-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VI+lf+9GKHBk5mUQ0coZIeWTncNe3V296V2ph4ygcPzFCUXgs15yzTa2Gcb03z7s c1v5u9MfRgXYWV2yT9a9AA== 0000950005-01-000415.txt : 20010402 0000950005-01-000415.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950005-01-000415 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMATRON INC CENTRAL INDEX KEY: 0000720477 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 942880078 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-12405 FILM NUMBER: 1586714 BUSINESS ADDRESS: STREET 1: 389 OYSTER POINT BLVD CITY: S SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 4155839964 MAIL ADDRESS: STREET 1: 389 OYSTER POINT BLVD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 10-K/A 1 0001.txt FORM 10-K/A FY 2000 IMATRON INC. FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 Commission file number 0-12405 IMATRON INC. a New Jersey Corporation I.D. No. 94-2880078 389 Oyster Point Blvd, South San Francisco, CA 94080 Telephone (650) 583-9964 Securities Registered Pursuant to Section 12 (6) of the Act: NONE Securities Registered Pursuant to Section 12 (9) of the Act: COMMON STOCK, WITHOUT PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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_________ ================================================================================ 1 FY 2000 IMATRON INC. FORM 10-K ================================================================================ The aggregate market value of the voting stock (which is the outstanding common stock) of the Registrant held by non-affiliates thereof, based upon the closing sale price of the common stock on March 20, 2001, on the Nasdaq National Market System ($1.56 per share) was approximately $149,700,000. For the purpose of the foregoing computation, only the directors and executive officers of the Registrant were deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 20, 2001, Registrant had 104,890,553 outstanding shares of common stock, no par value, which is the only class of shares publicly traded. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders, to be filed with the Commission on or before 120 days after the end of the 2000 fiscal year, are incorporated by reference into Part III hereof. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (x). THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING STATEMENTS. RISKS INHERENT IN IMATRON'S BUSINESS AND FACTORS THAT COULD CAUSE OR CONTIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION, THE CONSIDERATIONS SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENTS. ================================================================================ 2 FY 2000 IMATRON INC. FORM 10-K ================================================================================ PART I ITEM 1 - BUSINESS GENERAL Imatron Inc. was incorporated in New Jersey in 1983. References in this Form 10-K to "Imatron," "the Company," "we," "our," and "us" refer to Imatron Inc., a New Jersey Corporation. The Company is a technology-based company principally engaged in the business of designing, manufacturing and marketing a high performance electron beam tomography ("EBT") scanner. This scanner uses Electron Beam Tomography ("EBT") technology based on a fixed scanning electron beam. The scanner is used in large and midsize hospitals and freestanding imaging clinics worldwide. In addition to providing service, parts and maintenance to hospitals and clinics that operate its scanners, the Company also offers its service capability to other manufacturers of high tech medical equipment. HeartScan Imaging, Inc. ("HeartScan"), incorporated in Delaware in 1993, was a diagnostic services subsidiary of the Company. HeartScan offered Coronary Artery Scanning ("CAS") and Coronary Artery Disease ("CAD") risk assessment services. Its five centers in the United States were sold in 1999. The last remaining scanner located in Cascais, Portugal was sold in fourth quarter of 2000. PRODUCT AND SERVICES EBT SCANNER PRODUCT DESCRIPTION A conventional CT scanner is a diagnostic imaging device in which a single or multiple cross-sectional (tomographic) image of a patient's anatomy are/is acquired from multiple intensity readings (samplings) from an x-ray source that mechanically rotates around the patient during a scanning cycle. The acquired x-ray data are processed through a complex mathematical algorithm relating variations in the intensity of x-rays passing through a patient's body to tissue density differences. The acquired data are subsequently reconstructed and displayed as images on a video monitor, typically with white corresponding to high-density matter, such as bone or calcium, and with black corresponding to low-density matter, such as air. In this manner, the patient's anatomy can be displayed in a succession of cross-sectional, anatomical gray-scale representations. The Imatron EBT scanner design differs significantly from conventional CT scanners in two important ways. First, the mechanically rotating x-ray tube technology of conventional CT scanners is replaced by a high power electron gun that generates a focused, high-intensity electron beam which is steered along stationary x-ray target rings to produce a rotating fan-shaped x-ray beam. This patented electron beam technology permits significantly faster scanning speeds. The Company's scanner can acquire CT images at a scan speed of 50 to 100 milliseconds per slice in contrast to conventional CT scanners that require between 0.5 and 3 seconds per slice to acquire an image. Second, the Imatron EBT scanner permits rapid scanning of multiple contiguous images without moving the patient. With these features, the EBT scanner can perform stop-action or dynamic studies of the heart and various other organs, contributing to the scanner's usefulness for both diagnostic imaging and functional evaluation. The EBT scanner can be operated in three scanning modes: Single Slice mode, Multi-Slice mode and Continuous Volume Scanning mode. The Single Slice mode can acquire up to 140 images per acquisition and can be timed to the heart cycle with prospective ECG triggering. This mode employs scan times from 100 milliseconds to 2 seconds as compared to 0.5 to 3 second exposure times of conventional CT scanners. The Multi-Slice mode incorporates scan times of 50 milliseconds and can acquire up to 180 images in 6 seconds. This mode can also be timed over the cardiac cycle with prospective ECG triggering. The Continuous Volume Scanning mode can acquire up to 140 images in 15 seconds, outperforming spiral or helical scanning modes on ================================================================================ 3 FY 2000 IMATRON INC. FORM 10-K ================================================================================ conventional CT scanners. Advantages include excellent slice registration for 3D reconstruction, respiratory motion-free pulmonary imaging, pediatric scanning, trauma, IV contrast reduction, and increased patient throughput. PRODUCT DEVELOPMENT In December 1998, the Company completed its version 12.4 software development. Software version 12.4 brings the C-150XP and C-150LXP into full year 2000 compliance, using 4 digits for all dates. The new software version also has algorithmic improvements which affect image quality, allowing improved images of the head, chest, and abdomen, especially with the high resolution detector. Software version 12.4 was thoroughly tested in late 1998, and was released for general use in January 1999. In March 1998, the Company developed and released for sale to its customers the High Resolution Detector System (HRDS) for its EBT scanners. The new HRDS increased the spatial resolution of the single slice mode from 7 to 9.5 line pairs per centimeter and the multi-slice mode from 3 to 4.50 line pairs per centimeter. The increased spatial resolution improved the scanner's performance, especially in neurologic, pulmonary, and abdominal applications. It also increased the total number of detector channels from 1,296 to 3,456, improved image data correction during reconstruction, and enhanced overall image quality. In October 1997, the Company received 510(k) market clearance from the Federal Food and Drug Administration ("FDA") for cardiac specific applications included on the UltraAccess workstation. These applications include 3-D "Calcium Scoring" and cardiac perfusion. In November 1997, the Company received 510(k) market clearance from the FDA for its new 3456 Channel Dual Slice Detector Array C-150 EBT scanner. In November 1999, the Company received 510(k) market clearance from the FDA for the Electron Beam Angiography (EBA) application of its scanner to function as a diagnostic x-ray system that can produce two- and three-dimensional images of the heart, blood vessels, or lymphatic system from a data set of cross-sectional anatomical images. In addition, the EBA application can also present three-dimensional images of the heart in a time-sequenced or cine fashion; in essence, a four-dimensional evaluation of cardiac function, with the fourth dimension being time. In April 2000, the Company received 510(k) market clearance from the FDA for its EBT scanners to perform low dose, single breath hold lung scans to aid physicians in diagnosing lung anomalies. In November 2000, the Company received 510(k) market clearance from the FDA for the Electron Beam Colonography (EB-Colonography(TM)) application of its scanner, a minimally invasive procedure permitting visualization of the interior surface of the colon from the perspective of a virtual "fly-through'" mode. MARKETS The Company sells its EBT scanner in the diagnostic medical imaging market. This market includes several different modalities such as CT, ultrasound, nuclear medicine, coronary angiography, and magnetic resonance imaging. These imaging modalities are based upon the ability of x-rays, sound waves, gamma rays, or magnetic fields to penetrate human tissue and be detected by electronic devices for image presentation on a video monitor. In some cases, these imaging modalities compete with one another for the same type of procedure. These systems have been evaluated in the diagnosis of cardiac diseases, but the extent of application of several is limited due to image degradation, artifacts, and distortions arising from the heart's motion as it beats at a frequency greater than the scanning speed of these systems. The fast scanning speed of the EBT scanner allows it to "freeze" the motion of the beating heart in order to image and quantify small calcium deposits in the coronary arteries. The images that result are sharp and free of motion related artifacts. The procedure for accurately measuring the volume and extent of coronary artery calcification is known as the coronary artery scan ("CAS"). ================================================================================ 4 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Cardiovascular disease is the number one cause of death in the United States, accounting for more than 950,000 deaths annually. Of these deaths, coronary heart disease accounts for approximately 500,000 deaths. Of particular importance is the fact that in approximately 150,000 cases annually, the first, last and only symptom of coronary heart disease is a fatal heart attack. The Company believes that this widespread incidence of coronary heart disease in the United State indicates a clear need for a safe and effective test to detect the earliest stages of coronary heart disease. The correlation between calcium in the coronary arteries, atherosclerosis, and myocardial infarction (heart attack) has been known since the 1950's. By the mid-1960's, selective coronary angiography was introduced and soon became a routine procedure. Since that time, coronary angiography, which demonstrates narrowing, or occlusion, of the coronary arteries, has become the "gold standard" for positive identification of coronary artery disease. Abnormal results from screening tests, such as exercise electrocardiography ("ECG"), thallium stress, nuclear medicine, and stress echocardiography are commonly used as an indication for coronary angiography. These tests produce a significant percentage of false abnormal results such that as many as 25% - 35% percent of the coronary angiograms conducted are deemed to be normal. Since coronary angiography is both expensive and invasive, the patient in these false abnormal cases is unnecessarily exposed to some risk of morbidity, or even death, as well as a significant radiation dose. In addition, statistics indicate that some patients die suddenly after receiving a "normal" stress ECG study and are then found, upon autopsy, to have had significant coronary artery disease. The Company believes these statistics illustrate the inadequate predictive value of the standard, noninvasive tests for diagnosing coronary artery disease. The Company further believes that research demonstrates that CAS has the potential to accurately identify those people who are developing early coronary artery disease. CAS can then serve as a feedback mechanism to monitor the treatment of those with early coronary artery disease, a disease which may slow, stop, or regress in response to treatment. Until now, the only way to directly determine the effect of life-style modification and lipid-lowering pharmacologic treatment on coronary artery disease was to perform repeated invasive, costly coronary angiography or invasive intravascular ultrasound. For those patients in whom CAS detects advanced coronary artery disease, intervention may help prevent a crippling heart attack or sudden death. The CAS also has great potential for reducing the costs associated with the unnecessary treatment of those who have coronary risk factors, but show no sign of coronary artery disease. It is estimated that 30% - 35% of people with elevated cholesterol levels do not develop coronary artery disease. Since there has not been, until the advent of the EBT scanner, a method to identify those who are beginning to develop coronary disease, individuals with a high cholesterol reading have been treated as if they will develop heart disease. The Company believes that CAS is a powerful and cost-effective method for detecting, or ruling out, coronary artery disease and represents a unique market. Currently, only the EBT scanner can provide the necessary technological capability to address these clinical application requirements. Notwithstanding the foregoing, to date, CAS has not been broadly accepted as a method of identifying coronary artery disease, and there is no assurance that a significant market will develop for this procedure. In addition to the CAS, the Company's EBT technology received market clearance from the FDA in November 1999 for a new application known as Electron Beam Angiography ("EBA"). This unique procedure utilizes a less invasive intravenous injection of x-ray contrast agent as opposed to threading a catheter into the femoral artery to the heart as required by conventional x-ray coronary angiography. In the EBA procedure, a series of contiguous contrast enhanced images is obtained and electronically transmitted to a powerful desktop 3-D workstation. The resulting three dimensional EB angiogram can be used to determine the potency of coronary artery bypass grafts, stents and the effectiveness of "balloon" angioplasty procedures. EBA offers the potential for significant cost savings when evaluating patients with atypical chest pain by detecting significant levels of coronary stenosis non-invasively. The combination of the Company's EBT scanner's unparalleled image acquisition speed with new, powerful PC microprocessor driven workstations provides unique 3-D imaging capability in the heart, lungs, colon, and other organs. Imatron believes that possible factors affecting the demand for its products include, among others, potential customers' budgetary constraints including those imposed by government regulation, changes in the ================================================================================ 5 FY 2000 IMATRON INC. FORM 10-K ================================================================================ reimbursement policies of the government and third party insurers, replacement of older equipment, advancements in technology, and the introduction of new medical procedures. CUSTOMER SERVICE The Company and its distributors provide installation, customer warranty, and service to their respective customers. Imatron provides warranty on the EBT scanner during the 12-month period following installation. In addition, the Company provides other product support services, including a telephone hotline for customer inquiries, product enhancements and maintenance releases. The Company also offers training at customers' locations and the Company's facilities to both end-users and distributors. In 1997, Imatron expanded its service business to include installation, warranty, repair, training and support services to other manufacturers of high tech medical equipment. Imatron entered into a two-year service support agreement in February 1998 with AccuImage Diagnostics to provide worldwide customer support service for its Three-Dimensional Volume Visualization Workstation. This agreement was renewed in 2000 with the same terms and conditions. The Company maintains customer support centers in South San Francisco, California and field service personnel in the United States, Europe and Asia for its service business. Together with its distributors, the Company services over 135 installed EBT systems worldwide including approximately 50 systems manufactured by vendors other than Imatron. The Company generates service revenues under service contracts with Imatron and non-Imatron customers, providing service on a "contract" and "time and material" basis to such customers after the warranty period. RESEARCH AND DEVELOPMENT The Company's research and development efforts are focused on enhancing its existing product and expanding its applications. The Company's research and development personnel also are involved in establishing protocols, monitoring, and interpreting and submitting test data to the FDA and other regulatory agencies to obtain the requisite clearances and approvals for its product. MARKETING The Company's EBT scanners are utilized by a variety of customers including large teaching and research hospitals, medium-size hospitals, and imaging clinics. The Company sells its product in domestic and international markets through a direct sales force, as well as independent distributors. In the past, a substantial portion of the Company's sales of its scanners was done through distributors or sales agents. Imatron no longer has any exclusive distributors in the United States. During 1999, the Company expanded its direct sales force, conducted extensive training of its distributors, and added distributors in Germany, Korea, Argentina, Greece, Egypt, Saudi Arabia and Turkey. In 2000, the Company has 16 domestic and international direct full-time sales people. Each salesperson is responsible for a specific geographic area. In addition, the Company has or had distribution arrangements as follows: JAPAN On February 3, 1994, Imatron and Imatron Japan, Inc. entered into a Distributorship Agreement pursuant to which Imatron Japan, Inc. has been appointed as Imatron's exclusive distributor in Japan. In October 2000, the joint venture agreement with Imatron Japan, Inc. was terminated and the exclusive distribution rights and service contracts were purchased by Imatron for $2,779,000 in accounts receivable from Imatron Japan owed to the Company. ================================================================================ 6 FY 2000 IMATRON INC. FORM 10-K ================================================================================ In November 2000, the Company entered into an agreement with Marubeni Corporation and its wholly owned subsidiary Meditec Corporation (collectively "Marubeni"). Pursuant to the agreement the Company appointed Marubeni as its exclusive importer, distributor and customer service provider for EBT scanners in Japan. The Company also sold all assets and rights to the service business previously acquired from its related party Imatron Japan, Inc. In consideration for the rights and assets acquired, Marubeni agreed to pay a total of 500 million yen, or approximately $4,654,000. The total transaction fee was allocated to different elements of the arrangement based on their relative fair values. The Company deferred revenue in the amount of $350,000 which represents estimated fair value of the distributorship rights based on a third party valuation. The deferred revenue will be amortized to net income over the period of three years, the term of the distributorship agreement. The remaining arrangement fee totaled $4,304,000 and was recognized as proceeds from sale of the service business offset by the cost of the service business of $2,779,000 and was recorded as other income. SALES INFORMATION The scanner sales price varies depending on customer requirements. In particular, sales to Siemens, Imatron Japan, Inc. and certain distributors/sales agents have a lower gross margin than sales to other third parties. The sales price (with the sole exception of Imatron Japan, Inc.) includes installation by customer service personnel, system check and certification, and a 12-month warranty. In addition, local taxes and import duties may be added. This price, which is higher than that of conventional CT scanners, may serve to limit sales of the Company's scanner to larger hospitals and medical imaging clinics that are able to generate a higher than average patient volume to offset the higher cost. Unit scanner export sales for fiscal years ended December 31 are as follows: 2000 1999 1998 ------------ ------------ ---------- Total export sales 2 4 6 COMPETITION In the non-cardiac imaging applications market (comprised principally of hospital radiology departments), the Company's principal competition is from current manufacturers of conventional CT scanners, including General Electric Company, Siemens Corporation, Marconi Medical Systems, Philips Medical Systems, Toshiba Medical Corporation and others. Non-invasive diagnostic imaging techniques such as ultrasound, radioisotope imaging, digital subtraction angiography, and magnetic resonance imaging are also partially competitive with the Company's scanners. Each of the companies named above markets equipment using one or more of these technologies. All of these companies have greater financial resources and larger staffs than those of the Company and their products are, in most cases, substantially less expensive than Imatron's EBT scanner. The Company believes that in order to compete successfully against these competitors, it must continue to demonstrate that the EBT scanner is both an acceptable substitute for conventional CT scanners in areas of the body where motion is not a limitation, and that the EBT Scanner is a valuable cardiopulmonary diagnostic tool capable of producing unique and useful images of the heart and lung. Although the Company believes that the EBT Scanner can produce general purpose images of a quality and resolution as good as, or superior to, images produced by "state of the art" conventional CT scanners, it lacks certain features that many competing premium scanners offer. Also, the Company believes that customers and potential customers expect a continuing development effort to improve the functionality and features of the scanner. As a result, the Company continually seeks to develop product enhancements and improve product reliability. Imatron's future success may depend on its ability to complete certain product enhancement and reliability projects currently in progress, as well as on its continued ================================================================================ 7 FY 2000 IMATRON INC. FORM 10-K ================================================================================ ability to develop new products or product enhancements in response to new products that may be introduced by other companies. There can be no assurance that Imatron will be able to continue to improve product reliability or introduce new product models and enhancements as required to remain competitive. Other factors, in addition to those described above, that a potential purchaser might consider in the decision to replace a conventional CT scanner with an EBT scanner include purchase price, patient throughput capacity, anticipated operating expenses, estimated useful life, and post-sale customer service and support. The Company believes that its scanner is competitive with respect to each of these factors. MANUFACTURING The Company manufactures its scanner at its South San Francisco and Hayward, California facilities. To date, the typical manufacturing cycle has required approximately five months from the authorization of manufacturing to the delivery of a scanner. Many of the components and sub-assemblies used in the scanner have been developed and designed by Imatron to its custom specifications, and are obtainable from limited or single sources of supply. In view of the customized nature of many of these components and sub-assemblies, there may be extended delays between their order and delivery. Delays in such delivery could adversely affect Imatron's present and future production schedules. The Company has made and continues to make inventory investments to acquire long lead time components and sub-assemblies to minimize the impact of such delays. On January 6, 1999 Imatron purchased one of its suppliers, Caral Manufacturing, Inc. (Caral), to assure itself of a steady, low cost supply of certain critical stainless steel parts. In recent years, the Company has developed alternative sources for many of its scanner subcomponents and continues its programs to qualify new vendors for the remaining critical parts. There can be no assurance that such actions will not adversely affect the Company's production schedule and its ability to deliver products in a timely manner. GOVERNMENT REGULATION Amendments to the Federal Food, Drug, and Cosmetic Act ("Amendments") enacted in 1976, and regulations issued or authorized thereunder, provide for regulation by the FDA of the marketing, manufacturing, labeling, packaging, sale and distribution of medical devices, including the Company's scanner. Among these regulations are requirements that medical device manufacturers register their manufacturing facilities with the FDA, list devices manufactured by them, file various reports and comply with specified Quality System Regulations. The FDA enforces additional regulations regarding the safety of equipment utilizing x-rays, which includes CT scanners. Various states also impose similar regulations. The Amendments also impose certain requirements which must be met prior to the initial marketing of medical devices introduced into commerce after May 28, 1976. Other requirements imposed on medical device manufacturers include a pre-market notification process commonly known as the 510(k) application to market a new or modified medical device. Additionally, and specifically, if required by the FDA, a pre-market approval ("PMA") may be required. This process is potentially expensive and time consuming and must be completed prior to marketing a new medical device. The Company has received appropriate clearances from the FDA to market the C-150 EBT scanner. The Company believes that it is presently in substantial compliance with the QSR requirements and other regulatory issues promulgated by the FDA. On May 4, 1999 the Food and Drug Administration's (FDA) Center for Devices and Radiological Health, Promotion and Advertising Staff, issued a Warning Letter to Imatron. The Warning Letter expressed FDA's objection with certain promotional materials and press releases made by Imatron. It also indicated FDA's objection to claims made on Imatron's web site. Upon receipt of this letter Imatron responded to the FDA in writing. This response clearly enumerates Imatron's position and details, where necessary, specific actions to alleviate the FDA's concern and began a good faith dialog between Imatron and the FDA to properly resolve these issues. This dialog continues and Imatron believes such dialog will resolve the matter fully and finally. ================================================================================ 8 FY 2000 IMATRON INC. FORM 10-K ================================================================================ In November 2000, the Company received its most current 510(k) market clearance from the FDA for the Electron Beam Colonography (EB-Colonography(TM)) application of its scanner, a minimally invasive procedure permitting visualization of the interior surface of the colon from the perspective of a virtual "fly-through'" mode. Such use is consistent with uses classified by the FDA. The FDA also regulates the safety and efficacy of radiological devices. Although the Company believes it is in compliance with all applicable radiological health regulations established by the FDA, there can be no assurance that the EBT scanner will continue to comply with all such standards and regulations that may be promulgated. In any event, compliance with all such requirements can be costly and time consuming, and can have a material adverse effect on the development of the Company's business and its future profitability. The Federal government and certain states have enacted cost-containment measures such as the establishment of maximum fee standards in an attempt to limit the extent and cost of governmental reimbursement of allowable medical expenses under Medicare, Medicaid and similar governmental programs. A number of states have adopted, or are considering the adoption, of similar measures. Such limitations have led to a reduction in, and may further limit funds available for, the purchase of diagnostic equipment such as the Company's scanner and in the number of diagnostic imaging procedures performed in hospitals and other medical institutions. The Company's primary customers operate in the highly regulated healthcare industry. Existing and future governmental regulations could adversely impact the market for the Company's EBT scanner and the Company's business. The Company's operations are also subject to regulation by other federal, state, and local governmental entities empowered to enforce pertinent statutes and regulations, such as those enforced by the Occupational Safety and Health Agency ("OSHA") and the Environmental Protection Agency ("EPA"). In some cases, state or local regulations may be more strict than regulations imposed by the Federal government. The Company believes that it is in substantial compliance with California regulations applicable to its business. In January 1997, the FDA conducted routine inspections of Imatron's manufacturing operations. The inspection concluded without Notices of Observations. Imatron frequently provides field modifications or updates of components and software to operational sites. Imatron voluntarily advised the FDA during these inspections that certain field corrections were ongoing. The FDA concurred with Imatron's decision to field upgrade certain sites and assigned recall numbers Z304/307-7 and Z-289/299-7. There have been no recalls or notices of observations by the FDA in 1999 or 2000. Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range from simple product registration requirements, in some countries, to complex clearance and production controls in others. As a result, the processes and time periods required to obtain foreign marketing approval may be longer or shorter than those necessary to obtain FDA approval. These differences may affect the efficiency and timeliness of international market introduction of the Company's products, and there can be no assurance that the Company will be able to obtain regulatory approvals or clearances for its products in foreign countries. In January 1995, CE mark certification procedures became available for medical devices for countries in the European Union ("EU"). The successful completion of the designated procedures would allow certified devices to be placed on the market in all EU countries. In order to obtain the right to affix the CE mark to its products, medical device companies must obtain certification that its processes meet European quality standards, including certification that its design and manufacturing facility complies with ISO 9001 standards. After June 1998, medical devices may not be sold in EU countries unless they display the CE mark. In May 1998, Imatron received the CE Marking, which indicates that the EBT scanner meets the safety requirements for marketing in all EU countries. In addition, the Company successfully obtained registration under the ISO 9001 standards in December 1997. The inability or failure of the Company or its international distributors to comply with varying foreign regulations or the imposition of new regulations could restrict or, in certain countries, result in the prohibition of the sale of the Company's business. ================================================================================ 9 FY 2000 IMATRON INC. FORM 10-K ================================================================================ PATENTS AND LICENSES Imatron relies heavily on proprietary technology and intellectual property which it attempts to protect through patents and trade secrets. In February 1981, the Company was granted the exclusive use, for five years, and non-exclusive use thereafter, of certain technology and a patent pending, owned by the University of California ("UC") under the terms of a license agreement between UC and Emersub, a wholly-owned subsidiary of a former principal shareholder of the Company, and a sublicense agreement between Emersub and Imatron Associates (the predecessor to the Company), respectively. Under the continuing sublicense agreement, as amended, Imatron made payments to Emersub equal to 2.125% of net sales of new C-150 scanners sold by Imatron in exchange for the Company's exclusive use of Patent #4,352,021, "X-ray Transmission Scanning System and Method and Electron Beam X-ray Scan Tube for Use Therewith," through the remaining life of such patent. The Company's Chairman of the Board, Dr. Douglas P. Boyd, received 6% of all of the royalties paid by Emersub to UC. UC cancelled the license to Emersub on October 8, 1997 and granted the Company a license for the remaining life of the patent on substantially the same terms as the Emersub license agreement. The patent expired on September 28, 1999. Royalty expenses related to the sublicense agreement for 2000, 1999, and 1998 were $0, $77,790, and $137,775, respectively. In addition, Imatron holds twenty-two U.S. Patents of its own (each with a remaining life in excess of one year) and has filed three U.S. patent applications covering various integral components of the scanner including, among others, its electron beam assembly and its x-ray detector, and has filed applications corresponding to several of these patents and applications in various European Patent Convention countries, Canada, and Japan. There can be no assurance that any such applications will result in the issuance of a patent to the Company. Imatron's patents and patent applications have not been tested in litigation and no assurance can be given that patent protection will be upheld or will be as extensive as claimed. Furthermore, no assurance can be given as to the Company's ability to finance litigation against parties which may infringe upon such patents or parties which may claim that the Company's scanner infringes upon their patents. However, the agreement signed by the Company and Siemens Corporation in March 1991 allows Siemens Corporation to enter litigation in favor of Imatron. Pursuant to the Memorandum of Understanding with Siemens (see "Transactions With Siemens Corporation"), the Company transferred five patents to Siemens, two of which cover features of the Company's C-150 scanner, in complete consideration of the cancellation by Siemens of the $4.0 million notes payable to the Company. The transferred patents were as follows: 1. U.S. 4,521,901 - Scanning Electron Beam Computed Tomography Scanner with Ion Aided Focusing. 2. U.S. 4,531,226 - Multiple Electron Beam Target for use in X-Ray Scanner. 3. U.S. 4,535,243 - X-Ray Detector for High Speed X-Ray Scanning System. 4. U.S. 4,736,396 - Tomosynthesis using High Speed CT Scanning System. 5. U.S. 5,193,105 - Ion Controlling Electrode Assembly for a Scanning Electron Beam Computed Tomography Scanner. As part of the agreement, Siemens granted to the Company a non-exclusive, irrevocable, perpetual license to the five patents. The license is subject to a royalty of $20,000 for each new C-150 unit (or other EBT unit produced by Imatron after April 1, 1995), commencing with the 21st C-150 (or other Imatron EBT) unit produced in any year and continuing thereafter for ten years after such first quarter in which such 21st unit is produced. In the fiscal year 2000, Imatron produced 26 scanners and has accrued $120,000 of royalty expenses in accordance with this agreement. In the event some or all of the Company's patent applications are denied and/or some or all of its patents held invalid, the Company would be prevented from precluding its competitors from using the protected technology set forth in such patent applications or patents. Because the Company's products involve confidential proprietary ================================================================================ 10 FY 2000 IMATRON INC. FORM 10-K ================================================================================ technology and know-how, the Company does not believe such a loss of patent rights would have a materially adverse effect upon the Company. The Company also believes that many of its proprietary technologies are better protected as trade secrets or copyrights than by patents. Moreover, although protection of the Company's existing proprietary technologies is important, other factors such as product development, customer support, and marketing ability are also important to the development of the Company's business. EMPLOYEES As of December 31, 2000, the Company and its subsidiary had 281 employees, including 72 employees in service, 33 in sales/marketing, 56 scientists and engineers in research and development, 87 employees in manufacturing, and 33 employees in finance and administration. None of the employees are represented by a labor union and no work stoppages or strikes have occurred. The Company believes that it has good labor relations with its employees. CERTAIN FACTORS In evaluating the Company and its business, the following factors should be given careful consideration, in addition to the information mentioned elsewhere in this Form 10-K: OPERATING HISTORY Imatron was incorporated in February 1983, and incurred losses each quarter from inception through December 31, 1990. Its first recorded profitable year was the year ended December 31, 1991 during which a $4,000,000 payment for the licensing of technology to Siemens Corporation was received. Except in 1994, the Company incurred additional net losses from 1992 through 1999. In 1994, the Company incurred its first year of net income from continuing operations amounting to $3,221,000 partially offset by $911,000 of net losses incurred by discontinued operations of HeartScan. In 2000, the Company reported a net income from continuing operations of $6,105,000 due to improved product sales and the sale of its customer service business in Japan amounting to $4,304,000. Income from discontinued operations in 2000 was $207,000, which resulted from net gain realized on the sale of Portugal scanner amounting to $427,000 offset by operating losses of $220,000. In 1999 and 1998, the Company incurred net losses of $6,586,000 and $14,781,000, respectively. Net losses were partially a result of the operating losses incurred by discontinued operations of HeartScan which amounted to $1,989,000 and $4,507,000, in 1999 and 1998, respectively. In 1999, the operating losses from discontinued operations were partially offset by a gain on sale of assets amounting to $1,049,000. There is no assurance that Imatron can sustain profitable operations in the future. In the past, Imatron has funded its losses primarily though the sale of securities in two public offerings and a number of private placements, through the exercise of options and warrants, through the 1991 license for medical uses of its electron-beam technology to Siemens Corporation, and through revolving lines of credit. In 1995, the Company raised $9,882,000 (net of offering costs) in two offerings of common stock to certain institutional investors. In 1996, the Company received $16,672,000 through the sale of shares of common stock and the exercise of warrants and stock options for shares of common stock. Also in 1996, HeartScan raised $14,798,000 (net of offering costs) for use exclusively to develop its operations. In 1999, the Company raised $8,621,000 for the sale of shares of common stock and common stock warrants to its President and other institutional investors (see Note 11 to the Notes to the Consolidated Financial Statement). As of December 31, 2000, the Company has a consolidated accumulated deficit of $97,800,000. The Company's liquidity is affected by many factors, including the normal ongoing operations of the business and other factors related to the uncertainties of the industry and global economies. Although the cash requirements ================================================================================ 11 FY 2000 IMATRON INC. FORM 10-K ================================================================================ will fluctuate based on timing and extent of these factors, management believes that cash existing at December 31, 2000 together with the estimated proceeds from ongoing sales of products and services and the funds available under a line of credit with Silicon Valley Bank, will provide the Company with sufficient cash for operating activities and capital requirements through December 31, 2001. NEED FOR ADDITIONAL FINANCING To satisfy the Company's capital and operating requirements beyond 2000, profitable operations, additional public or private financing or the incurrence of debt may be required. If future public or private financing is required by the Company, holders of the Company's securities may experience dilution. There can be no assurance that equity or debt sources, if required, will be available or, if available, will be on terms favorable to the Company or its shareholders. The Company does not believe that inflation has had a material effect on its revenues or results of operations. MATERIAL DEPENDENCE UPON KEY PERSONNEL The Company has been, and will continue to be, materially dependent upon the technical expertise of its engineering and management personnel. The loss of a significant number of such personnel would have a materially adverse effect upon the Company's business and future prospects. The Company does not maintain key-man life insurance. HIGH COST OF SCANNER The distributor list price of Imatron's EBT scanner is significantly higher than that of commercially available conventional CT scanners, and higher than the price of "top-of-the-line" scanners. Such pricing may limit the market for Imatron's product. Potential customers' budgetary limitations, including those imposed by government regulation, may often compel the purchase of lower cost, conventional CT scanners. LIMITED CLINICAL DEMONSTRATION OF CERTAIN ADVANTAGES OF THE COMPANY'S SCANNER The Company's scanner has been used in a clinical environment since April 1983. Clinical use of the C-100 XL scanner model began in February 1989. The C-150 EBT scanner was first used in 1992. 87 C-150, C-100 and C-150L scanners are currently installed in a clinical setting. The Company believes that market acceptance of the EBT scanner continues to depend in substantial part upon the clinical demonstration of certain asserted technological advantages and diagnostic capabilities. There is no assurance that these asserted technological advantages and diagnostic capabilities will result in the development of a significant market for the EBT that will allow the Company to operate profitably. THIRD-PARTY REIMBURSEMENT OF COST OF EBT SCANS The Company is dependent, in part, upon the ability of healthcare providers to obtain satisfactory reimbursement from third-party payors for medical procedures in which the EBT scanner is used. Coverage and the level of payment provided by U.S. and foreign third-party payors varies according to a number of factors, including the medical procedure, payor, location, outcome and cost. In the U.S., many private health care insurance carriers follow the recommendations of the Health Care Financing Administration, or HCFA, which establishes guidelines for the coverage of procedures, services and medical equipment and the payment of healthcare providers treating Medicare patients. The amount that Medicare generally pays a medical institution for in-patient care of Medicare patients is based on a number of considerations, including a patient's diagnosis regardless of the services that are provided. Physicians, however, bill separately for the procedures that they perform. HCFA has determined that diagnostic examinations of the head and other parts of the body performed by EBT scanners are covered if the contractor who administers the local Medicare program finds that medical and scientific literature and opinion support the effective use of a scan for the particular condition. Certain private health insurers and managed care providers ================================================================================ 12 FY 2000 IMATRON INC. FORM 10-K ================================================================================ provide incremental reimbursement to both the medical institutions and their physicians. Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed health care systems that control reimbursement for new products and procedures. Market acceptance of the EBT scanners in international markets depends, in part, on the availability and level of reimbursement. In certain countries, medical center budgets are fixed regardless of levels of patient treatment. Prior to approving coverage for new medical devices, most third-party payors require evidence that the product has received FDA approval, European Union approval, or clearance for marketing, is safe and effective and not experimental or investigational, and is medically necessary and appropriate for the specific patient for whom the product is being used. Increasing numbers of third-party payors require evidence that the procedures in which the products are used, as well as the products themselves, are cost-effective. There is no assurance that the EBT scanner will meet the criteria for coverage and reimbursement or that third-party payors will reimburse physicians and medical institutions at levels sufficient to encourage the widespread use of the product. Moreover, the Company is unable to predict what additional legislation or regulation, if any, relating to the 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. Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. The Company anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative health care delivery and payment systems. Potential approaches that have been considered include mandated basic health care benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls and other fundamental changes to the health care delivery system. Legislative debate is expected to continue in the future, and market forces are expected to demand reduced costs. The Company cannot predict what impact the adoption of any federal or state health care reform measures, future private sector reform or market forces may have on its business. PRODUCT LIABILITY RISKS As a manufacturer and marketer of medical diagnostic equipment, the Company is subject to potential product liability claims. For example, the exposure of normal human tissue to x-rays, which is inherent in the use of CT scanners for diagnostic imaging, may result in potential injury to patients subjecting the Company to possible liability claims. The Company presently maintains primary and excess product liability insurance with aggregate limits of $6.0 million per occurrence. No assurance can be given that the Company's product liability insurance coverage will continue to be available or, if available, that it can be obtained in sufficient amounts or at reasonable cost, or that it will prove sufficient to pay any claims that may arise. VOLATILITY OF STOCK PRICE The market prices for securities of advanced technology companies have historically been highly volatile, including the market price of shares of the Company's common stock. Future announcements by the Company or its competitors, including announcements concerning technological innovations or new commercial products, results of clinical testing, changes in government regulations, regulatory actions, healthcare reform, proprietary rights, litigation, and public concerns as to the safety of the Company's or its collaborators' products, as well as period-to-period variances in financial results could cause the market price of the common stock to fluctuate substantially. In addition, the stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many advanced technology companies, often being unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Company's common stock. NO DIVIDENDS ON PREFERRED AND COMMON STOCK The Company has not paid dividends on its preferred or common stock since inception. Even if its future operations result in profitability, as to which there can be no assurance, there is no present anticipation that ================================================================================ 13 FY 2000 IMATRON INC. FORM 10-K ================================================================================ dividends will be paid. Rather, the Company expects that any future earnings will be applied toward the further development of the Company's business. ITEM 2 - PROPERTIES The Company leases approximately 131,865 square feet of industrial and office spaces in South San Francisco and Hayward, California. The research and development, marketing, administrative, and certain manufacturing operations occupy approximately 75,688 square feet of space located in South San Francisco, California, under leases expiring in February 2004. Customer service and other manufacturing operations occupy 37,500 square feet of space located in Hayward, California under a lease expiring in December 2002. The Company sub-leases 18,677 square feet to certain tenants with leases expiring in February 2004. The Company believes its facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed to accommodate any future expansion of the Company's operations. ITEM 3 - LEGAL PROCEEDINGS None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of Imatron's shareholders during the quarter ended December 31, 2000. ================================================================================ 14 FY 2000 IMATRON INC. FORM 10-K ================================================================================ PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since April 1985, the Company's common stock has traded on the Nasdaq National Market System under the Nasdaq symbol "IMAT." The following table sets forth, for the periods indicated, the range of high and low sales prices, all as reported by Nasdaq. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. 2000 1999 -------------------------- --------------------------- Quarter High Low High Low - ---------------- ----------- ----------- ----------- ------------ First $ 4.75 $ 2.47 $ 2.28 $ 1.03 Second 3.63 2.03 1.44 0.84 Third 2.72 2.03 1.84 1.06 Fourth 2.53 1.28 3.81 1.03 As of March 20, 2001, there were approximately 5,839 holders of record of the Company's common stock. On March 20, 2001, the closing price of the Company's common stock on Nasdaq was $1.56. DIVIDEND INFORMATION The Company has paid no cash dividends on its common stock since incorporation and anticipates that, for the foreseeable future, it will retain any earnings for use in its business. ITEM 6 - SELECTED FINANCIAL DATA IMATRON INC. SELECTED FINANCIAL INFORMATION (in thousands, except per share amounts)
OPERATING INFORMATION Year Ended December 31 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Total revenues from continuing operations $ 62,420 $ 37,549 $ 30,660 $ 37,317 $ 24,823 Operating income (loss) from continuing operations $ 4,460 $ (5,835) $ (9,535) $ (3,915) $ (8,065) Income (loss) from continuing operations $ 6,272 $ (5,646) $ (9,400) $ (3,250) $ (5,892) Income (loss) from discontinued operations $ 207 $ (940) $ (4,507) $ (6,428) $ (4,573) Net income (loss) $ 6,283 $ (6,586) $(14,781) $ 11,422) $(13,737) Basic and diluted income (loss) per share from continuing operations $ 0.06 $ (0.06) $ (0.11) $ (0.04) $ (0.08) Number of shares used in per share calculations: Basic 102,983 94,680 83,941 78,461 74,406 Diluted 106,931 94,680 83,941 78,461 74,406
================================================================================ 15 FY 2000 IMATRON INC. FORM 10-K ================================================================================ BALANCE SHEET INFORMATION At December 31 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- Working capital $31,982 $22,217 $12,813 $26,003 $33,042 Total assets 51,488 40,643 31,982 43,165 47,488 Long term obligations including capital lease obligations 82 125 39 121 182 Total liabilities 14,796 13,818 12,991 11,840 9,962 Minority interest -- 93 331 14,255 12,323 Shareholders' equity 36,692 26,732 18,660 17,070 25,203 The Company did not pay any cash dividends on its common stock during any of the periods presented above. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, working capital increased to $31,982,000 compared to December 31, 1999 working capital of $22,217,000 primarily as a result of increased revenues. The current ratio increased to 3.2:1 at December 31, 2000 from 2.7:1 at December 31, 1999. The Company's total assets increased to $51,488,000 compared to December 31, 1999 total assets of $40,643,000. Cash used in continuing operations was $8,825,000 for twelve months ended December 31, 2000 compared to $1,267,000 during the same period in 1999. The increase in cash used in operating activities was primarily due to increases in receivables and inventory purchases, partially offset by an increase in accrued expenses. The increase in receivables was due to increased scanner shipments to 33 in 2000 from 19 during the same period in 1999. Growth in trade receivables was mainly due to the 9 scanner shipments in the fourth quarter of 2000 that were outstanding at year end. The increase in inventory was due to increased production levels to meet anticipated shipments in the next fiscal year. Cash provided by discontinued operations was $1,495,000 for the twelve months ended December 31, 2000 compared to cash used amounting to $3,555,000 during the same period in 1999 due to the $1,240,000 cash balance transferred from HeartScan to Imatron in 2000 and the $2,079,000 cash settlement of lease obligations on scanners sold in 1999. Net income from discontinued operations for the twelve month period ended December 31, 2000 was $207,000 as compared to a net loss of $940,000 (net of gain on sale of assets of discontinued business) for the same period in 1999. The increase in net income was primarily due to the net gain realized from the sale of all HeartScan centers which were consistently operating at a loss since inception. The Company's investing activities for the year ended December 31, 2000 included purchases of capital equipment and marketable securities amounting to $1,679,000 and $2,523,000, respectively, offset by maturities of marketable securities of $4,061,000 and proceeds from the disposal of discontinued operations of $107,000. Capital expenditures included approximately $1,334,000 of test equipment for use in research and development. The Company's investing activities for the year ended December 31, 1999 included acquisition of Caral amounting to $273,000 (net of cash acquired) and purchases of marketable securities and equipment amounting to $4,062,000 and $1,148,000, respectively, offset by maturities of marketable securities of $2,063,000 and proceeds from disposal of discontinued operations of $4,325,000. Capital expenditures included approximately $437,000 for the purchase and installation of the MK Enterprise Resource Planning System. ================================================================================ 16 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Cash provided by financing activities was $2,884,000 for the year ended 2000 as compared with $11,670,000 for the same period in 1999. Key financing activities for the year included proceeds of $3,002,000 and $11,409,000 from sale of common stock and exercise of stock options and warrants during the year ended December 31, 2000 and 1999, respectively. The Company's liquidity is affected by many factors, including the normal ongoing operations of the business and other factors related to the uncertainties of the industry and global economies. Although the cash requirements will fluctuate based on timing and extent of these factors, management believes that cash existing at December 31, 2000 together with the estimated proceeds from ongoing sales of products and services and the funds available under a line of credit with Silicon Valley Bank, will provide the Company with sufficient cash for operating activities and capital requirements through December 31, 2001. The Company expects to devote substantial capital resources to research and development, to support a direct sales force and marketing operations and to continue to support its manufacturing capacity and facilities. To satisfy the Company's capital and operating requirements beyond 2001, profitable operations, additional public or private financing or the incurrence of debt may be required. If future public or private financing is required by the Company, holders of the Company's securities may experience dilution. There can be no assurance that equity or debt sources, if required, will be available or, if available, will be on terms favorable to the Company or its shareholders. The Company does not believe that inflation has had a material effect on its revenues or results of operations. RESULTS OF CONTINUING OPERATIONS 2000 vs. 1999 Overall revenues for the year ended December 31, 2000 of $62,420,000 increased $24,871,000 or 66% compared to revenues of $37,549,000 for the same period in 1999. Net product revenues increased to $53,318,000 in 2000 from $29,891,000 in 1999 due to 33 scanners having been sold in 2000 compared to 19 in 1999. In 2000, the increase in average scanner selling price was also attributable to the increase in scanner revenues. The increase in revenue was reduced by the adoption of Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements (SAB 101) in the 4th quarter of 2000 which resulted in deferring a portion of scanner sales related to the installation until such installation services have been performed. The Company deferred $368,000 for the year ended 2000 as a result of this change in accounting policy. Service revenues increased 19% to $8,248,000 in 2000 from $6,938,000 in 1999 due to increases in scanners under service contracts and spare parts revenue. The increase in spare parts revenue was due to the payment of receivables from Imatron Japan amounting to $1,242,000 which had previously been deferred because payment was not reasonably assured. Since 1998, revenues on spare parts shipped to Imatron Japan, a major customer, were deferred and related costs were recognized due to the customer's difficulty in paying as a result of the economic and currency uncertainties in Japan. Other product sales represent revenues from Caral's machining and fabrication services. Other ================================================================================ 17 FY 2000 IMATRON INC. FORM 10-K ================================================================================ product sales increased to $854,000 in 2000 from $720,000 in 1999 due to an increase in sales to a greater number of third-party customers. Total cost of revenues as a percent of revenues for the year ended 2000 was lower at 59% as compared with 72% in 1999. Product cost of revenues as a percent of product revenues decreased to 56% in 2000 from 68% in 1999 due to shipment of 33 scanners with higher gross margins compared to 19 shipments in 1999. Although, the cost of product sales decreased in 2000 due to the adoption of SAB 101, it did not affect the cost of product revenue as percent of revenues. In 1999, the high cost of product sales was due to the decrease in production of new scanners, resulting in a significant portion of the fixed overhead of the manufacturing facility being expensed to cost of revenue. Service cost of revenues as a percent of service revenue decreased to 78% in 2000 from 89% in 1999 due to the recognition of spare parts revenue from Imatron Japan which was deferred since 1998 pending payment of its receivables. The related costs were expensed during the prior period resulting in a decrease in cost as a percent to revenues for the year ended 2000. Other product cost of revenues as a percent of other product revenues slightly decreased to 97% in 2000 from 98% in 1999 due to increased sales to external customers. Operating expenses for the year ended 2000 increased to $20,845,000 or 33% of revenues, compared to $16,332,000, or 43% of revenues in 1999. Research and development expenses of $8,944,000 in 2000 increased from $7,045,000 in 1999 due to an increase in materials for new product development programs and increased compensation expenses. Marketing and sales expenses increased to $8,562,000 in 2000 from $6,244,000 in 1999 due primarily to increases in headcount and sales commissions resulting from increased scanner sales. Administrative expenses increased to $3,196,000 in 2000 from $2,622,000 in 1999 due primarily to an increase in headcount resulting from increased business activities. The increase was partially offset by $1,537,000 received on the settlement of receivables reserved in 1998 and 1999. Goodwill amortization amounting to $141,000 and $139,000 in 2000 and 1999, respectively, represent the amortized portion of goodwill related to the acquisition of Caral. Restructuring charges of $282,000 relates to severance and related benefits paid by the Company during the first quarter of 1999 as part of it's reorganization plan. Gain on sale of service business totaled $1,525,000 and relates to sale of service business in Japan. Interest income increased to $548,000 in 2000 from $242,000 in 1999. The increase was due to higher average cash and investment balances during 2000 compared to 1999 resulting from cash generated from scanner sales in 2000. Interest expense represents interest incurred on capital lease obligations on certain office equipment. The cumulative effect of a change in accounting principle amounting to $29,000 was due to the adoption of SAB 101. 1999 vs. 1998 Overall revenues for the year ended December 31, 1999 of $37,549,000 increased $6,889,000 or 22% compared to revenues of $30,660,000 for the same period in 1998. Net product revenues increased to $29,891,000 in 1999 from $22,547,000 in 1998 due to 19 scanners having been sold in 1999 compared to 15 in 1998. In addition, upgrade revenues increased to $1,490,000 in 1999 from $272,000 in 1998. Service revenues slightly increased 1% to $6,938,000 in 1999 from $6,863,000 in 1998 due to an increase in scanners under service contract offset by a decrease in spare parts shipped. Development contract revenue of $1,250,000 recorded in 1998 represented a non-refundable payment received from Siemens to compensate the Company for its research and development efforts for which Siemens received certain rights under the three year Memorandum of Understanding. There were no payments received from Siemens for 1999 as the Memorandum of Understanding expired on April 1, 1998. Total cost of revenues as a percent of revenues for the year ended 1999 was lower at 72% as compared with 76% in 1998. Product cost of revenues as a percent of product revenues decreased to 68% in 1999 from 75% in 1998. The gross margins in 1998 were adversely affected by a mix in the sales prices of scanners. Although the cost of a scanner remains constant for all new scanner sales, the price varied depending on the customer. In particular, sales to Siemens and Imatron Japan, Inc. had a lower sales price and consequently lower gross margins, than sales to other parties. The decrease in the cost of revenue as a percentage of revenue for scanners was due to the decrease in scanner sales to these distributors to two in fiscal year 1999 from four in fiscal year 1998 and a sale of a refurbished scanner with higher gross margins in 1999. Service cost of revenues as a percent of service revenue decreased to 89% in 1999 from 93% in 1998 due to improved scanner performance reducing the costs to maintain the scanners and higher gross margins on spare parts shipped. In 1998, revenues on spare parts shipped to Imatron Japan, a major customer, were deferred and related costs were recognized due to the customer's difficulty in paying as a result of the economic and currency uncertainties in Japan. As a major customer, the Company extended credit beyond the normal terms to ensure the continued service for its 29 installed scanners purchased from the Company. Operating expenses for the year ended 1999 decreased to $16,332,000 or 43% of revenues, compared to $16,901,000, or 55% of revenues in 1998. Research and development expenses of $7,045,000 in 1999 decreased from $7,869,000 in 1998 due to a reduction in headcount and completion of certain R&D projects. Marketing and sales expenses increased to $6,244,000 in 1999 from $4,456,000 in 1998 primarily due to increases in promotional activities and headcount to establish a larger sales and marketing organization to better ================================================================================ 18 FY 2000 IMATRON INC. FORM 10-K ================================================================================ serve the growing EBT market. Administrative expenses decreased to $2,622,000 in 1999 from $4,576,000 in 1998 due primarily to a decrease in the bad debt provision relating to certain distributors. Goodwill amortization amounting to $139,000 in 1999 represents the amortized portion of goodwill related to the acquisition of Caral. Restructuring charges of $282,000 relates to severance and related benefits paid by the Company during the first quarter of 1999 as part of it's reorganization plan. Interest income increased to $242,000 in 1999 from $155,000 in the comparable period of 1998. The increase was due to higher average cash and investment balances during 1999 compared to 1998 resulting from cash generated from scanner sales, private offering of the Company's common stock, and exercises of warrants and stock options in 1999. Interest expense represents interest incurred on capital lease obligations on certain office equipment. The Company incurred a non-cash charge to income of $874,000 recorded as a return to minority interest expense for the year ended 1998, in connection with amortization of beneficial conversion features granted to the holders of the HeartScan convertible Series A Preferred Stock. Discontinued operation: On July 13, 1998, the Company announced its intention to divest its HeartScan subsidiary. Accordingly, the Company restated its financial statements to reflect the classification of HeartScan as a discontinued operation for all periods presented (See Note 17). During the twelve months of 1999 and 1998, the Company reported losses from discontinued operations of $940,000 and $4,507,000, respectively, which relate to the discontinued operations of the HeartScan subsidiary. The decrease in operating loss was primarily due to the closure of the centers which had been consistently operating at a loss and the net gain realized from the sale of the centers. In 2000, income from discontinued operations of $207,000 was primarily due to the net gain realized from the sale of a scanner, offset by an increase in accrual for expected losses. At the measurement date, the Company estimated that although a gain would be realized upon the ultimate sale, HeartScan would continue to incur operating losses through the disposal date. In the fourth quarter of 1998, the Company changed its strategy from selling HeartScan to a single buyer to that of selling the individual centers to buyers located in the cities where the centers were located. As such, the Company reassessed its estimate of the gain on disposal to reflect the Company's change in strategy. In 1999, the Company sold all its domestic centers for a net gain of $1,049,000. At December 31, 2000, the sale of HeartScan subsidiary was completed with the sale of the scanner in Cascais, Portugal for a net gain of $427,000. NEW ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because the Company does not currently hold any derivative instruments and does not engage in hedging activities, the Company expects that the adoption of SFAS No. 133, as amended, will not have a material impact on its consolidated financial position, results of operations, or cash flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25. This Interpretation clarifies the application of Opinion 25 for certain issues: (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. Effective July 1, 2000, the Company adopted ================================================================================ 19 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Interpretation No. 44. The adoption of this interpretation did not have any material effect on the Company's consolidated financial position or results of operations. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has held investments consisting of interest bearing investment grade instruments consistent with the Company's investment policy. The Company has also entered into leasing arrangements. At December 31, 2000, the Company had money market mutual funds, certificates of deposit and commercial paper, which mature in less than twelve months. Additionally, the Company maintained leases for certain office equipment that have been accounted for as capital leases with a total obligation of $117,000 as of December 31, 2000. The Company does not believe that it is subject to any material exposure to interest rate, foreign currency or other market risks. ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Consolidated Financial Statements and Consolidated Financial Statement Schedule listed in Item 14 (a) 1 and 2. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10 - EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages and positions are set forth below. Unless otherwise indicated, officers are full-time employees and serve at the discretion of the Board of Directors.
Name Age Position ------------------- ------- --------------------------------------------------- Dr. Douglas P. Boyd 59 Chairman of the Board, Chief Technology Officer S. Lewis Meyer 56 Chief Executive Officer Terry Ross 53 President (retired January 1, 2001) Frank Cahill 54 Vice President, Finance and Administration, Chief Financial Officer, Secretary
o Dr. Douglas Boyd is a founder of Imatron and has held several positions with the Company since its inception in 1983 including Chief Executive Officer, President, Chief Technical Officer, and Director. Dr. Boyd is currently Chairman of the Board and Chief Technology Officer. He is also an Adjunct Professor of Radiology (Physics) at the University of California, San Francisco, where he spends approximately five percent of his time on university duties. In addition, Dr. Boyd is a Director for InVision Technologies, Inc., a publicly held company engaged in the design and manufacture of explosives detection computed tomography (CT) scanners for the baggage, parcel, and freight market. InVision Technologies is a former Imatron joint venture company which was established in 1990. ================================================================================ 20 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Recognized internationally for his pioneering work in the development of fan-beam CT scanners, Xenon detector arrays, and EBT, Dr. Boyd has been awarded ten U.S. patents. He has published more than 100 scientific papers and is a frequent speaker at university seminars and other symposia. In 1993 he was awarded the prestigious Conway Safe Sky's Award for contributions to airline travel safety related to the development of a CT baggage explosives detection system. Dr. Boyd received his B.S. in Physics from the University of Rochester in 1963 and a Ph.D. in Physics from Rutgers University in 1968. o S. Lewis Meyer was appointed President, Chief Executive Officer and Director of Imatron in June 1993. From April 1991 until joining the Company, he was Vice President, Operations of Otsuka Electronics (U.S.A.) Inc., Fort Collins, Colorado, a manufacturer of clinical magnetic resonance systems and analytical nuclear magnetic resonance spectrometers. From August 1990 to April 1991, he was a founding partner of Medical Capital Management, a company engaged in providing consulting services to medical equipment manufacturers, imaging service providers, and related medical professionals. Prior thereto, he was President and Chief Executive Officer of American Health Services Corp. (now Insight Health Services Corp.), a developer and operator of diagnostic imaging and treatment centers Mr. Meyer received his B.S. degree in Physics from the University of the Pacific, Stockton, California, in 1966, a M.S. degree in Physics from Purdue University in 1968, and a Ph.D. in Physics from Purdue University in 1971. o Terry Ross served as President of Imatron from January 1999 through December 2000. From 1989 to 1998, Mr. Ross was President, Chief Executive Officer and Director of Cemax-Icon, Inc., a medical imaging manufacturer. Prior thereto, he was Vice President of Sales and Marketing of the Company. Mr. Ross also held executive sales positions at Picker International, Inc. and ADAC Laboratories, Inc., all of which are medical imaging companies. o Frank Cahill was appointed Vice President of Finance and Administration, Chief Financial Officer, and Secretary of Imatron on January 2, 2000. Prior to joining the Company, Mr. Cahill has held management positions from "Fortune 500" companies in New York to smaller start-up companies since relocating to California a few years ago. Most recently he was Vice President - Finance and Administration at Berkeley Heart Lab, Inc., the developer of a unique test to measure lipid particle density and Chief Financial Officer at MED-COR Health Information Solutions, Inc. a healthcare consulting and service firm. Mr. Cahill while at Ernst & Young in New York became a Certified Public Accountant. He has received an M.B.A. from Rutgers University and a B.S. in Physics from St. Peters College both in New Jersey. ITEM 11 - EXECUTIVE COMPENSATION The information required on items 11, 12 and 13 will be included in the Company's definitive proxy statement or as an amendment to the Form 10-K, under cover of Form 8. The information required in Part III will be filed with the Securities Exchange Commission no later than 120 days after the end of the fiscal year. PART IV ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form: ================================================================================ 21 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 1. Consolidated Financial Statements - See "Index to Consolidated Financial Statements" attached hereto and made a part hereof. 2. Financial Statement Schedule - Schedule II - Valuation and qualifying accounts. All other schedules are omitted as they are not applicable, or the required information is shown in the financial statements or the notes thereto. 3. Exhibits - The exhibits listed on the accompanying "Index to Exhibits" are filed or are incorporated herein by reference as part of this report. (b) Form 8-K Reports: None ================================================================================ 22 FY 2000 IMATRON INC. FORM 10-K ================================================================================ SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 23, 2001 IMATRON INC. ----------------------------------- By: FRANK CAHILL ----------------------------------- Chief Financial Officer, Vice President, Finance and Administration, Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------------- ------------------------------------ ---------------------- Director, - -------------------------------------- Chairman of the Board March 23, 2001 Douglas P. Boyd - -------------------------------------- Director William J. McDaniel March 23, 2001 - -------------------------------------- Director John L. Couch March 23, 2001 - -------------------------------------- Director Allen Chozen March 23, 2001 - -------------------------------------- Director Richard Myler March 23, 2001 - -------------------------------------- Director, S. Lewis Meyer President/Chief Executive Officer March 23, 2001 (Principal Executive Officer) March 23, 2001 - -------------------------------------- Director Terry Ross - -------------------------------------- Director Aldo J. Test March 23, 2001 - -------------------------------------- Chief Financial Officer, Vice President, Frank Cahill Finance and Administration, Secretary March 23, 2001 (Principal Financial Officer and Principal Accounting Officer) ===================================================================================================== 23
FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Index to Consolidated Financial Statements STATEMENT PAGE ----------------------------------------------------------------------- ---- Independent Auditors' Report 25 Consolidated Balance Sheets as of December 31, 2000 and 1999 26 Consolidated Statements of Operations for the years ended December 31, 2000, 1999, and 1998 27 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999, and 1998 29 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 30 Notes to Consolidated Financial Statements 32 ================================================================================ 24 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Independent Auditors' Report The Board of Directors and Shareholders Imatron Inc.: We have audited the consolidated balance sheets of Imatron Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in the index at Item 14(a)2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Imatron Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /S/ KPMG LLP San Francisco, California January 30, 2001 ================================================================================ 25 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Consolidated Balance Sheets (In thousands)
December 31, December 31, ASSETS 2000 1999 --------- --------- Current assets Cash and cash equivalents $ 4,718 $ 9,198 Short term investments 461 1,999 Accounts receivable (net of allowance for doubtful accounts of $870 and $2,876 at December 31, 2000 and 1999, respectively): Trade accounts receivable 19,300 8,570 Accounts receivable from joint venture -- 582 Other receivables 2,184 -- Inventories 18,835 12,965 Prepaid expenses 905 1,030 Net current assets of discontinued operations -- 1,019 --------- --------- Total current assets 46,403 35,363 Property and equipment, net 3,567 2,900 Goodwill, net 1,101 1,242 Other assets 417 669 Long-term net assets of discontinued operations -- 469 --------- --------- Total assets $ 51,488 $ 40,643 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,037 $ 2,998 Deferred revenue 1,901 2,017 Other accrued liabilities 9,448 8,101 Capital lease obligations - due within one year 35 30 --------- --------- Total current liabilities 14,421 13,146 Deferred income on sale leaseback transactions -- 367 Deferred revenue 293 180 Capital lease obligations 82 125 --------- --------- Total liabilities 14,796 13,818 --------- --------- Minority interest -- 93 --------- --------- Shareholders' equity Common stock, no par value; 150,000 shares authorized; 104,599 and 100,042 shares issued and outstanding December 31, 2000 and 1999, respectively 128,108 121,566 Additional paid-in capital 9,614 9,399 Notes receivable from shareholders (3,230) (150) Accumulated deficit (97,800) (104,083) --------- --------- Total shareholders' equity 36,692 26,732 --------- --------- Total liabilities and shareholders' equity $ 51,488 $ 40,643 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 26 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Consolidated Statements of Operations (In thousands, except per share amounts)
Years ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Revenues Product sales $ 53,318 $ 29,891 $ 22,547 Service 8,248 6,938 6,863 Other products sales 854 720 -- Development contracts -- -- 1,250 -------- -------- -------- Total revenue 62,420 37,549 30,660 -------- -------- -------- Cost of revenues Product sales 29,849 20,188 16,931 Service 6,436 6,162 6,363 Other products sales 830 702 -- -------- -------- -------- Total cost of revenues 37,115 27,052 23,294 -------- -------- -------- Gross profit 25,305 10,497 7,366 -------- -------- -------- Operating expenses Research and development 8,944 7,045 7,869 Marketing and sales 8,562 6,244 4,456 General and administrative 3,196 2,622 4,576 Goodwill amortization 143 139 -- Restructuring charges -- 282 -- -------- -------- -------- Total operating expenses 20,845 16,332 16,901 -------- -------- -------- Operating income (loss) 4,460 (5,835) (9,535) Gain on sale of service business 1,525 -- -- Interest income 548 242 155 Interest expense (23) (68) (20) Other income (loss) (238) 15 -- -------- -------- -------- Income (loss) from continuing operations before provision for income taxes 6,272 (5,646) (9,400) Provision for income taxes (167) -- -- -------- -------- -------- Income (loss) from continuing operations 6,105 (5,646) (9,400) Income (loss) from discontinued operations 207 (940) (4,507) Non cash return to minority interest -- -- (874) -------- -------- -------- Income (loss) before cumulative effect of change in accounting principle 6,312 (6,586) (14,781) Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (29) -- -- -------- -------- -------- Net income (loss) $ 6,283 $ (6,586) $(14,781) ======== ======== ======== ================================================================================ 27 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Net income (loss) per share: Income (loss) from continuing operations - basic and diluted $ 0.06 $(0.06) $ (0.11) ======= ====== ========= Net income (loss) - basic and diluted $ 0.06 $(0.07) $ (0.18) ======= ====== ========= Number of shares used in basic per share calculations 102,983 94,680 83,941 ======= ====== ========= Number of shares used in diluted per share calculations 106,931 94,680 83,941 ======= ====== ========= Proforma amounts assuming the new revenue recognition method is applied retroactively: Net income (loss) $ 6,312 $(6,615) $ (14,781) ======= ====== ========= Net income (loss) - basic $ 0.06 $(0.07) $ (0.18) ======= ====== ========= Net income (loss) - diluted $ 0.06 $(0.07) $ (0.18) ======= ====== ========= The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 28 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Consolidated Statements of Shareholders' Equity (In thousands)
Common Stock Additional Deferred Accum- -------------------- Paid-in Compen- Notes ulated Shares Amount Capital Sation Receivable Deficit Total -------- -------- -------- -------- -------- -------- -------- Balances at December 31, 1997 78,815 90,728 9,290 (232) -- (82,716) 17,070 Common stock issued for employee stock purchase plans, stock bonus and the exercise of warrants and employee stock 1,984 1,949 -- -- -- -- 1,949 options Conversion of subsidiary's convertible series A preferred stock to company's common stock 7,496 14,798 -- -- -- -- 14,798 Amortization of deferred compensation -- -- -- 62 -- -- 62 Warrants issued for services -- -- 50 -- -- -- 50 Notes receivable from officers for exercise of stock options -- -- -- -- (488) -- (488) Net loss -- -- -- -- -- (14,781) (14,781) -------- -------- -------- -------- -------- -------- -------- Balances at December 31, 1998 88,295 $107,475 $ 9,340 $ (170) $ (488) $ (97,497) $ 18,660 Common stock issued for employee stock purchase plans, stock bonus and the exercise of warrants and employee stock 3,118 4,016 -- -- -- -- 4,016 options Common stock and warrants sold in private placements, net of offering costs 7,673 8,621 -- -- -- -- 8,621 Common stock issued for acquisition of subsidiary 956 1,454 -- -- -- -- 1,454 Reversal of deferred compensation due to cancellation of stock options of discontinued -- -- -- 170 -- -- 170 operations Warrants issued per employment contract -- -- 10 -- -- -- 10 Non-cash expense related to options issued to Non-employee directors -- -- 49 -- -- -- 49 Repayments of notes receivable -- -- -- -- 338 -- 338 Net loss -- -- -- -- -- (6,586) (6,586) -------- -------- -------- -------- -------- -------- -------- Balances at December 31, 1999 100,042 $121,566 $ 9,399 $ -- $ (150) $(104,083) $ 26,732 Common stock sold in a private placement, net of offering 281 1,151 -- -- -- -- 1,151 costs Common stock issued for employee stock purchase plans, stock bonus and the exercise of warrants and employee stock options 1,285 2,391 -- -- -- -- 2,391 Exercise of warrants for notes receivable from officers 2,991 3,000 -- -- (3,000) -- -- Interest on notes receivable from officers (117) (117) Non-cash expense related to warrants and options issued to non-employees and directors -- -- 215 -- -- -- 215 Repayments of notes receivable -- -- -- -- 37 -- 37 Net income -- -- -- -- -- 6,283 6,283 -------- -------- -------- -------- -------- -------- -------- Balances at December 31, 2000 104,599 $128,108 $ 9,614 $ -- $ (3,230) $(97,800) $ 36,692 ======== ======== ======== ======== ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 29 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Consolidated Statements of Cash Flows (In thousands)
Years Ended December 31 -------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net income (loss) 6,283 $ (6,586) (14,781) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 766 757 780 Net income from discontinued operations (207) 940 4,507 Goodwill amortization 141 139 -- Amortization of deferred compensation -- -- 62 Non-cash return to minority interest -- -- 874 Provision for (recovery of) doubtful accounts (1,252) 240 1,155 Options and warrants issued for services 215 49 50 Common stock issued for good and services 540 1,228 503 Loss on disposal of assets 246 22 20 Changes in operating assets and liabilities: Accounts receivable (11,080) (1,209) 340 Inventories (5,870) 1,730 (1,507) Prepaid expenses 125 (202) (428) Other assets 252 950 (417) Accounts payable 39 (671) 553 Other accrued liabilities 1,347 1,974 1,017 Deferred revenue (370) (628) (621) -------- -------- -------- Net cash used in operating activities: (8,825) (1,267) (7,893) Net cash used in (provided by) discontinued operations 1,495 (3,555) 499 -------- -------- -------- (7,330) (4,822) (7,394) -------- -------- -------- Cash flows from investing activities: Capital expenditures (1,679) (1,148) (642) Purchases of short-term investments (2,523) (4,062) (885) Maturities of short-term investments 4,061 2,063 1,065 Proceeds from sale of discontinued operations 107 4,325 Acquisition of subsidiary, net of cash acquired -- (273) -- -------- -------- -------- Net cash used in (provided by) by investing activities: (34) 905 (462) -------- -------- -------- Cash flows from financing activities: Payments of obligations under capital leases (38) (87) (57) Proceeds from issuance of warrant -- 10 -- Proceeds from issuance of common stock 3,002 11,409 1,446 Loans to stockholders (117) -- (488) Repayment of loans to stockholders 37 338 -- -------- -------- -------- Net cash provided by financing activities 2,884 11,670 901 Net (decrease) increase in cash and cash equivalents (4,480) 7,753 (6,955) Cash and cash equivalents, at beginning of year 9,198 1,445 8,400 -------- -------- -------- Cash and cash equivalents, at end of year 4,718 $ 9,198 1,445 ======== ======== ========
Continued ================================================================================ 30 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. Consolidated Statements of Cash Flows, continued (In thousands)
Supplemental Disclosure of Noncash Investing and Financing Activities: HeartScan's conversion of preferred stock to Imatron common stock -- $ -- 14,798 ===== ======= ====== Equipment acquired under capital leases: Continuing operations -- $ 139 39 ===== ======= ====== Notes issued for stock options and warrants exercised Continuing operations 3,000 $ -- 488 ===== ======= ====== Cash paid for interest on capital lease obligations: Continuing operations 23 $ 68 20 ===== ======= ====== Discontinued operations -- $ 247 390 ===== ======= ====== The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 31 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IMATRON INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF COMPANY Imatron Inc., a New Jersey corporation incorporated in 1983, is a technology-based company principally engaged in the business of designing, manufacturing, and marketing a high performance Electron Beam Tomography ("EBT") scanner. The scanner is used in large and mid-sized hospitals and free standing imaging clinics. Imatron Inc. provides service, parts, and maintenance to hospitals and clinics that operate its scanners, as well as medical equipment manufactured by other companies. BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, HeartScan Imaging Inc. ("HeartScan") and Caral Manufacturing ("Caral"). All significant intercompany balances and transactions have been eliminated in consolidation. On July 13, 1998, the Company adopted a formal plan to sell its HeartScan subsidiary in order for the Company to focus more comprehensively on the core business of manufacturing and servicing quality EBT scanners. For all periods presented, the financial statements reflect the Company's HeartScan segment as a discontinued operation. On January 6, 1999, Imatron acquired a 100% interest in Caral in an acquisition accounted for under the purchase method of accounting. Beginning January 6, 1999, the financial position and operating results of Caral were consolidated with those of the Company. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principle requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because the Company does not currently hold any derivative instruments and does not engage in hedging activities, the Company expects that the adoption of SFAS No. 133, as amended, will not have a material impact on its consolidated financial position, results of operations, or cash flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001. CONCENTRATIONS OF RISK The Company's primary customers operate in the healthcare industry. The healthcare industry is highly regulated. Both existing and future governmental regulations could adversely impact the market for the Company's EBT scanner and the Company's business. The Company's operations are also subject to regulation by other federal, state, and local governmental entities empowered to enforce pertinent statutes and regulations, such as those enforced by the Occupational Safety and Health Agency and the Environmental Protection Agency. The Company sells its products worldwide through a direct employee-based sales organization and independent distributors. In addition, the Company maintains geographically based sales and marketing organizations that are ================================================================================ 32 FY 2000 IMATRON INC. FORM 10-K ================================================================================ responsible for marketing, sales and distribution of the Company's products in the United States, Europe, Africa, the Middle East, Canada, Latin America and the Asia-Pacific region. The Company generally requires cash deposits or irrevocable letters of credit for scanners ordered and maintains allowances for potential credit losses. There have been no losses arising from the sale of scanners. Spare parts are sold on terms to distributors and end-users. The Company's revenues are principally derived from the sales of the EBT scanner. Many of the components and sub-assemblies used in the scanner have been developed and designed by Imatron to its custom specifications and are obtainable from limited or single sources of supply. In view of the customized nature of many of these components and sub-assemblies, there may be extended delays between their order and delivery. Delays in such delivery could adversely affect Imatron's present and future production schedules. The Company has made and continues to make inventory investments to acquire long lead-time components and sub-assemblies to minimize the impact of such delays. In recent years, the Company has developed alternative sources for many of its scanner subcomponents and continues its programs to qualify vendors for the other critical parts. COMPREHENSIVE INCOME (LOSS) The Company has no components of other comprehensive income (loss) other than its net income (loss) and, accordingly, comprehensive income (loss) is equivalent to net income (loss) for all periods presented. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist principally of cash on deposit with banks and money market accounts that are stated at costs, which approximates fair value. FINANCIAL INSTRUMENTS In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company has classified all investments as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of other comprehensive income (loss), if material. Fair values of investments are based on quoted market prices. Short-term investments at December 31, 2000 and 1999 consist of commercial paper and government securities, respectively, and are classified as available for sale. Realized gains and losses, and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific identification method. The carrying amounts reported in the balance sheet for receivables, accounts payable, accrued liabilities and capital lease obligations approximate fair value due to their short-term maturities. INVENTORIES Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Provisions are made in each period for the estimated effects of excess and obsolete inventories. The company policy is to reserve 100% on obsolete inventories, defined as parts that are no longer used in production, upgrades and repairs. Parts that are not defined as obsolete are classified into different subsections. The reserve percentages for each subsection represent the total value of parts in each subsection that have the potential to be obsolete in the next 12 months. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Equipment under capital leases, except for scanner equipment and leasehold improvements, are ================================================================================ 33 FY 2000 IMATRON INC. FORM 10-K ================================================================================ amortized using the straight-line method over the lesser of their estimated useful lives or the remaining term of the related leases. Estimated useful lives are as follows: Machinery and equipment 3 - 5 years Furniture and fixtures 3 - 5 years Leasehold improvements 5 years GOODWILL AND LONG-LIVED ASSETS Goodwill represents the excess of cost over net assets of Caral, and is amortized on a straight-line method over 10 years. Accumulated amortization of goodwill was $280,000 and $139,000 as of December 31, 2000 and 1999, respectively. The Company accounts for goodwill and other long-lived assets under, SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that goodwill and long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Based on these evaluations, there were no adjustments to the carrying value of goodwill and other long-lived assets in the fiscal periods reported. ================================================================================ 34 FY 2000 IMATRON INC. FORM 10-K ================================================================================ REVENUE RECOGNITION AND CHANGE IN ACCOUNTING PRINCIPLE In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company adopted SAB 101 in the fourth quarter of fiscal year 2000 and in accordance with APB Opinion No. 20 Accounting Changes and SFAS No. 3 Reporting Accounting Changes in Interim Financial Statements, results of operations for the first, second and third quarter of fiscal year 2000 have been restated to reflect the new revenue recognition policy. The effect of the adoption of SAB 101 on retained earnings as of January 1, 2000 has been reflected as cumulative effect of change in accounting principle in the net income for the year ended December 31, 2000. The cumulative effect includes reversal of $442,000 and $413,000 related to revenues and costs of sales, respectively, recognized in prior periods. Prior to September 30, 2000, the Company recognized product revenue upon shipment to the customers or customer-designated locations. Upon adoption of SAB 101, the Company changed its revenue recognition policy to reflect the multi- element nature of its sales contracts. The Company's arrangement with its customers typically includes an installation service, which is performed at some time subsequent to the shipment of the scanner. Based on the criteria included in SAB 101, the Company concluded that the undelivered installation is not essential to the functionality of the delivered equipment. The Company used the following indicators in its evaluation: o The equipment is a standard product and no significant customization is required upon installation; o Installation is primarily related to assembly and does not alter the equipment capabilities; o The installation service is available from other vendors. Thus, the Company as changed its revenue recognition policy to the following: Revenue associated with the sale of scanners is recognized when: o Persuasive evidence of an arrangement exists; o Delivery has occurred; o The Company's price to the customer is fixed and determinable; and, o Collectibility is reasonably assured. At the time of shipment, the Company defers revenue associated with installation services based on the fair value of those services until the installation service is performed and completed. The fair value of the installation services was established based on historical charge rates for similar services provided by the Company to the customers of its service business. The Company accrues for estimated scanner warranty cost upon scanner shipment. Revenue from the sale of parts is recognized upon shipment. Revenue earned under maintenance contracts is recognized ratably over the service period. ================================================================================ 35 FY 2000 IMATRON INC. FORM 10-K ================================================================================ The Company's interim results of operations have been restated as follows (in thousand, except per share amounts):
Three Months Ended September 30, June 30, March 31, 2000 2000 2000 ------- ------- ------- Revenue as originally reported 17,805 15,517 11,348 Effect of change in revenue recognition (110) 37 (110) ------- ------- ------- Revenue as restated 17,695 15,554 11,238 ======= ======= ======= Net income as originally reported 1,577 1,044 248 Effect of change in revenue recognition (7) 3 (7) ------- ------- ------- Income before cumulative effect of change in accounting principle 1,570 1,047 241 Cumulative effect on prior years (to December 31, 1999) of changing to a different revenue recognition method (29) ------- ------- ------- Net income as restated 1,570 1,047 212 ======= ======= =======
The adoption of SAB 101 did not have any effect on the originally reported earnings per share amounts. SALE LEASEBACK ARRANGEMENT In 1998 and 1997, the Company sold scanners to third-party leasing companies. HeartScan, in turn, entered into leasing arrangements with these third-party leasing companies to obtain use of these scanners in its clinics. The provisions of these leasing arrangements included monthly rental payments over a 5-year term with a guarantee of the payments by Imatron. HeartScan accounted for these leases as capital leases. Imatron recognized revenue equal to its scanner cost and deferred the profit on its sales to the leasing companies. The Company amortized its deferred profit to product sales over the five-year term of the HeartScan leases. Imatron recognized $70,000, $356,000, and $501,000 of deferred profit for these leases for the years ended December 31, 2000, 1999, and 1998, respectively. The unamortized portion of the deferred revenue amounting to $412,000 was recorded to net income in the fourth quarter of 2000 upon the sale of the final HeartScan center. RESEARCH AND DEVELOPMENT Research and development expenditures are charged to operations as incurred. ADVERTISING COSTS Advertising and promotion costs are expensed as incurred. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each balance sheet date based on enacted tax laws and statutory tax rates expected to apply in the periods in which the differences are expected to affect taxable income. NET INCOME (LOSS) PER SHARE The Company computes and discloses its net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share. Basic income (loss) per share is computed based on the weighted average number of common shares outstanding, and ================================================================================ 36 FY 2000 IMATRON INC. FORM 10-K ================================================================================ diluted income (loss) per share is computed based on the weighted average number of common shares and dilutive potential common shares outstanding during the period. The calculation takes into account the shares that may be issued upon exercise of stock options and warrants, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period. Stock options and warrants were excluded from the diluted calculation for 1999 and 1998, as their effects were anti-dilutive. STOCK-BASED COMPENSATION The Company follows the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and has elected to continue to account for stock-based compensation using methods prescribed in Accounting Principle Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under APB No. 25 compensation expense on fixed stock awards is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price of the award. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services". In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25. This Interpretation clarifies the application of Opinion 25 for certain issues: (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. Effective July 1, 2000, the Company adopted Interpretation No. 44. The adoption of this interpretation did not have any material effect on the Company's consolidated financial position or results of operations. FOREIGN CURRENCY TRANSLATION The Company's foreign operations use the U.S. dollar as the functional currency and, accordingly, their monetary assets and liabilities are remeasured at the year-end exchange rates and non-monetary assets and liabilities are remeasured at historical exchange rates. Statements of operations are remeasured at the average exchange rates for the period. Foreign currency transaction gain and losses are recognized in current operations and have not been significant to the Company's results in any period. The effect of foreign currency rate changes on cash and cash equivalents has not been significant in any period presented. Note 2 - FINANCIAL INSTRUMENTS Investments were as follows: December 31, ------------------------- 2000 1999 -------- -------- (In thousands) Money market mutual funds $ 4,321 $ 4,600 Certificate of deposit 573 -- Commercial paper 285 6,597 -------- -------- Total investments 5,179 11,197 Less amounts classified as cash and cash equivalents (4,718) (9,198) -------- -------- Short-term investments $ 461 $ 1,999 ======== ======== Cost approximated fair value of all investments at December 31, 2000 and 1999. ================================================================================ 37 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 3 - inventories Inventories were as follows: December 31, ------------------------- 2000 1999 -------- -------- (In thousands) Purchased parts and sub-assemblies $ 7,377 $ 4,272 Service parts 2,588 1,747 Work-in-progress 6,209 4,718 Finished products 2,661 2,228 -------- -------- $18,835 $12,965 ======== ======== Note 4 - PROPERTY AND EQUIPMENT, Net Property and equipment, at cost, were as follows: December 31, ------------------------- 2000 1999 -------- -------- (In thousands) Machinery and equipment $ 7,036 $ 6,644 Furniture and fixtures 1,763 1,527 Leasehold improvements 2,718 2,386 -------- -------- 11,517 10,557 Less accumulated depreciation and amortization (7,950) (7,657) -------- -------- $ 3,567 $ 2,900 ======== ======== ================================================================================ 38 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 5 - OTHER ACCRUED LIABILITIES Other accrued liabilities were as follows: December 31, ------------------------- 2000 1999 -------- -------- (In thousands) Warranty and product upgrades $ 3,677 $ 3,436 Deferred income on sale leaseback transactions -- 114 Customer deposits 1,378 1,362 Employee compensation 2,654 1,372 Other 1,739 1,817 -------- -------- $ 9,448 $ 8,101 ======== ======== Note 6 - ACQUISITIONS CARAL MANUFACTURING On January 6, 1999 (closing date) Imatron acquired a 100% interest in Caral Manufacturing ("Caral"). Caral was a major vendor of Imatron and manufactures custom-made parts for scanners. The purchase price of the acquisition was comprised of $275,000 in cash, 624,113 shares of common stock issued at closing plus an issuance of shares of common stock based on the market price of the Company's common stock as of July 6, 1999. The shares issued at closing were valued at $825,000 or $1.3219 per share, which was the average stock price for the period from December 7, 1998 to December 18, 1998, the period surrounding the date the terms of the acquisition were agreed. The security price of the Company's common stock as of July 6, 1999 was below $2.90 per share, and as part of the agreement, the Company issued 332,279 additional shares. In accordance with EITF 97-15, the contingency was valued at $629,000. The acquisition was accounted for using the purchase method of accounting, and accordingly, the operating results of Caral have been included in the Company's consolidated financial statements from January 6, 1999 forward. The purchase price was allocated to the acquired assets and assumed liabilities based on their respective estimated fair values at the date of acquisition. The fair value of assets acquired was $660,461 and liabilities assumed was $320,000. The excess of the aggregate purchase price over the fair market value of net assets acquired amounting to $1,389,000 is classified as goodwill, and amortized on a straight line method over 10 years. POSITRON CORPORATION On January 25, 1999, the Company acquired 9,000,000 shares of common stock of Positron Corporation ("Positron") representing a 55% interest for $100. On August 18, 1999, the ownership interest of the Company in Positron was diluted to 16% as a result of the completion of a private equity financing of Positron's common stock. As such, Imatron's control in Positron was temporary and accordingly, the Company accounts for its investment in Positron at cost. In conjunction with the execution of a letter of intent and the consummation of the purchase business combination with Positron, the Company made working capital advances to Positron under a $600,000 credit facility at an interest rate 1/2% over the prime interest rate. On August 9, 1999, Positron paid its obligation of $600,000 including $56,000 of interest to the Company. The Company did not engage in any transactions with Positron during the year ended December 31, 2000. ================================================================================ 39 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 7 -RESTRUCTURING AND REORGANIZATION CHARGES On February 8, 1999, the Company implemented a restructuring plan to reduce costs and improve operating efficiencies. The plan included elimination of approximately 20% of the Company's workforce in various departments and its HeartScan subsidiary including disposal of its HeartScan operations (see Note 17). The cost associated with this reduction in staff, consisting primarily of severance and related benefits, was $282,000 and was paid in the first quarter of 1999. Note 8 - RELATED PARTY TRANSACTIONS JOINT VENTURE COMPANY In 1994, the Company formed a joint venture, Imatron Japan, Inc. ("Joint Venture") with two unrelated parties. Imatron had a 24% interest in the Joint Venture, which was carried at no value in the accompanying consolidated balance sheet as of December 31, 1999. The Company had been accounting for this investment under the equity method of accounting. The Company recognized revenues of $0, $2,800,000 and $2,800,000 from scanner sales to Imatron Japan, Inc. in fiscal 2000, 1999 and 1998, respectively. All scanner sales were either fully paid in advance or payable under irrevocable letter of credit without a right to return. In October 2000, in connection with the Marubeni transaction (see Note 9) the Company acquired a service business owned by the Joint Venture in exchange for forgiveness of account receivable from the Joint Venture of $2,779,000. As of the transaction date, the Company recognized $1,242,000 of service revenue and reversed an allowance for doubtful accounts in the amount of $1,537,000, which had been established in 1998 and 1999. The service revenue related to prior year sales of spare parts to Imatron Japan, Inc which had been deferred due to uncertainty of payments. In November 2000, the service business was sold to Marubeni Corporation. NOTES RECEIVABLE FROM OFFICERS At December 31, 1999, the Company held 2 notes receivable amounting to $113,000 and $37,000 from the Company's Chief Executive Officer and the former Chief Financial Officer, respectively. These notes arose from transactions in 1998, whereby the Company provided loans for the purchase of 700,000 shares of common stock under the Company's stock option plan. During 2000, the balance on notes receivable increased to $3,230,000 due to the exercises of warrants by the Company's former President to purchase 2,991,027 shares of common stock for a full recourse note in the amount of $3,000,000 and accrued interest thereof, in the amount of $117,000. These warrants were issued in 1999 in connection with the private placement of shares (see Note 11). The note, which bears an interest rate of 7.25% per annum, is payable in full on June 15, 2001. All notes are full recourse and are collateralized by the shares of common stock. The receivable is shown on the balance sheet as a reduction in equity. ================================================================================ 40 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 9 - COLLABORATION AGREEMENTS SIEMENS CORPORATION For the period from March 31, 1995 to March 31, 1998, the Company and Siemens Corporation ("Siemens") operated under a 1995 Memorandum of Understanding whereby Siemens provided $15,000,000 to the Company's C-150 Evolution scanner research and development program paid to the Company in quarterly non-refundable payments. The results of the collaborative research were jointly owned by the parties and cross licensed. For the period from March 31, 1995 to March 31, 1998 Siemens retained exclusive distribution rights in certain geographical regions for sales of the C-150 Evolution scanner. On April 1, 1998, Imatron's obligations and Siemens' funding under the Memorandum of Understanding terminated. In addition, Siemens surrendered its exclusive distribution rights and Imatron assumed worldwide distribution for its C-150 scanners. Imatron continues to provide scanner service support to Seimens' customers under an April 1997 service support agreement signed with Siemens. For an agreed upon amount, Imatron provides all pre-installation site planning, installation and application support, as well as, warranty and maintenance services, as a subcontractor to Siemens. Revenues for services are recognized ratably over the life of the contracts while other service revenues are recognized upon completion of work. MARUBENI CORPORATION In November 2000, the Company entered into an agreement with Marubeni Corporation and their wholly owned subsidiary Meditec corporation (collectively "Marubeni"). Pursuant to the agreement the Company appointed Marubeni as its exclusive importer, distributor and customer service provider for EBT scanners in Japan through 2003. The Company also transferred all assets and rights to the service business previously acquired from its related party Imatron Japan, Inc. to Marubeni (see Note 8). In consideration for the rights and assets acquired, Marubeni paid the Company a total of 500 million yen, or approximately $4,654,000. The total transaction fee was allocated to different elements of the arrangement based on their relative fair values. The Company deferred revenue in the amount of $350,000 which represents the estimated fair value of the distributorship rights for a three-year period based on a third party valuation. The deferred revenue will be amortized to net income over the life of the distributor agreement. The remaining arrangement fee totaled $4,304,000 and was recognized as proceeds from sale of the service business offset by the cost of the service business of $2,779,000 and was recorded as other income. Note 10 - COMMITMENTS and CONTINGENCIES OPERATING LEASES The Company leases its present facilities under various operating leases expiring between July 2002 and February 2004. Future minimum rental payments under the leases as of December 31, 2000, are as follows (in thousands): 2001 $ 1,328 2002 1,375 2003 1,118 2004 115 ---------------- Total $ 3,936 ================ Rent expense for operating leases totaled $1,153,000, $1,022,000, and $972,000 in 2000, 1999, and 1998, respectively. ================================================================================ 41 FY 2000 IMATRON INC. FORM 10-K ================================================================================ CAPITAL LEASE OBLIGATIONS The Company leases certain equipment under non-cancelable lease agreements. As of December 31, 2000, equipment under the capital lease arrangements and included in property and equipment aggregated $117,000. Accumulated amortization related to this equipment totaled $31,000 as of December 31, 2000. Future minimum lease payments under capital lease obligations at December 31, 2000, are as follows (in thousands): 2001 $ 50 2002 50 2003 48 --------- Total minimum payments 148 Less amounts representing interest (31) --------- Total principal 117 Less portion due within one year (35) --------- Long-term portion $ 82 ========= Interest paid on capital lease obligations was $23,000, $68,000, and $20,000 in 2000, 1999, and 1998, respectively. LICENSE AGREEMENTS In February 1981, the Company was granted the exclusive use for five years and nonexclusive use thereafter of certain technology and a patent pending owned by the University of California ("UC") under the terms of license and sublicense agreements between UC and Emersub Incorporated ("Emersub"), a wholly owned subsidiary of Emerson Radio Corp. and Imatron Associates (the predecessor to the Company). In June 1986, the license and sublicense agreements were amended to extend the Company's exclusive use of the technology through the remaining life of the patent #4,352,021, "X-ray Transmission Scanning System and Method and Electron Beam X-ray Scan Tube for Use Therewith" in exchange for modified annual royalty payments to Emersub equal to 2.125% of net sales of certain components of the C-150 EBT scanner. On October 8, 1997, UC canceled the license to Emersub and granted the Company a license for the remaining life of the patent on substantially the same terms as the Emersub license agreement. Imatron agreed to pay UC royalties in the amount of $9,185 for each scanner sold from January 1, 1997 through September 28, 1999, the patent expiry date. Royalties for 1999 and 1998 were $77,790 and $137,775, respectively. There was no royalty payment made in 2000 as the license agreement has expired. Pursuant to the 1995 Memorandum of Understanding with Siemens, the Company transferred five patents to Siemens, two of which cover features of the Company's C-150 scanner. Siemens has granted to the Company a non-exclusive, irrevocable, perpetual license to the five patents. The license is subject to a royalty of $20,000 for each new C-150 unit (or other EBT unit produced by Imatron after April 1, 1995), commencing with the 21st C-150 (or other Imatron EBT) unit produced in any year and continuing thereafter for ten years after such first quarter in which such 21st unit is produced. For the year ended December 31, 2000, Imatron produced 26 scanners and has accrued $120,000 of royalty expenses for the 6 scanners produced in excess of 20. ================================================================================ 42 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 11- CAPITAL STOCK COMMON STOCK The Company has authorized 150 million shares of common stock. During 1999, the Company sold a total of 904,600 shares of Imatron common stock to an investor, netting proceeds of $2,596,000. These shares were sold at the prevailing market price at the time of sale, ranging from $1.66 to $3.99 per share, or an average price of $2.87 per share. During the first quarter of 1999, the Company also issued 314,659 shares of Imatron common stock to certain vendors as payment for accounts payable invoices amounting to $413,000, or $1.31 per share. There were no other securities issued in relation to these transactions. These shares were registered with the Securities and Exchange Commission in 1996. On June 15, 1999, the Company closed a private placement offering of the Company's common stock with the Company's President whereby the Company sold for $3,025,000: - 3,767,713 shares of common stock; - A warrant to purchase up to an additional $3 million of common stock in increments of $500,000 at a price equal to 125% of the closing price (or $1.003 per share); and - A warrant to purchase 360,000 shares of common stock with an exercise price of 130% of the closing price (or $1.044 per share) with a one year vesting period and an expiration date of June 15, 2004. On July 23, 1999, the Company closed a private placement offering of the Company's common stock whereby 3,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock at $1.25 per share were sold for $3,000,000. In 2000, the Company raised an aggregate of $3,002,000 from exercises of stock options, warrants, and sale of its common stock, at an average price of $2.26 per share. The Company issued a total of 1,325,989 shares of its common stock in relation to these transactions. In addition, the Company issued warrants to purchase shares of the Company's common stock to non-employees for marketing services at an exercise price of $2.00 per share. The fair value of these securities estimated on the date of grant using the Black Scholes option-pricing model was approximately $1.74, with the following assumptions: expected stock price volatility of 80%; risk-free interest rate of 6.25%; and an contractual 10 year life. The fair value of these instruments was recorded as an increase in additional paid in capital amounting to $174,000. The fully vested options were recorded as prepaid expense and are being amortized over two years, the term of the agreement. During the second quarter of 2000, the President of the Company exercised his warrants to purchase 2,991,027 shares of the Company's common stock (see Note 8). These warrants were issued under the 1999 private placement offering of the Company's common stock. MINORITY INTEREST HeartScan has authorized 1,000,000 shares of .001 par value preferred stock. There are 200,000 issued and outstanding shares at December 31, 2000 and 1999, of which, 100,000 shares have been designated "Series A Preferred Stock" and 100,000 have been designated "Series B Preferred Stock." The holders of outstanding shares of Series A and B Preferred Stock are entitled to receive dividends in preference to the payment of any dividends on HeartScan common stock. Before any dividend may be paid on the common stock, a dividend in an amount equal to or greater than the dividend proposed to be paid on the common shares must be paid to the Series A and B Preferred Stock holders. To date, no dividend has been distributed to the holders of preferred stock. Each share of Series A and B Preferred Stock is entitled to ten votes. These shares had certain conversion rights, which expired unexercised on June 26, 2000. ================================================================================ 43 FY 2000 IMATRON INC. FORM 10-K ================================================================================ The Series A Preferred Stock was sold on June 26, 1996 in a private placement offering at $160 per share which realized net proceeds to the Company of $14,798,000. The investment by the Series A Preferred Stock holders has been accounted for as a minority interest holding in HeartScan with $5,890,000 of the proceeds being allocated to paid-in-capital for the intrinsic value of the Imatron beneficial conversion feature. A non-cash return to the minority interest expense of $874,000 was recognized for the amortization of the beneficial conversion feature for 1998. The beneficial conversion feature was fully amortized in 1998. Imatron was the holder of the Series B Preferred Stock at December 31, 2000 and 1999. WARRANTS A summary of the Company's outstanding warrants as of December 31, 2000, 1999, and 1998 and changes during the years then ended is presented below (in thousands, except per share amounts):
Warrants to Purchase Weighted Average Range of Common Shares Exercise Price Expiration Dates ------------- -------------- ------------------ Outstanding at December 31, 1997 6,164 3.85 2000 - 2001 ------------- -------------- ------------------ Issued 1,130 4.22 2002 Exercised (213) 1.82 2000 - 2002 Canceled -- -- ------------- -------------- ------------------ Outstanding at December 31, 1998 7,081 3.97 2000 - 2002 ------------- -------------- ------------------ Issued 4,567 1.08 2000 - 2004 Exercised (1,150) 1.28 2000 - 2002 Canceled -- -- ------------- -------------- ------------------ Outstanding at December 31, 1999 10,498 $ 3.00 2000 - 2004 ------------- -------------- ------------------ Issued -- -- -- Exercised (3,338) 1.14 2000 - 2002 Canceled (112) 2.42 2000 ------------- -------------- ------------------ Outstanding at December 31, 2000 7,048 $ 3.89 2001 - 2004 ============= ============== ==================
COMMON STOCK RESERVED At December 31, 2000, the Company has reserved shares of common stock for future issuances as follows (in thousands): Stock option plans 9,230 Stock purchase plan 372 Stock warrants 7,048 Stock bonus plans 503 ------------ Total 17,153 ============ ================================================================================ 44 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 12 - STOCK-BASED COMPENSATION PROFORMA STOCK COMPENSATION At December 31, 2000, Imatron has two stock option plans, Employee Stock Purchase Plan, and stock bonus plan, which are described below. The Company applies APB No. 25 and related interpretations in accounting for its plans. Proforma information regarding net loss and loss per share is required by SFAS 123, and has been determined as if the Company has accounted for its employee stock options and employee stock purchase plan under the fair value method of that Statement. The fair value of awards was estimated at the date of grant using an option pricing model with the following weighted-average assumptions. 2000 1999 1998 ----------- ------------ ------------ Expected stock price volatility 80.00% 80.00% 80.20% Risk-free interest rate 5.75% 6.91% 5.50% Expected life - years 9.35 8.00 7.53 Expected dividend yield 0.00% 0.00% 0.00% For purposes of pro forma disclosures, the estimated fair value of the awards is amortized to expense over the awards vesting period. Had the Company elected to recognize compensation expense based on the fair value of the awards granted at grant dates as prescribed by SFAS 123, net income (loss) and basic and diluted income (loss) per share would have been increased to the pro forma amounts indicated in the table below (in thousands except per share amounts):
2000 1999 1998 ------------- -------------- -------------- Net income (loss) - as reported $6,283 ($6,586) ($14,781) Net income (loss) - pro forma 406 ($8,579) ($15,763) Basic and diluted - net loss per share - as reported $0.06 ($0.07) ($0.18) Basic and diluted - net loss per share - pro forma $0.00 ($0.09) ($0.19)
The weighted average fair value of options granted in 2000, 1999, and 1998 were $2.31, $1.21, and $1.92 per share, respectively. The weighted average remaining contractual life of all options at December 31, 2000, is 8.3 years. The pro forma effect on net loss is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants prior to 1995, and the compensation expense that will be recognized in future years as the vesting options become exercisable. DIRECTOR STOCK OPTION PLAN The Company's Directors' Stock Option Plan is authorized to issue 1,500,000 shares under the plan. Each eligible director is entitled to receive 40,000 options upon election and 40,000 options annually, thereafter. All stock options under the Directors Plan are granted at 85% of the common stock's fair market value at the grant date. Options granted under the plan generally vest immediately with an option for the Company to repurchase the shares and expire ten years from the grant date. Compensation expense related to options granted to the Company's directors computed on an intrinsic value basis totaled $41,000, $49,000, and $0 in 2000, 1999, and 1998, respectively. ================================================================================ 45 FY 2000 IMATRON INC. FORM 10-K ================================================================================ EMPLOYEE STOCK OPTION PLAN In March 1983, the Company adopted a stock option plan which provides for the granting of incentive stock options to employees and non-statutory stock options to non-employees, and certain consultants. The shareholders approved the plan, as amended, in March 1984. In 1993 the original plan ("1983 Plan") terminated and a new plan ("1993 Plan") was approved. The terms of the 1993 Plan are consistent with the terms of the 1983 Plan. On June 18, 1999, at the annual meeting, the shareholders approved an amendment to the 1993 Plan to increase the shares authorized thereunder to 11,500,000 common shares. On February 24, 1998, the Company offered employees holding options under the 1993 Stock Option Plan, the opportunity to exchange such options for options with an exercise price equal to $2.56 per share, the fair market value of the Company's stock on that date. Outstanding options to purchase 760,597 shares were repriced. On October 23, 1998, the Company made an offer to its employees to cancel and re-grant at October 23, 1998, all outstanding options with exercise prices greater than $1.50. Outstanding options to purchase 1,158,992 shares at exercise prices ranging from $1.78 to $2.56 were re-granted and repriced at $1.50, the closing price at October 23, 1998. With respect to the October 23, 1998 option repricing, employees were given 4 weeks to execute an agreement to obtain the lower priced options. The Company considered this offering period and concluded that it had an immaterial effect on compensation expense required to be recorded. There was no such repricing "window" for the February 24, 1998 option exchange. All incentive stock options are granted at the common stock's fair market value at the grant date and non-statutory stock options are granted at not less than 85% of the common stock's fair market value at the grant date. Options granted prior to 1998 under the plan generally vest evenly over four years following the grant date and expire five years from the grant date. Options granted in 1998 and thereafter generally vest evenly over four years and expire 10 years subsequent to the date of grant. ================================================================================ 46 FY 2000 IMATRON INC. FORM 10-K ================================================================================ A summary of the activity under the Imatron stock option plans is as follows (in thousands, except per share amounts): Outstanding Options ------------------------------------------------------- Shares Exercise Aggregate Available Number of price per exercise for Grant shares share price --------------- --------------- ----------------- --------------- Balances at December 31, 1997 1,104 3,688 $0.43 - $5.00 5,584 Shares reserved for issuance 450 -- -- -- Options granted (1,254) 1,254 $1.28 - $2.56 2,774 Options exercised -- (1,280) $0.37 - $2.63 (724) Options canceled 178 (178) $0.61 - $3.31 (411) Options repricing: Options canceled -- (1,920) $1.78 - $2.56 (4,988) Options re-granted -- 1,920 $1.50 - $2.56 3,685 --------------- --------------- ----------------- --------------- Balances at December 31, 1998 478 3,484 $0.61 - $5.00 5,920 Shares reserved for issuance 6,500 -- -- -- Options granted (3,367) 3,367 $1.00 - $2.19 4,998 Options exercised -- (762) $0.37 - $2.56 (1,019) Options canceled 891 (891) $1.00- $3.99 (1,479) --------------- --------------- ----------------- --------------- Balances at December 31, 1999 4,502 5,198 $0.71 - $5.00 8,420 Options granted (3,171) 3,171 $1.41 - $3.56 7,313 Options exercised -- (470) $0.71 - $2.56 (671) Options canceled 376 (376) $1.00- $3.56 (705) --------------- --------------- ----------------- --------------- Balances at December 31, 2000 1,707 7,523 $1.00 - $4.99 14,357 =============== =============== ================= ===============
The following table summarizes information concerning Imatron's outstanding and exercisable options as of December 31, 2000 (in thousands, except per share amounts):
Options Outstanding Options Exercisable ------------------------------------- ----------------------------- Weighted Weighted Average Weighted Average Remaining Average Number Range of Number of Contractual Exercise of Exercise Exercise Prices Shares Life Price Shares Price - ------------------------ ---------------- ---------------- ----------------- -------------- ----------- $1.00 - $2.00 2,880 8.20 $1.29 1,299 $1.26 $2.01 - $3.00 4,530 8.40 $2.28 1,554 $2.28 $3.01 - $4.00 63 9.20 $3.56 12 $3.56 $4.01 - $5.00 50 0.5 $4.99 50 $4.99 ---------------- ---------------- ----------------- -------------- ----------- 7,523 8.30 $1.93 2,915 $1.88 ================ ================ ================= ============== ===========
Options for 2,915,067, 1,287,311, and 1,448,685 shares of the Company's common stock were exercisable under the plans at December 31, 2000, 1999, and 1998 at an aggregate exercise price of $5,476,000, $2,140,000, and $2,435,000, respectively. ================================================================================ 47 FY 2000 IMATRON INC. FORM 10-K ================================================================================ In October 1995, HeartScan approved the adoption of the HeartScan Imaging, Inc. 1995 Stock Option Plan ("HSI Stock Option Plan"), which provided for the granting of incentive stock options to employees and nonstatutory stock options to employees, nonemployee directors, and certain consultants. On July 13, 1998, all outstanding options to purchase HeartScan common stock were canceled as a result of the Company's decision to sell the HeartScan subsidiary. STOCK BONUS PLAN On June 18, 1999, at the annual meeting, the shareholders approved an amendment to the 1987 Stock Bonus Plan to increase the authorized shares from 1,200,000 common shares to 2,200,000 common shares. In addition, the Company's Board of Directors approved the increase in the number of shares awarded in 1999 fiscal period from 400,000 shares to 650,000 shares. The Company granted 240,515, 644,173, and 285,250 shares under the plan in 2000, 1999, and 1998, respectively. Accordingly, the Company recorded compensation expense equal to the fair value of the stock issued amounting to $540,000, $810,000, and $460,000 in 2000, 1999, and 1998, respectively. EMPLOYEE STOCK PURCHASE PLAN Under the Company's employee stock purchase plan, employees may contribute up to 10% of their compensation to purchase shares of the Company's common stock at the lesser of 85% of the stock's fair market value at the beginning of the initial offering period or end of each three-month interim offering period. On June 18, 1999, at the annual meeting, the shareholders approved an amendment to the plan to increase the number of shares authorized from 1,800,000 common shares to 2,300,000 common shares. A total of 228,245, 244,902, and 188,863 shares were issued at weighted average purchase price of $1.56, $1.05, and $1.76 per share in 2000, 1999, and 1998, respectively. Note 13 - RETIREMENT SAVINGS PLAN RETIREMENT SAVINGS PLAN In 1987, the Company established a qualified retirement plan under the provisions of section 401(K) of the Internal Revenue Code, in which eligible employees may participate. Substantially all participants in this plan are able to defer compensation up to the annual maximum amount allowable under the Internal Revenue Service regulations. The Plan was amended in 1994 to provide for employer contributions equal to 50% of every dollar of employee contribution, with a maximum of 6% of employee wages. The Company contributed approximately $333,000, $247,000, and $281,000 in 2000, 1999, and 1998, respectively. ================================================================================ 48 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 14- INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, are as follows (in thousands): 2000 1999 -------- -------- Deferred tax assets: Net operating loss carryforwards $ 28,188 $ 30,829 Federal credit carryforwards 1,868 2,134 Expenses not currently deductible for tax purposes 3,312 5,448 Deferred revenue previously taxed 0 233 Other 1,513 1,103 -------- -------- Deferred tax assets 34,881 39,747 Valuation allowance (34,669) (37,890) -------- -------- Net deferred tax assets 212 1,857 -------- -------- Deferred tax liabilities: State income taxes -- 1,149 Other 212 708 -------- -------- Deferred tax liabilities 212 1,857 -------- -------- Net deferred taxes $ -- $ -- ======== ======== The net change in the valuation allowance was $(3,221,000), $537,000, and $5,272,000 for 2000, 1999, and 1998, respectively, principally resulting from net operating loss carryforwards. The reconciliation of income tax attributable to continuing operations calculated at the U.S. federal statutory rate to the effective tax rate is as follows: 2000 1999 1998 ------ ------ ------ Federal statutory rate 34.0% (34%) (34%) Effective state rate 1.0% (6%) (6%) Goodwill amortization 1.0% (1%) -- Valuation allowance (33.5%) 41% 40% ------ ------ ------ Effective tax rate 2.5% 0% 0% ====== ====== ======= At December 31, 2000, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $64,368,000 and $6,494,000, respectively. Additionally, the Company has research and development and alternative minimum tax credit carryforwards of approximately $1,868,000 at December 31, 2000. The net operating loss and the research and development tax credit carryforwards expire in various years from 2001 through 2020. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's net operating loss and tax credit carry forwards may be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period. ================================================================================ 49 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Note 15 - NET INCOME (LOSS) PER SHARE The computation of basic and diluted loss per share for both continuing and discontinued operations for the years ended December 31, 2000, 1999, and 1998 are as follows:
2000 1999 1998 --------------- ---------------- -------------- (In thousands, except per share amounts) Income (loss) from continuing operations $ 6,105 $ (5,646) $ (9,400) =============== ================ ============== Income (loss) from discontinued operations $ 207 $ (940) $ (4,507) =============== ================ ============== Net Income (loss) $ 6,283 $ (6,586) $ (14,781) =============== ================ ============== Weighted average common shares - basic 102,983 94,680 83,941 Weighted average common shares - diluted 106,931 94,680 83,941 Basic and diluted loss per share: Income (loss) from continuing operations $ 0.06 $ (0.06) $ (0.11) =============== ================ ============== Income (loss) from discontinued operations $ 0.00 $ (0.01) $ (0.05) =============== ================ ============== Net income (loss) $ 0.06 $ (0.07) $ (0.18) =============== ================ ============== Anti-dilutive options and warrants not included in calculation 10,347 15,696 10,565 =============== ================ ==============
The cumulative effect of change in accounting principle resulting from the adoption of SAB 101, did not have an impact on the earnings per share calculations. Note 16 - ENTERPRISE WIDE SEGMENT DISCLOSURES The Company operates in two industry segments. Imatron operates in one industry segment in which it designs, manufactures, services and markets a computed tomography scanner and Caral engages in the business of machining and fabrication of metal and plastic components. The Company's discontinued segment operated centers that perform the coronary artery scan procedures. The Company sold all its assets in HeartScan in 2000 (see Note 17). ================================================================================ 50 FY 2000 IMATRON INC. FORM 10-K ================================================================================ The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in the Company's consolidated financial statements and notes thereto for the year ended December 31, 2000. The Company evaluates performance based on profit or loss from operations before income taxes not including non-recurring gains and losses. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. The following table summarizes the results of operations for the Company's two major continuing business segments for the twelve-month periods ended December 31, (in thousands):
Imatron Caral Eliminations Consolidated -------- -------- -------- -------- 2000: Revenues from external customers $ 61,566 $ 854 $ -- $ 62,420 Intersegment revenues -- 2,103 (2,103) -- Total revenue 61,566 2,957 (2,103) 62,420 Operating income 4,260 200 -- 4,460 Total assets as of December 31, 2000 52,092 140 (744) 51,488 1999: Revenues from external customers $ 36,829 $ 720 $ -- $ 37,549 Intersegment revenues -- 805 (805) -- Total revenue 36,829 1,525 (805) 37,549 Operating loss (5,681) (127) (27) (5,835) Total assets as of December 31, 1999 39,041 415 (301) 39,155
The scanner sales price varies depending on the customer requirements. In particular, sales to Siemens, Imatron Japan, Inc. and third-party leasing companies have a lower gross margin than sales to third parties. The following table represents the scanner sales by significant geographic areas (in thousands): 2000 1999 1998 ------- ------- ------- United States ( a ) $49,377 $22,374 $12,931 Europe ( b ) 1,468 2,871 2,326 Japan ( c ) -- 2,800 2,800 Asia Pacific ( d ) 1,350 -- -- Saudi Arabia -- -- 1,837 Brazil -- -- 1,880 ------- ------- ------- Total scanner sales (e) 52,195 28,045 21,774 Sale leaseback profit recognized 70 356 501 Upgrade sales 1,053 1,490 272 ------- ------- ------- Total product sales $53,318 $29,891 $22,547 ======= ======= ======= (a) Sales to Siemens amounted to $800,000 in 1998. ================================================================================ 51 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (b) Sales to a customer in Turkey amounted to $1,350,000 in 2000. Sales to Turkey and Germany amounted to $2,871,000 in 1999. Sales to Siemens amounted to $926,000 in 1998. (c) Sales to an affiliated customer, Imatron Japan, Inc. (d) Sales to a customer in Hong Kong. (e) All sales are denominated in US currency; therefore, there is no foreign currency risk. Note 17 - DISCONTINUED OPERATION -- SALE OF HEARTSCAN SUBSIDIARY On July 13, 1998 (the measurement date), the Company adopted a formal plan to sell its HeartScan subsidiary in order for the Company to focus more comprehensively on the core business of manufacturing and serving quality EBT scanners. Accordingly, the operating results of the HeartScan operations are reflected as discontinued operations for all periods presented in the Company's statements of operations and as net assets (liabilities) of discontinued operations in the December 31, 1999 balance sheets. At the measurement date, the Company estimated that although a gain would be realized upon the ultimate sale, HeartScan would continue to incur operating losses through the disposal date. In the fourth quarter of 1998, the Company changed its strategy from selling HeartScan to a single buyer to that of selling the individual centers to buyers located in the cities where the centers were located. As such, the Company reassessed its estimate of the gain on disposal to reflect the Company's change in strategy. In 1999, the Company sold all its domestic centers for a net gain of $1,049,000. At December 31, 2000, the final remaining foreign center was sold. The additional expenses in 2000 were primarily from scanner depreciation and interest expense on the scanner lease obligation and do not represent other operating expenses. Actual HeartScan results of operations are as follows (in thousands): 2000 1999 1998 ------- ------- ------- Revenues $ -- $ 1,920 $ 3,996 Costs and expenses (220) (3,909) (8,503) ------- ------- ------- Loss before income taxes (220) (1,989) (4,507) Gain on sale of assets of discontinued operations 427 1,049 -- Provision for income taxes -- -- -- ------- ------- ------- Income (loss) from discontinued operations $ 207 $ (940) $(4,507) ======= ======= ======= HeartScan statements of operations include costs of sales of $0, $300,000 and $602,000 in 2000, 1999 and 1998, respectively, related to transactions with Imatron. There were no remaining assets of the discontinued operations as of December 31, 2000. In February 1999, the Company sold its HeartScan - San Francisco center and related C-150 scanner and other equipment. Proceeds from sale were $1,500,000 resulting in a net gain of approximately $1,396,000. In June 1999, the Company sold its HeartScan - Pittsburgh center and related C-150 scanner and other equipment for $650,000 resulting in a net loss of approximately $237,000. In July 1999, the Company sold the C-150 scanner formerly used by HeartScan - Seattle for $625,000. The sale resulted in a net loss of approximately $617,000. ================================================================================ 52 FY 2000 IMATRON INC. FORM 10-K ================================================================================ In November 1999, the Company sold its HeartScan - Houston and Washington DC centers and the related C-150 scanners and other equipment for $2,200,000. The sale resulted in a net gain of approximately $507,000. In October 2000, the Company sold its remaining center in Cascais, Portugal for a net gain of $427,000 Note 18 - QUARTERLY SELECTED FINANCIAL DATA (unaudited), in thousands:
Description 1st 2nd 3rd 4th quarter quarter quarter quarter - ---------------------------------------------------- ------- ------ ------ ------- Balances for the year ended December 31, 1999: Net sales 5,230 8,280 11,100 12,939 ====== ====== ====== ======= Gross margin 268 2,494 3,082 4,653 ====== ====== ====== ======= Income (loss) before cumulative effect of change in accounting principle (3,043) (1,927) (1,661) 45 ====== ====== ====== ======= Net income (loss) (3,043) (1,927) (1,661) 45 ====== ====== ====== ======= Net income (loss) per share (0.03) (0.02) (0.02) 0.00 ====== ====== ====== ======= Balances for the year ended December 31, 2000: Net sales 11,238 15,554 17,695 17,933 ====== ====== ====== ======= Gross margin 5,117 6,306 7,188 6,694 ====== ====== ====== ======= Income (loss) before cumulative effect of change in accounting principle 241 1,047 1,570 3,454 ====== ====== ====== ======= Net income (loss) 212 1,047 1,570 3,454 Net income (loss) per share 0.00 0.01 0.02 0.03 ====== ====== ====== =======
Certain accounts from first quarter through third quarter of 2000 have been restated to reflect the adoption of SAB 101. Note 19 - SUBSEQUENT EVENT On February 21, 2001, the Company was granted a $7,000,000 revolving line of credit by Silicon Valley Bank. Interest under the line of credit is computed based on the outstanding principal balance at a per annum rate of 1% over prime. The line of credit has a maturity date of February 21, 2002 and is secured by domestic receivables. Under the terms of the agreement, the Company is required to satisfy certain financial and operating covenants, which include a ratio of quick assets to current liabilities, net of deferred service revenue, of at least 1.00:1.00 and a ================================================================================ 53 FY 2000 IMATRON INC. FORM 10-K ================================================================================ ratio of total liabilities, net of subordinated debt and deferred service revenue, to tangible net worth plus subordinated debt of no more than 1.00:1.00. ================================================================================ 54 FY 2000 IMATRON INC. FORM 10-K ================================================================================ SCHEDULE II IMATRON INC. Valuation and Qualifying Accounts and Reserves (In thousands)
Balance at the beginning Charged to Balance at of the costs and end of the Description period expenses Deductions period - ----------------------------------------------- ------------ ---------- ------------- ------------- Balances for the year ended December 31, 1998: Allowance for doubtful accounts receivable 2,490 1,155 (373) 3,272 Inventory reserves 3,359 520 (175) 3,704 Reserve for warranty 1,790 1,575 (1,373) 1,992 Balances for the year ended December 31, 1999: Allowance for doubtful accounts receivable 3,272 240 (636) 2,876 Inventory reserves 3,704 550 (1,582) 2,672 Reserve for warranty 1,992 2,448 (1,210) 3,230 Balances for the year ended December 31, 2000: Allowance for doubtful accounts receivable 2,876 (1,252) (754) 870 Inventory reserves 2,672 471 (883) 2,260 Reserve for warranty 3,230 2,942 (2,601) 3,571
================================================================================ 55 FY 2000 IMATRON INC. FORM 10-K ================================================================================
IMATRON INC. INDEX TO EXHIBITS FOR 10-K, FILED MARCH 2001 3.1 (1) Certificate of Incorporation of the Company, as amended, as of March 31, 1983. 3.2 (2) Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on June 17, 1988. 3.3 (2) Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on July 26, 1988. 3.4 (3) Certificate of Correction of Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on February 7, 1989. 3.5 (4) Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on March 29, 1990. 3.6 (5) Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on December 7, 1990. 3.7 (6) Certificate of Amendment of Certificate of Incorporation filed with the New Jersey Secretary of State on July 7, 1997. 3.8 (7) Bylaws, as amended April 30, 1992. 4.1 (8) Form of Warrant issued to investors in Private Offering concluded October 19, 1995. 4.2 (9) Form of Warrant issued to investors in Private Offering concluded May 24, 1996. 4.3 (10) Form of Warrant issued to Gary Post on March 8, 1996. 4.4 (10) Form of Warrant issued to investors in Private Offering concluded June 24, 1996. 4.5 (21) Form of Warrant issued to TeraRecon Inc. on October 15, 1997. 4.6 (21) Form of Warrant issued to TeraRecon Inc. on October 21, 1997. 4.7 (21) Form of Warrant issued to investors in connection with a Private Offering which concluded January 28, 1997. 4.8 (22) Form of Warrant issued to TeraRecon Inc. on April 24, 1998. 4.9 (25) Form of Warrant issued to Terry Ross on June 15, 1999. 4.10 (25) Form of Warrant issued to Terry Ross on June 15, 1999. 4.11 (25) Form of Warrant issued to Jose Maria Salema Garcao on July 30, 1999. 10.1 (18) 1997 Stock Bonus Incentive Plan, as amended through June 19, 1999. 10.2 (15) 1998 Amended and Restated Non-Employee Director's Stock Option Plan, as amended through June 19, 1999. ============================================================================================================ 56 FY 2000 IMATRON INC. FORM 10-K ============================================================================================================ 10.3 (12) Lease Agreement between the Company and J. Grant Monahon, James S. Keagy and Jeffrey H. Stevenson, as Trustees of AEW #79 Trust for the premises located at 389 Oyster Point Boulevard, South San Francisco, California, dated November 1, 1991. 10.4 (12) Amendment No. 1 to Lease Agreement between the Company and J. Grant Monahon, James S. Keagy and Jeffrey H. Stevenson, as Trustees of AEW #79 Trust for the premises located at 389 Oyster Point Boulevard, California, dated June 15, 1992. 10.5 (13)* Patent License Agreement dated as of March 12, 1993 between Imatron Inc. and Severson & Werson, A Professional Corporation. 10.6 (13) Escrow Holder Agreement dated as of March 12, 1993 by and among Imatron Inc., Siemens Corporation and Severson & Werson, A Professional Corporation. 10.7 (13) Amendment No. 2 to Lease Agreement between the Company and J. Grant Monahon, James S. Keagy and Jeffrey H. Stevenson, as Trustees of AEW #79 Trust for the premises located at 389 Oyster Point Boulevard, California dated December 31, 1992. 10.8 (14) 1993 Stock Option Plan, as amended through June 19, 1999. 10.9 (11) 1994 Employee Stock Purchase Plan, as amended through June 19, 1999. 10.10(16) Executive Employment Agreement dated as of June 11, 1993 between the Company and S. Lewis Meyer. 10.11(16) Agreement and Joint Company Agreement between the Company, Tobu Land System Company and Kino Corporation dated January 7, 1994. 10.12(16) Distributorship Agreement between the Company and Imatron Japan K. K. dated February 3, 1994. 10.13(16) First Amendment to Distributorship Agreement between the Company and Imatron Japan K. K. dated February 8, 1994. 10.14(16) Memorandum of Understanding dated February 2, 1994 between the Company and Siemens AG, Medical Engineering Group. 10.15(16) Memorandum of Understanding dated February 2, 1994 between Company and Siemens AG, Medical Engineering Group (Evolution Upgrade project and distribution agreement). 10.16(17)* Memorandum of Understanding dated March 31, 1995 between the Company and Siemens Corporation. 10.17(19) Development Agreement dated July 22, 1997 between the Company and TeraRecon Inc. 10.18(20) Stock Purchase Agreement between the Company, HeartScan Imaging, Inc., and investors in a Private Offering which concluded June 24, 1996. 10.19(10) Form of Warrant Purchase Agreement between the Company and investors in the Private Offering which concluded June 24, 1996. 10.20(10) Stock Purchase Agreement between the Company and Gary Post, dated March 8, 1996. 10.21(21) Agreement for Service Support dated February, 1997 between the Company and Siemens Medical Systems, Inc. ============================================================================================================ 57 FY 2000 IMATRON INC. FORM 10-K ============================================================================================================ 10.22(21) Warrant Purchase Agreement between the Company and TeraRecon Inc. dated October 15, 1997. 10.23(21) Warrant Purchase Agreement between the Company and TeraRecon Inc. dated October 21, 1997. 10.24(22) Warrant Purchase Agreement between the Company and TeraRecon Inc. dated April 24, 1998. 10.25(23) Loan Agreement between the Company and Positron Corporation dated May 1, 1998, with schedules and exhibits. 10.26(23) Stock Purchase Agreement, dated May 1, 1998 between the Company and Positron Corporation. 10.27(24) Sales Representative Agreement dated July 1, 1998. 10.28( ) Employment Agreement dated January 4, 1999 between the Company and Terry Ross. 10.29(26) Stock Purchase Agreement, dated June 16, 1999, between Imatron Inc. and Terry Ross. 10.30(26) Lock-Up Agreement, dated September 14, 1999, between Imatron Inc. and Terry Ross. 10.31(27) Loan and Security Agreement, dated June 15, 2000, between Imatron Inc. and Terry Ross, with Promissory Note 10.32(27) Transition Agreement, dated October 5, 2000, between Imatron Inc. and Imatron Japan Inc. 10.33(27) Distributorship Agreement, dated November 10, 2000, among Imatron Inc., Meditec Corporation, and Marubeni Corporation 10.34(27) Consulting Agreement, dated January 1, 2001, between Imatron Inc. and Terry Ross 10.35(27) Loan and Security Agreement, dated February 21, 2001, between Imatron Inc. and Silicon Valley Bank o Consent of Independent Auditors, KPMG LLP o Confidential Treatment Request granted by the Securities and Exchange Commission. Footnotes - ---------- (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 filed with the Commission on June 1, 1983 (File No. 2-84146) and incorporated herein by reference. (2) Filed as an Exhibit to the Company's Registration Statement on Form S-8 filed with the Commission on February 3, 1989 (File No. 33-26833) and incorporated herein by reference. (3) Filed as an Exhibit to the Form 8 Amendment Number 1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 filed with the Commission on May 2, 1989 and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Annual Report Form 10-K for the Fiscal year ended December 31, 1989 and incorporated herein by reference. ================================================================================================================== 58 FY 2000 IMATRON INC. FORM 10-K ================================================================================================================== (5) Filed as an Exhibit to the Company's Registration Statement Form S-3 filed on January 24, 1991 (File No. 33-38676) and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Registration Statement on Form 8-K filed with the Commission on July 17, 1997 and incorporated herein by reference. (7) Filed as an Exhibit to Post-Effective Amendment Number 1 to the Company's Registration Statement Form S-3 filed with the Commission on May 5, 1992 (File No. 33-32218) and incorporated herein by reference. (8) Filed as an Exhibit to the Company's Registration Statement on Form S-3, filed on May 10, 1996 (Registration No. 333-3529) and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Registration Statement on Form S-3 filed on June 25, 1996 (Registration No. 333-6749) and incorporated herein by reference. (10) Filed as an Exhibit to the Company's Registration Statement on Form S-3 filed on September 6, 1996 (Registration No. 333-11515) and incorporated herein by reference. (11) Filed as an Exhibit to the Company's Registration Statement on Form S-8 filed on January 7, 2000 (Registration No. 333-94239) and incorporated herein by reference. (12) Filed as an Exhibit to the Company's Amendment No.1 to Post-Effective Amendment No.1 to Form S-3 (file No. 33-32218) filed with the Commission on August 7, 1992 and incorporated herein by reference. (13) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December, 1992 and incorporated herein by reference. (14) Filed as an Exhibit to the Company's Registration Statement on Form S-8 filed on January 7, 2000 (Registration No. 333-94245). (15) Filed as an Exhibit to the Company's Registration Statement on Form S-8 filed on January 7, 2000 (Registration No. 333-94237). (16) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31 1993, and incorporated herein by reference. (17) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,1994 and incorporated herein by reference. (18) Filed as an Exhibit to the Company's Registration Statement on Form S-8 POS filed on August 18, 1999 (Registration No. 333-15081) and incorporated herein by reference. (19) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on August 5, 1997 and incorporated herein by reference. (20) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on July 1, 1996 and incorporated herein by reference. (21) Filed on an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference. (22) Filed as an Exhibit to the Company's Registration Statement on Form S-3 (Reg. No. 333-51963) filed on May 6, 1998 and incorporated herein by reference. ================================================================================================================ 59 FY 2000 IMATRON INC. FORM 10-K ================================================================================================================ (23) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on June 16, 1998 and incorporated herein by reference. (24) Filed as an Exhibit to the Company's Current Report on Form 8-K filed July 20, 1998 and incorporated herein by reference. (25) Filed as an Exhibit to the Company's Current Report on Form 8-K filed August 10, 1999, and incorporated herein by reference. (26) Filed as an Exhibit to the Company's Registration Statement on Form S-3 (Reg. No. 333-87195) filed on September 16, 1999, and incorporated herein by reference. (27) Filed on an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference. ================================================================================================================ 60
FY 2000 IMATRON INC. FORM 10-K ================================================================================ LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), entered into as of June 15, 2000 by and between Imatron, Inc., a New Jersey corporation ("Lender"), and Terry Ross ("Borrower"). RECITALS: WHEREAS, Lender desires to lend to Borrower and Borrower desires to borrow from Lender the sum of Three Million Dollars ($3,000,000.00) (the "Loan") on the terms and conditions provided for herein; and WHEREAS, Borrower intends hereby to pledge 2,991,027 shares of Lender's common stock (the "Common Stock") and other proceeds and interests as defined herein, as secured collateral for payment of the Loan and performance of all Borrower's obligations under this Agreement. NOW, THEREFORE, in consideration of the mutual promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: SECTION 1. Loan. Lender agrees to lend to Borrower the sum of $3,000,000 to be evidenced by an interest bearing Promissory Note of even date herewith in the form of Exhibit A hereto (the "Note"). As provided in the Note, the Note may be repaid at any time without premium or penalty. SECTION 2. Pledge of Security Interest; Collateral. Borrower hereby pledges and grants to the Lender a first priority lien on and security interest in the Collateral, as hereinafter defined. The term Collateral means, collectively: (i) the Common Stock; and (ii) all products, proceeds and revenues of and from the Common Stock, together with all substitutions therefore and additions thereto including without limitation stock rights, rights to subscribe, liquidating dividends, stock dividends, cash dividends, interest, new securities and other property to which Borrower is or may hereafter become entitled to receive on account of such Common Stock. SECTION 3. Security for Obligations. This Agreement secures the payment and/or performance of all obligations of Borrower to the Lender, now or hereafter existing under the Note, whether for principal, interest, fees, expenses or otherwise, and all obligations of Borrower now or hereafter existing under this Agreement (all such obligations of Borrower to the Lender hereinafter referred to as the "Obligations"). SECTION 4. Delivery of Collateral. All certificates or instruments representing the Collateral shall be delivered to and held by Lender and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Lender. The Lender shall have the right, in the event of a default under the Note or this Agreement, in its sole discretion and without notice of the Collateral. In addition, the Lender shall have the right at any time to exchange certificates or instruments representing or evidencing the Collateral for certificates or instruments of smaller or larger denominations. SECTION 5. Representations and Warranties. Borrower represents and warrants as follows: (a) Borrower is the legal and beneficial owner of the Collateral free and clear of any lien, security interest, option or other charges or encumbrance except for the security interest created by this Agreement between Borrower and Lender of even date herewith; and (b) The pledge of the Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment and/or performance of the Obligations. ================================================================================ 61 FY 2000 IMATRON INC. FORM 10-K ================================================================================ SECTION 6. Further Assurances. Borrower agrees that at any time, and from time to time, Borrower will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default (as hereinafter defined) or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing: (i) Borrower shall have the right to exercise all voting and other corporate rights with respect to the Collateral; and (ii) Borrower shall be entitled to receive and retain any and all dividends paid in respect of the Collateral; provided, however, that any and all (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Collateral in connection with a partial or total liquidation or dissolution of Lender or in connection with a reduction of capital, capital surplus or paid-in-surplus of Lender, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Collateral, shall forthwith be delivered to the Lender to hold as Collateral, or as may otherwise be agreed between Borrower and the Lender, and shall, if received by Borrower, be received in trust for the benefit of the Lender, be segregated from the other property or funds of Borrower, and be forthwith delivered to the Lender as Collateral in the same form as so received (with any necessary endorsement). (b) Upon the occurrence and during the continuance of an Event of Default under the Note or hereunder: (i) All rights of Borrower to exercise the voting and other consensual rights which the Borrower would otherwise be entitled to exercise pursuant to Section 7(a)(i) of this Agreement and to receive the dividend payments which the Borrower would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) of this Agreement shall cease, and Lender shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such dividend payments. (ii) All dividend payments which are received by Borrower contrary to the provisions of Section 7(b)(i) shall be received in trust for the benefit of the Lender, shall be segregated from other funds of Borrower and shall be forthwith paid over to the Lender as Collateral in the same form as so received (with necessary endorsement). (c) The term "Event of Default" shall mean (1) failure of Borrower to pay the unpaid principal due under the Note within fifteen (15) days after the date when due; or (2) the insolvency, bankruptcy (which is not stayed within 60 days after its commencement), or dissolution of Borrower, or (3) any material default by Borrower in the performance of any covenant or agreement pursuant to this Agreement which default is not cured within ten (10) days following written notice by Lender. ================================================================================ 62 FY 2000 IMATRON INC. FORM 10-K ================================================================================ SECTION 8. Transfers and Other Liens; Additional Shares. Borrower agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, except for the security interest under this Agreement and under the Asset Purchase Agreement of even date herewith between Borrower and Lender. SECTION 9. Lender May Perform. If Borrower fails to perform any agreement contained herein, the Lender may itself perform, or cause the performance of, such agreement, and the expenses the Lender incurs in connection therewith shall be payable by Borrower under Section 12. SECTION 10. Reasonable Care. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Lender accords its own property, it being understood that the Lender shall not have responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Lender has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. SECTION 11. Remedies upon Default. If any Event of Default shall have occurred and continues uncured for five (5) consecutive days, upon written notice to Borrower, the Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to them, all the rights and remedies of a secured party on default under the Uniform Commercial code (the "Code") in effect in the State of California at that time. SECTION 12. Expenses. Borrower will, upon demand, pay, to the Lender, the amount of any and all reasonable expenses, including the reasonable fees and expenses of Lender's counsel and of any experts and agents, which the Lender may reasonably incur in connection with the exercise of enforcement of any of the rights of the Lender hereunder, or the failure by Borrower to perform or observe any of the provisions hereof. SECTION 13. Security Interest Absolute. All rights of the Lender and security interests hereunder, and all obligations of Borrower hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Note or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Borrower in respect of the Obligations or Borrower in respect of this Agreement, other than the payment in full of the Obligations. SECTION 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: ================================================================================ 63 FY 2000 IMATRON INC. FORM 10-K ================================================================================ If to Borrower: -------------- Terry Ross c/o Imatron Inc. 389 Oyster Point Boulevard So. San Francisco, California 94080 ================================================================================ 64 FY 2000 IMATRON INC. FORM 10-K ================================================================================ PROMISSORY NOTE $3,000,000 September 8, 2000 South San Francisco, California FOR VALUE RECEIVED, the undersigned, Terry Ross, hereby promises to pay to the order of Imatron Inc. at such place as the holder of this note (the "Note") may direct in writing, the principal sum of Three Million Dollars ($3,000,000.00). This Note shall bear interest, at a rate of interest equal to 7.25% per annum. Principal and accrued interest shall be paid in full in one installment on June 15, 2001. This Note may be prepaid at any time without premium or penalty. This Note shall be deemed to be a contract entered into and made pursuant to the laws of the State of California and shall in all respects be governed, construed, and enforced in accordance with the laws of said State. The undersigned agrees, if this Note is placed in the hands of an attorney for collection, to pay reasonable legal costs as permitted by law. The undersigned waives demand, presentment for payment, notice of non-payment or dishonor, notice of protest, and protest of this Note. No delay on the part of the holder in exercising any right, power or privilege pursuant to this Note shall operate as a waiver of the same, and no single or partial exercise of any right, power or privilege shall constitute an exhaustion or waiver of any of them, all of which shall continue for the benefit of holder. This Note amends that certain Promissory Note dated June 15, 2000 and is secured pursuant to a Loan and Security Agreement dated June 15, 2000. Dated: September 8, 2000 Signed by - ------------------------------------ TERRY ROSS ================================================================================ 65 FY 2000 IMATRON INC. FORM 10-K ================================================================================ TRANSITION AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of October 5, 2000 by and between IMATRON, INC., a corporation organized under the laws of the State of New Jersey, United States of America ("Imatron") and IMATRON JAPAN INC., a corporation organized under the laws of Japan ("IJ"). WITNESSETH: WHEREAS, Imatron previously entered into a Distributorship Agreement dated February 3, 1994 (the "Distributorship Agreement") with IJ pursuant to which IJ was appointed the exclusive distributor of certain of Imatron's products in Japan; and WHEREAS, the Distributorship Agreement was terminated on May 16, 2000; and WHEREAS, Imatron and IJ desire to avoid disrupting the marketing and service of Imatron products in Japan and to provide for an orderly, supportive and mutually agreed method to permit Imatron to initiate alternative distribution in Japan. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: 1. Transfer of Assets. On the Closing Date, as hereinafter defined, IJ shall sell, assign and transfer to Imatron or its assignee pursuant to an Assignment and Assumption Agreement in the form of Exhibit A hereto (the "Assignment and Assumption Agreement") the following: (i) all Imatron EBT Scanner system replacement and component parts and service tools set forth on Exhibit A-1 hereto; (ii) all service contracts for the repair and maintenance of Imatron EBT Scanner systems in Japan set forth on Exhibit A-2 (the "Service Contracts"); (iii) the rights, licensing and registration, if any, of IJ to enter into service contracts for the repair and maintenance of Imatron EBT Scanner systems in Japan; (iv) all documents, including quotations and other marketing materials, service files relating to past, present, and potential Imatron EBT Scanner system purchase and service customers; and (v) the regulatory approvals for the importation or sale of Imatron EBT Scanner systems, and the replacement and component parts thereof into Japan, commonly referred to as the "homologation". The parts and components referred to in this paragraph will be transferred to Imatron on an AS-IS WHERE-IS basis and IJ makes no representation as to Imatron as to the status or value of the parts and components. 2. Retained Assets. The assets to be transferred by IJ to Imatron shall include only those assets specified in Paragraph 1 above, and specifically, shall not include Imatron EBT Scanner systems Nos. 26 and 160. 3. Imatron Payment and Assumption of Liabilities. In consideration for the transfer and assignment as provided in Paragraph 1 above and subject to the terms and conditions set forth herein, as of the Closing Date: a. Imatron will assume all obligations under the Service Contracts from and after the Closing Date. All losses, claims and damages arising under the Service Contracts prior to the Closing Date shall be the responsibility of IJ and all losses, claims and damages arising under the Service Contracts from and after the Closing Date shall be the responsibility of Imatron. b. Imatron will forgive the approximate $3.6 million of indebtedness of IJ to Imatron including approximately $2.4 of the principal and $1.2 million of accrued and unpaid interest. c. Imatron will provide without cost to IJ all necessary replacement parts for Scanner Nos. 26 and 160 which IJ presently holds in inventory, but not to exceed $356,000 in value. ================================================================================ 66 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 4. Certain Continuing Warranty Obligations. The parties understand that following the Closing Date, IJ will have certain continuing warranty obligations in connection with the sale by IJ of Scanner Nos. 26, 160, 167, 169, 175, and 177. IJ will assume the responsibility to provide the post-sale warranty service for the purchasers and for the time periods set forth in Exhibit B hereto. Replacement parts will continue to be provided by Imatron for these six (6) scanners at no charge during the respective warranty periods. 5. Imatron Name: Post-Closing Assistance. Imatron grants to IJ the right to continue to use the name "Imatron" for so long as is necessary to complete the regulatory approvals for the products other than Imatron EBT Scanners and for which IJ has applied prior to the Closing Date. From the Closing Date, IJ agrees to change its legal name to a name not containing the word "Imatron" or any word similar thereto. IJ agrees to assist Imatron in the importing of spare and component parts until such time as all regulatory (homologation) approvals have been transferred in order for Imatron or its assignee to import such parts. 6. Closing Date. The transactions provided for in the Agreement shall close at a date mutually agreed upon by the parties (the "Closing Date"). If this Agreement does not close before October 6, 2000, it shall be of no further force or effect. 7. Agreement in Principle. The parties agree that this Agreement supercedes the Agreement in Principle entered into as of August 4, 2000 which, upon execution and closing of this Agreement, shall be without further force or effect. 8. Public Announcements. IJ and Imatron will jointly announce to the public and to customers the transfer of sales and service responsibilities to Imatron and/or its assignee. 9. Assignment. IJ understands and agrees that it is Imatron's intention to appoint a new sales and service provider for its EBT Scanner systems in Japan. Upon any such appointment, Imatron may assign and transfer all of its rights and obligations pursuant to this Agreement and, except for the obligations pursuant to Paragraph 3b, 3c and the last sentence of Paragraph 4, Imatron shall be released from and shall have no further obligations pursuant to this Agreement. 10. Release. As additional consideration for the promises set forth herein and except for the covenants and agreements of the parties as set forth herein, each of the parties releases the other from any and all claims, know and unknown, arising out of the Distributorship Agreement and the business of the parties with each other pursuant thereto. The parties understand that this release is intended to expressly agree that they waive the provisions of and relinquishes all rights and benefits it may have under Section 1542 of the Civil Code of the State of California. Section 1542 provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 11. Indemnification. Each of the parties hereby agrees to hold harmless and indemnify the other, and its successors and assigns, against any claim, action, loss, liability, damage, or cost and expense, including without limitation reasonable attorneys' and experts' fees and expenses (hereafter collectively "Losses" and separately as "Loss"), resulting from or arising out of any breach or inaccuracy of any representation or warranty, nonperformance of any agreement, covenant, promise, or obligation on the part of the indemnifying party contained in this Agreement. 12. Notices. All notices, certificates, requests, demands, and other communications hereunder shall be in writing and may be personally served or sent by telex or facsimile or by certified or registered airmail or commercial courier. All such notices, certificates, requests, demands, and other communications shall be delivered to the party to receive the same at the address indicated below (or at such other address as a party may specify in a written notice): ================================================================================ 67 FY 2000 IMATRON INC. FORM 10-K ================================================================================ If to IJ: Imatron Japan Inc. 3-5-7 Hatchobori Chuo-ku, 104-00032, Tokyo, Japan Attention: Ms. Sachiko Kimoshita, President Fax: (03)-3206-1912 If to Imatron: Imatron Inc. 389 Oyster Point Blvd. South San Francisco, CA 94080 Attn: Mr. S. Lewis Meyer, Chief Executive Officer Fax: (415) 871-0418 If personally delivered, a notice shall be effective upon delivery. If delivered in accordance with this section, a notice shall be effective as of the date or receipt. If given by telex or facsimile, a notice shall be effective when sent, answerback received or, in the case of facsimile, confirmation received. A party may change its address indicated above by giving written notice of such change to the other in the manner specified in this section, 13. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the commercial Arbitration Rules of the American Arbitration Association ("AAA") and judgments upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration shall take place in San Francisco, California and be governed by the laws of the State of California, United States. The arbitration shall be conducted by three (3) arbitrators. Each party shall select one arbitrator within thirty (30) days after the filing of a request for arbitration. Should a party fail to select and arbitrator within such thirty-day period, the other party shall also select that arbitrator. The two selected arbitrators shall select a third arbitrator. The official language of the arbitration shall be English and all proceedings and rulings shall be in English. The arbitration shall be conducted as expeditiously as possible, and all parties shall exert best efforts to finalize the arbitration hearings after the close of the arbitration hearings. Before, during or after arbitration, each party shall have the right to seek from any appropriate court all provisional remedies permitted under California law. If any party hereto must institute arbitration to collect any payments due hereunder, the party liable therefore shall reimburse the other party for reasonable attorneys' fees and other costs incurred in connection with such arbitration. 14. Miscellaneous a. Governing Law: Arbitration. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California without regard to that body of law known as the conflict of laws. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration as provided in Paragraph 10 of the Transition Agreement. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California without regard to that body of law known as the conflict of laws. b. Governing Language. The official text of this Agreement shall be in English language, and any interpretation or construction of this Agreement shall be based solely on the English-language text. ================================================================================ 68 FY 2000 IMATRON INC. FORM 10-K ================================================================================ c. Authority. Each individual executing this Agreement on behalf of any party represents and warrants that he or she is authorized to enter into this Agreement on behalf of that party and that this Agreement binds that party. d. Waivers. No failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial waiver thereof include any other or further exercise thereof or the exercise of any other right, power, or privilege. e. Binding on successors, Assigns. This Agreement and the covenants herein shall be binding on the successors and assigns of each party. f. Amendments. Unless otherwise provided herein, this Agreement may not be changed, waived, discharged, or terminated orally, but only by a written document signed by duly authorized officers of the parties hereto. g. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. h. Entire Agreement. This Agreement is the entire agreement between the parties and supersedes and shall be substituted for each and every prior agreement with respect to distribution of Imatron products, whether written, oral or otherwise in effect between IJ and Imatron. Imatron and IJ each represents and warrants that there are no other outstanding obligations or agreements, either written, oral or implied inconsistent with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. IMATRON INC. IMATRON JAPAN INC. TERRY ROSS SACHIKO KINOSHITA President President 10/5/00 10/5/00 ================================================================================ 69 EX-10.33 2 0002.txt DISTRIBUTION AGREEMENT FY 2000 IMATRON INC. FORM 10-K ================================================================================ Exhibit 10.33 DISTRIBUTORSHIP AGREEMENT among IMATRON INC., MEDITEC CORPORATION AND MARUBENI CORPORATION 10. November , 2000 THIS AGREEMENT is entered into as of November 10, 2000 by and between IMATRON INC., a corporation organized under the laws of the State of New Jersey with its principal office at 389 Oyster Point Blvd., South San Francisco, California 94080, United States of America ("Imatron"), MEDITEC CORPORATION, a corporation organized under the laws of Japan, with its principal office at 3-14, Kudan-Minami, 2-chome, Chiyoda-ku, Tokyo, Japan ("Importer") and MARUBENI CORPORATION, a corporation organized under the laws of Japan, with its principal office at 4-2, Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan ("Distributor"), WITNESSETH: WHEREAS, Imatron desires to appoint Distributor as the exclusive distributor of the Products (hereafter defined) and appoint Importer as the exclusive importer and service provider of the Products in the Territory (hereafter defined); WHEREAS, Distributor desires to accept such appointment and to perform the duties and obligations as hereinafter set forth; and WHEREAS, Importer desires to accept such appointment and to import into the Territory and sell the Products to Distributor; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: 1. Appointment of Importer and Distributor. (a) Appointment. Imatron hereby appoints (i) Importer as its exclusive importer to import the Products into the Territory and as its exclusive service provider in the Territory and (ii) Distributor as its exclusive distributor in the Territory for the Imatron EBT Scanner systems including spare parts and all options and accessories as shall be offered for sale by Imatron. A complete Imatron EBT Scanner system is hereinafter referred to as a "System" and Systems together with spare parts, options and accessories are collectively referred to as "Products" which expressions include all of their modifications, developments and improvements and new CT scanner systems invented or developed and for sale by Imatron. The specifications of a basic complete System are set forth in APPENDIX A hereto. (b) Territory. The geographical area to which this Agreement pertains is the country of Japan ("Territory"). Imatron agrees that during the term of this Agreement it will not authorize any other importer to import the Products into the Territory nor any other distributor to sell the Products in the Territory nor export the Products into the Territory nor will it sell the Products (either directly of indirectly) to any purchaser or importer that intends to export the Products into the Territory. During the term of this Agreement, Distributor agrees it will neither sell nor service the Products outside the Territory, nor will Distributor sell the Products (either directly or indirectly) to any purchaser that intends to distribute the Products outside the Territory, unless specifically authorized in writing by Imatron. Distributor agrees not to distribute or sell products acquired from any other person which are similar to the Products if distribution or sale by Distributor of such similar products are competitive with distribution or sale of Products. Imatron agrees to refer to Distributor all inquiries or orders for the Products received from any person, firm, or company residing or carrying on business in the Territory. (c) Term. The term of this Agreement shall commence on the date set forth above and shall continue until December 31, 2003. This Agreement shall immediately terminate upon written notice to such effect by either party hereto to the other parties, without the necessity of prior advance notices, (i) in the event of such other party's voluntary or involuntary bankruptcy or insolvency, (ii) in the event that such other party shall make a general assignment of its property for the benefit of a creditor or (iii) in the event that a petition shall have been filed against such other party under a bankruptcy law, any other law for relief of debtors, or other law similar in ================================================================================ 70 FY 2000 IMATRON INC. FORM 10-K ================================================================================ purpose or effect, the effect of which is to cause such other party to have its business effectively discontinued. This Agreement shall immediately terminate upon written notice to such effect by Imatron to the other parties, without the necessity of prior advance notice, in the event Distributor or Importer shall be in default in the payment of any amounts due Imatron hereunder for the sale of Products, or any parts thereof, or for the providing of services. (d) Payment. In consideration for (i) the appointment by Imatron of Importer and Distributor as its exclusive importer and distributor respectively pursuant to this Paragraph, (ii) the arrangement to be rendered by Imatron pursuant to Paragraph 2, and (iii) the transfer of the Homologation rights for the System pursuant to Paragraph 22 and other rights, title and interest set forth in the Transition Agreement (hereafter defined) from Imatron to Distributor by Imatron, Distributor agrees to pay to Imatron sum of Yen500,000,000.-. Yen250,000,000.- out of Yen500,000,000.- shall be paid within ten(10) days following the execution of this Agreement. The remaining Yen250,000,000 shall be paid within ten(10)days following the effective date of transfer of Homologation rights to Distributor. 2. Transition from Previous Distributor. (a) Assignment. In consideration for the payments set forth in Section 1(d), above, Imatron assigns and transfers to Distributor without payment to Imatron, all of its rights, title and interest in and to that certain Transition Agreement dated Oct 5th, 2000 (the "Transition Agreement") between Imatron and Imatron Japan INC., a corporation organized under the laws of Japan, with its principal office at 3-5-7 Hatchobori Chuo-ku, 104-00032, Tokyo, Japan ("IJ" ) pursuant to the terms and conditions of an Assignment and Assumption Agreement to be entered into simultaneous herewith in the form of APPENDIX B hereto ("Assignment and Assumption Agreement"). (b) Assumption of Obligations. In consideration for the transfer as provided in Paragraph 2(a) above and strictly subject to and pursuant to the terms and conditions of the Assignment and Assumption Agreement, Distributor agrees to assume and perform all of Imatron's obligations under the Transition Agreement save for (i) the obligations which can logically be performed solely by Imatron such as (without limitation) the obligation to continue to provide replacement parts under Clause 4 of the Transition Agreement (which shall therefore be performed by Imatron) and (ii) the obligations which cannot be performed by Distributor without assistance of Imatron (which shall therefore be performed by Distributor with necessary assistance of Imatron); provided, however, that Distributor is not liable to perform any obligations arising from the Service Contracts for any reasons having its origin prior to the Closing Date (as defined in the Transition Agreement) and further Imatron shall hold harmless Distributor and Importer from any claims, losses or damages incurred on account of or based on the Service Contracts as they relate to the period prior to the Closing Date. (c) Transition of Employees. In connection with the transfer of service responsibilities for the installed based of Imatron EBT scanners in Japan from Imatron to the Distributor, Imatron agrees to use its best efforts to transfer to the Distributor the one (1) service manager and the four (4) service employees currently employed by Imatron. Distributor agrees to employ such employees on terms and conditions not less favorable than currently in place with such employees. Imatron does not guaranty that any or all the transferred employees will accept employment by Distributor. 3.1 3. Duties of Distributor and Importer. In addition to all other duties herein set forth, Distributor shall have the following obligations: (a) Solicitation of Orders. Distributor shall use its best efforts in soliciting orders for and selling the Products for delivery to customers within the Territory. (b) Annual Target. As a target, Distributor shall use its reasonable efforts to purchase from Imatron through Importer fifteen (15) Systems, the breakdown of which are four (4) Systems during Y2001, five (5) Systems during the second year, and six (6) Systems during the third year (respectively, "the Target Quantity"). (c) Prompt Payment. Importer shall promptly comply with all terms and conditions of sale described hereunder, including without limitation, prompt payment of the price of the Products sold to Importer by Imatron. Payment shall be made according to the following schedule: Sixty days prior to delivery of each System, Importer shall provide a letter of credit for the full amount of each System. Such letter of credit shall provide for partial shipments. The service and spare parts terms shall be net 30 days. (d) Advertising and Mailing Lists. Importer shall advertise the Products to such an extent, and in such media, as is reasonably necessary to encourage the sale of the Products in the Territory. Importer agrees that it will not advertise the sale of the Products, without first submitting (fully translated into English) such ================================================================================ 71 FY 2000 IMATRON INC. FORM 10-K ================================================================================ advertising to, and obtaining Imatron's written approval thereof , which approval in all instances shall be contingent upon the entire cost of said advertising being paid by Importer, unless otherwise agreed to in writing by Imatron. Importer shall accept all liability, and hold Imatron harmless, for the content of any advertising it shall publish or distribute in Japan without Imatron's written approval. Importer shall develop and maintain a mailing list of existing and prospective customers within the Territory, and shall periodically mail advertising literature to said customers. (e) Sales Force and Service Personnel. Distributor shall at all times maintain an adequate staff of sales personnel reasonably necessary to carry out the obligations of Distributor under this Agreement, and Importer shall fully train such sales personnel with respect to all pertinent aspects of the Products. Importer shall also train and maintain such service and installation personnel as are necessary to service the installed base of Systems in Japan and as otherwise necessary for the performance of Importer's service obligations under this Agreement. (f) Sales Reports. Distributor shall make quarterly written reports on the sale and distribution of the Products and Distributor's business activities in promotion and distribution thereof, together with information on the market situation of the Territory, including: (i) Names of active sales prospects. (ii) Government regulations affecting the Products. (iii)Competitive products and competitor's activities. (iv) Commonly experienced component failures and service problems. (g) Other Duties of Distributor. Distributor shall at all times maintain sales data on the Products, including price lists, catalogs and technical bulletin files. Distributor shall accept and service all sales inquiries with respect to the Products relating to possible sales within the Territory. Distributor and Importer shall not in any way, directly or indirectly, disparage Imatron or any of Imatron's products. (h) Installation. Importer shall be responsible for all costs of installation, customer warranties and applications training of Systems purchased pursuant to this Agreement. Imatron shall provide a limited warranty with regard to parts during the warranty period. (i) Alteration of Products. Distributor shall not alter Products in any way without written consent by Imatron. (j) Prohibition on Manufacture or Sale of the Products. Distributor shall not engage in the manufacture or sale of any products which are now or in the future may be competitive, with the Products covered in this Agreement in the Territory. (k) Prohibition on Purchase and Sale of Used Products. During the term of this Agreement, Distributor shall not engage in the purchase and/or sales of used Systems within or without the Territory with the exception of any System sold by Distributor during the term of this Agreement. 3.2 4. Individual Contract and Other Conditions. The detailed terms and conditions of each individual purchase of the Products hereunder by Importer from Imatron, except the following conditions, shall be mutually agreed upon at the time of each such purchase and confirmed by such parties in a "Confirmation of Purchase Contract" (the form of which is attached hereto as APPENDIX C and made an integral part hereof) to be issued by Importer to Imatron and countersigned and returned by Imatron. Each such individual purchase contract between Imatron and Importer shall be deemed to incorporate all of the terms and conditions hereof to the extent that they may be applicable; provided, however, that the terms and conditions of this Agreement shall, in the event of a conflict, have precedence over those on the reverse side of the "Confirmation of Purchase Contract". The failure by Imatron to return any countersigned "Confirmation of Purchase Contract" within thirty (30) days after dispatch by Importer shall be deemed an acceptance thereof by Imatron. (a) Prices. Except as may otherwise be agreed between the parties, the price of each System FOB Imatron dock, South San Francisco, California, U.S.A. shall be United States Dollars One Million Seven Hundred Thousand (US$1,700,000). Prices for add-ons and optional products shall be the prices established from time to time by Imatron. The current prices for such add-ons and optional products are set forth in APPENDIX A. In case the quantity of the Systems which Distributor has purchased from Imatron through Importer exceeds the Target Quantity in each year set forth Paragraph 3(b), the price of the excess Systems for such year shall be reduced to United States Dollars One Million Five Hundred Thousand (US$1,500,000). Should the exchange rate of the Japanese Yen devaluate against the U.S.Dollar at the date of placing an order to Yen120 or less, Imatron shall compensate the Distributor's exchange loss between the actual rate at the date of placing an order and Yen120. ================================================================================ 72 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Should the exchange rate of the Japanese Yen evaluate against the U.S Dollar at the date of placing an order to Yen100 or more, Imatron shall increase the System price by the percentage of evaluation between Yen100 and actual rate at the date of placing an order. (b) No Liability for Late Deliveries. Imatron will not be liable for any penalty clause from customers accepted by Distributor unless Imatron has agreed in writing to this clause at the time of order (c) Customs. Importer shall be responsible for customs clearance on the Products and components being imported into the Territory. (d) Taxes. The prices specified in this Agreement are exclusive of any sales, use, excise; or similar taxes (other than any federal or state taxes on net income of Imatron), and of any export and import duties, which may be levied upon or collectable by Imatron as a result of the sale, lease or shipment of the Products to Importer, or its customers, any services performed by Imatron in connection herewith, and use, resale or sublease of the Products by Importer or its customers. Importer agrees to pay and otherwise be fully responsible for any such taxes and duties, unless in lieu thereof Importer provides Imatron with an exemption certificate acceptable to the relevant governmental authorities. Imatron shall have the right, but shall not be obligated to pay any such taxes or duties directly, in which case Importer shall immediately reimburse Imatron in the amount thereof upon presentation by Imatron of evidence of payment. 5. Changes in Products. (a) Right to Make Changes. Imatron may, at any time, either add to, delete, or change any of the Products pursuant to any updating, obsolescence, or other change in the Products occurring within the ordinary course of business. Imatron will notify Importer of any such change as soon as practicable. However, if such change results in impossibility or difficulty for Importer to import the Products under Japanese law or the necessity of obtaining of a new license or amendment to the existing license for import to the Territory, Distributor may accordingly amend the Target Quantity. (b) Training. Imatron agrees to provide additional training for designated Distributor or Importer personnel at mutually agreed upon rates where this becomes necessary because of changes made to the Products. 6. Warranty and Warranty Service. (a) Limited Warranty. Imatron warrants to Distributor that the Products provided in accordance with the terms hereof shall be free from defects in material and workmanship and in any event comply with the requirements specified by the Ministry of Health of Japan. The foregoing warranty (i) in the case of new Systems shall be for a period of twelve (12) months from the date on which the Products are put into operation with the exception of any options or parts so noted in APPENDIX A and (ii) in the case of refurbished Systems and renewal and/or replacement parts shall be for ninety (90) days from installation or until termination of the System warranty period, whichever is longer. This warranty pertains to all parts failing in the course of normal operation. It does not cover parts modified without the prior authorization of Imatron or parts damaged due to mishandling or misuse or failure to operate and maintain the Products in accordance with the operating manuals and specifications supplied to Importer or Distributor. Notwithstanding the foregoing, Imatron makes no warranty with regard to options or accessories purchased from other vendors but agrees to assign to Distributor any warranties received by Imatron from its suppliers for such options and accessories. The AccuImage Workstation is warranted as a part of the System. EXCEPT AS SET FORTH ABOVE, IMATRON MAKES NO REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. DISTRIBUTOR ACCEPTS THE PRODUCTS SOLELY ON THE BASIS OF THE WARRANTY EXPRESSED ABOVE. (b) Sole Remedy. In the event any Product or part thereof fails to meet the foregoing warranty during the specified warranty periods, Imatron's sole responsibility and Distributor's and Importer's sole remedy shall be for Imatron, at its sole cost and expense, to supply Distributor with replacement parts for any Product or part thereof which fails to meet the warranty. Importer shall be responsible for the installation labor and return of the defective components to Imatron. All other costs of fulfilling warranty obligations to customers, including (without limitation) labor, installation costs and customer training, shall be borne by Importer. Imatron shall be responsible for return freight charges for the defective parts. Distributor will inform Imatron when and where Products are installed. ================================================================================ 73 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (c) Product Liability. Imatron shall defend, indemnify and hold harmless Importer, Distributor and/or any of its customers for the Products from and against any and all costs, expenses, losses, damages or liabilities arising out of or in relation to any claim made or threatened to be made by any third party based on any death, bodily injury or property damage occurring directly or indirectly out of the Products ("Liabilities"), including without limitation, a claim based on the "Product Liability Act" of Japan Law No. 85 promulgated on July 1, 1994, as it may be amended, but excluding any Liabilities resulting from actions or negligence of Distributor or Importer. Imatron shall, prior to the shipment of the Products hereunder, procure and maintain a policy of insurance, at its sole cost, from a reputable insurance company acceptable to Distributor covering the Liabilities. A copy of such policy of insurance shall be sent to Distributor immediately.) (d) Regulation Changes. If applicable regulation changes in the future and any conforming change becomes necessary, Imatron shall carry out such change upon such terms as may be agreed between the parties. 7. Limitation of Liability IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT, (INCLUDING NEGLIGENCE, WHETHER ACTIVE, PASSIVE OR ANY OTHER KIND, AND STRICT LIABILITY) OR OTHERWISE, SHALL IMATRON BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR BUSINESS INTERRUPTION DAMAGES INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUES, LOSS OF USE OF THE PRODUCTS OR ANY ASSOCIATED EQUIPMENT, DAMAGE TO ASSOCIATED EQUIPMENT, COST OF CAPITAL, DOWN TIME COSTS, OR CLAIMS OFDISTRIBUTOR'S CUSTOMERS. 8. In Country Training. Imatron will hire and train an "in country" Imatron Sales Manager to assist with all sales in the Territory and also assist to train Importer or Distributor Sales staff on an ongoing basis during the term of this Agreement. 9. Spare and Replacement Parts. (a) Obligation to Maintain Inventory. Distributor agrees to maintain a sufficient quantity of spare parts to fulfill Distributor's obligations to its customers, such quantity of spare parts to be mutually agreed upon by the parties and reflected in a separate agreement containing all terms and conditions relating thereto including, but not limited to, quantity, purchase price, payment of purchase price, return of spare parts, and use of substitute spare parts. (b) Substitute Spare Parts. Distributor shall have the right to purchase and use spare parts manufactured by third parties ("Substitute Spare Parts") provided that the Substitute Spare Parts must meet Imatron's specifications and are not used unless and until Imatron has tested and approved each of such parts. 10. Software Updates and Options. (a) Updates and Options. System software updates may be provided as optional products for sale, or without charge as standard system software features, at Imatron's option. For software provided without charge, Imatron shall supply electronic media and supporting documentation equal to the number of systems installed by Importer or Distributor. For software options offered for sale by Imatron, electronic media and supporting documentation will be provided only for the institution ordering the software option. All software updates and options are offered subject to execution and delivery of appropriate Imatron User License Agreements attached as APPENDIX D and made an integral part hereof. (b) Limitations. Imatron shall not be obligated to provide software updates or options: (i) For any Product which has not been upgraded or modified in accordance with safety recommendations or hardware requirements to implement required safety recommendations; (ii) If, beyond five (5) years from the date at which the software product was last shipped as a standard production product; and (iii) For any Product for which obsolete computer hardware is no longer manufactured. 11. Training and Support. (a) Training and Service Support. Imatron agrees to provide the following additional services: (b) Applications Training. Distributor will provide applications training for its customers at completion of the installation and as required thereafter. Alternatively, if requested by Distributor, Imatron will provide applications training at the customer's site at the weekly rate for applications training (which is currently $5,000.00) plus travel and lodging expenses. (i) Service Training. In addition to its obligations pursuant to Paragraph 3 of this Agreement, Distributor agrees to maintain a staff of service personnel trained in the theory, installation, repair and ================================================================================ 74 FY 2000 IMATRON INC. FORM 10-K ================================================================================ maintenance of the Products. The number of service personnel will be adequate to provide service coverage to all customers within the Territory. (ii) Service Support. If requested by Distributor, Imatron service engineers will be available to provide on-site support at the customer's site. The cost of such service will be billed at the current published rate plus travel and lodging expenses. (iii) Sales Support. Imatron agrees to provide Distributor through Importer with adequate quantities of advertising materials and other sales and promotion aids. Distributor may use their own collateral materials on approval by Imatron. Distributor shall be responsible for the costs of translation, duplication and distribution of all advertising materials and other sales and promotion aids. 12. Relationship of Parties. The relationship of the parties is respectively that of vendee and vendor. Nothing herein contained shall be deemed to create an agency, joint venture or partnership relation between the parties hereto. It is understood and agreed that each party is not, by reason of this Agreement or anything herein contained, constituted or appointed the agent or representative of any other party for any purpose whatsoever, nor shall anything herein contained be deemed or construed as granting to such party any right or authority to assume or to create any obligation or responsibility, expressed or implied, for, on behalf of or in the name of other parties, or to bind any other party in any way or manner whatsoever. 13. Assignment of Agreement. (a) Prohibition on Assignment. Neither this Agreement nor any interest herein is assignable by any party, whether by way of assignment, operation of law or otherwise, without the prior written consent of the other party hereto. Any attempted assignment or transfer by any party without the prior written consent of the other party hereto shall forthwith terminate and cancel this Agreement and all rights of any party thereunder. Notwithstanding the foregoing, Distributor may assign this Agreement or any part hereof to Importer. (b) Transfer of Control. Transfer of a controlling interest in Distributor to a party not in control at the time of execution of this Agreement shall be deemed an assignment of this Agreement for purposes of the restrictions set forth in this Paragraph. 14. Patents and Trademarks. (a) No Rights to Patents. No rights are granted hereunder to Importer nor Distributor under any of Imatron's patents, patent applications, trademarks or other intellectual property. (b) Rights to Use Trademarks. Importer and Distributor shall have the right to use, in connection with and only in connection with the marketing of the Products under this Agreement, the name of the Products and any trademarks, trade names and service marks derived from any of said names or related thereto in the form and manner as approved by Imatron (collectively, the "Licensed Names"). Imatron represents that the Licensed Names set out in APPENDIX E have been duly registered in the Territory and none of them has been challenged by any third party. Imatron reserves all rights for itself in and to the Licensed Names, and all goodwill associated therewith whether or not arising out of this Agreement. Importer and Distributor will cause to appear on all materials, on or in connection with which any of the Licensed Names are used by them, such legends, markings and notices or their equivalent, as Imatron may request in order to give appropriate notice of any trademark or other rights therein or pertaining thereto. (c) Software Licenses. Imatron hereby grants to Importer and Distributor a limited, exclusive within the Territory, non-transferable license to use any software delivered pursuant to this Agreement (the "Software"), only with and on the Products. Simultaneously with its execution and delivery of this Agreement, Importer and Distributor will execute and deliver to Imatron a User License Agreement. Importer and Distributor shall have the right to grant to customers to whom Distributor sells the Products a license for the use of the Software on the Products. Distributor shall cause any customer to whom it sells Products to sign a User License Agreement prior to any sale. Distributor shall promptly forward to Imatron a copy of each such signed User License Agreement. (d) Infringement. Imatron hereby represents and warrants with Distributor that none of the Products sold or to be sold to Distributor through Importer nor any of Licensed Marks nor Software shall infringe any right of any third party, and Imatron hereby indemnifies and keeps harmless Importer and Distributor or customers against any loss or damage suffered by Importer, Distributor or such customers or any claims made by any third party against Importer, Distributor or such customers arising due to any infringement by the Products or Licensed Names or Software of any right of any third party. 15. Confidentiality. ================================================================================ 75 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (a) Confidentiality. All Proprietary Data, as hereinafter defined, disclosed by any party to the other party(ies) in pursuance of this Agreement, during the continuance of this Agreement and for two (2) years after its expiration or its termination, shall be kept confidential and the party(ies) to which the same have been disclosed shall take all necessary precautions to prevent their disclosure to third parties. The parties to this Agreement shall have the right to disclose such information to any of their affiliates, provided that any such affiliate receiving such information shall agree to be bound by the provisions of this Paragraph 15 and provided further, the disclosing party shall agree to be responsible for the actions of its affiliates. In the event of any breach of this covenant by any party, such breaching party shall be responsible for all damages resulting therefrom. (b) Exceptions. The provisions set forth in Paragraph 15(a) shall not apply to: (i) Any such information which at any time after its disclosure by one party to the other party(ies) falls into the public domain, except as a result of the fault of the party(ies) to which it was disclosed; or (ii) Any such information which at the time of its disclosure was known to the party(ies) to which it was disclosed, as evidenced by written records; or (iii) Any information that customers of each party or regulatory bodies can reasonably request be disclosed to them, provided that such party shall exert its best efforts to cause said customers or regulatory bodies to agree to hold such information confidential. (c) "Proprietary Data". The term "Proprietary Data" is used in this Agreement to mean information, as well as data in written, graphic or machine-readable or machine-executable form or in oral form, which is received by one party from other parties and is identified as being proprietary, confidential or a trade secret, and shall include, the Products, all technical manuals relating to the Products, and all know-how and technology required to utilize the Products and such manuals, as well as other information not generally known in the trade, including, without limitation, inventions, developments, specifications, pricing information, new product plans, methods, supply sources, customers lists, costs, marketing plans, technical and engineering data, and methods and reports relating to the business of the disclosing party. Each party agrees that it will use the Proprietary Data only to perform its required obligations hereunder and agrees to take all steps necessary to keep confidential, and prevent the disclosure to and/or use by third parties of any and all Proprietary Data which it may acquire. Without limiting the generality of the foregoing, each party agrees to take such actions (including, without limitation, instituting legal proceedings) as may be necessary to prevent disclosure of Proprietary Data by its present and former employees, agents and independent contractors. Each party shall provide to other parties such information and data, and permit the receiving party to review and copy all such agreements, as such receiving party shall reasonably request in connection with any investigation of compliance with the foregoing obligations of confidentiality. 16. United States Law and Regulations. Nothing contained in this Agreement shall be construed to require either party to do, and Distributor shall not directly or indirectly do, any act or thing that will or could constitute a violation of the Export Control laws or other laws and regulations of the United States of America. It shall be Imatron's responsibility to obtain all necessary export licenses. Distributor is obligated to supply the appropriate import certificates. 17. Exclusive Dealing. During the term of this Agreement neither Importer, Distributor nor its officers, agents, servants or employees shall, at any time, directly or indirectly, perform any service or be employed by or become associated in any capacity with any person, firm or corporation competing with or setting up to compete with Imatron in the Territory in the manufacture or sale of goods similar to the Products. Nor, during the term hereof, shall Imatron, directly or indirectly, compete similarly with Distributor in the sale of the Products, and accordingly, Imatron shall not, directly or indirectly, license any person to make, use, or sell the Products other than Importer and Distributor in the Territory. The obligations of this Paragraph 17 shall not apply to the officers, agents, servants and employees of Importer, Distributor or Imatron after said persons are no longer employed by Importer, Distributor or Imatron. 18. Termination. (a) Notice of Termination. Unless otherwise stated herein if any party to this Agreement should breach any obligation herein or in any individual contract to be entered hereunder, the non-defaulting party may give written notice to the defaulting party specifying the respect in which the defaulting has breached this Agreement or any individual contract. In the event that such breach is not remedied within thirty (30) days after such notice, the non-defaulting party may, by written notice to the defaulting party, terminate this Agreement or any individual contract effective immediately. The failure of the non-defaulting party to so terminate this Agreement or ================================================================================ 76 FY 2000 IMATRON INC. FORM 10-K ================================================================================ any individual contract due to a breach on the part of the defaulting party shall not constitute a waiver of its right to terminate on the basis of any subsequent breach. (b) Duties of Parties Upon Termination. (i) Upon termination of this Agreement or any individual contract each party shall perform all obligations, including warranty, service and spare part supply, incurred prior to the effective date of such termination and all indebtedness of each party to the other shall become immediately payable. (ii) The parties acknowledge and agree that the Homologation rights for the Systems which rights are being transferred from IJ to Imatron and then from Imatron to the Distributor belong solely to Imatron and are assigned by Imatron to the Distributor solely for the purpose of its distribution of the Products pursuant to this Agreement. Upon termination of this Agreement for any reason such rights shall revert to Imatron and the Distributor shall take all actions which may be deemed reasonably necessary in order to transfer such rights back to Imatron. (iii) No party hereto shall be liable to any other for damages of any kind resulting from, or caused by, said termination including, but not limited to, damages related to losses through commitments on obligations or leases, loss of investment, loss of present or prospective profits, inability to meet obligations, or any other causes or reasons whatsoever. (iv) Imatron shall in any case continue for a period of seven (7) years following termination of this Agreement to make available to Distributor's customers all necessary spare parts and after-service in relation to Products purchased by Distributor and resold to its customers. 19. Notices. All notices, certificates, requests, demands, and other communications hereunder shall be in writing and may be personally served or sent by or facsimile or by certified or registered airmail. All such notices, certificates, requests, demands, and other communications shall be delivered to the party to receive the same at the address indicated below (or at such other address as a party may specify in a written notice): If to Distributor: Marubeni Corporation 4-2, Ohtemachi 1-chome Chiyoda-ku, Tokyo, Japan Attention: Mr. Makoto Kimura, General Manager, Medical Business Sec. Fax: (03) 3281-3728 If to Importer: Meditec Corporation 3-14, Kudan-Minami, 2-chome, Chiyoda-ku, Tokyo, Japan Attention: Mr. Masahiko Tomita Fax (03) 3237-4822 If to Imatron: Imatron Inc. 389 Oyster Point Blvd. South San Francisco, California 94080 Attention: Mr. S. Lewis Meyer, Chief Executive Officer Fax: (415) 871-0418 If personally delivered, a notice shall be effective upon delivery. If delivered in accordance with this Paragraph, a notice shall be effective as of the date of receipt. If given by facsimile, a notice shall be effective when sent, answer back received or, in the case of facsimile, confirmation received. A party may change its address indicated above by giving written notice of such change to the other in the manner specified in this Paragraph. ================================================================================ 77 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 20. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the commercial Arbitration Rules of the American Arbitration Association ("AAA") and judgments upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration shall take place in San Francisco, California, United States and be governed by the laws of the State of California. The arbitration shall be conducted by three (3) arbitrators. Each of Imatron and Distributor shall select one arbitrator within thirty (30) days after the filing of a request for arbitration. Should either of them fail to select an arbitrator within such thirty-day period, the other party shall also select that arbitrator. The two selected arbitrators shall select a third arbitrator. The official language of the arbitration shall be English and all proceedings and rulings shall be in English. The arbitration shall be conducted as expeditiously as possible, and all parties shall exert best efforts to finalize the arbitration hearings within one year. The arbitrators shall render any decision within thirty (30) days after the close of the arbitration hearings. The award rendered by the arbitrators shall be final and binding upon the parties. Before, during or after arbitration, each party shall have the right to seek from any appropriate court all provisional remedies permitted under California law. If any party hereto must institute arbitration to collect any payments due hereunder, the party liable therefore shall reimburse the other party for reasonable attorneys' fees and other costs incurred in connection with such arbitration. 21. Miscellaneous. (a) Governing Law. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California without regard to that body of law known as the conflict of laws. (b) Governing Language. The official text of this Agreement shall be in the English language, and any interpretation or construction of this Agreement shall be based solely on the English-language text. (c) Waivers. No failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial waiver thereof include any other or further exercise thereof or the exercise of any other right, power, or privilege. (d) Amendments. Unless otherwise provided herein, this Agreement may not be changed, waived, discharged, or terminated orally, but only by a written document signed by duly authorized officers of the parties hereto. (e) Entire Agreement. This Agreement is the entire agreement between the parties and supersedes and shall be substituted for each and every prior agreement with respect to distribution of Products, whether written, oral or otherwise in effect between Distributor and Imatron. Imatron and Distributor each represents and warrants that there are no other outstanding obligations or agreements, either written, oral or implied inconsistent with this Agreement. (f) Force Majeure. In the event that any party hereto shall be rendered wholly or partly unable to carry out its obligations under this Agreement by reason of causes beyond its control, including but not limited to, fire, flood, explosion, strikes, lockouts, or other labor trouble or shortage, inability to obtain or shortage of material, equipment or transportation, insurrections, riots or other civil commotion, war, enemy action, acts, demands or requirements of the governments (including the Ministry of Health and Welfare of Japan) in any state or by other causes which it could not reasonably be expected to avoid, then the performance of the obligations of either party or both as they are affected by such causes shall be excused during the continuance of any inability so caused but such inability shall as far as possible be remedied with all reasonable dispatch. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. (h) Other Cooperation. In case Japanese concerned regulations may impose additional requirements or limitations to Distributor or Importer in providing importation, sales, or after services of the System, Imatron shall be willing to cooperate with Distributor and Importer in solving their problems according to their requirements. 22. Assignment of Homologation rights. Imatron agrees that Distributor may assign the Homologation rights for the Systems to Importer at any time upon notice to Imatron. ================================================================================ 78 FY 2000 IMATRON INC. FORM 10-K ================================================================================ IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. IMATRON INC. - ------------------------------ Name: S. Lewis Meyer Title: President MEDITEC CORPORATION - ------------------------------ Name: Hiroyuki Tatewaki Title: President & C.E.O. MARUBENI CORPORATION - ------------------------------ Name: Yoichi Kawahara Title: General Manager, Electronics & Medical Business Dept. ================================================================================ 79 FY 2000 IMATRON INC. FORM 10-K ================================================================================ APPENDICES Appendix A - Specifications and Price List Appendix B - Assignment and Assumption Agreement Appendix C - Confirmation of Purchase Contract Appendix D - Imatron User License Agreement Appendix E - Licensed Names ================================================================================ 80 FY 2000 IMATRON INC. FORM 10-K ================================================================================ APPENDIX A Description of Imatron Model EBT Electron Beam Tomography Scanner Imatron EBT scanner including: o Gantry with dual solid state detectors and tungsten target rings o High Resolution Detector System (HRDS) o Electron Source and Beam Deflection Control o Patient Couch with tilt, angulation, and swivel motion o Distributed Processing System CPU o Operator's Console o GE Headholder o System Software License o Modem Telecommunications Link o Patient Positioning Accessories o Power Conditioner Distribution Unit o Water Chiller o Archive Storage System o Operator's Manuals o Warranty on parts for 1 year o AccuImage Workstation - The AccuImage workstation displays 2-D, 3-D, and 4D images through advanced image post processing capability when used in combination with Imatron's EBT or other compatible imaging modalities. The AccuImage workstation is NT based, and features an intuitive interface, help menus, and universal icons for ease of use and maximum productivity. Functions include surface rendering, interactive MIP, volume rendering, curved reformatting, fly-through and calcium scoring. Calcium scores are presented in a user-customizable report template that includes a sampling of patient images, calcium scores by artery and in total, and population data. Images and reports are printed using the included color printer. Images are transferred to the workstation via Megalink or Ethernet. A wide variety of image review and management functions are included, as well as DICOM 3 compliant image archiving and transfer. Purchase Price For Basic System: $1,700,000 USD (FOB: Imatron Shipping Dock So. San Francisco, CA) Shipping and Installation The system will be shipped within 60 days after receipt of Letter of Credit by Imatron. Terms Terms of Payment are as follows: o Letter of Credit issued 60 days prior to shipment. o The shipping terms are as noted: "F.O.B. Imatron Shipping Dock, South San Francisco, CA" and therefore upon shipment from Imatron the risk of loss passes to Importer. Prices do not include: o Site preparation/construction to Imatron's specifications o Any other display workstation as determined by the buyer o Shipping, insurance, and rigging from the factory to the site o Foreign or local taxes ================================================================================ 81 FY 2000 IMATRON INC. FORM 10-K ================================================================================ o Any costs of storage, should the site not be ready to accept installation of the scanner, requiring shipment to a third-party warehouse. o Radiation permits, licenses, and certificates as required by local or national government authorities o Other equipment such as laser cameras, injectors, teleradiology and PACS systems Description of Imatron Model EBT Electron Beam Tomography Options IMATRON EBT SYSTEM OPTIONS New Systems 2nd AccuImage Workstation $70,000 USD Requires connection to another AccuImage workstation that is included with the Imatron scanner. CODONICS MODEL NP-1600 M COLOR MEDICAL IMAGER $16,310 USD Includes utilizing Dye-Diffusion Print technology, Post Script level # software, CDNX-1SG key, Paper & color Ribbon, 100 A size sheets, and Paper & black Laminate Ribbon 300 A size sheets Installed, Used and Remanufactured EBT Scanners AccuImage Workstation $90,000 USD The AccuImage workstation displays 2-D, 3-D, and 4D images through advanced image post processing capability when used in combination with Imatron's EBT or other compatible imaging modalities. The AccuImage workstation is NT based, and features an intuitive interface, help menus, and universal icons for ease of use and maximum productivity. Functions include surface rendering, interactive MIP, volume rendering, curved reformatting, fly-through and calcium scoring. Calcium scores are presented in a user-customizable report template that includes a sampling of patient images, calcium scores by artery and in total, and population data. Images and reports are printed using the included color printer. Images are transferred to the workstation via Megalink or Ethernet. A wide variety of image review and management functions are included, as well as DICOM 3 compliant image archiving and transfer. CODONICS MODEL NP-1600 M COLOR MEDICAL IMAGER $16,310 USD Includes utilizing Dye-Diffusion Print technology, Post Script level # software, CDNX-1SG key, Paper & color Ribbon, 100 A size sheets, and Paper & black Laminate Ribbon 300 A size sheets High Resolution Detector System Upgrade (HRDS) $ 250,000 USD ================================================================================ 82 FY 2000 IMATRON INC. FORM 10-K ================================================================================ APPENDIX B ASSIGNMENT AND ASSUMPTION AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of November 10, 2000 by and between IMATRON INC., a corporation organized under the laws of the State of New Jersey, United States of America with its principal office at 389 Oyster Point Blvd., South San Francisco, California 94080, United States of America("Imatron") and MARUBENI CORPORATION, a corporation organized under the laws of Japan with its principal office at 4-2, Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan("Distributor"). WITNESSETH: WHEREAS, Imatron has heretofore entered into a Transition Agreement dated October 5, 2000 (the "Transition Agreement"), a copy of which is attached hereto, with Imatron Japan INC. ("IJ") relating to the transition to a new distributor and service provider of Imatron's products in Japan; WHEREAS, Imatron has appointed Importer and Distributor as the exclusive service provider and distributor respectively of the Imatron EBT Scanner system and spare parts, options and accessories in Japan pursuant to a Distributorship Agreement of even date herewith (the "Distributorship Agreement"); and WHEREAS, Imatron desires to assign to Distributor certain of its rights pursuant to the Transition Agreement in consideration of the assumption by Distributor of certain of Imatron's obligations pursuant to the Transition Agreement and Distributor desires to accept such assignment and perform such obligations. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: 4 Assignment. Effective as of the date set forth above Imatron hereby sells, assigns and transfers all of its right, title and interest in and to the following: 4.1 all Imatron EBT Scanner system replacement and component parts and service tools set forth on Exhibit A-1 to the Transition Agreement; 4.2 subject to Paragraph 2, all service contracts for the repair and maintenance of Imatron EBT Scanner systems in Japan set forth on Exhibit A-2 to the Transition Agreement (the "Service Contracts"); 4.3 the rights, licensing and registration, if any, of IJ to enter into service contracts for the repair and maintenance of Imatron EBT Scanner systems in Japan; 4.4 all documents, including quotations and other marketing materials, service files relating to past, present, and potential Imatron EBT Scanner system purchase and service customers; and 4.5 the regulatory approvals for the importation or sale of Imatron EBT Scanner systems, and the replacement and component parts thereof into Japan, commonly referred to as the "homologation". 5 Service Agreements. With respect to the Service Contracts: 5.1 Imatron shall use its best efforts to obtain consents from the customer of each Service Contract agreeing to the transfer of the Service Contract to Distributor and further agreeing to any changes to the terms and conditions of the Service Contract as may be required by Distributor and agreed to by the customer; and 5.2 Imatron represents and warrants that each Service Contract represents entire agreement between the parties thereto and there are no other outstanding obligations or agreements, either written oral or implied, formal or informal in respect of the subject matter thereof. This representation and warranty expires 90days from the date of the signing of this Agreement. 6 Rights Not Assigned. Notwithstanding the foregoing, the following rights are not assigned: 6.1 The two existing Imatron EBT Scanner Systems owned by IJ (Serial Nos. 26 and 160). 7 Assumption of Obligations. In consideration for the above assignment, Distributor agrees to assume 7.1 All obligations to provide service, training, software and hardware updating, service support and warranty obligations as provided in Paragraph 1 and Paragraph 3 a of the Transition Agreement. ================================================================================ 83 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Except as set forth in this paragraph, Distributor is not assuming and shall not be liable for any other of the obligations or liabilities of Imatron of any kind or nature whatsoever under the Transition Agreement. Imatron shall ensure that the Transition Agreement will not be terminated or cancelled by Imatron Japan INC. for Imatron's breach of its obligations under the Transition Agreement and hold harmless Distributor from any losses or damages which Distributor may incur as a result of Imatron's breach of the Transition Agreement. 8 Indemnification. Each of the parties hereby agrees to hold harmless and indemnify the other, and its successors and assigns, against any claim, action, loss, liability, damage, or cost and expense, including without limitation reasonable attorneys' and experts' fees and expenses (hereafter collectively "Losses" and separately as "Loss"), resulting from or arising out of any breach or inaccuracy of any representation or warranty, nonperformance of any agreement, covenant, promise, or obligation on the part of the indemnifying party contained in this Agreement. 9 Notices. All notices, certificates, requests, demands, ad other communications hereunder shall be in writing and shall be delivered as provided in the Distributorship Agreement. 10 Miscellaneous. 10.1 Governing Law; Arbitration. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California without regard to that body of law known as the conflict of laws. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration as provided in Paragraph 13 of the Transition Agreement. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California without regard to that body of law known as the conflict of laws. 10.2 Governing Language. The official text of this Agreement shall be in the English language, and any interpretation or construction of this Agreement shall be based solely on the English-language text. 10.3 Waivers. No failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial waiver thereof include any other or further exercise thereof or the exercise of any other right, power, or privilege. 10.4 Amendments. Unless otherwise provided herein, this Agreement may not be changed, waived, discharged, or terminated orally, but only by a written document signed by duly authorized officers of the parties hereto. 10.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. IMATRON INC. MARUBENI CORPORATION By: S. Lewis Meyer By: Y.Kawahara Its: Chief Executive Officer Its: General Manager , Electronics & Medical Business Department ================================================================================ 84 FY 2000 IMATRON INC. FORM 10-K ================================================================================ APPENDIX D USER LICENSE AGREEMENT This Agreement is made and entered into on between Imatron Inc., a corporation, hereinafter called "Imatron", and Marubeni Corporation hereinafter called the "Licensee". In consideration of the mutual covenants and conditions contained herein, the parties agree as follows: 1. License. Imatron hereby grants to the Licensee a nontransferable and nonexclusive single site license to use the computer software package described at the end of this form, hereinafter called the "Software", upon the terms and conditions contained herein. 2. License Fee. The Licensee agrees to pay Imatron a one-time license fee (included in the basic system price) for this license. 3. Conditions. This license is granted upon the following conditions: (a) The Software and any copies thereof shall at all time remain the sole property of Imatron. Imatron reserves the right to grant nontransferable and nonexclusive rights to use the Software to other persons or entities upon such terms and conditions as Imatron shall prescribe. The Licensee covenants and agrees not to permit access to, transfer, or assign the Software, or any part or copy thereof, in any form, to any other person or entity without the prior written consent of Imatron. (b) The Software shall be used only at the following location of the Licensee: In Japan. (c) The Software shall be used by the Licensee only on the following equipment: (d) The Licensee acknowledges that the Software is proprietary to Imatron and agrees not to disclose it in any form, in whole or in part, to any other person or entity. The Licensee also agrees not to copy, duplicate, or otherwise reproduce any Software, or any version, routine, subroutine, or part thereof, or create or attempt to create, or permit others to attempt to create, by reverse engineering or otherwise, the source programs, or any part thereof from the object program or from other information or data made available by Imatron, or otherwise acquired by Licensee, without prior written authorization from Imatron. If such authorization is obtained, the Licensee shall apply Imatron's copyright notice and other legend(s), if any, contained on the Software to such reproductions or copies, and all restrictions herein on use and disclosure of the Software shall apply to any such reproductions or copies thereof. (e) The Licensee shall not cause or permit the Software, or any part thereof to be used by any person other than the officers, employees, and agents of the Licensee' engaged in the business activities of the Licensee at the location referred to herein. The Licensee agrees that it shall cause each authorized person who uses the Software to agree to refrain from disclosing or delivering the Software, or any part thereof, to any unauthorized person or entity. (f) In the event that the Software is for use by the United States Government, or any branch or agency thereof (hereinafter referred to as the" Government"), the provisions of this subparagraph (f) shall apply to such transaction in lieu of subparagraphs (a) through (e) above. The Software shall be treated by ================================================================================ 85 FY 2000 IMATRON INC. FORM 10-K ================================================================================ the Government as "Limited Rights Data" pursuant to DAR 7 104.9(A) or the equivalent clause in other agency procurement regulations. 4. Reservation of Rights. The rights granted to the Licensee hereunder shall not affect the exclusive ownership by Imatron of any trademarks, copyrights, patents, or common law property rights of Imatron pertaining to the Software. The License granted hereby shall at all times be subject to all trademarks, copyrights, letters, patents, and common law property rights of Imatron relating to the Software. 5. Modifications and Improvements. If the Licensee modifies the Software in any manner or utilizes any other software with the Software, or uses or permits the use of the Software on any Hardware/System other than the Hardware/System with which the Software was provided without prior written authorization from Imatron, all warranties associated with the Software and the Hardware/System shall become null and void. If the Licensee, or any of it's officers, agents, or employees devise or acquire any improvements in the Software and the Licensee voluntarily discloses such improvements to Imatron Imatron shall have a nonexclusive, royalty-free license to use such improvement and the right to grant sublicenses thereto. 6. Term. This license shall continue for as long as the Licensee continues to utilize the above specified Hardware/System (s), except that Imatron may terminate this license upon thirty (30) days written notice to the Licensee in the event of any default by the Licensee of any term, covenant, or condition contained herein or in the contract of sale relating to the Hardware/System. Such termination shall not relieve the Licensee of any of any of its obligations incurred prior to such termination, and shall not impair any of Imatron's rights which have accrued prior to such date. The Licensee agrees to return the Software and any copies thereof to Imatron, at the Licensee's expense, immediately upon the termination of this license. The covenants of the Licensee contained in Paragraph 3 hereof shall survive the termination of this License. The warranty contained in Paragraph 8 hereof shall terminate upon the expiration or sooner termination of this License. 7. Patent and Copyright Indemnification. Imatron will defend any action brought against Licensee to the extent that it is based on a claim that any Software used within the scope of the License hereunder infringes a United States patent or copyright, provided Licensee notifies Imatron promptly in writing of the action (and all prior claims relating to such action) and Imatron has sole control of the defense and all negotiations for its settlement or compromise. In the event any Software becomes, or in the opinion of Imatron is likely to become, the subject of a claim of infringement of a patent or copyright, Imatron may at its option either, (a) secure the Licensee's right to continue using the Software, (b) replace or modify it, to make it noninfringing, so long as such replacement or modification dose not materially or adversely affect its performance, or, if neither of the foregoing alternatives is reasonably available to Imatron, accept return of such Software and refund to Licensee all fees paid by Licensee for the Software so returned. Imatron shall have no liability for any claim of copyright or patent infringement based on (1) use of other than a current unaltered release of the Software available from Imatron if such infringement would have been avoided by the use of such current unaltered release or (2) use or combination of the Software with programs or data not supplied by Imatron. THE FOREGOING STATES THE ENTIRE LIABILITY OF IMATRON WITH RESPECT TO INFRINGEMENT OF ANY COPYRIGHTS OR PATENTS BY THE SOFTWARE OR ANY PARTS THEREOF. 8. Warranty. THE SOFTWARE WHEN DELIVERED IS WARRANTED TO BE FREE FROM DEFECTS IN MATERIALS AND WORKMANSHIP. EXCEPT FOR THE EXPRESS WARRANTY HEREIN, IMATRON GRANTS NO WARRANTIES, EITHER EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND THE STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF IMATRON FOR DAMAGES, INCLUDING BUT NOT LIMITED TO SPECIAL OR CONSEQUENTIAL DAMAGES, OCCURRING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE SOFTWARE. ================================================================================ 86 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 9. Waiver of Liability. Subject to the provisions of paragraphs 7 and 8 above, the Licensee expressly waives all claims against Imatron. The parties agree that neither shall be responsible for the acts or omissions of the other in regard to the development or use of the licensed Software. 10. Taxes. The Licensee agrees to pay any state or local tax, use tax, excise tax, or similar tax, however designated, levied or computed, on the amount paid by the licensee to Imatron for this license to use the Software. 11. General. (a) This Agreement constitutes the entire Agreement between Imatron and the Licensee with respect to the subject matter of this Agreement. (b) No modification of this Agreement shall be valid unless in writing and signed by duly authorized representatives of both of the parties. (c) The Licensee shall not assign this Agreement or any right hereunder to any other person or entity without the prior written consent of Imatron. Such consent will not be unreasonably withheld. Subject to the foregoing prohibition against assignment, this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties hereto. (d) This Agreement shall be considered as having been entered into in the State of California and shall be subject to interpretation in accordance with the laws thereof In witness whereof, the parties have executed this Agreement as of the date set forth above. IMATRON INC. MARUBENI CORPORATION By: S. Lewis Meyer By: Y. Kawahara -------------- ----------- Title: Chief Executive Officer Title: General Manager , ----------------------- Electronics & Medical Business Department ------------------------------------------ ================================================================================ 87 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Appendix E [Trade Mark] IMATRON (Registration No.3176291) ================================================================================ 88 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Exhibit 10.34 IMATRON INC. CONSULTING AGREEMENT This Consulting Agreement ("Agreement") is made and entered into as of the 1st day of January, 2001 by and between Imatron Inc. (the "Company"), and Terry Ross, ("Consultant"). The Company desires to retain Consultant as an independent contractor to perform consulting services for the Company and Consultant is willing to perform such services, on terms set forth more fully below. In consideration of the mutual promises contained herein, the parties agree as follows: 1. SERVICES AND COMPENSATION (a) Consultant agrees to perform for the Company the services ("Services") described in Exhibit A, attached hereto. (b) The Company agrees to pay Consultant the compensation set forth in Exhibit A for the performance of the Services. 2. CONFIDENTIALITY (a) Definition. "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customers, customer lists, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed by the Company either directly or indirectly in writing, orally or by drawings or inspection of parts or equipment. (b) Non-Use and Non-Disclosure. Consultant will not, during or subsequent to the term of this Agreement, use the Company's Confidential Information for any purpose whatsoever, other than performing Services for the Company, or disclose the Company's Confidential Information to any third party. It is understood that said Confidential Information shall remain the sole property of the Company. Consultant further agrees to take all reasonable precautions to prevent any unauthorized disclosure of such Confidential Information including, but not limited to, having each employee, agent, or contractor of Consultant, if any, with access to any Confidential Information, execute a nondisclosure agreement containing provisions in the Company's favor identical to Sections 2, 3 and 4 of this Agreement. Confidential Information does not include information which (i) is known to Consultant at the time of disclosure to Consultant by the Company as evidenced by written records of Consultant, (ii) has become publicly known and made generally available through no wrongful act of Consultant, or (iii) has been rightfully received by Consultant from a third party who is authorized to make such disclosure. (c) Former Employer's Confidential Information. Consultant agrees that Consultant will not, during the term of this Agreement, improperly use or disclose any proprietary information or trade secrets of any former or current employer or other person or entity with which Consultant has an agreement or duty to keep in confidence information acquired by Consultant, if any, and that Consultant will not bring onto the premises of the Company any unpublished document or proprietary information belonging to such employer, person or entity unless consented to in writing by such employer, person or entity. Consultant will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys fees and costs of suit, arising out of or in connection with any violation or claimed violation of a third party's rights resulting in whole or in part from the Company's use of the work product of Consultant under this Agreement. ================================================================================ 89 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (d) Third Party Confidential Information. Consultant recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that Consultant owes the Company and such third parties, during the term of this Agreement and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for the Company consistent with the Company's agreement with such third party. (e) Return of Materials. Upon the termination of this Agreement, or upon Company's earlier request, Consultant will deliver to the Company all of the Company's property or Confidential Information that Consultant may have in Consultant's possession or control. 3. OWNERSHIP (a) Assignment. Consultant agrees that all material, notes, records, drawings, designs, inventions, improvements, developments, discoveries and trade secrets (collectively, "Work Product") conceived, made or discovered by Consultant, solely or in collaboration with others, during the period of this Agreement which relate in any manner to the business of the Company that Consultant may be directed to undertake, investigate or experiment with, or which Consultant may become associated with in work, investigation or experimentation in the line of business of Company in performing the Services hereunder, are the sole property of the Company. Consultant further agrees to assign (or cause to be assigned) and does hereby assign fully to the Company all Work Product and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. (b) Further Assurances. Consultant agrees to assist Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Work Product and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive right, title and interest in and to such Work Product, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Consultant further agrees that Consultant's obligation to execute or cause to be executed, when it is in Consultant's power to do so, any such instrument or papers shall continue after the termination of this Agreement. (c) Pre-Existing Materials. Consultant agrees that if in the course of performing the Services, Consultant incorporates into any Work Product developed hereunder any invention, improvement, development, concept, discovery or other proprietary information owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to use, reproduce, distribute, perform, display, prepare derivative works of, make, have made, sell and export such item as part of or in connection with such Work Product. Consultant shall not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any Work Product without Company's prior written permission. (d) Attorney in Fact. Consultant agrees that if the Company is unable because of Consultant's unavailability, dissolution, mental or physical incapacity, or for any other reason, to secure Consultant's signature to apply for or to pursue any application for any United States or foreign patents or mask work or copyright registrations covering the Work Product assigned to the Company above, then Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Consultant's agent and attorney in fact, to act for and in Consultant's behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyright and mask work registrations thereon with the same legal force and effect as if executed by Consultant. ================================================================================ 90 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 4. CONFLICTING OBLIGATIONS Contractor is free to perform services for other entities while performing services for the Company, except if such other entity is a competitor of the Company, thereby creating a risk of disclosure of confidential information, as defined in Section 2. Consultant certifies that Consultant has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude Consultant from complying with the provisions hereof, and further certifies that Consultant will not enter into any such conflicting Agreement during the term of this Agreement. 5. NON-SOLICITATION During the term of this Agreement and for a period of twelve months following termination of this Agreement, Consultant shall not, directly or indirectly, hire, solicit, or encourage to leave the Company's employment, any employee or contractor of the Company or hire any such employee or contractor who has left the Company's employment or contractual engagement. 6. TERM AND TERMINATION (a) Term. This Agreement will commence on the date first written above and will continue for the Duration of Services as set forth on Exhibit A, subject to early termination described below. (b) Termination. The Company may terminate this Agreement immediately and without prior notice if Consultant refuses to or is unable to perform the Services or is in breach of any material provision of this Agreement. (c) Survival. Upon such termination, all rights and duties of the parties toward each other shall cease except: (i) That the Company shall be obliged to pay, within thirty (30) days of the effective date of termination, all amounts owing to Consultant for Services completed and accepted by the Company prior to the termination date and related expenses, if any, in accordance with the provisions of Section 1 (Services and Compensation) hereof; and (ii) Sections 2 (Confidentiality), 3 (Ownership), 5 (Non-Solicitation) and 8 (Independent Contractors) shall survive termination of this Agreement. 7. ASSIGNMENT Neither this Agreement nor any right hereunder or interest herein may be assigned or transferred by Consultant without the express written consent of the Company. 8. INDEPENDENT CONTRACTOR It is the express intention of the parties that Consultant is an independent contractor. Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative of the Company, and Consultant shall perform the Services hereunder as an independent contractor. Consultant is free to control his methods of work, provided that Consultant continues to render his best efforts for the Company under this Agreement. Consultant agrees to furnish (or reimburse the Company for) all tools and materials necessary to accomplish this contract, and shall incur all expenses associated with performance, except as expressly provided on Exhibit A of this Agreement. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement, and Consultant agrees to and acknowledges the obligation to pay all self-employment and other taxes thereon. Consultant further ================================================================================ 91 FY 2000 IMATRON INC. FORM 10-K ================================================================================ agrees to indemnify and hold harmless the Company and its directors, officers, and employees from and against all taxes, losses, damages, liabilities, costs and expenses, including attorney's fees and other legal expenses, arising directly or indirectly from (i) any negligent, reckless or intentionally wrongful act of Consultant or Consultant's assistants, employees or agents, (ii) a determination by a court or agency that the Consultant is not an independent contractor, or (iii) any breach by the Consultant or Consultant's assistants, employee or agents of any of the covenants contained in this Agreement. 9. BENEFITS Consultant acknowledges and agrees and it is the intent of the parties hereto that Consultant receive no Company-sponsored benefits from the Company either as a Consultant or employee. Such benefits include, but are not limited to, paid vacation, sick leave, medical insurance, 401K participation, and incentive or bonus programs. If Consultant is reclassified by a state or federal agency or court as an employee, Consultant will become a reclassified employee and will receive no benefits except those mandated by state or federal law, even if by the terms of the Company's benefit plans in effect at the time of such reclassification Consultant would otherwise be eligible for such benefits. 10. ARBITRATION AND EQUITABLE RELIEF (a) Disputes. Except as provided in Section 10(d) below, the Company and Consultant agree that any dispute or controversy arising out of, relating to or in connection with the interpretation, validity, construction, performance, breach or termination of this Agreement shall be settled by binding arbitration to be held in San Mateo County, California, in accordance with, but not necessarily the administration of, the Commercial Arbitration Rules, supplemented by the Supplemental Procedures for Large Complex Disputes, of the American Arbitration Association as then in effect (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court of competent jurisdiction. (b) Governing Law. The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. Consultant hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants. (c) Costs. The Company and Consultant shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay its counsel fees and expenses unless otherwise required by law. (d) Equitable Relief. The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this arbitration agreement and without abridgment of the powers of the arbitrator. (e) ACKNOWLEDGMENT. CONSULTANT HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES ARBITRATION. CONSULTANT UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, CONSULTANT AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, TO BINDING ARBITRATION, EXCEPT AS PROVIDED IN SECTION 10(d), AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF CONSULTANT'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE RELATIONSHIP BETWEEN THE PARTIES. ================================================================================ 92 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 11. GOVERNING LAW This Agreement shall be governed by the laws of the State of California. 12. ENTIRE AGREEMENT This Agreement is the entire agreement of the parties and supersedes any prior agreements between them, whether written or oral, with respect to the subject matter hereof. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. TERRY ROSS IMATRON INC. ______________________________ _________________________ Address: By: ____________________________ ______________________ ______________________________ Its:______________ ================================================================================ 93 EX-10.35 3 0003.txt LOAN AND SECURITY AGREEMENT FY 2000 IMATRON INC. FORM 10-K ================================================================================ Exhibit 10.35 This LOAN AND SECURITY AGREEMENT dated February 21, 2001, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and IMATRON INCORPORATED, a New Jersey corporation ("Borrower"), whose address is 389 Oyster Point Blvd., South San Francisco, CA 94080 provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 1. ACCOUNTING AND OTHER TERMS. Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always mean "including (or includes) without limitation," in this or any Loan Document. 2. LOAN AND TERMS OF PAYMENT 2.1 Credit Extensions. Borrower will pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions. 2.1.1 Revolving Advances. (a) Bank will make Advances not exceeding the lesser of (A) the Committed Revolving Line minus the Cash Management Services Sublimit or (B) the Borrowing Base. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Agreement. (b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by 3:00 p.m. Pacific Time on the Business Day the Advance is to be made. Borrower must promptly confirm the notification by delivering to Bank the Payment/Advance Form attached as Exhibit B. Bank will credit Advances to Borrower's deposit account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations, which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to such reliance. (c) The Committed Revolving Line terminates on the Revolving Maturity Date, when all Advances are immediately payable. 2.1.2 Cash Management Services Sublimit. (a) Borrower may use up to $500,000 for Bank's Cash Management Services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in various cash management services agreements related to such services (the "Cash Management Services"). Such aggregate credit limit shall reduce the amount otherwise available to be borrowed under the Committed Revolving Line. All amounts Bank pays for any Cash Management Services will be treated as Advances under the Committed Revolving Line. In addition, direct deposit payroll shall be limited to $400,000, business credit card services to $50,000, and the other Cash Management Services to $50,000. 2.2 Overadvances. If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the lesser of either (i) the Committed Revolving Line minus the Cash Management Services Sublimit or (ii) the Borrowing Base, Borrower must immediately pay Bank the excess. ================================================================================ 94 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 2.3 Interest Rate, Payments. (a) Interest Rate. Advances accrue interest on the outstanding principal balance at a per annum rate of one (1.0) percentage point above the Prime Rate. After an Event of Default, Obligations accrue interest at five (5.0) percentage points above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year for the actual number of days elapsed. (b) Payments. Interest due on the Committed Revolving Line is payable on the first day of each month. Bank may debit any of Borrower's deposit accounts including Account Number 0351702070 for principal and interest payments owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when it debits Borrower's accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific Time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue. 2.4 Fees. Borrower will pay: (a) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due. (b) Loan Facility Fee. A loan facility fee of $35,000 per annum, payable in full on the date hereof. 3. CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the conditions precedent that it receives payment of the Loan Facility Fee, the results of the initial collateral audit (at Borrower's expense, which shall not exceed $2,000) satisfactory to Bank, and the agreements, documents and other fees it requires. 3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: (a) timely receipt of any Payment/Advance Form; and (b) the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties of Section 5 remain true. 4. CREATION OF SECURITY INTEREST 4.1 Grant of Security Interest. (a) Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower's duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may ================================================================================ 95 FY 2000 IMATRON INC. FORM 10-K ================================================================================ place a "hold" on any deposit account pledged as Collateral. If this Agreement is terminated, Bank's lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 Due Organization and Authorization. Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change. 5.2 Collateral. Borrower has good title to the Collateral, free of Liens except Permitted Liens. The Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding of any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All Inventory is in all material respects of good and marketable quality, free from material defects. Borrower is the sole owner of its intellectual property, except for non-exclusive licenses granted to its customers in the ordinary course of business and except for exclusive licenses granted in the ordinary course of business limited to specific uses or geographic regions. Each of Borrower's patents is valid and enforceable and no part of the Borrower's intellectual property has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Borrower's intellectual property violates the rights of any third party, except to the extent such claim could not reasonably be expected to cause a Material Adverse Change. 5.3 Litigation. Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of Borrower's Responsible Officers and legal counsel, threatened by or against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 5.4 No Material Adverse Change in Financial Statements. All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank. 5.5 Solvency. The fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. ================================================================================ 96 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 5.6 Regulatory Compliance. Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any Subsidiary's properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 5.7 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 5.8 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 6. AFFIRMATIVE COVENANTS Borrower will do all of the following: 6.1 Government Compliance. Borrower will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower's business or operations. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change. 6.2 Financial Statements, Reports, Certificates. (a) Borrower will deliver to Bank: (i) as soon as available, but no later than 5 days after filing with the SEC, Borrower's quarterly consolidated balance sheet and income statement covering Borrower's consolidated operations during the period, in a form and certified by a Responsible Officer acceptable to Bank; (ii) as soon as available, but no later than 90 days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) within 5 days ================================================================================ 97 FY 2000 IMATRON INC. FORM 10-K ================================================================================ of filing, copies of all statements, reports and notices made available to Borrower's security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $100,000 or more; (v) budgets, sales projections, operating plans or other financial information Bank reasonably requests, including financial projections approved by Borrower's board of directors to be delivered within 30 of fiscal year end. (b) Within 20 days after the last day of each month, Borrower will deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable (including a schedule of Deferred Maintenance Revenue) and accounts payable each by invoice date. (c) Within 5 days of filing with the SEC, Borrower will deliver to Bank with the quarterly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit D (including a schedule of Deferred Maintenance Revenue). (d) Bank has the right to audit Borrower's Collateral at Borrower's expense, but the audits will be conducted no more often than twice every year unless an Event of Default has occurred and is continuing, and provided that the fee for the initial audit hereunder to be performed on or about the Closing Date shall not exceed $2,000. 6.3 Inventory; Returns. Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower's customary practices as they exist at execution of this Agreement. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $50,000. 6.4 Taxes. Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments and will deliver to Bank, on demand, appropriate certificates attesting to the payment. 6.5 Insurance. Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank may reasonably request. Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank in Bank's reasonable discretion. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Bank's request, Borrower will deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy will, at Bank's option, be payable to Bank on account of the Obligations. 6.6 Primary Accounts; Minimum and Target Balances. Borrower will maintain its primary depository and operating accounts with Bank. In addition, Borrower agrees that at least 50% of its cash and cash equivalents (as determined pursuant to GAAP and as reflected in Borrower's quarterly financial statements) shall be deposited with or invested through Bank. Furthermore, the target balance on Borrower's sweep account established under the Cash Management Services shall be at least $600,000. ================================================================================ 98 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 6.7 Financial Covenants. Borrower will maintain as of the last day of each quarter: (i) Quick Ratio (Adjusted). A ratio of Quick Assets to Current Liabilities minus Deferred Maintenance Revenue of at least 1.00 to 1.00. (ii) Debt/Tangible Net Worth Ratio (Adjusted). A ratio of Total Liabilities less Subordinated Debt less Deferred Maintenance Revenue to Tangible Net Worth plus Subordinated Debt of not more than 1.00 to 1.00. (iii) Profitability. Borrower will have a minimum net profit of $1.00 for each fiscal quarter. 6.8 Further Assurances. Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's security interest in the Collateral or to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS Borrower will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) of worn-out or obsolete Equipment. 7.2 Changes in Business, Ownership, Management or Business Locations. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership or management (other than the sale of Borrower's equity securities in a public offering or to venture capital investors approved by Bank) of greater than 25%. Borrower will not, without at least 30 days prior written notice, relocate its chief executive office or add any new offices or business locations. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement and (ii) such transaction would not result in a decrease of more than 25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. ================================================================================ 99 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. As more fully provided in the Negative Pledge Agreement executed in connection herewith, in no event shall Borrower grant or suffer to exist any Lien upon its intellectual property other than license rights otherwise permitted hereunder, and Borrower shall not enter into any agreement with any third party preventing Borrower from granting to Bank a Lien upon its intellectual property. 7.6 Distributions; Investments. Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock. 7.7 Transactions with Affiliates. Directly or indirectly enter into or permit any material transaction with any Affiliate except transactions that are in the ordinary course of Borrower's business, on terms less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person. 7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank's prior written consent. 7.9 Compliance. Become an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 8. EVENTS OF DEFAULT Any one of the following is an Event of Default: 8.1 Payment Default. If Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period); 8.2 Covenant Default. If Borrower does not perform any obligation in Section 6 or violates any covenant in Section 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be ================================================================================ 100 FY 2000 IMATRON INC. FORM 10-K ================================================================================ cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower's attempts within 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default. During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period); 8.3 Material Adverse Change. If there occurs (i) a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, (ii) a material impairment in the prospect of repayment of any portion of the Obligations, or (iii) a material impairment of the value (other than normal depreciation) or priority of Bank's security interest in the Collateral. 8.4 Attachment. If any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period); 8.5 Insolvency. If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 8.6 Other Agreements. If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000 or that could cause a Material Adverse Change; 8.7 Judgments. If a money judgment(s) in the aggregate of at least $50,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied); 8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document; or 8.9 Guaranty. Any guaranty of any Obligations ceases for any reason to be in full force or any Guarantor does not perform any obligation under any guaranty of the Obligations, or any material misrepresentation or material misstatement exists now or later in any warranty or representation in any guaranty of the Obligations or in any certificate delivered to Bank in connection with the guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to any Guarantor. ================================================================================ 101 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 9. BANK'S RIGHTS AND REMEDIES 9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: (a) Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); (b) Stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; (c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable; (d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies; (e) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower; (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower's labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section, Borrower's rights under all licenses and all franchise agreements inure to Bank's benefit; and (g) Dispose of the Collateral according to the Code. 9.2 Power of Attorney. Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any checks or other forms of payment or security; (ii) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower's insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower's name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 9.3 Accounts Collection. When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the amount of the Account. Borrower must collect all payments in ================================================================================ 102 FY 2000 IMATRON INC. FORM 10-K ================================================================================ trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit. 9.4 Bank Expenses. If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 9.5 Bank's Liability for Collateral. If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral. 9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given. 9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 10. NOTICES All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written notice. 11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California. BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. ================================================================================ 103 FY 2000 IMATRON INC. FORM 10-K ================================================================================ 12. GENERAL PROVISIONS 12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights under it without Bank's prior written consent which may be granted or withheld in Bank's discretion. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under this Agreement. 12.2 Indemnification. Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance of all obligations in this Agreement. 12.4 Severability of Provision. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 12.5 Amendments in Writing, Integration. All amendments to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents. 12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 12.7 Survival. All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 12.8 Confidentiality. In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank's subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank's ================================================================================ 104 FY 2000 IMATRON INC. FORM 10-K ================================================================================ examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys' fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled. 13. DEFINITIONS 13.1 Definitions. In this Agreement: "Accounts" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Advance" or "Advances" is a loan advance (or advances) under the Committed Revolving Line. "Affiliate" of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members. "Bank Expenses" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). "Borrower's Books" are all Borrower's books and records including ledgers, records regarding Borrower's assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. "Borrowing Base" is (i) 80% of Eligible Accounts plus (ii) 100% of Eligible Foreign Accounts as determined by Bank from Borrower's most recent Borrowing Base Certificate; provided, however, that Bank may lower the percentage of the Borrowing Base after performing an audit of Borrower's Collateral. "Business Day" is any day that is not a Saturday, Sunday or a day on which the Bank is closed. "Cash Management Services" are defined in Section 2.1.2. "Closing Date" is the date of this Agreement. "Code" is the California Uniform Commercial Code. "Collateral" is the property described on Exhibit A. "Committed Revolving Line" is an Advance of up to $7,000,000. ================================================================================ 105 FY 2000 IMATRON INC. FORM 10-K ================================================================================ "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. "Credit Extension" is each Advance or any other extension of credit by Bank for Borrower's benefit. "Current Liabilities" are the aggregate amount of Borrower's Total Liabilities which mature within one (1) year. "Deferred Maintenance Revenue" is all amounts received in advance of performance under maintenance contract and not yet recognized as revenue. "Eligible Accounts" are Accounts in the ordinary course of Borrower's business that meet all Borrower's representations and warranties in Section 5; but Bank may change eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not include: (a) Accounts that the account debtor has not paid within 90 days of invoice date except for accounts due for any leasing companies set forth on Eligible Accounts Schedule hereto, as approved by Bank, as to which such period shall be 120 days; (b) Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice date; (c) Credit balances over 90 days from invoice date; (d) Accounts for an account debtor, including Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed that percentage, unless the Bank approves in writing; (e) Accounts for which the account debtor does not have its principal place of business in the United States except for Eligible Foreign Accounts; (f) Accounts for which the account debtor is a federal, state or local government entity or any department, agency, or instrumentality; (g) Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called "contra" accounts, accounts payable, customer deposits or credit accounts); (h) Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor's payment may be conditional; (i) Accounts for which the account debtor is Borrower's Affiliate, officer, employee, or agent; ================================================================================ 106 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (j) Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; (k) Accounts for which Bank reasonably determines collection to be doubtful. "Eligible Foreign Accounts" are Accounts for which the account debtor does not have its principal place of business in the United States but are: (1) supported by letter(s) of credit advised and negotiated by Bank and not unpaid 180 days or more from invoice date or (2) that Bank approves in writing. "Equipment" is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" is the Employment Retirement Income Security Act of 1974, and its regulations. "GAAP" is generally accepted accounting principles. "Guarantor" is any present or future guarantor of the Obligations. "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations. "Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. "Investment" is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "Lien" is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or Guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. "Material Adverse Change" is defined in Section 8.3. "Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management services, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank. "Permitted Indebtedness" is: (a) Borrower's indebtedness to Bank under this Agreement or any other Loan Document; ================================================================================ 107 FY 2000 IMATRON INC. FORM 10-K ================================================================================ (b) Indebtedness existing on the Closing Date and shown on the Schedule; (c) Subordinated Debt; (d) Indebtedness to trade creditors incurred in the ordinary course of business; and (e) Indebtedness secured by Permitted Liens. "Permitted Investments" are: (f) Investments shown on the Schedule and existing on the Closing Date; and (g) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit issued maturing no more than 1 year after issue. "Permitted Liens" are: (h) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; (i) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank's security interests; (j) Purchase money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; (k) Licenses or sublicenses granted in the ordinary course of Borrower's business and any interest or title of a licensor or under any license or sublicense; (l) Leases or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property; (m) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. "Person" is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. "Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. "Quick Assets" is, on any date, the Borrower's consolidated, unrestricted cash, cash equivalents, net billed accounts receivable and investments with maturities of fewer than 12 months determined according to GAAP. "Responsible Officer" is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower. ================================================================================ 108 FY 2000 IMATRON INC. FORM 10-K ================================================================================ "Revolving Maturity Date" is February 21, 2002. "Schedule" is any attached schedule of exceptions. "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing. "Subsidiary" is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. "Tangible Net Worth" is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus, (i) any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets, and (ii) Total Liabilities. "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. BORROWER: IMATRON INCORPORATED By: ------------------------------------------------- Title: ---------------------------------------------- BANK: SILICON VALLEY BANK By: ------------------------------------------------- Title: ---------------------------------------------- EXHIBIT A The Collateral consists of all of Borrower's right, title and interest in and to the following: All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or ================================================================================ 109 FY 2000 IMATRON INC. FORM 10-K ================================================================================ other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefore, as well as all merchandise returned to or reclaimed by Borrower; All documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and All Borrower's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. Borrower and Bank are parties to that certain Negative Pledge Agreement, dated on or about the date of this Agreement, whereby Borrower, in connection with Bank's loan or loans to Borrower, has agreed, among other things, not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property (as hereinafter defined) without Bank's prior written consent. Notwithstanding the foregoing, the Collateral shall not be deemed to include any copyrights, copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; any patents, patent applications and like protections, including without limitation, improvements, divisions, continuation, renewals, reissues, extension and continuations-in-part of the same; any trademarks, service marks and applications therefore, whether registered or not; any of the goodwill of the business of Borrower connected with and symbolized by such trademarks; any trade secret rights, including any rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owner or hereafter acquired; or any claims for damages by way of any past, present and future infringement of any of the foregoing (collectively, the "Intellectual Property"), except the Collateral shall include the proceeds of all the Intellectual Property that are accounts (i.e. accounts receivable) of Borrower, or general intangibles consisting of rights to payment, and, in addition, if a judicial authority, (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Bank's security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property. ================================================================================ 110 FY 2000 IMATRON INC. FORM 10-K ================================================================================ EXHIBIT B LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE: --------------------------- FAX#: (408) 496-2426 TIME: --------------------------- - -------------------------------------------------------------------------------- FROM: IMATRON INCORPORATED --------------------------------------------------------------------------- CLIENT NAME (BORROWER) REQUESTED BY: ----------------------------------------------------------------- AUTHORIZED SIGNER'S NAME AUTHORIZED SIGNATURE: --------------------------------------------------------- PHONE NUMBER: ------------------------------------------------------------------ FROM ACCOUNT # TO ACCOUNT # ------------------------- ---------------------- REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT PRINCIPAL INCREASE (ADVANCE) $ ----------------------------------- PRINCIPAL PAYMENT (ONLY) $ ----------------------------------- INTEREST PAYMENT (ONLY) $ ----------------------------------- PRINCIPAL AND INTEREST (PAYMENT) $ ----------------------------------- OTHER INSTRUCTIONS: ------------------------------------------------------------ - -------------------------------------------------------------------------------- All Borrower's representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone request for and Advance confirmed by this Borrowing Certificate; but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of that date. BANK USE ONLY TELEPHONE REQUEST: The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. - ------------------------------ ------------------------------- Authorized Requester Phone # - ------------------------------ ------------------------------- Received By (Bank) Phone # ------------------------------------ - -------------------------------------------------------------------------------- ================================================================================ 111 FY 2000 IMATRON INC. FORM 10-K ================================================================================ - -------------------------------------------------------------------------------- Authorized Signature (Bank) - -------------------------------------------------------------------------------- ================================================================================ 112
FY 2000 IMATRON INC. FORM 10-K =================================================================================================================== EXHIBIT C BORROWING BASE CERTIFICATE Borrower: IMATRON INCORPORATED Bank: Silicon Valley Bank - ------------------------------------------------------------------------------------------------------------------- 3003 Tasman Drive Santa Clara, CA 95054 Commitment Amount: $7,000,000 - ------------------------------------------------------------------------------------------------------------------- ACCOUNTS RECEIVABLE 1. Accounts Receivable Book Value as of _____________ $ ------------- 2. Additions (please explain on reverse) $ ------------- 3. TOTAL ACCOUNTS RECEIVABLE $ ------------- ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days (120 days*) due $ ---------------- 5. Balance of 50% over 90 day accounts $ ---------------- 6. Credit balances over 90 days $ ---------------- 7. Concentration Limits $ ---------------- 8. Foreign Accounts $ ---------------- 9. Governmental Accounts $ ---------------- 10. Contra Accounts $ ---------------- 11. Promotion or Demo Accounts $ ---------------- 12. Intercompany/Employee Accounts $ ---------------- 13. Other (please explain on reverse) $ ---------------- 14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $ ------------- 15. Eligible Accounts (#3 minus #14) $ ---------------- 16. LOAN VALUE OF ACCOUNTS (80% of #15) $ ------------- *For scheduled leasing company accounts FOREIGN ACCOUNTS RECEIVABLE 17. Foreign Accounts Receivable Supported by Letters of Credit Advised and Negotiated by Bank Book Value as of ______________ $ ---------------- FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS 18. Foreign Accounts Receivable Supported by Letters of Credit Advised and Negotiated by Bank Unpaid after 180 days $ ---------------- 19. Eligible Foreign Accounts (#17 minus #18) $ ---------------- 20. LOAN VALUE OF FOREIGN ACCOUNTS (100% of #19) $ ------------- BALANCES 21. Maximum Loan Amount $ ---------------- 22. Total Funds Available [Lesser of #21 or (#16 plus #20)] $ ------------- 23. Present balance owing on Line of Credit $ ---------------- 24. Outstanding under Sublimits $ ---------------- 25. RESERVE POSITION (#22 minus #23 and #24) $ ------------- The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank. =================================================================================================================== 113
FY 2000 IMATRON INC. FORM 10-K ================================================================================ COMMENTS: --------------------------- | BANK USE ONLY | | ---- --- ---- | | | | Rec'd By_______________ | | Auth. Signer | | | | Date:__________________ | | Verified:______________ | | Auth. Signer | | | IMATRON INCORPORATED | Date:__________________ | | | | | By: | | ----------------------------- | | Authorized Signer --------------------------- ================================================================================ 114 FY 2000 IMATRON INC. FORM 10-K ================================================================================ EXHIBIT D COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK 3003 Tasman Drive Santa Clara, CA 95054 FROM: IMATRON INCORPORATED The undersigned authorized officer of Imatron Incorporated ("Borrower") certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Please indicate compliance status by circling Yes/No under "Complies" column.
- ------------------------------------------------------ ------------------------------------------- ---------------------------- Reporting Covenant Required Complies - ------------------------------------------------------ ------------------------------------------- -------------- ------------- - ------------------------------------------------------ ------------------------------------------- -------------- ------------- Annual (Audited) FYE within 90 days Yes No - ------------------------------------------------------ ------------------------------------------- -------------- ------------- 10-Q, 10-K, 8-K and Compliance Certificate Within 5 days after filing with SEC Yes No - ------------------------------------------------------ ------------------------------------------- -------------- ------------- A/R & A/P Agings Monthly within 20 days Yes No - ------------------------------------------------------ ------------------------------------------- -------------- ------------- A/R Audit Initial and Semi-Annual Yes No - ------------------------------------------------------ ------------------------------------------- -------------- ------------- Borrowing Base Certificate Monthly within 20 days Yes No - ---------------------------------------------------------- ------------------------------------- ---------------- ------------- Financial Covenant Required Actual Complies - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------ Maintain minimum balances & investments 50% of cash and cash equivalents $ Yes No - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------ Maintain on a Quarterly Basis: - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------ Minimum Quick Ratio (Adjusted) 1.00:1.00 _____:1.00 Yes No - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------ Maximum Debt/Tangible Net Worth (Adjusted) 1.00:1.00 _____:1.00 Yes No - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------ Profitability $1.00 $ Yes No - ---------------------------------------------------------- ------------------------------------- ---------------- ------ ------
------------------------------------- |BANK USE ONLY | Comments Regarding Exceptions: | | See Attached. |Received by:______________________ | | AUTHORIZED SIGHNER | | | |Date:_____________________________ | | | |Verified:_________________________ | | AUTHORIZED SIGHNER | | | |Date:_____________________________ | | | |Compliance Status: Yes No | ------------------------------------- ================================================================================ 115 FY 2000 IMATRON INC. FORM 10-K ================================================================================ Sincerely, IMATRON INCORPORATED __________________________________ SIGNATURE __________________________________ TITLE __________________________________ DATE ================================================================================ 116 FY 2000 IMATRON INC. FORM 10-K ================================================================================ CORPORATE BORROWING RESOLUTION Borrower: Imatron Incorporated Bank: Silicon Valley Bank 389 Oyster Point Blvd. 3003 Tasman Drive South San Francisco CA 94080 Santa Clara, CA 95054-1191 I, the Secretary or Assistant Secretary of Imatron Incorporated ("Borrower"), CERTIFY that Borrower is a corporation existing under the laws of the State of New Jersey. I certify that at a meeting of Borrower's Directors (or by other authorized corporate action) duly held the following resolutions were adopted. It is resolved that any one of the following officers of Borrower, whose name, title and signature is below:
NAMES POSITIONS ACTUAL SIGNATURES - ----- --------- ----------------- - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------
may act for Borrower and: Borrow Money. Borrow money from Silicon Valley Bank ("Bank"). Execute Loan Documents. Execute any loan documents Bank requires. Grant Security. Grant Bank a security interest in any of Borrower's assets. Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds. Letters of Credit. Apply for letters of credit from Bank. Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts. Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they think necessary to effectuate these Resolutions. Further resolved that all acts authorized by these Resolutions and performed before they were adopted are ratified. These Resolutions remain in effect and Bank may rely on them until Bank receives written notice of their revocation. I certify that the persons listed above are Borrower's officers with the titles and signatures shown following their names and that these resolutions have not been modified are currently effective. CERTIFIED TO AND ATTESTED BY: X ______________________________________________ *Secretary or Assistant Secretary X ______________________________________________ *NOTE: In case the Secretary or other certifying officer is designated by the foregoing resolutions as one of the signing officers, this resolution should also be signed by a second Officer or Director of Borrower ================================================================================ 117 EX-23.1 4 0004.txt CONSENT OF INDEPEDENT AUDITORS ================================================================================ EXHIBIT 23.1 Consent of Independent Auditors, KPMG LLP The Board of Directors Imatron Inc.: We consent to incorporation by reference in the registration statements (File Nos. 333-11515, 333-6749, 333-3529, 333-647, 333-63123, 333-51963 and 333-87195) on Form S-3 and (File Nos. 333-15081, 333-9989, 222-61179, 33-71786, 33-66992, 33-66952, 33-40391, 33-28662, 33-26833, 333-94237, 333-94239 and 333-94245) on Form S-8 of Imatron Inc. of our report dated January 30, 2001, relating to the consolidated balance sheets of Imatron Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, and the related schedule, which report appears in the December 31, 2000, annual report on Form 10-K of Imatron Inc. KPMG LLP San Francisco, California March 28, 2001 ================================================================================ 118 -----END PRIVACY-ENHANCED MESSAGE-----