and
accepted by Positron from customers in the Territory during the term of this
Agreement. No commissions will be paid on the value of technical, installation
or product support services. Any U.S.A or PRC taxes attributable to commissions
paid to Chang Feng shall be the sole responsibility of Chang Feng.
4.2 Payment Schedule. All amounts payable to Positron shall be not of
----------------
sales representative's commission.
4.3 Expenses of Chang Feng. Chang Feng shall be responsible for the Payment
----------------------
of all of its costs and expenses incurred in connection with the performance of
its obligations under this Agreement. Except as otherwise expressly agreed by
Positron in writing, Positron shall not be obligated to reimburse Chang Feng
for any of such costs or expenses.
4.4 Option to Purchase and Resell Products. In addition to Chang Feng's
--------------------------------------
rights and obligations as a sales representative as described in this Agreement,
Chang Feng also shall have an option to purchase Products directly from Positron
for resale to Chang Feng's customers in the PRC. In the event Chang Feng elects
to purchase Products directly from Positron, Chang Feng shall submit a purchase
order to Positron in its own name for the Products to be purchased. Chang Feng
shall be entitled to purchase any Product for resale in the Territory at the
transfer price therefor, which shall be equal to twenty-five percent (25%) less
than the then current F.O.B. price for such Product. Chang Feng shall be
responsible for the payment of any and all taxes (including VAT), duties,
tariffs, and other fees and costs imposed with respect to Products purchased
directly by Chang Feng. If Chang Feng elects to purchase Products directly from
Positron as provided in this Section 4.4, Chang Feng shall not
-4-
<PAGE>
be entitled to any sales commission under Section 4.1 with respect to the
Products so purchased and resold.
5 RESPONSIBILITIES OF CHANG FENG
------------------------------
5.1 Marketing. At all times during the term of this Agreement, Chang Feng
---------
shall use its best efforts to market, promote, sell and expand the sale of the
Products within and throughout the Territory, including through participation at
industry trade shows. In connection therewith, Chang Feng shall make such
inquiries of potential customers and conduct such market tests and surveys
regarding the Products as are objectively reasonable under the circumstances. At
Positron's request, Chang Feng shall provide to Positron from time to time
during the term of this Agreement, data (in reasonable detail) concerning the
overall market for Products in the Territory, specific market segments, market
potential and other relevant marketing information to assist Positron in
planning its sales efforts in the Territory.
5.2 Business Location. At all times during the term of this Agreement, Chang
------------------
Feng shall maintain a continuous and adequate permanent business location,
equipped with reliable telephone and facsimile capabilities.
5.3 Sales and Technical Personnel. Chang Feng shall train and maintain a
-----------------------------
qualified and sufficient sales force to solicit and process orders for the sale
of the Products throughout the Territory. Such sales force shall maintain active
contacts with potential purchasers of the Products in the Territory. Chang Feng
also shall train and maintain sufficient technical personnel to install the
Products at the customer's facility and to provide other product support
services. In connection therewith, Positron shall provide the services to Chang
Feng specified in Section 6.2.
5.4 Product Knowledge. Chang Feng shall cause its personnel to become
-----------------
familiar with the proper uses, applications and limits of the Products and with
all instructions published by Positron with respect thereto. If Chang Feng is
unable to determine whether the Products will adequately meet a particular
customer's needs, Chang Feng will contact Positron prior to soliciting an order
from such customer.
5.5 Compliance with Laws. At all times during the term of this Agreement,
--------------------
Chang Feng shall comply, and shall cause its personnel to comply, with all
applicable laws, rules and regulations of the United States of America and the
People's Republic of China, as the same may exist from time to time. Chang Feng
shall maintain all applicable licenses, permits, authorizations and
certifications necessary in order for Chang Feng to perform its duties and
obligations under this Agreement. Without limiting the generality of the
foregoing, Chang Feng shall not solicit any orders for Products or take any
other action under this Agreement if such act would constitute a violation of
any applicable laws, rules or regulations of the United States of America or the
People's Republic of China, including, without limitation, the U.S. Foreign
Corrupt Practices Act.
-5-
<PAGE>
5.6 Reporting. Chang Feng shall provide Positron with written reports on a
---------
quarterly basis, or on such other basis as reasonably may be requested by
Positron, regarding the ongoing performance of Chang Feng's obligations under
this Agreement. Chang Feng also shall keep Positron fully informed of all
Chinese governmental activities, plans and regulations that could affect the
sale of Products in the Territory.
6 RESPONSIBILITIES OF POSITRON
----------------------------
6.1 Product Information. Positron shall provide Chang Feng, at no charge,
-------------------
with copies of such printed marketing and technical materials and manuals
relating to the Products as Positron may consider necessary or appropriate to
assist with the promotion, marketing, sale, installation and maintenance of the
Products in the PRC. Any such materials shall be provided by Positron in both
English and Chinese language versions.
6.2 Technical Assistance Positron shall arrange for its personnel to visit
--------------------
Chang Feng's place of business, at Positron's expense and at mutually convenient
times, to provide assistance and training in connection with the marketing,
promotions, sale, installation and maintenance of the Products. Alternatively,
or in addition, Positron may require Chang Feng's personnel, who have a working
knowledge of the English language and who possess appropriate technical training
and knowledge, to visit Positron's facilities in the U.S.A. to observe and
become familiar with the methods used by Positron in the marketing, promotion,
sale, installation and maintenance of the Products. Positron shall pay all
direct expenses associated with such training programs. Chang Feng shall be
responsible for travel and lodging costs and any other indirect expenses related
to attendance of its personnel at such training programs.
6.3 New Developments. Positron shall keep Chang Feng advised of new
----------------
prospects.,sales plans and objectives, and new product developments with respect
to Positron's sale of Products and other equipment to hospitals and other
medical facilities in the Territory.
7 JOINT MARKETING EFFORTS
-----------------------
7.1 Participation in Upcoming PRC Trade Shows. Positron and Chang
-----------------------------------------
Feng agree to attend and participate in, on a cooperative basis, the
____________ to be held in ______________ , PRC on May ____ , 1997 (the "May
1997 Show"), for the purpose of conducting a joint promotional and marketing
effort for the Products. Positron and Chang Feng will each cause ______ members
of their sales force to attend the May 1997 Show, and Positron will prepare and
supply sufficient quantities of printed marketing and technical materials
regarding the Products for distribution at such events, which materials shall be
in the Chinese language. Chang Feng agrees to procure, on a timely basis,
appropriate written invitations from the organizer of the May 1997 Show to
permit Positron's representatives to participate in
-6-
<PAGE>
the May 1997 Show and to obtain Chinese entry visas in connection with such
participation.
7.2 IMPORT OF POSICAM SYSTEM FOR MARCH 1997 SHOW. Positron, agrees to discuss
--------------------------------------------
with Chang Feng the benefits of importing a demonstration model PET machine (or
components thereof) into the PRC, on a temporary basis, to be used for display
and marketing purposes at the May 1997 show. If the parties determine that
import of a PET machine for such purpose is desirable, Chang Feng agrees to
procure, on a timely basis, a written invitation or other appropriate documents
from the organizer of the May 1997 show to permit the import of the POSICAM
system into PRC. Chang Feng also shall arrange for all necessary PRC import and
customs clearances for such equipment.
8. LIMITED PRODUCT WARRANTY
------------------------
As to the Products, Positron's only warranty is to the customer, and such
warranty as set forth in Exhibit B attached hereto and made a part hereof.
---------
Under no circumstances shall the warranties set forth in Exhibit B apply to any
---------
Product which has been customized, modified, damaged or misused. Chang Feng has
no authority to modify or extend such warranty. THE PROVISIONS OF THE
WARRANTIES SET FORTH IN EXHIBIT B ARE IN LIEU OF ANY AND ALL OTHER
---------
REPRESENTATIONS, WARRANTIES OR CONDITIONS, EXPRESSED OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF
DEALING OR USAGE OF TRADE. IN NO EVENT WILL POSITRON BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR RESULTING FROM
THE SALE, USE OR INSTALLATION OF THE PRODUCTS. [Chang Feng acknowledges and
agrees that Positron shall not have any liability whatsoever to Chang Feng with
respect to any claims, actions, suits or proceedings brought against Chang Feng
by customers relating to defects in the Products.]
9. PATENTS AND TRADEMARKS
----------------------
Nothing herein shall give Chang Feng any right or interest in any patent,
trademark, copyright or other intellectual property or proprietary technology of
Positron, and Chang Feng shall not engineer, reverse engineer, manufacture,
replicate or duplicate any hardware or software comprising the Products or
assist any other person or entity in doing so. Chang Feng shall not at any time
do or permit any act to be done which may in any way impair the rights of
Positron in its patents or trademarks. Chang Feng has no authority to register
or use Positron's trademarks without Positron's prior written consent, and then
only at Positron's direction. Chang Feng shall not use any stationery or other
supplies bearing Positron's name or trademark, except as specifically authorized
by Positron in writing.
-7-
<PAGE>
10. CONFIDENTIALITY
---------------
Chang Feng agrees that Positron has a proprietary interest in all information
concerning Positron and its business, products, designs, methods, manuals,
policies, practices, prices, suppliers, customers, agents, and sales
representatives which is not in the public domain (hereinafter referred to as
"Proprietary Information"), whether in connection with this Agreement or
otherwise and whether in written or oral form. Proprietary Information shall
include but shall not be limited to: trade secrets, inventions, ideas,
discoveries and know-how not publicly known or annotated by a legend, stamp or
other written identification as confidential or proprietary information. Chang
Feng shall disclose the Proprietary Information provided by Positron only to
those of its agents and employees to whom it is necessary in order to properly
carry out their duties as limited by the terms and conditions hereof. Both
during and after the term of this Agreement, all disclosures by Chang Feng to
its agents and employees regarding the Proprietary Information shall be held in
strict confidence by such agents and employees. During and after the term of
this Agreement, Chang Feng, its agents and employees shall not use the
Proprietary Information for any purpose other than in connection with
discharging its duties in the Territory pursuant to this Agreement. Chang Feng
shall, at its expense, return to Positron all Proprietary Information provided
by Positron as soon as practicable after the termination or expiration of this
Agreement. During the term of this Agreement and thereafter, all such
Proprietary Information shall remain the exclusive property of Positron. This
Article 9 also shall apply to any consultants or subcontractors that Chang Feng
may engage in connection with its obligations under this Agreement.
11. TERMINATION OF AGREEMENT
------------------------
11.1 Mutual Consent. This Agreement may be terminated at any time prior to
--------------
the expiration of the term specified in Section 1.3 hereof by the mutual written
consent of Positron and Chang Feng.
11.2 Material Defaults. Either party may terminate this Agreement in the
-----------------
event of a material breach or default by the other party of any representation,
warranty, covenant or agreement to be performed by such other party, which
breach or default is not cured within thirty (30) days after written notice
thereof.
11.3 Bankruptcy. Either party may terminate this Agreement by written
----------
notice to the other party effective immediately if such other party makes an
assignment for the benefit of creditors, files a petition in bankruptcy or
otherwise becomes insolvent or unable to pay its debts as they become due.
11.4 Effect Of Termination. In the event that an order from any customer in
---------------------
the Territory for the purchase of Products is accepted by Positron prior to the
termination or expiration of this Agreement, the obligations assumed by both
parties hereunder in respect of any such order shall continue in force until
fully performed. In addition, if an order for Products is accepted by Positron
within three (3) months
-8-
<PAGE>
following expiration or termination of this Agreement, and payment in full for
such Products is received by Positron during such 3-month period, Chang Feng's
rights with respect to the payment of a commission in connection with such order
shall be fully protected provided that such order is obtained, in the opinion of
Positron, as a result of services performed by Chang Feng hereunder.
12. INDEMNIFICATION
---------------
Chang Feng hereby agrees to indemnify, defend and hold harmless Positron,
its affiliates and all officers, directors, employees and agents thereof from
all liabilities, claims, damages, losses, costs, expenses, demands, suits and
actions (including without limitation attorneys' fees, expenses and settlement
costs) (collectively, "Damages") arising out of, or in connection with any
breach by Chang Feng, its principals, employees and agents, of any of the terms
and conditions of this Agreement, including, but not limited to any Damages
arising from any representations or warranties of Chang Feng not authorized
hereunder. Cheng Feng expressly acknowledges that as an independent contractor,
it is free to hire its employees, and accordingly, Chang Feng agrees to
indemnify Positron against any claim by Chang Feng's employees against Positron.
13. FORCE MAJEURE
-------------
Neither Positron nor Chang Feng shall be liable for damages or be subject
to termination of this Agreement by the other party for any delay or default in
performing any obligation hereunder if such delay or default is due to any cause
beyond the reasonable control and without fault or negligence of that party;
provided that, in order to excuse its delay or default hereunder, a party shall
- --------
notify the other of the occurrence or the cause, specifying the nature and
particulars thereof and the expected duration thereof and provided, further,
-------- -------
that within fifteen (15) calendar days after the termination of such occurrence
or cause, such party shall give notice to the other party specifying the date of
termination thereof. All obligations of both parties shall resume full force and
effect upon the termination of such occurrence or cause (including without
limitation any payments which became due and payable hereunder prior to the
termination of such occurrence or cause). For the purposes of this Article 13, a
"cause beyond the reasonable control" of a party shall include, without
limitation, any act of God, act of any government or other authority or
statutory undertaking, embargo, fire, explosion, accident, power failure, flood,
strike, riot or war.
14. MISCELLANEOUS PROVISION
-----------------------
14.1 RELATIONSHIP OF THE PARTIES. Chang Feng shall be deemed to be an
---------------------------
independent contractor. The relationship between Positron and Chang Feng under
this Agreement shall not be construed to be that of employer and employee, nor
to constitute a partnership, joint venture or agency of any kind. CHang Feng
shall have no authority to assume or create any obligation in Positron's name or
on Positron's
-9-
<PAGE>
behalf with respect to the Products or otherwise, or to bind Positron in any
respect whatsoever.
14.2 ASSIGNMENT. The rights granted to Chang Feng under this Agreement
----------
are personal in character and may not be assigned, delegated or transferred, in
whole or in part, by Chang Feng without the prior written consent to Positron.
Any attempted assignment absent such prior written consent shall be null and
void. Chang Feng shall notify Positron in writing in advance of any proposed
change in the ownership, control or management of Chang Feng. [For purposes of
this Section 14.2, any change in the ownership or control of twenty percent
(20%) or more of the proprietary interest of Chang Feng shall be deemed to be an
assignment.]
14.3 GOVERNING LAW. The construction, interpretation and performance of
-------------
this Agreement shall be governed by and construed and enforced in accordance
with the laws of the state of Texas, U.S.A., excluding conflicts of law rules.
The United Nations Convention on Contracts for the International Sale of Goods
shall not be applicable to the Agreement.
14.4 SETTLEMENT OF DISPUTES. Any dispute or claim arising out of or
----------------------
relating to this Agreement, or the execution, breach, termination or validity
thereof, shall be settled through good faith consultations between the parties.
In the event no settlement can be reached through consultation within thirty
(30) days after a written request by one party to the other party to engage in
such consultations, either party may submit the dispute to the London Court of
International Arbitration for arbitration in accordance with the UNCITRAL
Arbitration Rules in force at the time of the arbitration proceeding. The place
of arbitration shall be London, England and the arbitration proceedings shall be
conducted in English. Any arbitration shall be final and binding on the parties.
The losing party shall be responsible for the payment of the reasonable costs
and expenses incurred by the other party as determined by the arbitration
tribunal. Neither party shall be entitled to obtain an award of punitive
damages in any arbitration proceedings conducted under this Agreement. During
any arbitration proceedings, this Agreement shall be performed continuously by
both parties. In addition to the remedies provided in this Section 14.4 and
elsewhere in this Agreement, Chang Feng expressly acknowledges that Positron
shall have the right to seek injunctive and other relief from an appropriate PRC
court in oder to enforce its rights under Section 9 and Section 10 of this
Agreement and to prevent the unauthorized use or disclosure of Positron's
patents, trademarks, copyrights or other Proprietary information.
14.5 ENTIRE AGREEMENT: AMENDMENTS. This Agreement, including the
----------------------------
schedules and exhibits attached hereto, sets forth the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
supersedes any prior agreements or understandings between the parties, whether
oral, written or implied. This Agreement may be amended or modified only by a
written instrument duly executed by an authorized representative of each party.
-10-
<PAGE>
14.6 NOTICES. All notices given under this Agreement shall be in writing
-------
and shall be addressed to the parties at their respective addresses set forth
below:
If to Positron:
Positron Corporation
16350 Park Ten Place
Houston, Texas 77084, U.S.A.
Attention: Howard R. Baker
Telephone No.: 713-492-7100
Telecopy No.: 713-492-2961
If to Chang Feng:
Beijing Aero-Space Chang Feng Medical Devices Co., Ltd..
No. 3, 820-1, Jingouhe Road
Haidan, Beijing, 100039 PRC
Attention: _______________
Telephone No.: 86-10-68762611
Telecopy No.: 86-10-68385099
Either party may change its address or its telephone or telecopy number for
purposes of this Agreement by giving the other party written notice of its new
address or telephone or telecopy number. Any such notice if given or made by
certified or registered international air mail letter shall be deemed to have
been received on the earlier of the date actually received and the date ten (10)
calendar days after the same was posted (and in proving such it shall be
sufficient to prove that the envelope containing the same was properly addressed
and posted as aforesaid), and if given or made by telecopy transmission such
notice shall be deemed to have been received at the time of dispatch, unless
such date of deemed receipt is not a business day, in which case the date of
deemed receipt shall be the next such succeeding business day.
14.7 SEVERABILITY. If any provision of this Agreement is declared invalid
------------
or unenforceable by a court having competent jurisdiction, it is mutually
agreed that this Agreement shall endure except for the part declared invalid
or unenforceable by order of such court. The parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
14.8 WAIVER. The waiver by either party of any right hereunder or the
------
failure to enforce at any time any of the provisions of this Agreement, or any
rights with respect thereto, shall not be deemed to be a waiver of any other
rights hereunder or any breach or failure of performance of the other party.
14.9 VALIDITY. Positron represents and warrants that this Agreement is
--------
lawful and may be performed in accordance with its terms under all laws in force
in the U.S.A.
-11-
<PAGE>
at the time of execution of this Agreement. Cheng Feng warrants that this
Agreement is lawful and may be performed in accordance with its terms under all
laws in force in the PRC at the time of execution of this Agreement. Each party
covenants and warrants to the other party that it will advise the other party of
any changes in the applicable laws and regulations of the country or countries
as to which it is making a warranty in this Section 14.9 of which the party
making such warranty becomes aware if such changes might or will impair the
validity or lawful performance of all or any part of this Agreement.
14.10 LANGUAGE. This Agreement has been entered into in both the English
--------
and Chinese languages. Both language versions shall be equally effective and
enforceable. In case of a dispute, the English language version of this
Agreement shall prevail.
14.11 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
POSITRON CORPORATION
By: /s/ HOWARD R. BAKER
----------------------------
Name: Howard R. Baker
------------------------
Title: Executive Vice President
------------------------
BEIJING AERO-SPACE CHANG FENG
MEDICAL DEVICES CO., LTD.
By: /s/ ZHOU ZHFENG
--------------------------
Name: Zhou Zhfeng
------------------------
Title: General Manager
------------------------
-13-
<PAGE>
SCHEDULE 1
----------
PRODUCTS
DESCRIPTION PRICE (IN USD)
- ----------- --------------
Positron POSICAM HZ Whole Body PET Camera $1,510,000.00
Positron POSICAM HZL/R Whole Body PET Camera $1,820,000.00
<PAGE>
SCHEDULE 2
----------
POTENTIAL PRODUCTS
New Positron Whole Body PET Camera
New Positron 18 Mev Cyclotron
The foregoing products are based on technology to be acquired by Positron
from GE and may be added to Schedule 1 by Positron, at its option, upon prior
----------
written notice to Change Feng following the successful consummation of
Positron's acquisition of the PET division of GE Medical Systems.
<PAGE>
EXHIBIT A
---------
PURCHASE ORDER
--------------
<PAGE>
Quotation Number Page 1 of 4 pages
================================================================================
PURCHASE ORDER/QUOTATION
================================================================================
Customer:
SAMPLE
Positron Corporation is pleased to submit the following quotation, consisting of
16 pages, and offers to sell the products described herein at the prices and
- --
terms stated, subject to your acceptance of the terms and conditions on the face
and reverse hereof and the agreement between Positron Corporation and
______________________________________________________________________________.
This quotation is valid for thirty days from ___________.
- --------------------------------------------------------------------------------
CATALOG NO. DESCRIPTION PRICE
- --------------------------------------------------------------------------------
712-100030 POSICAM HZL-R SYSTEM
--------------------
POSICAM Low Profile Gantry and Patient Couch
--------------------------------------------
- 53.4 cm patient opening diameter
- 1.0 RPS wobble speed
- Laser positioning reference guides, top and both sides
- Digital display for patient axial position
- Computer controlled axial couch position
- Digital display for count rate
- Digital display for acquisition time
- Retractable septa
Detector Modules
----------------
- 32 ring staggered BGO crystals
- Crystal dimensions 8.5 x 9.8 x 30 mm
- 1024 PMTs with 4,096 crystals with a 4:1 ratio for optimum
sensitivity
- 61 slice generation with 2.6 mm separation
- 16.6 cm axial field of view
- 260K counts/sec/microCi/cc sensitivity typical
- 1.3m counts/sec/microCi/cc sensitivity with SEPTA retracted
- 5.8 mm cubic resolution
- 78 cm ring diameter
- overlapping (patented) design
- 5 msec temporal resolution
- 5 nsec FMHM coincidence resolving time with 12 ns window
<PAGE>
Quotation Number Page 2 of 4 pages
- --------------------------------------------------------------------------------
POSICAM Data Acquisition System (PDAS)
--------------------------------------
Hardware and Software
---------------------
- 68030 processor, 25 MHZ
- VME bus plus 2 dedicated VSB busses
- PDAS software
- Real time binning rate of 2 million events/sec
- 32 Mbyte memory (Optionally expandable)
- Static, real-time dynamic, real-time gated acquisition modes
Operator Console/View Station
-----------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MBytes memory
- 207 MByte hard disk
- Ethernet network interface
- Software applications package
POSICAM Image Workstation
-------------------------
- Viewing console table and chair
- 19" color monitor
- Sun SPARCstation
- 32 MByte memory
- 650 MByte hard disk storage minimum
- 4mm DAT Tape 2-8 GByte
- Keyboard with optical mouse and pad
- Ethernet network interface
- Dedicated applications accelerator for reconstruction
POSICAM ACS Software
--------------------
- Window interface
- Automated protocols
- Acquisition
- Reconstruction
- Corrections
- Image processing and display
- Utilities
Rotating Fan Beam
-----------------
- Transmission scan with real-time randoms and scatter rejection
- Reduced attenuation acquisition time
- Employs sealed 68Ge rod sources (customer supplied) from recommended
vendor
- Patient aperture cover
Communications Modem
--------------------
- 9600 baud V.32 bis, V.42 bis standards
System Documentation
---------------------
<PAGE>
Quotation Number Page 3 of 4 pages
________________________________________________________________________________
OPTIONS
712-011003 Codonics High Resolution Color Printer
--------------------------------------
- 300 dots per inch resolution
- Over 16.7 million high quality colors
- 256 levels each of cyan, magenta and yellow
- 8.5" x 11" print size
- Paper or color transparencies
- Ethernet connection
712-013000 Cardiac Quantitative Software
-----------------------------
- RAU (Rubidium Absolute Uptake)
712-013020 Neuro Quantitative Software
---------------------------
- FDG Uptake
712-013030 Oncology Quantitative Software
------------------------------
- FDG Uptake
712-005150 Head Holder - Adjustable
------------------------
- Foam inserts and mounting hardware included
- Adjustable elevation and tilt
712-005011 Deluxe PET Phantom
------------------
- 20 cm cylinder phantom
- Inserts include six solid spheres, cold rod
insert, and hardware for mounting user-
supplied capillary line sources
712-020003 Remote Physician's View Station
-------------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MByte memory
- 207 MByte hard disk
- Ethernet network interface
- Software applications package
<PAGE>
Quotation Number Page 4 of 4 pages
________________________________________________________________________________
Payment Terms:
- --------------
30% upon receipt of purchase order with Irrevocable Letter of Credit for
the remaining 70%
60% upon shipment
10% upon acceptance or first clinical use, whichever occurs first
Notes:
- ------
F.O.B. Positron Corporation
Any and all taxes and duties are excluded.
Installation and training are included in the price of the equipment.
Service will be provided during the twelve (12) month warranty by Positron.
________________________________________________________________________________
CUSTOMER ACCEPTANCE, AS QUOTED: POSITRON CORPORATION
THIS QUOTATION IS SUBJECT TO ALL PROVISIONS
AND CONDITIONS CONTAINED HEREIN. By___________________(Signature)
Customer Requested Delivery Date___________ Name: Howard R. Baker
By_______________________________(Signature) Title: Executive Vice President
Name & Title________________________________ Sales Representative
________________________________________________________________________________
PC\Quote Forms\sample.wpd
<PAGE>
EXHIBIT B
---------
PRODUCT WARRANTY
----------------
<PAGE>
Quotation Number SAMPLE
- --------------------------------------------------------------------------------
LICENSE AGREEMENT FOR OPERATION SOFTWARE
- --------------------------------------------------------------------------------
The License Agreement, by and between Positron Corporation ("Positron") and the
Customer, designated below, is entered into as part of a sale of certain
equipment ("Equipment") more fully defined on Positron Quotation Number SAMPLE
--------
dated ("Quotation"). This License Agreement does not
-------------------------
supersede or replace any terms and conditions of the Quotation, or any written
warranties or service contracts applicable to the Equipment, and Positron has
not authorized any employee or agent to grant any other or different licenses
or other rights with respect to any patent application, patent, copyright,
trademark, trade secret, proprietary right, or other property right of Positron
or any of Positron's suppliers.
Positron grants to Customer a nonexclusive and nontransferable license to use
the computer software package ("the Software") necessary for the operation of
the Equipment on the terms and conditions defined or referenced herein for so
long as Customer may own or use the Equipment. THIS LICENSE DOES NOT EXTEND TO
ANY MAINTENANCE OR SERVICE SOFTWARE SHIPPED TO OR LOCATED AT CUSTOMER'S PREMISES
WHICH IS INTENDED TO ASSIST POSITRON EMPLOYEES IN THE INSTALLATION, TESTING,
SERVICE, AND MAINTENANCE OF THE EQUIPMENT.
Customer agrees to pay Positron a one-time license fee. This fee is included in
the basic system price defined in the Quotation.
THE LICENSE HEREBY GRANTED TO THE CUSTOMER DOES NOT INCLUDE ANY RIGHT TO USE THE
SOFTWARE (FOR PURPOSES OTHER THAN OPERATION OF THE EQUIPMENT) OF TO COPY,
REPRODUCE, SELL, ASSIGN, TRANSFER, OR SUBLICENSE THE SOFTWARE FOR ANY PURPOSE,
IN WHOLE OR IN PART, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE PRESIDENT OR A
VICE PRESIDENT OF POSITRON. If such permission is obtained, Customer agrees to
apply Positron's copyright notice or other identifying legends to such copies
or reproductions.
The rights herein granted to Customer shall not affect the exclusive ownership
by Positron of the Software of any trademarks, copyrights, patents, trade
secrets, proprietary rights, or other property rights of Positron (or any of
Positron's suppliers) pertaining to the Software.
Customer agrees that only authorized officers, employees, and agents of Customer
will use the Software or have access to the same (of to any part thereof) and
that none of Customer's officers, employees, or agents will disclose any part or
all of the Software, or permit any part or all of the same to be used by any
person or entity other than those identified herein. Customer acknowledges that
certain of Positron's rights may be derived from license agreements with third
parties and as such Customer agrees to preserve the confidentiality of
information imparted to Positron under such third party license agreements.
If the Customer modifies the Software in any manner, all warranties associated
with the Software and the Equipment shall become null and void. If the Customer
or any of its officers, employees, or agents should devise any revisions,
enhancements, or improvements in the Software, Customer shall disclose such
improvements to Positron and Positron shall have a nonexclusive royalty-free
license to use such revisions, enhancements and improvements and the right to
grant sublicenses thereof.
<PAGE>
Quotation Number SAMPLE
The Software is licensed to Customer on the basis that (a) the Customer shall
maintain the configuration of the Equipment as it was originally designed and
manufactured and (b) the Equipment includes only those subsystems and components
certified by Positron. The Software may not perform as intended on systems
modified by personnel other than those under the direct supervision of Positron
or on systems which include subsystems or components not certified by Positron.
Positron does not assume any responsibility or liability with respect to
unauthorized modification or substitution of subsystems or components.
Customer shall cause each authorized user of the Software to abide by the terms
and conditions of this License Agreement as if each were a party hereto.
This license shall continue for as long as the Customer continues to use the
Equipment, except that Positron may terminate this license in the event of any
default by the Customer. The Customer agrees to return the Software and any
authorized copies thereof to Positron immediately upon expiration of or
termination of this license.
TO BE USED only on the following equipment and location:
Model # S.N. Located at
---------- ---------- ------------------------------
POSITRON CORPORATION Customer
Howard R. Baker
- --------------------------------- --------------------------------
Type or Print Type or Print
Title Executive Vice President Title
---------------------------- -----------------------------------
Date January 22, 1997 Date
----------------------------- ------------------------------------
<PAGE>
Quotation Number SAMPLE
TERMS AND CONDITIONS
EXCLUSIVE TERMS OF SALE
The equipment ("Equipment") and all other goods and services ("Goods and
Services") described in this quotation are offered by Positron Corporation
("Positron") only on the following terms and conditions. Any additional or
different terms or conditions stated in any purchase order, acknowledgement, or
other document issued by Customer in connection with this quotation will have no
effect and will not under any circumstances be binding on Positron unless
specifically accepted in writing by the President or any Vice President of
Positron.
Customer's signature on this quotation constitutes an agreement (1) that this
quotation states the exclusive terms and conditions of the contract sale of the
Equipment and other Goods and Services to Customer and (2) that any
contemporaneous or subsequent references by the parties to Customer's purchase
order, acknowledgement, or other document will be effective only for Customer's
administrative purposes (e.g., tracking Customer's purchases through purchase
order numbers assigned by Customer's purchasing or accounting personnel).
This quotation supersedes all previous Positron quotations with respect to the
equipment and other Goods and Services. There are no written or oral agreements,
statements, representations, or understandings which shall in any way relate to,
affect, or control the validity or enforcement of these terms and conditions,
except as expressly provided herein.
All sales are subject to Positron management review and approval of credit and
finance matters and any terms or descriptions included in this quotation by
Positron representatives. Positron accepts Customer's down payment(s) without
prejudice and subject to the foregoing rights and approvals. Down payment(s)
will be refunded without interest if approval is not granted.
PRICE AND PAYMENT TERMS
The price quoted includes installation of the Equipment at the location
specified on the face of this quotation. Unless otherwise indicated, the price
also includes transportation of the Equipment and other Goods and Services from
Positron to such location. The price does not include (1) any taxes or duties
(including without limitation all sales taxes on the equipment, other Goods and
Services, and freight) or (2) any handling, rigging, uncrating, storage, or
other charges incidental to shipment, delivery, or installation of the Equipment
or other Goods and Services.
If installation of the Equipment, for any reason beyond the control of Positron,
is not completed within one year of the date of this quotation, then for each
month (or fraction thereof) during which installation thereafter remains
incomplete the price of the Equipment and the other Goods and Services will be
increased by one percent (1%) until installation is completed. If installation
is not completed within 24 months of the date of this quotation, either (1) the
price of the Equipment and other Goods and Services will be adjusted to include
any increase in Positron's then-current list price(s) or (2) Positron may
terminate this agreement without any further liability. All payments due under
this paragraph are in addition to any other payments due under other terms and
conditions.
If this quotation covers Equipment and other Goods and Services for more than
one system, room, suite, or location, each such system, room, suite, or location
will be treated as if it were the subject of a separate sale. At the time of
each shipment hereunder, Positron will prepare an invoice showing the price of
the Equipment and other Goods and Services shipped or provided. The amount of
each such invoice will be paid by Customer according to the payment terms stated
herein. If separate prices are not stated in the quotation for each such system,
room, suite, or location, the amount to be shown in each of Positron's
invoice(s) with respect to such shipment(s) will be determined by multiplying
the total contract price by a fraction, the numerator of which will be the
higher of (1) Positron's list price(s) as of the date of this quotation and (2)
Positron's then-current list
<PAGE>
QUOTATION NUMBER SAMPLE
price(s) for the Equipment and other Goods and Services identified in the
invoice(s), and the denominator of which will be the total list price(s) for all
of the Equipment and other Goods and Services identified in this quotation.
PAYMENT TERMS FOR POSITRON EMISSION TOMOGRAPHY EQUIPMENT. A down payment of
thirty percent (30%) of the price of the Equipment is due upon Customer's
signing this quotation, along with the Irrevocable Letter of Credit for the
remaining 70%. When Customer's down payment is received Positron will assign a
priority for production and will schedule a shipping date. Upon delivery of the
Equipment, Customer will pay Positron an additional sixty percent (60%) of the
price(s) stated herein. The balance due for the Equipment will be paid by
Customer upon completion of installation of the Equipment. The balance due for
all other Goods and Services identified in this quotation will be paid by
Customer upon delivery.
SHIPPING AND DELIVERY TERMS
All terms are F.O.B. place of shipment, freight prepaid and allowed. Title and
risk of loss will pass to Customer upon shipment and Customer will provide
insurance against such risk. Equipment will be shipped to the address indicated
on the face of this quotation. Shipping dates are subject to revision by
Positron to adjust for future production schedule requirements.
Delivery is subject to availability and lead times required by Positron's
production schedule. Delivery for purposes hereof is deemed to have occurred on
the earlier of the actual date of delivery or ten (10) days from the date of
shipment.
Customer may request reasonable delays of the scheduled shipping date
established by Positron prior to the date the Equipment is shipped, provided
that Customer submits its request to Positron in writing at least 90 days
before the scheduled shipping date and Positron consents in writing to the date
requested by Customer. Positron's consent will not be withheld unreasonably, but
Positron may (1) refuse to honor any request for delay received within 90 days
of the scheduled shipping date, (2) store the Equipment at Customer's expense if
Customer is unable to accept delivery on the original scheduled shipping date
(or any rescheduled shipping date), and (3) invoice Customer for the Equipment
as if it had been shipped on the original scheduled shipping date (and Customer
will pay such invoice immediately upon receipt). If any request for delay in
shipment is honored by Positron, the price of the Equipment is subject to
adjustment in accordance with the other terms and conditions hereof.
Positron has not authorized any employee or agent to offer any shipping
or delivery terms other than those appearing above.
SITE PREPARATION AND INSTALLATION
All down payments and progress payments will have been made and all applicable
license agreements will have been signed by Customer before installation of
the Equipment will commence.
Except as otherwise expressly provided in this section, Customer is responsible
for preparing its site for installation of the Equipment. Full, free, and
immediate access to the installation site (and a suitable and safe place for
storage of the Equipment before installation) will be provided by Customer.
Customer is responsible for having the Equipment moved from its point of
delivery to the installation site. Any scaffolding, platforms, lifting
equipment, rigging, building alterations, climate controls, power supplies,
electrical circuits, safety switches, power outlets, conduits, wiring,
structural support, utilities, plumbing, carpentry, or other work required by
any applicable laws or by Positron in connection with installation of the
Equipment will be provided by Customer at its own expense.
If trade unions or other third parties interfere with (or threaten to interfere
with) the installation of the Equipment by Positron employees, Customer is
responsible for making any necessary arrangements with such parties to permit
completion of installation, all at Customer's expense.
If members of trade unions for any reason are required to install the Equipment,
Positron's obligation will be
25
<PAGE>
Quotation Number SAMPLE
limited to providing engineering supervision of the installation activities.
POSITRON OFFERS NO WARRANTY AND ASSUMES NO LIABILITY FOR THE FITNESS OR ADEQUACY
OF THE PREMISES (OR THE UTILITIES AVAILABLE AT THE PREMISES) IN WHICH THE
EQUIPMENT IS TO BE INSTALLED, USED OR STORED. CUSTOMER AGREES TO INDEMNIFY AND
HOLD POSITRON HARMLESS AGAINST ANY LOSS, DAMAGE, OR CLAIM ARISING OUT OF THE
CONDITION OF SUCH PREMISES (OR UTILITIES).
The Equipment will be installed during normal working hours. Installation
services include (1) connecting the Equipment to safety switches and power
outlets provided and installed by Customer prior to delivery of the Equipment
and (2) testing the Equipment after installation to verify compliance with
Positron's published performance specifications only. Installation will be
considered complete for the purposes hereof upon Customer's first used of the
Equipment of upon Positron's verification that the Equipment substantially
complies with Positron's published performance specifications (Positron's final
invoice constituting confirmation of the same), whichever occurs first. For the
purpose of commencement of any applicable warranty period, Positron will
maintain records reflecting the actual date installation is completed, and upon
request Positron will furnish Customer with written confirmation of such date.
The price includes standard installation services only. Any additional time
required or delay(s) experienced in installing the Equipment resulting from the
condition or location of the premises, the condition or location of power
supplies, outlets, switches, conduits, wiring, or circuits, delay(s) in
completing site preparation, or any similar or dissimilar cause(s) will be at
Customer's own expense. Any labor in excess of standard installation services
and any overtime incurred by Positron employees in respect of such additional
time required or delay(s) experienced (as well as any extra labor or overtime
work performed at the request of Customer) will be invoiced to and paid by
Customer at then-prevailing Positron demand service rates.
Customer is responsible for obtaining all government approvals required for
the purchase, installation, and use of the Equipment, including without
limitation any certificate of need and zoning variances. Customer will complete
all such activities diligently, will keep Positron notified periodically of the
results of its efforts, and upon request will provide Positron with written
confirmation of such approvals.
Positron has not authorized any employee or agent to offer any site preparation
or installation terms other than those appearing above. The provisions of this
section may be superseded only by supplemental terms and conditions
("Construction Terms") under which Positron agrees to design and construct
facilities into which the Equipment is to be installed. In such event, the
provisions of this section will be considered as supplemental to the
Construction Terms, and to the extent of any conflict between the terms and
conditions of this section and the Construction Terms, the Construction Terms
will govern.
DEFERRED INSTALLATION
If installation (or commencement of installation) is delayed for reasons beyond
the control of Positron (including without limitation Customer's not having
completed site preparation requirements stated in the previous section),
Positron may place the Equipment in storage (in Positron's facility or in a
warehouse) at Customer's expense. Storage charges will be billed to Customer
monthly, and Customer will pay all such invoices upon receipt. Customer also
will continue to make all progress payments which may become due under the terms
and conditions of this agreement during the period installation is deferred. If
such delay lasts for a period of 60 days following delivery, Customer will pay
Positron one-half (1/2) of any balance due. If such delay continues beyond 180
days after delivery, Customer will pay Positron the remaining balance due.
CREDIT TERMS, SECURITY AGREEMENT, AND CUSTOMER DEFAULT
Positron may establish or change the credit and payment terms extended to
Customer when in Positron's sole opinion Customer's financial condition or
previous payment record warrants such action, and Customer's signature on this
quotation constitutes an agreement to honor the credit and payment terms so
established or changed. Customer will provide promptly upon request such
financial information as may be reasonably
<PAGE>
Quotation Number SAMPLE
required by Positron to complete its credit review of Customer.
In signing this quotation, Customer grants to Positron a purchase money security
interest in all of the Equipment identified herein until all payments for the
Equipment have been received by Positron. Customer agrees to secure, to sign,
and to deliver such promissory notes, security agreements, financing statements,
landlord and mortgagee waivers, and other documents as may be required by
Positron, or by any of Positron's assignees, to evidence or to perfect the
security interest in the Equipment. (If the Equipment is to be delivered in
Louisiana, Customer hereby grants to Positron, and to Positron's assignees, a
vendor's lien against the Equipment and agrees to sign such documents as may be
required to record such lien.) Where permitted by applicable law, Customer's
signature on this quotation constitutes authorization for the employees or
agents of Positron, or of Positron's assignees, to execute and file financing
statements (and any amendments thereto) and other documents on behalf of
Customer in order to perfect the security interest in the Equipment. As long as
any balance is due hereunder, Customer further agrees that the Equipment will
not be removed from the location specified on the face of this quotation without
the prior written consent of the President or any Vice President of Positron (or
Positron's assignees).
If Customer does not pay any amount when due or does not meet any other
obligation hereunder, then (in addition to any other remedies available at law
or in equity) Positron may accelerate any balance due and require immediate
payment thereof, may enter Customer's premises peacefully and render the
Equipment inoperable, may repossess the Equipment, and may resell the Equipment.
The net proceeds of any such resale, after Positron's costs of repossessing,
removing, transporting, reconditioning, storing, and reselling the Equipment,
and all other associated costs, will be applied to the unpaid balance owed by
Customer. Customer will remain liable for any deficiency which remains after
such resale, and Positron will return to Customer all net proceeds in excess of
Customer's unpaid balance.
With respect to any delinquent payment(s), Customer agrees to pay a finance
charge at the rate of one and one-half percent (1-1/2%) per month computed from
the date each delinquent payment or accelerated balance shall have become due.
Furthermore, in any action initiated to enforce the terms of this agreement
following Customer's default, Positron shall recover as part of its damages all
costs, expenses, and attorney fees incurred in connection with such action.
LEASES
In the event Customer desires to convert the sale of the Equipment to a lease,
Customer will arrange for the lease agreement and all other related
documentation to be reviewed and approved by Positron, and executed by all
parties involved, not later than 90 days prior to the scheduled delivery date.
Customer is responsible for all efforts to convert this transaction to a lease
and is required to secure the leasing company's approval of all the terms and
conditions hereof without modification.
No Equipment will be delivered unless Positron receives copies of the fully
executed lease documents and approves the same.
WARRANTY, DISCLAIMERS, AND LIMITATION ON LIABILITY
Positron provides specific warranties with respect to the Equipment. All
warranties applicable to the Equipment accompany this quotation. No other
warranties are offered by Positron with respect to the Equipment, and Positron
has not authorized any employee or agent to offer any warranties except those
referenced above.
THE WARRANTIES REFERENCED IN THIS SECTION ARE EXPRESSLY IN LIEU OF ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND IN LIEU OF ANY OTHER
OBLIGATIONS OR LIABILITY ON THE PART OF POSITRON. POSITRON NEITHER ASSUMES (NOR
HAS AUTHORIZED ANY PERSON TO ASSUME FOR IT) ANY OTHER WARRANTY OR LIABILITY IN
CONNECTION WITH THE EQUIPMENT.
<PAGE>
Quotation Number SAMPLE
POSITRON SHALL HAVE NO LIABILITY FOR ANY CONSEQUENTIAL, INCIDENTAL, OR SPECIAL
DAMAGES BY REASON OF ANY ACT OR OMISSION OR ARISING OUT OF OR IN CONNECTION WITH
THE EQUIPMENT OR ITS SALE, DELIVERY, INSTALLATION, MAINTENANCE, OPERATION,
PERFORMANCE, OR USE, INCLUDING WITHOUT LIMITATION ANY LOSS OF USE, LOST
REVENUES, LOST PROFITS, DAMAGE TO ASSOCIATED EQUIPMENT OR TO FACILITIES, COSTS
OF CAPITAL, COSTS OF SUBSTITUTE PRODUCTS, FACILITIES, OR SERVICES, COSTS OF
REPLACEMENT POWER, COSTS ASSOCIATED WITH DOWN TIME, AND ANY SIMILAR AND
DISSIMILAR LOSSES, COSTS, OR DAMAGES.
PATENT INDEMNITY
Positron agrees to indemnify and to hold Customer harmless against any claims,
damages, and expenses to the extent the same arise out of or are asserted
against Customer alleging that the Equipment infringes any United States patent,
provided that (1) Customer immediately give Positron written notice of any such
claims, damages or expenses, (2) Customer grants to Positron full and complete
authority, information, and assistance reasonable necessary to defend, settle,
reimburse, or avoid any such claims, damages, and expenses, and (3) the
Equipment as of the alleged date of infringement was in the same form and
configuration as originally supplied by Positron and had not been modified in
any way without the prior written consent of the President or any Vice President
of Positron.
Upon timely receipt of Customer's written notice, Positron will assume the
defense of any claims against Customer. Customer agrees to cooperate with
Positron in the defense or settlement of all such claims.
Positron shall not be bound by the terms of any compromise or settlement
agreement negotiated or concluded by Customer without the prior written consent
of the President or any Vice President of Positron.
The terms of this section will not apply in the event of any sale or other
transfer of the Equipment by Customer or to the extent of any use of the
Equipment in combination with products or devices not furnished by Positron.
Positron has not authorized any employee or agent to offer any patent indemnity
terms other than those appearing above.
SOFTWARE AND LICENSE
All software is and shall remain the sole property of Positron. Use of such
software is subject to the terms of a separate license agreement to be signed by
Customer prior to or upon delivery of the Equipment. No license or other right
is granted to Customer or to any other party except as specifically set forth in
this section and Positron has not authorized any employee or agent to grant any
other licenses or other rights with respect to or under any patent application,
patent, copyright, trademark, trade secret, or proprietary right of Positron or
any of Positron's suppliers.
Upon Customer's signing the standard Positron license agreement, Positron grants
to Customer a nonexclusive and paid-up right and license to use the Equipment,
its operating software, and any documentation required for Customer's personal
use of such operating software in connection with the Equipment for so long as
Customer may own or use the Equipment. Such right and license does not include
any right to copy, reproduce, sell, assign, transfer, or sublicense the same and
does not include any rights or licenses whatsoever in any maintenance or service
software or any related documentation. Any maintenance or service software and
documentation shipped to or located at Customer's premises is intended solely to
assist Positron employees in the installation, testing, service, and maintenance
of the Equipment, as may be required by the terms and conditions hereof or by a
separate service support agreement, and Customer agrees to restrict access to
such maintenance or service software and documentation to Positron employees
only. IN THE EVENT OF ANY UNAUTHORIZED TRANSFER OR DISCLOSURE OF THE SOFTWARE
IDENTIFIED IN THIS SECTION (OR ANY TRANSFER OF OTHER RIGHTS OR LICENSES GRANTED
HEREBY) RESULTING
<PAGE>
Quotation Number SAMPLE
FROM CUSTOMER'S ACTS OR OMISSIONS, CUSTOMER SHALL BE LIABLE FOR ALL DAMAGES
RESULTING FROM SUCH TRANSFER OR DISCLOSURE AND POSITRON SHALL HAVE THE RIGHT TO
REVOKE ALL RIGHTS AND LICENSES GRANTED TO CUSTOMER.
Customer will take such steps as may be reasonably required to preserve the
confidentiality of all proprietary information referenced in this section (and
all other proprietary information which Customer may acquire) and to cause any
employees, agents, representatives, or other persons to whom such proprietary
information is disclosed to abide by the terms and conditions of this section as
if each were a party hereto. Customer will restrict the dissemination of
proprietary information to only those persons who are assigned to operate or use
the Equipment and for whom access to such proprietary information is necessary
in the performance of their duties.
The minimum hardware requirements for any software upgrades for the Equipment
may be greater than the minimum hardware requirements for the Equipment as
described herein as of the date of Positron's quotation. Except for possible
future upgrades of Equipment hardware as may be required to accommodate any
future software upgrades, Positron software is described and offered on the
basis that (1) Customer will maintain the configuration of the Equipment as it
was originally designed and manufactured and (2) the Equipment includes only
those subsystems and components certified by Positron. Software for the
Equipment may not perform as intended on systems modified by personnel other
than those acting under the direct supervision of Positron or on systems which
include subsystems or components not certified by Positron. POSITRON WILL NOT
ASSUME ANY RESPONSIBILITY OR LIABILITY WITH RESPECT TO ANY MODIFICATION OR
SUBSTITUTION OF SOFTWARE, SUBSYSTEMS, OR COMPONENTS, AND ALL WARRANTIES
ASSOCIATED WITH THE SOFTWARE AND HARDWARE SYSTEMS SHALL BECOME NULL AND VOID IN
THE EVENT OF ANY MODIFICATION OR SUBSTITUTION MADE WITHOUT THE PRIOR WRITTEN
CONSENT OF THE PRESIDENT OR ANY VICE PRESIDENT OF POSITRON.
MISCELLANEOUS
Positron may change the construction, design of configuration or the Equipment
without notice to Customer as long as the general function of the Equipment is
not thereby altered. The Equipment may contain certain components which have
been remanufactured or refurbished following limited prior use.
These terms and conditions are to be interpreted and enforced under the law of
the State of Texas without regard to principles of choice of law.
Customer will not assign any of its rights or delegate any of its duties
hereunder without the prior written consent of the President or any Vice
President of Positron.
The invalidity or unenforceability of any provision hereof will not affect any
other provision, and all terms and conditions will be construed in all respects
as if any such invalid or unenforceable provision(s) were omitted. The failure
of Customer or Positron at any time to require the performance of any obligation
will not affect the right to require such performance at any time thereafter.
The waiver of any remedy with respect to any default will not be taken as a
waiver of any remedy for any succeeding default. Unless otherwise provided
herein, no limitation or restriction on the remedies available to either party
is intended by these terms and conditions. Clerical errors are subject to
correction.
Course of dealing, course of performance, course of conduct, prior dealings,
usage of trade, community standards, industry standards, and customary practice
or interpretation in matters involving the sale, delivery, installation, use, or
service of the Equipment and Goods and Services or similar or dissimilar
equipment, goods, or services shall not serve as references in interpreting the
terms and conditions hereof.
Positron shall not be liable for any delay or default caused by events beyond
its control, including (by way of example and not by way of limitation) any acts
of God, acts of third parties, acts of Customer (or any of Customer's employees,
agents, or representatives), acts of civil or military authorities, fires,
floods, and other
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similar or dissimilar natural causes, riots, wars, sabotage, vandalism,
embargoes, labor disputes, strikes, lockouts, lack or shortage of Rubidium-82,
water, transportation, labor, materials, supplies, fuel, or power, delays in
receiving any permits or licenses, delays caused by any laws, regulations,
proclamations, ordinances, or any government action or inaction, delays caused
by contractors and subcontractors, and any other cause or condition beyond
Positron's control, and the time for performance of Positron's obligations
hereunder shall be extended for a commercially reasonable period of time in the
event of any delay or default for such cause(s).
Positron reserves the right to allocate its available supplies amount its
Customers on such bases as Positron may deem fair and practical, without
liability for any resulting failure of performance.
Customer's obligations hereunder are independent of any other obligations
Customer may have under any other contract or account with Positron. Customer
will not exercise any right of offset in connection with the terms and
conditions hereof or in connection with any other contract or account with
Positron.
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PRODUCT WARRANTY
POSITRON EMISSION TOMOGRAPHY SYSTEMS
Positron warrants to its Customer that the positron emission tomography systems
sold by Positron ("Equipment") will be free from defects in material and
workmanship and will meet the technical and performance specifications
contained in applicable product data sheets and operation manuals published by
Positron specifically related to the Equipment as of the date of shipment.
System Warranty Terms. Except as otherwise provided below, the warranty for the
Equipment will be for a period of 12 months. All warranty terms described in
this warranty will commence on the earlier of (1) the date installation of
Equipment is completed or (2) the date Customer first uses the Equipment.
Warranty Terms for System Software and Software Upgrades. The software provided
with the Equipment will be the latest version of the standard software available
as of the 90th day prior to the date the Equipment is delivered to Customer.
Upgrades to standard software for the Equipment which do not require additional
hardware or Equipment modifications will be performed as a part of normal
warranty service during the term of Customer's warranty. Any software upgrades
requiring supplemental, additional, exchange, or replacement hardware will be
installed by Positron at no charge to Customer if Customer purchases such
required hardware. All software upgrades designated by Positron in its product
data sheets or other published materials as optional software are available to
Customer on terms and conditions to be quoted by Positron. Any optional software
upgrades to the Equipment purchased from Positron will be warranted for 90 days
from date such upgrade is installed by Positron.
The purchase of the Equipment includes a license only to customer to use the
software provided with the Equipment exclusively for the purpose of operating
the Equipment and does not include any right or license to use any software or
related documentation required to perform maintenance or service of the
Equipment.
Warranty Terms for System Hardware Upgrades. Any supplemental, additional,
exchange or replacement hardware purchased from Positron for the Equipment will
be warranted for a period of 90 days from the date such hardware is installed by
Positron.
CONDITIONS
This warranty is subject to the following conditions: the Equipment (a) is to be
installed by authorized Positron representatives (or is to be installed in
accordance with all Positron installation instructions by personnel trained by
Positron), (b) is to be operated only by personnel duly trained in the proper
operation of the Equipment, (c) is to be operated according to all instructions
provided with the Equipment, and (d) is to be maintained in strict compliance
with all recommended and scheduled maintenance instructions provided with the
Equipment, and (e) the Customer is to notify Positron immediately in the event
the Equipment at any time fails to meet performance specifications.
WARRANTY SERVICE
Warranty service includes all requested service calls to repair or replace the
Equipment as provided by this warranty. Warranty service will be performed
during the normal working hours of Positron, Monday through Friday, except for
recognized national legal holidays. In the event it is not possible to
accomplish warranty service within normal working hours, or in the event
Customer specifically requests that warranty service be performed outside of the
normal working hours of Positron, Customer agrees to pay for such services at
the standard Positron demand service rates in effect.
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When warranty service is scheduled or requested, Customer will give Positron
service personnel full, free, and immediate access to the Equipment and to
Customer's operation, performance, and maintenance records for the Equipment.
Customer waives warranty service if it does not provide such access to the
Equipment and Customer's records. Customer agrees to compensate Positron at
prevailing demand service rates in effect as of the date any such warranty
service is to be performed for all time spent by Positron service personnel
waiting for access to the Equipment and records prior to beginning work on a
warranty service call.
EXCLUSIONS
Warranty coverage does not include any defect or performance deficiency which is
the direct or indirect result, in whole or in part, of (1) accident, (2) abuse,
(3) misuse, (4) operation of the Equipment outside its environmental, electrical
or performance specifications, conditions, capabilities, or standards, (5) power
fluctuation or failure, (6) vandalism or any other damage or alteration of the
Equipment by persons other than Positron employees, (7) combining incompatible
products, (8) fires, floods, and other similar and dissimilar natural causes,
(9) failure or lack of humidity or temperature control, or (10) damage, neglect,
alteration, or any impairment of the Equipment resulting from (a) causes or
conditions not associated with ordinary storage, handling, installation,
maintenance, service, or use, or (b) maintenance or service by any party other
than Positron or a designated representative of Positron, or (c) any acts,
omissions, causes, or events beyond the control of Positron.
This warranty does not include items which are consumed through normal daily use
and does not include any liability or responsibility for such losses or expenses
as removal or reconstruction of walls, partitions, ceilings, floors, or other
parts of any facility occasioned by any warranty services performed hereunder or
any other losses or expenses incurred in providing any other building
alterations, scaffolding, platforms, lifting equipment, rigging, climate
controls, power supplies, electrical circuits, safety switches, power outlets,
conduits, wiring, structural supports, utilities, plumbing, carpentry, or other
work required in connection with providing warranty services.
REMEDIES
If Positron determines that the Equipment does not meet any warranty, Positron
will replace the Equipment or repair any defects in material or workmanship
reported during the warranty period, all without charge for labor or materials,
(unless otherwise provided), Positron retaining the option of furnishing either
new or exchange replacement parts or assemblies when providing warranty service.
TRANSFER OF THE EQUIPMENT
In the event Customer transfers or relocates the Equipment, all obligations
under this warranty will terminate unless Customer receives the prior written
consent of Positron for the transfer or relocation. Upon any transfer or
relocation, the Equipment must be inspected and certified by Positron as being
free from all defects in material, software, and workmanship and as being in
compliance with all technical and performance specifications. Customer will
compensate Positron for these services at the prevailing demand service rates in
effect as of the date the inspection is performed. Equipment which is
transported intact to pre-approved locations and is maintained as originally
installed in mobile configurations will remain covered by this warranty.
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FORCE MAJEURE
Nothwithstanding any other provision, and in addition to all conditions and
exclusions set forth, Positron will not be liable for any delay or default in
performing any warranty obligations caused by events beyond its control,
including (by way of example and not by way of limitation) acts of God, acts of
third parties, acts of Customer (or any of the Customer's employees, agents, or
representatives), acts of civil or military authorities, fires, floods and other
similar or dissimilar natural causes, riots, wars, sabotage, vandalism,
embargoes, labor disputes, strikes, lockouts, lack or shortage of transporation,
labor, materials, supplies, fuel, power or water, delays in receiving any
permits or licenses, delays caused by any laws, regulations, proclamations,
ordinances, or any government action or inaction, delays caused by contractors
and subcontractors, and any other cause or condition beyond Positron control. In
the event of any such delay or default, the time for performance of the warranty
obligations of Positron will be extended for a commercially reasonable period of
time.
DISCLAIMERS AND LIMITATIONS ON LIABILITY
THE WARRANTIES SET FORTH ABOVE ARE EXPRESSLY IN LIEU OF ANY OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTLY OR
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND IN LIEU OF ANY OTHER
OBLIGATIONS OR LIBILITY ON THE PART OF POSITRON. POSITRON NEITHER ASSUMES (NOR
HAS AUTHORIZED ANY PERSON TO ASSUME FOR IT) ANY OTHER WARRANTY OR LIABILITY IN
CONNECTION WITH THE EQUIPMENT.
CUSTOMER'S SOLE REMEDIES FOR BREACH OF SUCH WARRANTIES ARE SET FORTH IN THIS
WARRANTY. POSITRON WILL HAVE NO LIABILITY FOR ANY CONSEQUENTIAL, INCIDENTAL, OR
SPECIAL DAMAGES BY REASON OF ANY ACT OR OMISSION OR ARISING OUT OF OR IN
CONNECTION WITH THE EQUIPMENT, OR WITH THE SALE, DELIVERY, INSTALLATION,
MAINTENANCE, OPERATION, PERFORMANCE, OR USE OF THE EQUIPMENT, INCLUDING (BY WAY
OF EXAMPLE AND NOT BY WAY OF LIMITATION) DAMAGES, EXPENSES, OR LOSSES INCURRED
BY REASON OF LOSS OF USE, LOST REVENUES, LOST PROFITS, DAMAGE TO ASSOCIATED
EQUIPMENT OR TO FACILITIES, COSTS OF CAPITAL, COSTS OF SUBSTITUTE PRODUCTS,
FACILITIES, OR SERVICES, COSTS OF REPLACEMENT POWER, COSTS ASSOCIATED WITH DOWN
TIME, AND ANY SIMILAR AND DISSIMILAR DAMAGES, EXPENSES, OR LOSSES.
