FONAR CORPORATION /HEALTH MANAGEMENT CORPORATION OF AMERICA

CODE OF CONDUCT AND COMPANY POLICIES

TABLE OF CONTENTS

LETTER FROM THE CHIEF EXECUTIVE OFFICER		3
CODE OF CONDUCT
	A. LAWFUL AND ETHICAL BEHAVIOR	4
	B. CORPORATE COMPLIANCE GENERALLY	4
	C. CONFLICTS OF INTEREST	5
	D. BUSINESS PRACTICES	6
	E. DEALINGS WITH GOVERNMENTS	7
	F. GOVERNMENT INVESTIGATIONS	7
	G. TRADE SECRETS AND CONFIDENTIAL INFORMATION	8
	H. FDA REGULATIONS	9
	I. EQUAL EMPLOYMENT OPPORTUNITY POLICY AND INTERNAL COMPLAINT PROCEDURE	9
	J. POLICY ON INSIDER TRADING	11
	K. ANTITRUST AND UNFAIR TRADE PRACTICES	13
ACKNOWLEDGEMENT FORMS		16, 17

 

LETTER FROM THE CHIEF EXECUTIVE OFFICER

At Fonar Corporation and our subsidiary Health Management Corporation of America (the term “Company” refers to Fonar, HMCA and all subsidiaries of either corporation), our success is defined not just by our excellent products and superior service, but also by our reputation for integrity and fair dealing. In pursuing our business objectives we must adhere to our core values of honesty and fair dealing.

As an employee of the Company, you should become familiar with the provisions of the Code of Conduct and comply with its requirements. Adherence to these standards will not only avoid potential civil and criminal exposures, but ensure that our reputation for fair dealing and ethical business conduct remains intact.

I expect every employee of the Company to make a conscientious effort to act at all times in accordance with both the letter and spirit embodied in the Code of Conduct. Thank you for your cooperation.

Raymond V. Damadian, M.D.
Chairman, President and Chief Executive Officer

CODE OF CONDUCT

       The purpose of the Code of Business Conduct (the “Code”) is to provide a statement of certain key policies and procedures of the Company for conducting our business in a legally and ethically appropriate manner.

       It is and has been our policy to be a good “corporate citizen” of the states and countries in which we do business. We have a responsibility to obey applicable laws. This includes the laws and regulations that directly affect the way we do business, such as FDA regulations, product safety regulations, anti-kickback laws and regulations, laws relating to the management of imaging facilities, securities laws, fair labor and equal opportunity laws and antitrust laws.

       Each of us has a responsibility to set an example of good behavior by acting in a clearly ethical manner. Each of you is responsible for reviewing and understanding these policies and procedures to the extent they relate to you and your activities. You can obtain advice concerning these policies from your supervisor, the personnel department, the Chief Executive Officer or persons designated by the Chief Executive Officer. On doubtful questions, you should seek and receive advice in advance of taking action.

       Supervisors are responsible for promoting open and honest two-way communications, and to be positive and role models who maintain high standards of ethics and show respect and consideration for each of our employees.

       The Code is not an employment contract, nor is it able to be an all-inclusive guide to what constitutes lawful and ethical behavior in all situations. It does not supercede any confidentiality, noncompetition or other agreements you may have signed in connection with your employment by the Company. The Code is a statement of Company policy, and the Company reserves the right to provide the final interpretation of the Code and to revise it as in its sole discretion it deems appropriate.

       In situations where you believe unlawful or unethical conduct has occurred, even where it is not specifically discussed in this Code, we urge you to report the matter either to your supervisor, the head of personnel, or through the Company’s Ethics Hotline/Whistleblower Program.

       Failure to comply with the standards contained in the Code can have severe consequences for both the individuals involved and the Company. In addition to potentially damaging the Company’s good name, trade and customer relations and business opportunities, conduct which violates the Code may also violate federal, state and local laws. These violations can subject the individuals involved and the Company to prosecution. Accordingly, violation of these policies could subject an employee to discipline up to and including termination of employment.

       If you know of, or reasonably believe there is, a violation of applicable laws, or the Company’s code and policies, you should report that information through the Company’s confidential Ethics Hotline/Whistleblower Program or to your supervisor or the personnel department. A sufficiently detailed description of the factual basis for the allegations should be given in order to allow for an appropriate investigation. Persons who make such reports and persons to whom reports are made should not conduct their own preliminary investigations, unless authorized to do so.

       Retaliation against any employee who honestly and in good faith reports a concern to the Company about unethical or illegal conduct will not be tolerated.

       Employees are expected to avoid situations that might involve a conflict between their personal interests and the interests of the Company. All employees are required to disclose to their supervisor any situation that may be a conflict of interest. Your participation in any activity which could involve an actual conflict of interest requires the advance approval of the Chief Executive Officer.

       The following examples will serve as a guide to activity which should be disclosed to the Company for advance approval or which may be prohibited:

       All employees are expected to give complete cooperation to the Company’s internal
accountants and independent outside auditors to enable them to perform their duties.

       Any employee having information or knowledge of any hidden fund or asset, any false or
artificial entry in the books and records of the Company or any inappropriate payment, or any complaint regarding accounting, internal accounting controls or auditing matters should promptly report the matter through the Company’s confidential Ethics Hotline/Whistleblower Program or to the Company’s Controller or the Chief Executive Officer.

       Quality remains a hallmark of the Company’s products and services and is a source of competitive advantage. A commitment to quality is a commitment to products and services that meet the highest standards of performance, design, manufacturing specifications and safety, as applicable. Our goal is to meet the requirements, and exceed the expectations, of our customers. Equally important is the Company’s commitment to productivity. In order to maintain our competitiveness, we must ensure that our work processes are as efficient as possible and continuously improving. The environment should foster teamwork. All employees are responsible for maintaining high quality and high productivity.

       The Company is committed to conducting its business in compliance with all applicable federal and state statutes and regulations governing the manufacturing and servicing of MRI equipment and the management of MRI facilities, including but not limited to FDA regulations.

       The Company and it employees are responsible for maintaining a safe workplace by following safety and health rules and practices. Employees should immediately report accidents, injuries and unsafe equipment/practices or conditions to a supervisor or other designated person. The Company is committed to maintaining its workplaces free from hazards and complying with OSHA requirements.

       The Company does not make corporate political contributions. Therefore, no contributions of Company funds will be permitted in connection with any federal, state or local election. This prohibition includes performance of services or providing anything of value by an employee as part of his or her duties for the Company. Certain expenditures of Company funds in connection with proper lobbying activity maybe permissible, but only with the approval of the Chief Executive Officer. Political activity and lobbying outside the United States is similarly restricted.

       The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies from making payments to any foreign official, political party official or candidate for political office in order to influence a business decision.

       While certain payments to foreign officials are not necessarily prohibited by the FCPA, it is often difficult to distinguish between legal payments and illegal payments under FCPA rules. Therefore, payments, gifts or entertainment, regardless of amount, to foreign governmental officials and personnel to obtain or keep a business relationship with the Company shall not be allowed without the prior authorization of the Chief Executive Officer.

       Requests for special billing or payment procedures which suggest possible violations of law, such as evasion of income tax, currency exchange controls or price profit controls, are contrary to the Company’s policies and are prohibited.

       It is the Company’s policy to fully cooperate with government investigations. It is critical, however, that the Company be represented by its own legal counsel during any investigation. If you believe that a government investigation or inquiry is imminent, or any inquiries are made, this information should be communicated immediately to the Chief Executive Officer or other members of management before you provide any answers wherever possible, in order to assure that the Company is properly represented by counsel.

       Appropriate handling of government investigations is very important. Violations of any of the laws regulating the conduct of the Company’s business, including antitrust, securities, OSHA, environmental, FDA and tax laws, can result in both civil and criminal penalties.

       It is very important for all employees to safeguard the Company’s trade secrets and confidential information. We are also responsible for safeguarding confidential information of other companies that we may have in our possession under agreements with them.

       Confidential or proprietary information includes any information that is not generally disclosed to the public and which could cause competitive or other damage to the Company if improperly disclosed.

       Each Company employee has been upon his or her employment required to execute a written agreement with the Company regarding confidential information and non-disclosure. Confidential and proprietary information such as its technology, know-how, business, finances, personnel, strategies and performance must not be disclosed to third parties. It must be disseminated exclusively through the appropriate authorized channels.

       Examples of confidential information include such things as product specifications, research and development, works-in-progress, software, financial data, sales figures, new product development plans, advertising programs, areas where the Company intends to expand, supplier and customer lists, wage and salary data, capital investment plans, projected earnings, anticipated changes in management or policies of the Company, testing data, designs, artwork, concepts, manufacturing processes or procedures, suppliers’ prices to us, or any plans we may have for improving any of our products. A good operating assumption is that if you haven’t seen it in a press release it’s probably confidential.

Our guidelines for safeguarding the Company’s trade secret and confidential information are as follows:

       The manufacturing and marketing of Fonar’s MRI scanners are regulated by the Food
and Drug Administration (“FDA”). These requirements include the Quality System regulation, also known as Good Manufacturing Practices and the Medical Device Reporting regulation. The Quality Assurance regulation covers the design, packaging, labeling and manufacturing of a medical device. The Medical Device Reporting regulation is an adverse event reporting program. Under the Medical Device Reporting regulation, Fonar must review and evaluate all complaints to determine whether the complaint represents an event which may be required to be reported to the FDA. A report is required when a manufacturer becomes aware of information that reasonably suggests that one its products has or may have caused or contributed to a death or serious injury, or has malfunctioned and would likely to cause or contribute to a death or serious injury if the malfunction were to recur. Malfunctions are not reportable if they are not likely to result in a death, serious injury or other significant adverse events.

       Employees are expected to comply with Fonar’s procedures for implementing these requirements. If an employee believes that these requirements are not being observed, the employee may report the matter to the Chief Executive Officer or his designee, or utilize the Ethics Hotline/Whistleblower Program.

       The Company is committed to maintaining a workplace free of discrimination on the basis of any protected characteristic, including race, color, national origin, sex, age, religion or disability (hereinafter called” Protected Characteristics”), and will take appropriate measures to prevent and/or stop it.

       The Company will not tolerate harassment based on any Protected Characteristic, and will take appropriate measures to prevent and stop any such harassment.

       Harassment is broadly defined as any conduct, whether verbal or physical, that denigrates, insults, or offends a person or group on the basis of a Protected Characteristic where:
(1) submission to such conduct is made an explicit or implicit term or condition of employment;
(2) submission to or rejection of such conduct is used as a basis for any employment decision; or
(3) such conduct has the purpose or effect of interfering with an employee’s work performance or creating an intimidating, offensive or hostile working environment.

       The Company will not tolerate retaliation against any employee who seeks to enforce his or her right to work in an environment free of unlawful discrimination or harassment or who makes a good faith report under the Ethics Hotline/Whistleblower Program or Internal Complaint Procedure. Any employee who is aware of any conduct that may violate this policy should promptly report the conduct using the Ethics Hotline/Whistleblower Program or the Internal Complaint Procedure.

       The Company is committed to providing reasonable accommodation to enable qualified employees with disabilities to perform their jobs.

       Any employee who believes he or she needs accommodation should bring the matter to the attention of the personnel department. The employee may be required to provide medical documentation establishing the existence of a disability, any job-related restrictions, and the estimated length of time for which accommodation is needed. The Company will keep all medical information confidential to the greatest extent practicable.

       Any employee who believes that a violation of this policy has occurred, if he or she wishes to use the Internal Complaint Procedure, should immediately inform the personnel department. In place of the Internal Complaint Procedure, the employee may instead utilize the Ethics Hotline/Whistleblower Program. The Ethics Hotline/Whistleblower Program and the procedures for reporting under said program are contained in a separate document distributed to employees describing that program.

       Under the Internal Complaint Procedure, all complaints will be referred to the personnel department for investigation, review or other appropriate action. The personnel department then will report the alleged violation to the Chief Executive Officer or his designee. The personnel department or other designee of the Chief Executive Officer will conduct a prompt, thorough investigation or review of the complaint. All facts concerning any complaint (including the identities of the complaining party, the person alleged to have violated this policy, and other witnesses) will be kept confidential from anyone who does not have a legitimate reason to know about them, subject to management’s need to investigate and take appropriate remedial measures.

       If the Company concludes that its policies have been violated, it will take prompt corrective action reasonably designed to end the violation and to prevent any further violations from occurring. Such corrective action may include disciplinary action against anyone found to have violated this policy, up to and including termination of employment.

       After the Company has completed its investigation or review and determined whether this policy has been violated, it will advise the complaining party of the results of the investigation or review and the corrective action, if any, that is being taken as a result.

       In the course of your relationship with the Company, you may learn confidential and sensitive information concerning the Company, its customers, vendors or other companies with which the Company has relationships or may be negotiating transactions. Some of this information has the potential for affecting the market price of securities issued by the Company or the other companies involved. The federal securities laws impose considerable civil and criminal penalties on persons who improperly obtain or use material, non-public information in connection with a purchase or sale of securities. In addition to civil damages of up to three times the profit gained, an individual may be subject to criminal sanctions, including imprisonment and a criminal fine of up to $1,000,000, for any violation. The SEC and governmental prosecutors vigorously enforce these laws against both individuals and institutions.

       The federal securities laws and regulations (in particular Rule 10b-5 under the Securities Exchange Act of 1934) make it illegal for a person to buy or sell a security when he or she is aware of material, non-public information concerning the issuer of the security, or the market for the security. The federal securities laws and regulations also prohibit sharing the material, non-public information with a third party (commonly called “tipping”). These prohibitions apply not only to stock, but to any security, including debt securities and options.

       “Material, non-public information” is defined broadly and includes any information that is not available to the general public which could be expected to affect a reasonable investor in deciding whether to buy, sell or retain the security. Consequently, any information that could be expected to affect the market price of Company securities, whether positive or negative, should be considered material. Although the following is not a complete list, examples of information that will frequently be regarded as material are: (1) matters involving significant new products or services; (2) matters relating to new financing; (3) gain or loss of a significant customer or vendor; (4) earnings-related information, including preliminary financial results; (5) new internally developed financial projections; (6) a pending or proposed merger, acquisition, joint venture, tender offer or exchange offer; (7) a pending or proposed sale or disposition of a subsidiary, division or significant assets; (8) changes in dividend policies, the declaration of a stock split or the offering of additional securities; (9) impending bankruptcy or financial liquidity problems; (10) changes in senior management; (11) changes in auditors or notification that an audit report can no longer be relied upon; (12) changes in credit ratings; (13) significant litigation; or (14) notifications of alleged violations or investigations by government agencies (for example, the SEC, the Federal Trade Commission or the FDA) or by an exchange or market on which Company securities are listed (e.g. NASDAQ).

       Information is considered to be available to the public only when it has been publicly disseminated through appropriate channels (for example, by means of a press release or a filing with the SEC) and enough time has elapsed to permit the investment market to absorb and evaluate the information.

       You should note that there will likely be instances where public disclosure does not occur for an extended amount of time, and therefore you may be forced to abstain from trading Company securities for a lengthy period. It is irrelevant whether the transaction may be necessary or justifiable for independent reasons (such as your need to raise money for an emergency) or whether you actually will use the inside information.

       During certain periods the Company may establish “black-out” periods during which certain individuals, or even all employees, will be assumed to be in possession of material, non-public information regarding the Company and will be prohibited from trading the Company’s securities. This may include persons working on the preparation a Form 10-Q or a Form 10-K during for a period preceding the filing.

       Whether or not the Company prescribes a “black-out” period, the prohibition against insider trading will apply against you when you are in possession of material non-public information.

       Even if you leave the Company you will be subject to this Policy and the laws against insider trading until any blackout period applicable to you ends or until any material, non-public, information in your possession has become public or is no longer material.

       Antitrust laws are intended to promote vigorous competition. Most antitrust violations are the result of an “agreement” with a competitor, customer, supplier or other person. The form of the agreement is immaterial and need not be in writing. Oral statements, handshakes, “side letters”, “gentlemen’s agreements”, and other kinds of conduct from which agreements may be implied may be considered violations. The following guidelines are intended to help us minimize the risk of antitrust violations.

Agreements with Competitors

       Certain agreements with competitors are per se violations of U.S. federal antitrust law. That means they are unlawful, regardless of the surrounding facts or circumstances. Per se violations are often prosecuted criminally by the U.S. Department of Justice. In furtherance of this policy no employee should discuss or enter into:

Customer Relations

       Agreements with distributors or other customers may also create antitrust exposure. Agreements with distributors or customers concerning the prices at which they resell the Company’s product or services or which make the purchase of one of the Company’s products or services contingent on the purchase of another of the Company’s products or services raise antitrust issues and should be discussed with management or counsel.

Mergers and Acquisitions

       Mergers and acquisitions may give rise to antitrust concerns, when they involve competitors. Like joint venture discussions, the exchange of information with competitors about a possible merger can be competitively sensitive. Accordingly, no Company employee is authorized to discuss a potential merger or acquisition without the prior review and approval of the Chief Executive Officer.

Information Exchanges

       The exchange of price or other non-public, competitively sensitive information may contribute to a finding of unlawful price fixing or market allocation. For this reason, Company policy forbids discussion or communication by the Company’s employees with a competitor concerning past, present or future sales prices, pricing policies, bids, discounts, promotions, terms or conditions of sale, sales volume, customers, territorial markets, costs, inventories, product plans, market surveys or production without the approval of the Chief Executive Officer. Company policy also prohibits the provision to or receipt from a competitor of price lists or strategic plans, without the approval of the Chief Executive Officer. The only exception to the above rule arises where a competitor is also a customer or supplier, in which case price information related to the transaction between the Company and the customer or supplier may be communicated.

Unfair Trade Practices

       State and federal law prohibit certain deceptive trade practices. The following guidelines will minimize the risk of violations:

ACKNOWLEDGMENT FORM

I understand that this Code is not a contract of employment and that my compliance with this Code does not confer any right to continue in the service of the Company, or in any way affect my right to terminate employment with the Company.

Employee	Date

Please sign and return to Personnel

M-11533