SCHEDULE 14C INFORMATION
PRELIMINARY REVISED INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF
THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X ] Preliminary information statement [ ] Confidential, for use of the
Commission only (as permitted
by Rule 14c-5(d)(2))
[ ] Definitive information statement
IMAGING DIAGNOSTIC SYSTEMS, INC.
--------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14-c-5 (g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No: 0-26028
(3) Filing Party: Imaging Diagnostic Systems, Inc.
(4) Date Filed: October 29, 1998
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IMAGING DIAGNOSTIC SYSTEMS, INC.
6531 NW 18TH COURT
PLANTATION, FLORIDA 33313
_____________, 1998
INFORMATION STATEMENT
THIS STATEMENT IS FOR INFORMATION PURPOSES ONLY. WE ARE NOT ASKING YOU FOR A
PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Imaging Diagnostic Systems, Inc., a Florida Corporation, (the "Company"), is a
medical technology company that has developed and is testing a Computed
Tomography Laser Mammography ("CTLM(TM)") device for detecting breast cancer
through the skin in a non-invasive procedure. The CTLM(TM) employs a high-speed
pico-second pulsed titanium sapphire laser and proprietary scanning geometry and
reconstruction algorithms to detect and analyze tissue in the breast for indicia
of malignancy or benignancy. The components of the laser system are purchased
from two unaffiliated parties and assembled and installed into the CTLM(TM) by
the Company.
The Company is developing a clinical atlas of the optical properties of benign
and malignant tissues with respect to absorption and scattering parameters as
laser light pulses pass through the tissue. The CTLM(TM) device is designed to
provide the physician with objective data for interpretation and further
clinical work-up. Accordingly, the Company believes that the CTLM(TM) will
improve early diagnosis, reduce diagnostic uncertainty, and decrease the number
of biopsies performed on benign lesions.
This Information Statement is being mailed to the shareholders of the Company
commencing on or about _______________ 1998, in connection with the adoption, by
a majority of the Company's shareholders entitled to take action there on, of
the Amendment to the Company's Articles of Incorporation contained herein.
Pursuant to Section 607.0704 Florida Statutes, any action to be taken at an
annual or special meeting of shareholders may be taken without a meeting,
without prior notice and without a vote if the action is taken by a majority of
the holders of outstanding stock of each voting group entitled to vote. The
Certificates of Designation of the Series B, D, E, and H Preferred Stock (the
"Certificates"), which were filed with and accepted by the State of Florida,
provide that, in the event there are insufficient shares to effect a conversion,
the Company is required to increase the number of authorized shares to effect
such conversion. Due to the decrease in the Company's stock price, the Company
no longer has an adequate number of common shares authorized to meet its
contractual obligations with regard to the conversion of the Preferred Stock.
The Certificates also provide that the holders of the Preferred Shares shall be
entitled to vote with the holders of the Common Stock, as a single class, where
each share of Preferred Stock shall be entitled to that number of votes to which
it would be entitled had all of its shares of Preferred Stock been converted
into shares of Common Stock were notice of conversion given on the date of such
vote. The certificates provide no other voting rights to the Holders.
As of the 10th day of July, 1998, Austost Anstalt Schaan, Balmore Funds S.A.,
Dominion Capital Funds, Ltd., Canadian Capital Fund Ltd., Avalon Capital Ltd.,
Richard J. Grable, Weyburn Overseas Limited, Linda B. Grable, Goodland
International Investment Ltd. and Allan L. Schwartz, (collectively "the Majority
Shareholders"), authorized, by written action, the Company's adoption of an
amendment, in the form of Exhibit A hereto (the "Amendment"), to the Company's
Certificate of Incorporation, as amended, to increase the authorized common
stock, no par value per share ("Common Stock"), of the Company from 48,000,000
shares to 100,000,000 shares (the "Written Action"). Taking into account such
provision and
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including the Common Stock held by the Majority Shareholders, the Majority
Shareholders were entitled to and voted the number of shares set forth opposite
their names:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NUMBER OF SHARES OUTSTANDING (1)
- ---- ---------------- --------------
<S> <C> <C>
Austost Anstalt Schaan 1,985,631 3.8%
Balmore Funds S.A. 1,985,631 3.8%
Dominion Capital Funds Ltd. 1,334,996 2.6%
Canadian Capital Fund Ltd. 636,379 1.2%
Avalon Capital Ltd. 673,401 1.3%
Weyburn Overseas Limited (2) 3,325,942 6.5%
Goodland International (2)
Investment Ltd. 7,760.532 15.1%
Richard J. Grable 7,995,040 15.5%
Allan L. Schwartz 3,579,980 7.0%
Linda B. Grable 3,497,800 6.8%
-------------- ---------
TOTAL 32,775,332 63.6%
</TABLE>
- ----------------
1. Percentage calculation includes the additional shares of common stock that
would have been outstanding had all of the shares of Preferred Stock been
converted into shares of Common on the date of the Written Action.
2. Everest Capital Limited, is the investment manager for Weyburn Overseas
Limited and Goodland International Investments, Ltd. Mr. John Malloy is the
Managing Director of Everest Capital Limited, a British Virgin Island
corporation.
- ------------------------
Accordingly, all necessary corporate approvals in connection with the matters
referred to herein have been obtained, and this Information Statement is
furnished solely for the purpose of informing stockholders, in the manner
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of these corporate actions before they take effect. The Company's stock
is traded on the OTC/Bulletin Board and is deemed to be a "penny stock". The
Securities and Exchange Commission (the "Commission") has adopted regulations,
which generally define Penny Stocks to be an Equity Security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exemptions. At present, the market price of the
Company's Common Stock is substantially less than $5.00 per share and therefore
may be designated as a "penny stock." pursuant to the rules under the Securities
Exchange Act of 1934, as amended. Such a designation requires any broker or
dealer selling such securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser, and determine that
the purchaser is reasonably suitable to purchase such securities. These rules
may restrict the ability of Broker/Dealers to sell the Company's Common Stock
and may affect the ability of shareholders to sell their Shares. The issuance of
large amounts of common stock upon conversion and the subsequent sale of such
shares may further depress the price of the common stock. In addition, since
each new issuance of common stock dilutes existing shareholders, the issuance of
substantial additional shares may effectuate a change of control of the Company.
On March 24, 1996, the Company filed its application with Nasdaq to be listed on
the Small Cap Market. The Company's request for listing was subsequently denied
after a hearing before the Listing Qualifications Panel (the "Panel"). The
denial was based upon the fact that one of the Company's outside shareholders
(the "Shareholder"), who had no control or relationship with the Company, other
than as a minority shareholder, had a questionable background and owned a 5%
interest in the Company.
As a result, the Company appealed the denial decision to the Nasdaq Listing and
Hearing Review Committee (the "Committee") which on February 5, 1997, reversed
the decision of the Panel and stated in part the following:
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"Accordingly, we recommend that the Panel's decision denying initial
inclusion be reversed and the case be remanded to the Staff with
instructions to implement the Company's proposal..."
The Company in fact, did implement its proposal and on March 12th provided
Nasdaq with copies of all documentation necessary to satisfy any concerns that
the Panel had regarding the Shareholder. On March 31, 1997, prior to the time
Nasdaq acted on the proposal, Barron's published an inaccurate article stating
that a Nasdaq spokesman indicated that the listing would be denied. At all times
up until the date of this article the Company's stock traded at $3.00 and above.
The article had a predictable negative impact on the Company's stock and the
price dropped below $3.00, where it has stayed ever since the Barron's article,
despite a retraction from Barron's on April 7, 1997. Based upon this decline the
Nasdaq staff has refused to approve the Company for listing on the Nasdaq Small
Cap Market.
The Company appealed the denial of the listing at an oral hearing before the
Nasdaq Qualification Hearing Panel (the "Panel") in Washington D.C. on January
22, 1998. On February 10, 1998, the Panel issued its decision granting the
Company's request for initial inclusion on the Nasdaq Small Cap Market, subject
to the following conditions:
1. On or before May 11, 1998, the Company must effect a reverse stock
split sufficient to raise its bid price to, or above $4.00 per share for the
opening of one trading day or in the alternative, on or before May 11, 1998, the
Company must have and retain for 10 consecutive trading days a $4.00 bid price
through natural forces.
2. On or before May 11, 1998, the Company must make a public filing
with the SEC and Nasdaq evidencing a minimum of $5,000,000 in net tangible
assets.
The Board of Directors determined that a reverse split at that time would be
detrimental to the company and the interests of its shareholders and vetoed the
proposal for the reverse split. The conditional listing expired on May 11, 1998.
The Company immediately appealed this decision to the Nasdaq Listing and Hearing
Review Council (the "Council"). On May 19, 1998 the Company received the
Decision of the Council which affirmed the decision of the Panel. The Council
stated that:
"In making this decision, we find unpersuasive the Company's argument that
on remand, it was not required to satisfy the initial inclusion bid
requirement, or by implication, any of the other listing requirements. In
fact the purpose of a remand and the continuing role of the staff in the
process is to provide assurance that the Company satisfied Nasdaq listing
requirement at the time it was listed, a fact that the Company likely
understood when it went through the re-application process following
remand."
The Company contends that this determination is incorrect in that the Company
never went through a re-application process following remand. The Council went
on to state, in part, that:
"The Company could have no reasonable expectation that it received a
waiver of Nasdaq listing standard. The decision merely determines that the
ownership of the shareholder at issue would not prevent listing, given the
Company's plan to insulate itself. We believe that the Panel's exception,
which appears to be within the Company's control to achieve, was
appropriate. While the incorrect Barron's article was unfortunate, we note
that a retraction was later printed and sufficient time has passed to
allow the Company's stock to be fairly priced in the market.
On June 11, 1998, the Company filed an Application for Review before the United
States Securities and Exchange Commission to appeal the Decision of the Council.
The basis for the appeal was that the Council erred in affirming the Panel's
decision placing conditions upon the Company's initial inclusion. The Company
contends that; (i) it did satisfy all the listing requirements on a timely basis
but was
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initially rejected for listing by the Nasdaq Staff and Panel on grounds
that were ultimately reversed by the Council in the first appeal; (ii) that the
Company satisfied the listing requirement and this fact was so recognized in the
Council's Decision in the first appeal; (iii) that due to the four month delay
cased by the Nasdaq Staff; dilatory review process, and the irresponsible
remarks made by a Nasdaq Staff member to Barron's; the price of the Company's
stock declined below the initial listing requirement (but remained well above
the maintenance requirement). Based upon price deficiency alone, the Company was
denied listing.
On August 8, 1998, the Company filed it's Brief in Support of Application for
Review. Nasdaq's brief was due on September 10, 1998 and filed on September 15,
1998. On September 25, 1998, the Company filed its Reply Memorandum to the Brief
of the Nasdaq Stock Market. As of the date of this Information Statement, no
hearing has been scheduled.
ACTIONS TAKEN
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The Company, as authorized by the necessary approvals of a majority of the votes
necessary for such authorization, has approved the adoption of an amendment, in
the form of Exhibit A hereto (the "Amendment"), to the Company's Articles of
Incorporation, as amended, to increase the authorized common stock, no par value
per share ("Common Stock"), of the Company from 48,000,000 shares to 100,000,000
shares. See "Articles of Amendment" attached hereto as EXHIBIT A. The form of
the Certificates of Designation for the Series B, D, E and H Preferred Stock,
the holders of which are the Majority Holders are attached hereto as Exhibits B,
C, D and E, respectively.
The Amendment was adopted to facilitate the conversion of approximately
$4,500,000 in Series B Convertible Stock and $1,080,000 in Series H Preferred
Stock, the only two Preferred Series still outstanding. In addition, the
Amendment will insure that there are a sufficient number of shares of Common
Stock available for issuance upon exercise of outstanding stock options and
warrants and enhance the ability of the Company to attract and retain qualified
employees, consultants, officers and directors by enabling the Company to create
stock option, incentives and rewards for their contributions to the success of
the Company. Moreover, until such time as the Company is able to generate
revenues, it is dependant on equity or other financing to continue operations.
The Company will require substantial additional funds for its research and
development programs, pre-clinical and clinical testing, operating expenses,
regulatory processes and manufacturing and marketing programs. See "Purpose of
the Amendment".
The Majority Shareholders consent with respect to the Amendment will take effect
20 days from the time that the Commission advises the Company that it has no
further comments.
NO DISSENTERS' RIGHTS
- ---------------------
None of the corporate actions described in this Information Statement will
afford to stockholders the opportunity to dissent from the actions described
herein and to receive an agreed or judicially appraised value for their shares.
THE AMENDMENT
- -------------
PURPOSE OF THE AMENDMENT
A majority of the Company's shareholders has adopted, by written action, the
Amendment to increase its authorized Common Stock from 48,000,000 shares to
100,000,000 shares. The Amendment was adopted in connection with the possible
conversion of $5,680,000 of Preferred Stock, which is convertible at a
percentage of the average 5 day stock price. Due to the decrease in the
Company's stock price, the Company does not have an adequate number of shares
authorized to meet is contractual obligations.
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On October 7, 1998 a lawsuit was filed against the Company in the United States
District Court, Southern District of New York, by the Series B Holders (Case No.
98 Civ. 086). The Company was served on October 19, 1998. The lawsuit alleges
that the Company breached its contract of sale to the Series B Holders by, among
other this failing to convert the Series B Preferred Stock and failure to
register the common stock underlying the Preferred. The Company was unable to
convert or register the shares since there were not enough authorized shares
available of issuance. The Series B Holders have demanded damages in excess of
$75,000, to be determined at trial, together with interest costs and legal fees.
The Company intends to vigorously defend this suit and has obtained litigation
counsel, who is in the processes of reviewing the case and filing an answer. If
the lawsuit is tried and a judgment is entered against the Company, the Company
estimates that the damages could be in excess of $4.5 million. The Company
believes that once the additional shares are available for issuance this lawsuit
can be settled.
The Company believes that this increase in authorized Common Stock will: (i)
provide the Company sufficient Common Stock for issuance upon conversion of the
Series B and H Preferred Stock, and for issuance in connection with any future
financing activities or corporate acquisition using the Company's Common or
Preferred Stock; (ii) will enhance the ability of the Company to attract and
retain qualified employees, consultants, officers and directors by enabling the
Company to create stock option, incentives and rewards for their contributions
to the success of the Company; and (iii) provide an adequate number of shares
for equity financing.
The Company's Board of directors believes that now that the Company is in the
final stages before filing with the Food and Drug Administration for
pre-marketing approval of the CTLM(TM), it is imperative that it adequately
prepares for the expansion of the Company's operations into manufacturing,
marketing and distributing the CTLM.(TM) Since the Company has generated no
revenues to date and cannot compete salary wise with other companies that have
substantially more monetary and other resources than the Company, it believes
that its ability to attract and retain qualified employees, consultants,
officers and directors will be dependant on the Company's ability to create and
issue stock option, incentives and rewards to such persons. The Company has
instructed counsel to prepare a new Stock and Option Plan and intends to present
it for shareholder approval at the next annual meeting of shareholders.
Moreover, until such time as the Company is able to generate revenues, it is
dependant on equity or other financing to continue operations. The Company will
require substantial additional funds for its research and development programs,
pre-clinical and clinical testing, operating expenses, regulatory processes and
manufacturing and marketing programs.
PRIVATE PLACEMENTS OF PREFERRED STOCK
- -------------------------------------
The Company has had to rely on the private placement of Preferred and common
stock to obtain working capital. In deciding to issue Preferred Shares pursuant
to the private placements, the Company took into account the number of common
shares authorized and outstanding, the market price of the common stock at the
time of each Preferred sale and the number of common shares the Preferred share
would have been convertible into at the time of the sale. At the time of each
private placement of Preferred Stock there were enough shares, based on the
price of the Company's common stock at the time of the sale of the Preferred to
satisfy the Preferred conversion requirements. Although the Company's Board of
Directors tried to negotiate a floor on the conversion price of each series of
Preferred Stock prior to sale, it was unable to do so.
Series B Preferred Stock
- ------------------------
In December 1996, the Company sold an aggregate of 450 shares of its Series B
Convertible Preferred Stock, for an aggregate of $4,500,000, to Weyburn Overseas
Limited ("Weyborn") and Goodland International Investment Ltd. ("Goodland")
pursuant to Regulation D. The Company filed a Registration Statement of Form S-1
registering the share underlying the Series B Preferred. The shares were never
converted and the registration statement is no longer current. On September 4,
1998, the Company received a notice of conversion from the Weyburn and Goodland
requesting the issuance of 4,559,846 and 10,639,642 shares of common stock,
respectively. The conversion rate of the Shares is 82% of the average market
price over a five-day period prior to conversion or approximately $..35014 per
share.
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The Company contends that when and if the Company converts the Preferred
Shares, the Series B Holders may be entitle to an aggregate of 12,852,002 common
shares pursuant to the conversion and 1,542,877 shares pursuant to the dividend
provision of the Preferred Shares, not the 15,199,488 shares set forth in their
notice. At the time the B Preferred Shares were issued, the conversion rate
would have been $3.85 per share and the Preferred shares would have been
convertible into 1,168,831 shares. The increase in the number of shares to be
issued upon conversion is due to the decline in the market price of the
Company's Common Stock. At present the Company does not have available enough
authorized common stock to convert the Series B Shares.
On October 7, 1998 a lawsuit was filed against the Company in the United States
District Court, Southern District of New York, by the Series B Holders (Case No.
98 Civ. 086). The Company was served on October 19, 1998. The lawsuit alleges
that the Company breached its contract of sale to the Series B Holders by, among
other this failing to convert the Series B Preferred Stock and failure to
register the common stock underlying the Preferred. The Series B Holders have
demanded damages in excess of $75,000, to be determined at trial, together with
interest costs and legal fees. The Company intends to vigorously defend this
suit and has obtained litigation counsel, who is in the processes of reviewing
the case and filing an answer. If the lawsuit is tried and a judgment is entered
against the Company, the Company estimates that the damages could be in excess
of $4.5 million.
Series C Preferred Stock
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On October 6, 1997, the Company finalized the private placement to Austost
Anstalt Schaan, UFH Endowment, Inc., Chris Baum, Avalon Capital Limited,
Dominion Capital, Ltd. and The Cuttyhunk Fun Limited and aggregate of 210 shares
of its Series C Convertible Preferred Stock ("the "Preferred Shares") at a
purchase price of $10,000 per share and Warrants to purchase up to 105,000
shares of the Company's common stock at an exercise price of $1.63 per share.
The offering was conducted pursuant to Regulation S as promulgated under the
Securities Act of 1933, as amended (the ("Regulation S Sale"). At the time the
placement was concluded, the average bid and ask price of the Company's common
stock was approximately $1.63 per share.
The Preferred Shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.9%, without the payment of any additional consideration. The number
of fully paid and non-assessable shares of common stock, no par value, of the
Company to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the Conversion Price (determined as hereinafter provided) in
effect at the time of conversion. The "Conversion Price" was equal to seventy
five percent (75%) of the Average Closing Price of the Corporation's Common
Stock for the five-day trading period ending on the day prior to the date of
conversion provided, however, in no event was the Conversion Price to be greater
than $1.222 per share.
Pursuant to the Regulation S Sale documents, the Company was also required to
escrow an aggregate of 3,435,583 shares of its common stock (200% of the number
of shares the Purchasers would have received if the Preferred Shares were
exercised on the closing date of the Regulation S Sale). The shares underlying
the Preferred Shares and Warrants were entitled to demand registration rights
under certain conditions.
In connection with this sale, the Company paid Settondown Capital International,
Ltd., an unaffiliated Investment Banker an aggregate of $220,500 for placement
and legal fees. Net proceeds to the Company of $1,879,500 were used for working
capital and the continuous research, development and testing of the Company's
Computed Tomography Laser Mammography (CTLM (TM)) device.
The Series C Preferred Stock was subsequently converted, in increments of less
than 4.9% of the Company's outstanding shares, into an aggregate of 2,646,827
common shares.
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Series D Preferred Stock
- ------------------------
On January 9, 1998, the Company finalized the private placement to Avalon
Capital Ltd. of 50 shares of its Series D Convertible Preferred Stock ("the
"Preferred Shares"), at a purchase price of $10,000 per share and Warrants to
purchase up to 25,000 shares of the Company's common stock at an exercise price
of $1.22 per share. The offering was conducted pursuant to Regulation S as
promulgated under the Securities Act of 1933, as amended (the "Regulation S
Sale"). At the time the placement was concluded, the average bid and ask price
of the Company's common stock was approximately $1.22 per share.
The Preferred Shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.9%, without the payment of any additional consideration. The number
of fully paid and non-assessable shares of common stock, no par value, of the
Company to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the Conversion Price (determined as hereinafter provided) in
effect at the time of conversion. The "Conversion Price" was equal to seventy
five percent (75%) of the Average Closing Price of the Corporation's Common
Stock for the five-day trading period ending on the day prior to the date of
conversion. The shares underlying the Preferred Shares and Warrants are entitled
to demand registration rights under certain conditions.
In connection with the Regulation S Sale, the Company issued 4 Preferred Shares
to Settondown Capital International, Ltd., an unaffiliated Investment Banker for
placement fees and paid legal fees of $5,000. Net proceeds to the Company of
$495,000 were used for working capital and the continuous research, development
and testing of the Company's Computed Tomography Laser Mammography (CTLM(TM))
device.
The Series D Preferred Stock was subsequently converted, in increments of less
than 4.9% of the Company's outstanding shares, into an aggregate of 1,717,134
common shares.
Series E Preferred Stock
- ------------------------
On February 5, 1998, the Company finalized the private placement to Austost
Anstalt Schaan and Balmore Funds S.A. of 50 shares of its Series E Convertible
Preferred Stock (the "Preferred Shares"), at a purchase price of $10,000 per
share and Warrants to purchase up to 25,000 shares of the Company's common stock
at an exercise price of $1.093 per share. The offering was conducted pursuant to
Regulation S as promulgated under the Securities Act of 1933, as amended (the
"Regulation S Sale"). At the time the placement was concluded, the average bid
and ask price of the Company's common stock was approximately $1.093 per share.
The Preferred Shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.9%, without the payment of any additional consideration. The number
of fully paid and non-assessable shares of common stock, no par value, of the
Company to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the Conversion Price (determined as hereinafter provided) in
effect at the time of conversion. The "Conversion Price" is equal to seventy
five percent (75%) of the Average Closing Price of the Corporation's Common
Stock for the five-day trading period ending on the day prior to the date of
conversion.
The shares underlying the Preferred Shares and Warrants are entitled to demand
registration rights under certain conditions.
In connection with the Regulation S Sale, the Company issued 4 Preferred Shares
to Settondown Capital International, Ltd., an unaffiliated Investment Banker for
placement fees and paid legal fees of $5,000. Net proceeds to the Company of
$495,000 were used for working capital and the continuous research, development
and testing of the Company's Computed Tomography Laser Mammography (CTLM(TM))
device.
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The Series E Preferred Stock was subsequently converted, in increments of less
than 4.9% of the Company's outstanding shares, into an aggregate of 1,334,455
common shares.
Series F Preferred Stock
- ------------------------
On February 20, 1998, the Company finalized a private placement to Dominion
Capital Fund, LTD and Canadian Advantage, LTD of 75 shares of its Series F
Convertible Preferred Stock (the "F Preferred Shares") at a purchase price of
$10,000 per share. The offering was conducted pursuant to Regulation S as
promulgated under the Securities Act of 1933, as amended (the "Regulation S
Sale"). At the time the placement was concluded, the average bid and ask price
of the Company's common stock was approximately $1.31 per share
The F Preferred Shares pay a dividend of 6% per annum, payable in Common Stock
at the time of each conversion and are convertible, at any time, commencing May
15, 1998 and for a period of two years thereafter, in increments that, together
with all shares of the Company's common stock held by the Holder, would not
exceed 4.9%, without the payment of any additional consideration. The number of
fully paid and non-assessable shares of common stock, no par value, of the
Company to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 plus any earned dividends by (ii) the Conversion Price (determined as
hereinafter provided) in effect at the time of conversion. The "Conversion
Price" is equal to seventy percent (70%) of the Average Closing Price of the
Corporation's Common Stock for the five-day trading period ending on the day
prior to the date of conversion. The shares underlying the Preferred Shares are
entitled to demand registration rights under certain conditions.
In connection with the Regulation S Sale, the Company paid, Rolcan Finance, Ltd.
an aggregate of $50,000 for placement and legal fees. Net proceeds to the
Company of $700,000 were used for working capital and the continuous research,
development and testing of the Company's Computed Tomography Laser Mammography
(CTLM (TM))
device.
The 1,971,375 shares of Common Stock issued pursuant to the conversion of the
Series F Preferred are being registered on behalf of the Holders (the "Series F
Preferred Holders") pursuant to a Form S-2 Registration Statement filed with the
Securities and Exchange Commission on July 31, 1998 (the "Registration
Statement").
Series H Preferred Stock
- ------------------------
On June 2, 1998, the Company finalized a private placement to Austost Anstalt
Schaan and Balmore Funds S.A. of 100 shares of its Series H Convertible
Preferred Stock (the "Preferred Shares") at a purchase price of $10,000 per
share and 75,000A Warrant and 50,000 B Warrants. The A and B Warrants are
exercisable at $1.00 and $1.50 per share, respectively. The offering was
conducted pursuant to Regulation D as promulgated under the Securities Act of
1933, as amended (the "Regulation D Sale"). At the time the placement was
concluded, the average bid and ask price of the Company's common stock was
approximately $.56 per share. In connection with the Regulation D Sale, the
Company paid Settondown Capital International, Ltd., an unaffiliated Investment
Banker an aggregate of $10,000 and 8 shares of the Series H Preferred Stock for
placement and legal fees. Net proceeds to the Company of $990,000 were used for
working capital and the continuous research, development and testing of the
Company's Computed Tomography Laser Mammography (CTLM (TM)) device. No shares of
the Series H Convertible Preferred Stock have been converted as of the date of
this Information Statement.
The number of fully paid and non-assessable shares of common stock, no par
value, of the Company to be issued upon conversion will be determined by
dividing (i) the sum of $10,000 (ii) the Conversion Price (determined as
hereinafter provided) in effect at the time of conversion. The "Conversion
Price" is equal to lesser of seventy-five percent (75%) of the Average Price
(the lowest closing bid price of the Corporation's Common Stock for the ten-day
9
<PAGE>
trading period ending on the day prior to the date of conversion). There is no
floor on the conversion price. The shares can be converted in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.9%. Pursuant to the terms of the Registration Rights Agreement
between the Company and the Series H holder, the Company is required to register
200% of the number of shares that would be required to be issued if the
Preferred Stock were converted on the day before the filing of the Registration
Statement (7,200,000 shares). The Company filed the Registration Statement on
July 31, 1998. On September 4, 1998, the Company received substantial comments
from the Commission. The Company is in the process of amending the Registration
Statement and hopes to file an amendment within the next few weeks. The Company
is in technical default of the Registration Rights Agreement, which required the
Registration Statement to be declared effective by October 2, 1998. Pursuant to
the Registration Rights Agreement, the Company is required to pay the Series H
Holders, as liquidated damages for failure to have the Registration Statement
declared effective, and not as a penalty, two (2%) percent of the principal
amount of the Securities for the first thirty (30) days, and three (3%) percent
of the principal amount of the Securities for each thirty (30) day period
thereafter until the Company procures registration of the Securities
The Series H Preferred Shares are the Company's only Series of Preferred Stock
that has not been converted or noticed for conversion. Since the conversion
price of the Series H Preferred is based on 75% of the Average Price, without a
limit on the number of shares that can be issued upon conversion, in the event
that the price of the Company's common stock decreases, the percentage of shares
outstanding that will be held by the Series H Holders upon conversion will
increase accordingly. The lower the Average Price the greater the number of
share to be issued to the Holders, upon conversion, thus increasing the
potential profits to the Holder when the price per share increases and the
Holder sells the Common Shares. The preferred stocks potential for increased
share issuance and profit in addition to a stock overhang of an undeterminable
amount may depress the price of the Company's common stock.
In the event of a voluntarily or involuntarily liquidation of the Company while
the Series H Preferred is outstanding the holders are entitled to a preference
in distribution of the Company's property available for distribution equal to
$10,000,000 consider per share. The Company has a firm commitment for, and is in
the process of finalizing, an agreement for a $15 Million, three year Equity
Line of Credit whereby the Company, as it deems necessary, may raise capital
through the sale of its common stock to Austost Anstalt Schaan and Balmore Funds
S.A., which represent a consortium of prominent European banking institutions.
The Shares will be purchased at a discount from the Market Price of the
Company's Common Stock. Although no assurances can be made, the Company
anticipates that it will need approximately $8,000,000 over the next two year
period to complete all necessary stages in order to enable it to market the
CTLM(TM) in the United States and foreign countries. If the need should arise
for capital in excess of the Equity Line of Credit or is the Equity Lines is
unavailable due to the price of the Company's common stock, the Company may seek
additional funding through public or private financing, collaboration, licensing
and other arrangements with corporate partners.
If the Company utilizes the Equity Line of Credit or additional funds are raised
by issuing equity securities, especially Convertible Preferred Stock, dilution
to existing Shareholders will result and future investors may be granted rights
superior to those of existing Shareholders. Moreover substantial dilution may
result in a change in control of the Company. There can be no assurance,
however, that additional financing will be available when needed, or if
available, will be available on acceptable terms. Insufficient funds may prevent
the Company from implementing its business strategy or may require the Company
to delay, scale back, or eliminate certain of its research and product
development programs or to license to third parties rights to commercialize
products or technologies that the Company would otherwise seek to develop
itself.
At present, due to the decline in the price of its common stock, the Company
does not have available enough authorized common stock to utilize the Equity
Line of Credit.
10
<PAGE>
PRIVATE PLACEMENT OF COMMON STOCK
- ---------------------------------
In August 1998, the Company sold 200,000 shares of restricted common stock to an
unaffiliated third party, pursuant to Regulation D for an aggregate purchase
price of $60,000. At the time the placement was concluded, the average bid and
ask price of the Company's common stock was approximately $.28 per share. These
shares were subsequently registered pursuant to a Form S-2 Registration
Statement.
In September 1998, the Company sold one unit, consisting of a $250,000
promissory note and 200,000 shares of common stock, to an unaffiliated third
party, pursuant to Regulation D, for an aggregate purchase price of $250,000. At
the time the sale occurred the average bid and ask price of the Company's common
stock was $.595. The Note bears interest at the rate of 12% per annum. The
repayment of the Note which, was originally due on October 2, 1998, has been
extended to November 2, 1998. The Note is personally guaranteed by Linda B.
Grable, the Company's President.
In October 1998, the Company sold one unit, consisting of a $100,000 promissory
note and 80,000 shares of common stock, to an unaffiliated third party, pursuant
to Regulation D for an aggregate purchase price of $100,000. At the time the
placement was concluded, the average bid and ask price of the Company's common
stock was approximately $.50 per share. The Note bears interest at the rate of
12% per and is due and payable on November 2, 1998. The Note is personally
guaranteed by Linda B. Grable, the Company's President.
In October 1998, the Company sold one unit, consisting of a $250,000 promissory
note and 210,000 shares of common stock, to an unaffiliated third party,
pursuant to Regulation D for an aggregate purchase price of $210,000 At the time
the placement was concluded, the average bid and ask price of the Company's
common stock was approximately $.43 per share. The Note bears interest at the
rate of 12% per and is due and payable on November 19, 1998. The Note is
personally guaranteed by Linda B. Grable, the Company's President. In connection
with the sale, the Company pad the sum of $22,500 to LKB Financial LLC as a
placement fee.
INTEREST OF CERTAIN PERSONS
- ---------------------------
All of the Preferred Shareholders will benefit from the increase in the
authorized common stock in that they will be able to convert their Preferred
Shares. However, the Company has a contractual obligation to have available
common shares for conversion and by contract, is liable for payment of damages
if such shares are not available. In addition, should the Preferred Shareholders
wish to convert and are unable to do so due to the insufficient number of common
shares available, the Company would be subject to possible litigation,
litigation costs damages and attorney fees.
On October 7, 1998 a lawsuit was filed against the Company in the United States
District Court, Southern District of New York, by the Series B Holders (Case No.
98 Civ. 086). The Company was served on October 19, 1998. The lawsuit alleges
that the Company breached its contract of sale to the Series B Holders by, among
other this failing to convert the Series B Preferred Stock and failure to
register the common stock underlying the Preferred. The Company was unable to
convert or register the shares since there were not enough authorized shares
available of issuance. The Series B Holders have demanded damages in excess of
$75,000, to be determined at trial, together with interest costs and legal fees.
The Company intends to vigorously defend this suit and has obtained litigation
counsel, who is in the processes of reviewing the case and filing an answer. If
the lawsuit is tried and a judgment is entered against the Company, the Company
estimates that the damages could be in excess of $4.5 million. The Company
believes that once the additional shares are available for issuance this lawsuit
can be settled. In the event that the Series B shares cannot be converted by the
Company or that the lawsuit can not be settled and the Company is adjudged
libel, the Company does not have the funds available to redeem any or all of the
Series B preferred shares. Any judgment to this effect would force the Company
to cease operations.
11
<PAGE>
Richard Grable, Allan Schwartz and Linda Grable also will benefit from the
increase in the authorized common stock to the same extent that all other
employees who were or will be issued options pursuant to the term of their
employment. In January 1998, pursuant to employment agreements dated July 4,
1994, Richard Grable, Linda Grable, and Allan Schwartz were granted options to
purchase and aggregate of 500,000 Common Shares each. The grants were for the
July 1996 and July 1997 anniversary dates of their employment and were never
issued by prior counsel for the Company. The options are non-qualified stock
options, vesting one year from the grant date and exercisable at an exercise
price of $0.31 per share. These options are automatically earned in July of each
year. In January 1998, Richard Grable, Linda Grable, and Allan Schwartz were
granted options to purchase 22,883 and 34,602 shares of Common Shares each
pursuant to the Company's incentive stock option plan. These options were earned
in July 1996 and July 1997 but never issued by the Company's former counsel due
to an oversight. These shares are exercisable at any time at an exercise price
of $4.37 and $2.63 per share, respectively. Pursuant to their stock option
agreements Richard Grable, Linda Grable, and Allan Schwartz are entitled each
have an option to purchase that number of shares equal to $100,000 divided by
110% of the fair market value of the shares on July 6th of each year. The Stock
Option Agreement terminates on September 1, 1999.
Richard Grable will additionally benefit from the increase in the authorized
common stock pursuant to an Exclusive Patent Licensing Agreement with the
Company. In June 1998, the Company finalized an exclusive Patent License
Agreement with Richard Grable, the Company's Chief Executive Officer. Mr. Grable
is the owner of a patent, Patent No. 5,692,511, issued on December 2, 1987 (the
"Patent"), which encompasses the technology for the CTLM(. The Company and Mr.
Grable had previously entered into an oral agreement for the exclusive license
for the patent that was never memorialized in written form. See "Patent
Licensing Agreement" below.
PATENT LICENSING AGREEMENT
Background
- ----------
In December of 1993 Richard Grable, Linda Grable and Allan L. Schwartz (the
"Founders"), founded Imaging Diagnostic Systems, Inc., which at that time was a
privately held Florida corporation (the "Private Company"). The sole purpose of
the Private Company was to further develop Richard Grable's invention, a CT
laser breast-imaging device (the "Mammoscan(TM)"). The Mammoscan(TM) had already
been exhibited at the RSNA 89' session and held the promise of a new, emerging
technology for the detection of breast abnormalities without compression or
ionizing X-rays. This device used a laser diode for its energy source and a 386
processor that was extremely slow. Once the technology required to speed up the
processing became available the Founders believed that this device would be a
major breakthrough in the early detection of breast cancer.
It was unanimously decided that the Private Company should merge with a public
shell and raise its initial seed funding through the sale of common stock
pursuant to Regulation D, Rule 504. On April 14, 1994 the Company merged with
Alkan Corp., a New Jersey public company. Alkan Corp.'s name was changed to
Imaging Diagnostic Systems Inc. and the privately held Company was dissolved. It
was understood at the time of the merger that Mr. Grable would be compensated
for his patent when issued and that he would receive a royalty based on sales of
the device. This royalty was granted pursuant to an amendment to his employment
agreement dated July 5, 1994. When Mr. Grable filed the patent application in
June of 1995, the Board instructed the Company's General Counsel to draft an
Exclusive Patent License Agreement. With the day to day excitement of a
development stage Company, the Company's General Counsel was involved with
funding agreements, Federal filings, employment contracts and other legal issues
and never prepared the Patent License Agreement.
Negotiations
- ------------
At the first meeting held with the Company's new General Counsel, the Board of
Directors was informed that the Patent License Agreement was never drafted and
signed. The Company's General counsel represented the Company and Mr. Grable
retained separate counsel for himself. Mr. Schwartz negotiated the terms of the
Patent License Agreement on behalf of the Company.
12
<PAGE>
Even though Mr. Schwartz and Mr. Grable are both founders of the Company, the
Company believes that such negotiations were conducted at "arms length". The
three main issues for negotiation were; (i) consideration for the patent
license; (ii) royalties based on sales and (iii) exclusive rights. Mr. Grable
was already entitle to royalty payments pursuant to his amended employment
contract, however the Company had no legal right to use the Patent other than
through an oral agreement. As Chief Executive Officer and a Director of the
Company, Mr. Grable had a fiduciary duty to the Company and its Shareholders to
formalize, in writing, the oral agreement regarding the Patent.
Under Mr. Grable's guidance, the development of the CTLM(TM) was nearing
completion, FDA clinical trials were underway, and three external clinical sites
at hospitals in the United States were being planned. This situation placed Mr.
Grable in better bargaining position, which strengthened as the CTLM(TM) moved
closer to being a marketable medical imaging device.
Initially, Mr. Grable's counsel advised him to request 15 million shares of
common stock that would be immediately registered in order to afford Mr. Grable
protection against dilution. The Company rejected that offer and continued
negotiating. After several offers and counter offers and several discussions,
Mr. Grable accepted a lesser number of shares with anti-dilution provisions and
agreed to payment of the licensing fee in two installments, one year apart and
agreed to accept restricted shares with no registration rights. In addition, a
new royalty structure, based upon the net selling price of all products and
goods in which the Patent is used, before taxes and after deducting the direct
cost of the product and commissions or discounts paid was agreed to.
Pursuant to the new Royalty structure, the percentage of Royalties to be paid is
in a declining scale as opposed to the ascending scale contained in the
Amendment to Mr. Grable's Employment Agreement. The Company believes that the
new structure is much more advantageous to the Company.
Agreement
- ---------
Pursuant to the terms of the Agreement, the Company was granted the exclusive
right to modify, customize, maintain, incorporate, manufacture, sell, and
otherwise utilize and practice the Patent, all improvements thereto and all
technology related to the process, throughout the world. This license shall
apply to any extension or re-issue of the Patent. The term of the license is for
the life of the Patent (17 years) and any renewal thereof, subject to
termination, under certain conditions. As consideration for the License, on June
5, 1998, the Company issued to Mr. Grable 3,500,000 shares of common stock and
is required to issue and additional 3,500,000 shares in June 1999. In addition,
the Company has agreed to pay to Mr. Grable, a royalty based upon the net
selling price (the dollar amount earned from the sale by the Company, both
international and domestic, before taxes minus the cost of the goods sold and
commissions or discounts paid), of all products and goods in which the Patent is
used, before taxes and after deducting the direct cost of the product and
commissions or discounts paid (the "Royalty") as follows:
GROSS SALES PERCENTAGE
----------- ----------
$0 to $1,999,999 in gross sales 10%
$2,000,000 to $3,999,999 in gross sales 9%
$4,000,000 to $6,999,999 in gross sales 8%
$7,000,000 to $9,999,999 in gross sales 7%
Greater than $10,000,000 in gross sales 6%
During the second year of the Agreement there is a minimum cash royalty
provision of $250,000. In order for the Royalties set forth above to take the
place of the Development Royalties set forth in the Amendment to Mr. Grable's
Employment Agreement dated February 23, 1995, and for such Amendment to become
void and have no effect, the Company is required to have the Agreement ratified
by its Shareholders at its next special or annual meeting of Shareholders. Not
withstanding the need for shareholder ratification for the substitution of the
Royalties, the Patent Licensing Agreement does not require shareholder approval
in order to be valid.
13
<PAGE>
The Agreement also contains anti-dilution protection upon the occurrence of any
stock dividend, stock split, combination or exchange of shares, reclassification
or re-capitalization of the Company's common stock, reorganization of the
Company, consolidation with or merger into or sale or conveyance of all or
substantially all of the Company's assets to another corporation or any other
similar event which serves to decrease the number of Shares issued pursuant to
the Agreement.
HOLDERS OF COMMON STOCK
- -----------------------
As of June 30, 1998, there were 745 record holders of the Company's common stock
with 36,271,044 shares of Common stock outstanding. After giving effect (for
voting purposes only) to the conversion of the Preferred, the outstanding shares
used to determine majority approval was 51,480,817.
Shareholders of common stock are entitled to one vote per share on all matters
for which stockholders are entitled to vote upon at all meetings of the
stockholders. Holders of the Preferred Shares have no voting rights except that
the Certificates of Designation of the Series B, D, E, and H Preferred Stock
(the "Certificates"), provide that, in the event there are insufficient shares
to effect a conversion, the Company is required to increase the number of
authorized shares to effect such conversion. The Certificates also provide that
the holders of the Preferred Shares shall be entitled to vote with the holders
of the Common Stock, as a single class, where each share of Preferred Stock
shall be entitled to that number of votes to which it would be entitled had all
of its shares of Preferred Stock been converted into shares of Common Stock were
notice of conversion given on the date of such vote.
Pursuant to Section 607.0704 Florida Statutes, any action to be taken at an
annual or special meeting of shareholders may be taken without a meeting,
without prior notice and without a vote if the action is taken by a majority of
the holders of outstanding stock of each voting group entitled to vote, provided
notice is given to all other shareholders.
PRINCIPAL STOCKHOLDERS
- ----------------------
The following table sets forth the beneficial ownership of Common Stock of the
Company as of October 12, 1998 as to (a) each person known to the Company who
beneficially owns more than 5% of the outstanding shares of its Common Stock;
(b) each current director executive officer; and (c) all executive officers and
directors of the Company as a group, calculated as required by the Act.
The actual number of shares of Common stock held by Richard Grable and Linda
Grable, without giving effect to options, are 7,750,040 and 3,445,800 share
respectively. Both Richard Grable and Linda Grable specifically disclaim any
beneficial interest in each other's shares.
<TABLE>
<CAPTION>
Name and Address Number of Shares Owned % of Outstanding
of Beneficial Owner Beneficially (1)(2) Shares of Common Stock
- ------------------- ------------------- ----------------------
<S> <C> <C>
Richard J. Grable 12,606,606(3) 32.5%
C/o 6351 NW 18th Court
Plantation, FL 33313
Linda B. Grable 12,606,606(4) 32.5%
C/o 6351 NW 18th Court
Plantation, FL 33313
Allan L. Schwartz 4,253,390 (5) 10.9%
C/o 6351 NW 18th Court
Plantation, FL 33313
Weyburn Overseas Limited 4,455,000 (6) 10.5%
C/o Everest Capital Limited
The Bank of Butterfield Bldg.
65 Front Street
6th Floor
Hamilton HM JX, Bermuda
Goodland International 10,744,488 (6) 22.2%
Investment LTD.
C/o Everest Capital Limited
The Bank of Butterfield Bldg.
65 Front Street
6th Floor
Hamilton HM JX, Bermuda
All officers and directors 16,859,996 (6) 43.4%
as a group (3 persons)
</TABLE>
14
<PAGE>
- --------------------
(1) Except as indicated in the footnotes to this table, based on information
provided by such persons, the persons named in the table above have sole
voting power and investment power with respect to all shares of Common Stock
shown beneficially owned by them.
(2) Percentage of ownership is based on 37,989,399 shares of Common Stock
outstanding as of October 12, 1998 plus each person's options that are
exercisable within 60 days. Shares of Common Stock subject to stock options
that are exercisable within 60 days as of July 10, 1998 are deemed
outstanding for computing the percentage of that person and the group.
(3) Includes 556,883 shares subject to options and 3,497,800 shares owned by the
wife of Richard J. Grable, Linda B. Grable, of which he disclaims beneficial
ownership. Does not include options to purchase 208,333 shares at $.48 per
share and 250,000 shares at $.44, which are not exercisable within the next
60 days.
(4) Includes 556,883 shares subject to options and 7,995,040 shares owned by the
husband of Linda B. Grable, Richard J. Grable, of which she disclaims
beneficial ownership. Does not include options to purchase 208,333 shares at
$.48 per share and 250,000 shares at $.44, which are not exercisable within
the next 60 days.
(5) Includes 664,410 shares subject to options and 9,000 shares owned by the
wife of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims
beneficial ownership. Does not include options to purchase 208,333 shares at
$.48 per share and 250,000 shares at $.44, which are not exercisable within
the next 60 days.
(6) Includes an aggregate of 15,199,488 shares underlying the Series B
Preferred, for which the Company has received a notice of conversion. Does
not include Warrants to purchase 112,500 shares at $5.00 per share.
(7) Includes 1,778,176 shares subject to options and 9,000 shares owned by the
wife of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims
beneficial ownership.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- ------------------------------------------------------------
MANAGEMENT
The following table sets forth certain information concerning directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard J. Grable 56 Chief Executive Officer and Director
Linda B. Grable 61 Chairman of the Board and President
Allan L. Schwartz 56 Executive Vice-President, Chief
Financial Officer and Director.
</TABLE>
15
<PAGE>
Richard Grable, Allan Schwartz and Linda Grable are founders of the Company and
as such may be deemed "promoters" and "parents" as defined in the Rules and
Regulations promulgated under the Securities Act, as those terms are defined in
the rules and regulations promulgated under the Securities Act. Directors serve
until the next meeting of shareholders. Officers serve at the pleasure of the
board of directors.
Richard J. Grable
Richard J. Grable has been Chief Executive Officer and a director of the Company
since 1994 and is primarily responsible for the development of the CTLM(TM)
device. From January, 1994, to February, 1994: Mr. Grable was vice-president,
research and development, for Lintronics Technologies, Inc., Tampa, Florida, a
manufacturer of breast imaging systems. From March, 1992, to December, 1993: Mr.
Grable was a an engineering consultant for Lintronics Technologies, Inc., Tampa,
Florida, a manufacturer of breast imaging systems. From August, 1991 to
February, 1992: Mr. Grable was an engineering consultant for Audio Intelligence
Devices, Inc., Ft. Lauderdale, Florida, a manufacturer of surveillance devices.
From May, 1990, to July, 1991: Mr. Grable was an engineering consultant for
Telmed, Inc., Ft. Lauderdale, Florida, a software and electronic design company.
Linda B. Grable
Linda B. Grable has been President and Chairman of the Board of Directors of the
Company since 1994. From September 1991, to February, 1994, Mrs. Grable was
President and Director of VCC Communications, Inc., Tampa, Florida, a
manufacturer of voltage controlled oscillators (VCO). From August, 1988, to
April, 1991: Mrs. Grable was President of Lintronics International Ltd., Inc.,
Plantation, Florida, a manufacturer of breast imaging systems.
Allan L. Schwartz
Allan L. Schwartz has been Executive Vice-President, Chief Financial Officer and
a Director of the Company since 1994. From April 1993, to February 1994: Mr.
Schwartz was President and Director of DynaMed Technologies, Inc., Coral
Springs, Florida, a company that developed neural network software for use with
laser imaging systems. From August, 1991, to April, 1993: Mr. Schwartz was
President and Director of Tron Industries, Inc., North Lauderdale, Florida, a
developer of low voltage neon novelty products. From April 1991, to July 1991:
Mr. Schwartz worked as a manufacturing consultant for SE Enterprises, Miami,
Florida, a manufacturer of prototype homes.
Directors of the Company hold office until the next annual meeting of
shareholders and the election and qualification of their successors. Officers
serve at the discretion of the board.
KEY EMPLOYEE
Robert H. Wake
Robert H. Wake is the Company's Director of Engineering and has been employed as
such since April 1995. From January, 1994 to March, 1995, Mr. Wake was a
consultant to various companies in 3-D computer imaging. From October, 1986, to
December, 1993: Mr. Wake founded and was President of Reality Imaging
Corporation, Solon, Ohio, a manufacturer of 3-D computer imaging systems. Mr.
Wake invented the Voxel Flinger 3-D imaging technology.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of
the Company's Common Stock, to file with the SEC initial reports of ownership
and reports of changes in ownership, furnishing the Company with copies of all
Section 16(a) forms they file. To the best of the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company, all
Section 16(a) filing requirements applicable to its officers and directors were
complied with during the year ended June 30, 1998. The Company has not received
copies of amended Form 13 D from Goodland International Investments Limited and
Weyburn Overseas Limited indicating their ability to convert and/or the
conversion of the Series B Preferred Shares into common shares in excess of 10%
of the outstanding shares.
16
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or paid to
the Company's Chief Executive Officer and other executive officers for services
rendered to the Company during 1998 and 1997. No other person, who, during 1997
and 1996 served as an executive officer of the Company, had a total annual
salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name & Principal
Position Year Salary Other Annual Restricted Securities/Underlying
Compensation Stock Awards Option/SARs (1) (2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard J. Grable, 1996 $183,333
CEO and Director 1997 $289,779 $115,000 $268,000 22,883
1998 $286,225 534,602 (3)
- -----------------------------------------------------------------------------------------------------
Linda B Grable, 1996 $ 91,000
President and 1997 $ 97,451 $115,000 $268,000 22,883
Director 1998 $119,070 534,602 (3)
- -----------------------------------------------------------------------------------------------------
Allan L. Schwartz, 1996 $124,000
Exec. VP, CFO and 1997 $111,534 $115,000 $268,000 130,410
Director 1998 $119,070 534,602 (3)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The aggregate dollar value of the 1997 and 1998 options, based on the
averaged high and low price on June 30, 1998 are as follows: Richard J.
Grable -$225,781.42; Linda B. Grable-$225,781; and Allan L.
Schwartz-$269,329.86.
(2) Does not include qualified options to purchase 208,333 shares a $.48 per
share (110% of fair market value on day of issuance) and non-qualified
options to purchase 250,000 shares at $.17 per share (35%) of fair market
value on day of grant) issued to each of Messrs. Grable and Schwartz and
Ms Grable on July 6, 1998.
(3) Includes 250, 000 non-qualifies options that were required, by contract,
to be issued in July 1997 but were not issued until January 2, 1998.
STOCK OPTION PLANS
The Company has established an incentive stock option plan, as defined by
Section 422, Internal Revenue Code of 1986. For the fiscal year ended June 30,
1998, all of the executive officers were participants in this plan. The plan was
approved by the Board of Directors and adopted by the shareholders at the March
29, 1995 annual meeting. The plan provides for the granting, exercising and
issuing of incentive option pursuant to Internal Revenue Code Section 422. The
Company may grant incentive stock options to purchase up to 5% of the issued and
outstanding common stock of the Company at any time. The Board of Directors has
direct responsibility for the administration of the plan.
The exercise price of the incentive options to employees must be equal to at
least 100% of the fair market value of the common stock, as of the date of
grant. The exercise price of incentive options to officers, or affiliated
persons, must be at least 110% of the fair market value as of the date of grant.
Pursuant to sock option agreements, Mr. Richard J. Grable, Mr. Allan L. Schwartz
and Mrs. Linda B. Grable each have an option to purchase that number of shares
equal to $100,000 divided by 110% of the fair market value of the shares on July
6th of each year. The Stock Option Agreements terminate on September 1, 1999.
17
<PAGE>
The following table sets forth certain information with regard to the
Options/SAR grants by the Company for the fiscal year ended June 31, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
No. of Securities %of Total Options Exercise or Market Price
Underlying Options Granted to Employees Base Price On Date of Expiration
Name Granted In Fiscal Year ($/Share) Grant Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. 250,000 14% $.31 $.85 1/2/02
Grable (1) 250,000 14% $.31 $.65 1/2/02
34,602 1.9% $2.63 $2.39 1/2/02
- ------------------------------------------------------------------------------------------------
Linda B. 250,000 14% $.31 $.85 1/2/02
Grable (1) 250,000 14% $.31 $.65 1/2/02
34,602 1.9% $2.63 $2.39 1/2/02
- ------------------------------------------------------------------------------------------------
Allan L. 250,000 14% $.31 $.85 1/2/02
Schwartz 250,000 14% $.31 $.65 1/2/02
(1) 34,602 1.9% $2.63 $2.39 1/2/02
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) In January 1998, pursuant to employment agreements dated July 4, 1994,
Richard Grable, Linda Grable, and Allan Schwartz were granted options to
purchase and aggregate of 500,000 Common Shares each. The grants for were for
the July 1996 and July 1997 anniversary dates of their employment and were never
issued by prior counsel for the Company. The options are non-qualified stock
options, vesting one year from the grant date and exercisable at an exercise
price of $0.31 per share (35% of the fair market value on the date of issuance).
In January 1998, Richard Grable, Linda Grable, and Allan Schwartz were granted
options to purchase 22,883 and 34,602 shares of Common Shares each pursuant to
the Company's incentive stock option plan. These options were earned in July
1996 and July 1997 but never issued., however the options for the 22,883 shares
were disclosed in the Company's Proxy Statement last year. These shares are
exercisable at any time at an exercise price of $4.37 and $2.63 per share,
respectively (110% of the fair market value on the contractual date of
issuance).
BY ORDER OF THE BOARD OF DIRECTORS THIS _______ DAY OF OCTOBER 1998.
____________________________________________
Allan L. Schwartz, Secretary
18
<PAGE>
APPENDIX A
FORM OF PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC
Pursuant to the written action dated July 10, 1998, duly executed by a
majority of the shareholders of Imaging Diagnostic Systems, Inc. entitled to
vote thereon, and ratification of such written action by the Company's Board of
Directors, the Corporation's Articles of Incorporation to provide for and
increase in the authorized Common Stock, pursuant to the relevant provisions of
Chapter 607 of the Florida Statutes are hereby Amended as follows:
ARTICLE I
---------
The name of the corporation is IMAGING DIAGNOSTIC SYSTEMS, INC.
ARTICLE III CAPITAL STOCK
-------------------------
The maximum number of shares of capital stock that this corporation is
authorized to have outstanding at any one time is 102,000,000 (ONE HUNDRED TWO
MILLION) shares, no par value. The 102,000,000 shares of no par value capital
stock of the Corporation shall be designated as follows:
100,000,000 common shares
2,000,000 Preferred Shares, the rights and preferences of
which are to be designated by the Company's Board of Directors.
Except as amended above the remainder of the Company's Article of
Incorporation shall remain unchanged, and are hereby ratified and confirmed
The foregoing Amendments to the Articles of Incorporation were duly adopted on
July 10, 1998 by a majority vote of the holders of the Corporation's common
stock, no par value and the holders of the Preferred Shares, the only two class
of capital stock of the Corporation outstanding and entitled to vote thereon,
and approved by a sufficient number of votes pursuant to the Florida Statutes.
IMAGING DIAGNOSTIC SYSTEMS, INC
By:____________________________________
Name:
Title
A-1
<PAGE>
APPENDIX B
SERIES B
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. DESIGNATION. The designation of the series of Preferred Stock fixed
by this resolution shall be "Series B Convertible Preferred Stock" (hereinafter
referred to as the Convertible Preferred Stock").
2. CONVERSION RIGHTS.
(A) RIGHT TO CONVERT. The holder of any shares of Convertible Preferred
Stock may, (i) at any time during the period commencing on and including eighty
(80) days after issuance, convert up to thirty four percent (34%), without the
payment of any additional consideration therefor, into that number of fully paid
and nonassessable shares of common stock, no par value, of the Corporation (ii)
at any time during the period commencing on and including one hundred (100) days
after issuance, convert up to sixty eight percent (68%) in aggregate, without
the payment of any additional consideration therefor, into that number of fully
paid and nonassessable shares of common stock, no par value, of the Corporation,
and (iii) at any time during the period commencing on and including one hundred
and twenty (120) days after issuance, convert up to one hundred percent (100%)
in aggregate, without the payment of any additional consideration therefor, into
that number of fully paid and nonassessable shares of common stock, no par
value, of the Corporation as is determined by dividing (i) the sum of $10,000 by
(ii) the Conversion Price (determined as herein after provided) in effect at the
time of conversion. The "Conversion Price" shall be equal to eighty two percent
(82%) of the Market Price of the Corporation's Common Stock; provided, however,
that in no event will the Conversion price be greater than the $3.85. For
purposes of this Section 2, the Market Price shall be the average of the closing
bid prices of the Common Stock over the five consecutive trading days ending on
the trading day immediately preceding the date of the Conversion Notice (as
defined in Section 2(b) hereof), as reported by the National Association of
Securities Automated Quotation System ("NASDAQ"), or the average of the closing
bid prices of the Common Stock in the over-the-counter market over the five
consecutive trading days ending on the trading day immediately preceding the
date of the Conversion Notice, or, in the event the Common Stock is listed on a
national stock exchange, the Market Price shall be the average of the closing
prices of the Common Stock on such exchange, as reported in THE WALL STREET
JOURNAL over the five consecutive trading days immediately preceding the date of
the Conversion Notice.
(B) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Convertible Preferred Stock. If upon
conversion of shares of Convertible Preferred Stock held by a registered holder
which are being converted, such register holder would, but for the provisions of
this Section 2(b), receive a fraction of a share of Common Stock thereon, then
in lieu of any such fractional share to which such holder would otherwise been
titled, the Corporation shall pay cash equal to such fraction multiplied by the
then effective Conversion Price. Before any holder of Convertible Preferred
Stock shall be entitled to convert the same into full shares of Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the
Convertible Preferred Stock, and shall give written notice (the "Conversion
Notice") to the Corporation at such office that such holder elects to convert
the same and shall state therein such holder's name or the name of its nominees
in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable thereafter,
but in any event within three business days of the date of its receipt of the
Conversion Notice, issue and deliver or cause to be issued and delivered to such
holder of Convertible Preferred Stock, or to its nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made on the date that the
Corporation receives the Conversion Notice, and the person or persons entitled
to receive the share of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date. Upon the conversion of any shares of Convertible Preferred Stock,
such shares shall be restored to the status of authorized but unissued shares
and may be reissued by the Corporation at any time.
B-1
<PAGE>
(C) NOTICES OF RECORD DATE. In the event of (i) any declaration by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Corporation, any classification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Convertible Preferred Stock at least twenty (20) days
prior to the record date specified therein, a notice specifying (A) the date on
which any such record is to be declared for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, transfer, consolidation, merger,
dissolution or winding up.
(D) STOCK DIVIDENDS; STOCK SPLITS; ETC. In the event that the
Corporation shall (i) take a record of holders of shares of the Common Stock for
the purpose of determining the holders entitled to receive dividends payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into smaller number of
shares or (iv) issue, by reclassification of the Common Stock, any other
securities of the Corporation, then, in each such case, the Conversion Price
then in effect shall be adjusted so that upon conversion of each share of
Convertible Preferred Stock then outstanding the number of shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible
after the happening of any of the events described in clauses (i)through(iv)
above shall be the number of such shares of Common Stock into which such shares
of Convertible Preferred Stock would have been converted if so converted
immediately prior to the happening of such event or any record date with respect
thereto.
(E) COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such numbers of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
all of the then outstanding shares of Convertible Preferred Stock. In the event
there are insufficient shares to effect a conversion, the Corporation shall
increase the number of authorized shares to effect conversion. In the event
shareholder approval is required to increase the authorized shares, the holder
shall be entitled to vote with the holders of the Common Stock, as a single
class, where each share of Convertible Preferred Stock shall be entitled to that
number of votes to which it would be entitled had all of its shares of
Convertible Preferred Stock been converted into shares of Common Stock were
notice of conversion given on the date of such vote. No sale or disposition of
all or substantially all of the Corporation's assets shall take place without
Stock, voting as a single class.
3. DIVIDEND RIGHTS. The holders of record of Convertible Preferred Stock shall
be entitled to receive cumulative dividends thereon, out of funds legally
available therefor and to the extent permitted by law, at the rate of seven
percent (7%) per share, per annum, computed on the basis of the actual number of
days elapsed in a 365-day year, commencing on the date of issuance of such
shares of Convertible Preferred Stock and payable quarterly on the last business
day of each calendar quarter commencing with the calendar quarter next
succeeding the date of issuance of the Convertible Preferred Stock. Such
dividends shall be fully cumulative and shall accrue, whether or not declared by
the Board of Directors of the Corporation, from the date of issuance of the
shares of Convertible Preferred Stock until the date of payment thereof as set
forth in the immediately preceding sentence. No dividends or other distributions
shall be paid on or declared and set aside for payment on the Common Stock until
full cumulative dividends on all outstanding shares of Convertible Preferred
Stock shall have been paid or declared and set aside for payment. Such dividends
shall be payable in cash or in freely tradable shares of Common Stock, with such
shares of Common Stock valued at the average closing bid price of such shares
over the five consecutive trading days immediately preceding the date of payment
thereof, as such average closing bid price is determined pursuant to Section 2
above.
4. VOTING RIGHTS OF CONVERTIBLE PREFERRED STOCK. Except as otherwise required by
law and as provided for in Section 2(e), the holders of outstanding shares of
Convertible Preferred Stock shall not be entitled to vote on any matters
submitted to the stockholders of the Corporation.
5. RANKING. The Convertible Preferred Stock shall rank senior to any other class
of capital stock of the Corporation now or hereafter issued as to the payment of
dividends and the distribution of assets on redemption, liquidation, dissolution
or winding up of the Corporation.
B-2
<PAGE>
6. LIQUIDATION RIGHTS. If the Corporation shall be voluntarily or involuntarily
liquidated, dissolved or wound up, at any time when any shares of Convertible
Preferred Stock shall be outstanding, the holders of the then outstanding shares
of Convertible Preferred Stock shall have a preference in distribution of the
Corporation's property available for the distribution to the holders of any
other class of capital stock of the Corporation, including but not limited to,
the Common Stock, equal to $10,000.00 consideration per share, together with an
amount equal to all accrued but unpaid dividends thereon, if any, to the date of
payment of such distribution, whether or not declared by the Board.
7. ADJUSTMENTS DUE TO MERGER OR CONSOLIDATION, ETC. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Convertible Preferred Stock shall after the date of
such consolidation, merger, sale, lease or conveyance be convertible into the
number of shares of stock or other securities or property (including cash) to
which the Common Stock issuable (at the time of such consolidation, merger,
sale, lease or conveyance) upon conversion of such share of Convertible
Preferred Stock would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the shares of Convertible Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion of the
shares of Convertible Preferred Stock.
B-3
<PAGE>
APPENDIX C
SERIES C
CERTIFICATE OF DESIGNATION
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. Designation. The designation of the series of Preferred Stock fixed
by this resolution shall be "Series D Convertible Preferred Stock" (hereinafter
referred to as the "Convertible Preferred Stock").
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series C
Convertible Preferred Stock (the "Preferred Stock") may, at any time,
commencing 45 days from the date of issuance and for a period of three
years thereafter, convert all or a portion of the Preferred Stock,
without the payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of common stock, no par
value, of the Corporation of the Corporation as is determined by
dividing (i) the sum of $10,000 by (ii) the Conversion Price
(determined as hereinafter provided) in effect at the time of
conversion. The "Conversion Price" shall be equal to seventy five
percent (75%) of the Average Closing Price of the Corporation's Common
Stock for the five-day trading period ending on the day prior to the
date of conversion provided, however, that in no event will the
Conversion Price be greater than 75% of the Average Price on the
Closing Date. For purposes of this Section 2, the Market Price shall be
the average of the closing bid prices of the Common Stock over the five
consecutive trading days ending on the trading day immediately
preceding the date of the Conversion Notice (as defined in Section 2(b)
hereof), as (i) quoted by Bloomberg, L.P. or if not quoted by
Bloomberg, L. P., then (ii) as reported by the National Association of
Securities Automated Quotation System ("NASDAQ"), or if not quoted by
NASDAQ then; (iii) the average of the closing bid prices of the Common
Stock in the over-the-counter market over the five consecutive trading
days ending on the trading day immediately preceding the date of the
Conversion Notice; or (iv) in the event the Common Stock is listed on a
national stock exchange, the Market Price shall be the average of the
closing prices of the Common Stock on such exchange, as reported in The
Wall Street Journal over the five consecutive trading days immediately
preceding the date of the Conversion Notice.
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. If upon
conversion of shares of Preferred Stock held by a registered holder
which are being converted, such register holder would, but for the
provisions of this Section 2(b), receive a fraction of a share of
Common Stock thereon, then in lieu of any such fractional share to
which such holder would otherwise be entitled, the Corporation shall
round up or down, as the case may be, to the nearest share. Before any
holder of Preferred Stock shall be entitled to convert the same into
full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or any transfer agent for the Preferred Stock, and
shall give written notice by facsimile or otherwise (the "Conversion
Notice") to the Corporation at such office that such holder elects to
convert the same and shall state therein such holder's name or the name
of its nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation
shall, as soon as practicable thereafter, but in any event within five
business days of the date of its receipt of the Conversion Notice and
original Preferred Stock Certificate, issue and deliver or cause to be
issued and delivered to such holder of Preferred Stock, or to its
nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled. Such
conversion shall be deemed to have been made on the date that the
Corporation receives the Conversion Notice by facsimile or otherwise,
and the person or persons entitled to receive the share of Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Upon the conversion of any shares of Preferred Stock, such shares shall
be restored to the status of authorized but unissued shares and may be
reissued by the Corporation at any time.
C-1
<PAGE>
(c) Notices of Record Date. In the event of (i) any
declaration by the Corporation of a record date of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution or (ii)
any capital reorganization of the Corporation, any classification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
the Corporation shall mail to each holder of Preferred Stock at least
twenty (20) days prior to the record date specified therein, a notice
specifying (i) the date on which any such record is to be declared for
the purpose of such dividend or distribution and a description of such
dividend or distribution; (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective;
and (iii) the time, if any, that is to be fixed, as to when the holders
of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
transfer, consolidation, merger, dissolution or winding up.
(d) Stock Dividends; Stock Splits; Etc. In the event that the
Corporation shall (i) take a record of holders of shares of the Common
Stock for the purpose of determining the holders entitled to receive
dividends payable in shares of Common Stock; (ii) subdivide the
outstanding shares of Common Stock; (iii) combine the outstanding
shares of Common Stock into smaller number of shares; or (iv) issue, by
reclassification of the Common Stock, any other securities of the
Corporation, then, in each such case, the Conversion Price then in
effect shall be adjusted so that upon conversion of each share of
Convertible Preferred Stock then outstanding the number of shares of
Common Stock into which such shares of Convertible Preferred Stock are
convertible after the happening of any of the events described in
clauses (i)through(iv) above shall be the number of such shares of
Common Stock into which such shares of Preferred Stock would have been
converted if so converted immediately prior to the happening of such
event or any record date with respect thereto.
(e) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such
numbers of shares of Common Stock as shall from time to time be
sufficient to effect conversion of all of the then outstanding shares
of Preferred Stock. In the event there are insufficient shares to
effect a conversion, the Corporation shall increase the number of
authorized shares to effect conversion. In the event shareholder
approval is required to increase the authorized shares, the holder
shall be entitled to vote with the holders of the Common Stock, as a
single class, where each share of Preferred Stock shall be entitled to
that number of votes to which it would be entitled had all of its
shares of Preferred Stock been converted into shares of Common Stock
were notice of conversion given on the date of such vote. No sale or
disposition of all or substantially all of the Corporation's assets
shall take place without the approval of the holders of the Convertible
Preferred Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as
otherwise required by law and as provided for in Section 2(e), the
holders of outstanding shares of Preferred Stock shall not be entitled
to vote on any matters submitted to the stockholders of the
Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any shares of
Preferred Stock shall be outstanding, the holders of the then outstanding shares
of Preferred Stock shall have a preference in distribution of the Corporation's
property available for the distribution to the holders of any other class of
capital stock of the Corporation, including but not limited to, the Common
Stock, equal to $10,000.00 consideration per share.
4. Adjustments Due to Merger or Consolidation, Etc. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Preferred Stock
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Convertible Preferred Stock.
C-2
<PAGE>
APPENDIX D
SERIES D
CERTIFICATE OF DESIGNATION
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. Designation. The designation of the series of Preferred Stock fixed
by this resolution shall be "Series D Convertible Preferred Stock" (hereinafter
referred to as the "Convertible Preferred Stock").
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series D
Convertible Preferred Stock (the "Preferred Stock") may, at any time,
commencing 45 days from the date of issuance and for a period of three
years thereafter, convert all or a portion of the Preferred Stock,
without the payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of common stock, no par
value, of the Corporation of the Corporation as is determined by
dividing (i) the sum of $10,000 by (ii) the Conversion Price
(determined as hereinafter provided) in effect at the time of
conversion. The "Conversion Price" shall be equal to seventy five
percent (75%) of the Average Closing Price of the Corporation's Common
Stock for the five-day trading period ending on the day prior to the
date of conversion provided, however, that in no event will the
Conversion Price be greater than 75% of the Average Price on the
Closing Date. For purposes of this Section 2, the Market Price shall be
the average of the closing bid prices of the Common Stock over the five
consecutive trading days ending on the trading day immediately
preceding the date of the Conversion Notice (as defined in Section 2(b)
hereof), as (i) quoted by Bloomberg, L.P. or if not quoted by
Bloomberg, L. P., then (ii) as reported by the National Association of
Securities Automated Quotation System ("NASDAQ"), or if not quoted by
NASDAQ then; (iii) the average of the closing bid prices of the Common
Stock in the over-the-counter market over the five consecutive trading
days ending on the trading day immediately preceding the date of the
Conversion Notice; or (iv) in the event the Common Stock is listed on a
national stock exchange, the Market Price shall be the average of the
closing prices of the Common Stock on such exchange, as reported in The
Wall Street Journal over the five consecutive trading days immediately
preceding the date of the Conversion Notice.
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. If upon
conversion of shares of Preferred Stock held by a registered holder
which are being converted, such register holder would, but for the
provisions of this Section 2(b), receive a fraction of a share of
Common Stock thereon, then in lieu of any such fractional share to
which such holder would otherwise be entitled, the Corporation shall
round up or down, as the case may be, to the nearest share. Before any
holder of Preferred Stock shall be entitled to convert the same into
full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or any transfer agent for the Preferred Stock, and
shall give written notice by facsimile or otherwise (the "Conversion
Notice") to the Corporation at such office that such holder elects to
convert the same and shall state therein such holder's name or the name
of its nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation
shall, as soon as practicable thereafter, but in any event within five
business days of the date of its receipt of the Conversion Notice and
original Preferred Stock Certificate, issue and deliver or cause to be
issued and delivered to such holder of Preferred Stock, or to its
nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled. Such
conversion shall be deemed to have been made on the date that the
Corporation receives the Conversion Notice by facsimile or otherwise,
and the person or persons entitled to receive the share of Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Upon the conversion of any shares of Preferred Stock, such shares shall
be restored to the status of authorized but unissued shares and may be
reissued by the Corporation at any time.
(c) Notices of Record Date. In the event of (i) any
declaration by the Corporation of a record date of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution or (ii)
any capital reorganization of the Corporation, any classification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
D-1
<PAGE>
the Corporation shall mail to each holder of Preferred Stock at least
twenty (20) days prior to the record date specified therein, a notice
specifying (i) the date on which any such record is to be declared for
the purpose of such dividend or distribution and a description of such
dividend or distribution; (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective;
and (iii) the time, if any, that is to be fixed, as to when the holders
of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
transfer, consolidation, merger, dissolution or winding up.
(d) Stock Dividends; Stock Splits; Etc. In the event that the
Corporation shall (i) take a record of holders of shares of the Common
Stock for the purpose of determining the holders entitled to receive
dividends payable in shares of Common Stock; (ii) subdivide the
outstanding shares of Common Stock; (iii) combine the outstanding
shares of Common Stock into smaller number of shares; or (iv) issue, by
reclassification of the Common Stock, any other securities of the
Corporation, then, in each such case, the Conversion Price then in
effect shall be adjusted so that upon conversion of each share of
Convertible Preferred Stock then outstanding the number of shares of
Common Stock into which such shares of Convertible Preferred Stock are
convertible after the happening of any of the events described in
clauses (i)through(iv) above shall be the number of such shares of
Common Stock into which such shares of Preferred Stock would have been
converted if so converted immediately prior to the happening of such
event or any record date with respect thereto.
(e) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such
numbers of shares of Common Stock as shall from time to time be
sufficient to effect conversion of all of the then outstanding shares
of Preferred Stock. In the event there are insufficient shares to
effect a conversion, the Corporation shall increase the number of
authorized shares to effect conversion. In the event shareholder
approval is required to increase the authorized shares, the holder
shall be entitled to vote with the holders of the Common Stock, as a
single class, where each share of Preferred Stock shall be entitled to
that number of votes to which it would be entitled had all of its
shares of Preferred Stock been converted into shares of Common Stock
were notice of conversion given on the date of such vote. No sale or
disposition of all or substantially all of the Corporation's assets
shall take place without the approval of the holders of the Convertible
Preferred Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as
otherwise required by law and as provided for in Section 2(e), the
holders of outstanding shares of Preferred Stock shall not be entitled
to vote on any matters submitted to the stockholders of the
Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any shares of
Preferred Stock shall be outstanding, the holders of the then outstanding shares
of Preferred Stock shall have a preference in distribution of the Corporation's
property available for the distribution to the holders of any other class of
capital stock of the Corporation, including but not limited to, the Common
Stock, equal to $10,000.00 consideration per share.
4. Adjustments Due to Merger or Consolidation, Etc. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Preferred Stock
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Convertible Preferred Stock.
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APPENDIX E
SERIES E
CERTIFICATE OF DESIGNATION
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. Designation. The designation of the series of Preferred Stock fixed
by this resolution shall be "Series E Convertible Preferred Stock" (hereinafter
referred to as the "Preferred Stock").
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Preferred
Stock may, at any time, commencing 45 days from the date of issuance
and for a period of three years thereafter, convert all or a portion of
the Preferred Stock, without the payment of any additional
consideration therefor, into that number of fully paid and
nonassessable shares of common stock, no par value, of the Corporation
as is determined by dividing (i) the sum of $10,000 by (ii) the
Conversion Price (determined as hereinafter provided) in effect at the
time of conversion. The "Conversion Price" shall be equal to seventy
five percent (75%) of the average of the closing bid prices of the
Corporation's Common Stock for the five-day trading period ending on
the day prior to the date of the Conversion Notice (as defined below)
provided, however, that in no event will the Conversion Price be
greater than 75% of the average of the closing bid prices of the
Corporation's Common Stock for the five-day trading period ending on
the day prior to the Closing Date. For purposes of this Section 2, the
Conversion Price shall be the average of the closing bid prices of the
Common Stock over the five consecutive trading days ending on the
trading day immediately preceding the date of the Conversion Notice (as
defined in Section 2(b) hereof), as (i) quoted by Bloomberg, L.P. or if
not quoted by Bloomberg, L. P., then (ii) as reported by the National
Association of Securities Automated Quotation System ("NASDAQ"), or if
not quoted by NASDAQ then; (iii) the average of the closing bid prices
of the Common Stock in the over-the-counter market over the five
consecutive trading days ending on the trading day immediately
preceding the date of the Conversion Notice; or (iv) in the event the
Common Stock is listed on a national stock exchange, the Conversion
Price shall be the average of the closing prices of the Common Stock on
such exchange, as reported in The Wall Street Journal over the five
consecutive trading days immediately preceding the date of the
Conversion Notice.
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. If upon
conversion of shares of Preferred Stock held by a registered holder
which are being converted, such registered holder would, but for the
provisions of this Section 2(b), receive a fraction of a share of
Common Stock thereon, then in lieu of any such fractional share to
which such holder would otherwise be entitled, the Corporation shall
round up or down, as the case may be, to the nearest share. Before any
holder of Preferred Stock shall be entitled to convert the same into
full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or any transfer agent for the Preferred Stock, and
shall give written notice by facsimile or otherwise (the "Conversion
Notice") to the Corporation at such office that such holder elects to
convert the same and shall state therein such holder's name or the name
of its nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation
shall, as soon as practicable thereafter, but in any event within five
business days of the date of its receipt of the Conversion Notice and
original Preferred Stock Certificate, issue and deliver or cause to be
issued and delivered to such holder of Preferred Stock, or to its
nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled. Such
conversion shall be deemed to have been made on the date that the
Corporation receives the Conversion Notice by facsimile or otherwise,
and the person or persons entitled to receive the share of Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Upon the conversion of any shares of Preferred Stock, such shares shall
be restored to the status of authorized but unissued shares and may be
reissued by the Corporation at any time.
(c) Notices of Record Date. In the event of (i) any
declaration by the Corporation of a record date of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution or (ii)
any capital reorganization of the Corporation, any classification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
the Corporation shall mail to each holder of Preferred Stock at least
twenty (20) days prior to the record date specified therein, a notice
specifying (i) the date on which any such record is to be declared for
the purpose of such dividend or distribution and a description of such
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<PAGE>
dividend or distribution; (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective;
and (iii) the time, if any, that is to be fixed, as to when the holders
of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
transfer, consolidation, merger, dissolution or winding up.
(d) Stock Dividends; Stock Splits; Etc. In the event that the
Corporation shall (i) take a record of holders of shares of the Common
Stock for the purpose of determining the holders entitled to receive
dividends payable in shares of Common Stock; (ii) subdivide the
outstanding shares of Common Stock; (iii) combine the outstanding
shares of Common Stock into smaller number of shares; or (iv) issue, by
reclassification of the Common Stock, any other securities of the
Corporation, then, in each such case, the Conversion Price then in
effect shall be adjusted so that upon conversion of each share of
Convertible Preferred Stock then outstanding the number of shares of
Common Stock into which such shares of Convertible Preferred Stock are
convertible after the happening of any of the events described in
clauses (i) through (iv) above shall be the number of such shares of
Common Stock into which such shares of Preferred Stock would have been
converted if so converted immediately prior to the happening of such
event or any record date with respect thereto.
(e) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such
numbers of shares of Common Stock as shall from time to time be
sufficient to effect conversion of all of the then outstanding shares
of Preferred Stock. In the event there are insufficient shares to
effect a conversion, the Corporation shall increase the number of
authorized shares to effect conversion. In the event shareholder
approval is required to increase the authorized shares, the holder
shall be entitled to vote with the holders of the Common Stock, as a
single class, where each share of Preferred Stock shall be entitled to
that number of votes to which it would be entitled had all of its
shares of Preferred Stock been converted into shares of Common Stock
were notice of conversion given on the date of such vote. No sale or
disposition of all or substantially all of the Corporation's assets
shall take place without the approval of the holders of the Convertible
Preferred Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as
otherwise required by law and as provided for in Section 2(e), the
holders of outstanding shares of Preferred Stock shall not be entitled
to vote on any matters submitted to the stockholders of the
Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any shares of
Preferred Stock shall be outstanding, the holders of the then outstanding shares
of Preferred Stock shall have a preference in distribution of the Corporation's
property available for the distribution to the holders of any other class of
capital stock of the Corporation, including but not limited to, the Common
Stock, equal to $10,000.00 consideration per share.
4. Adjustments Due to Merger or Consolidation, Etc. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Preferred Stock
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Convertible Preferred Stock.
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<PAGE>
APPENDIX F
SERIES F
AMENDED ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
IMAGING DIAGNOSTIC SYSTEMS, INC.
The undersigned do hereby certify that, pursuant to the authority
conferred upon the Board of Directors of IMAGING DIAGNOSTIC SYSTEMS, INC. (the
"Corporation") a corporation organized and existing under the Florida Business
Corporation Act, by Florida Statute 607.0821 and Florida Statute 607.0602 and
pursuant to the written consent dated February 19, 1998, duly executed by all of
the members of the Corporation's Board of Directors, adopting the resolutions
providing for the issuance of up to 75 shares of the Corporation's authorized
but unissued preferred stock, no par value, to be designated the Series F
Convertible Preferred Stock (the "Preferred Stock"), and the Amendment of the
Corporation's Articles of Incorporation to provide for the Preferred Stock, and
there being no shareholder action required, the Corporation Articles of
Incorporation are hereby Amended as follows:
ARTICLE III CAPITAL STOCK
-------------------------
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS OF SERIES F
CONVERTIBLE PREFERRED STOCK
1. Designation and Rank. The number and designation of the series of Preferred
Stock fixed by this amendment shall be 75 Shares of "Series F Convertible
Preferred Stock" (hereinafter referred to as the "Convertible Preferred Stock"),
all of which shall rank equally and be identical in all respects.
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series F Convertible Preferred
Stock (the "Preferred Stock") may, at any time, commencing May 15, 1998 and for
a period of two years thereafter, convert all or a portion of the Preferred
Stock, without the payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of common stock, no par value, of
the Corporation as is determined by dividing (i) the sum of $10,000 by (ii) the
Conversion Price (determined as hereinafter provided) in effect at the time of
conversion. The "Conversion Price" shall be equal to seventy percent (70%) of
the Average Closing Price of the Corporation's Common Stock for the five-day
trading period ending on the day prior to the date of the conversion. For
purposes of this Section 2, the Market Price shall be the average of the closing
bid prices of the Common Stock over the five consecutive trading days ending on
the trading day immediately preceding the date of the Conversion Notice (as
defined in Section 2(b) hereof), as (i) quoted by Bloomberg, L.P. or if not
quoted by Bloomberg, L.P., then (ii) as reported by the National Association of
Securities Automated Quotation System ("NASDAQ"), or if not quoted by NASDAQ
then; (iii) the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
trading day immediately preceding the date of the Conversion Notice; or (iv) in
the event the Common Stock is listed on a national stock exchange, the Market
Price shall be the average of the closing prices of the Common Stock on such
exchange, as reported in The Wall Street Journal over the five consecutive
trading days immediately preceding the date of the Conversion Notice.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. If upon conversion of shares of
Preferred Stock held by a registered holder which are being converted, such
register holder would, but for the provisions of this Section 2(b), receive a
fraction of a share of Common Stock thereon, then in lieu of any such fractional
share to which such holder would otherwise be entitled, the Corporation shall
round up or down, as the case may be, to the nearest share. Before any holder of
the Preferred Stock shall be entitled to convert the same into full shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer agent
for the Preferred Stock, and shall give written notice by facsimile or otherwise
(the "Conversion Notice") to the Corporation at such office that such holder
elects to convert the same and shall state therein such holder's name or the
name of its nominees in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation shall, as soon as
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<PAGE>
practicable thereafter, but in any event within five business days of the date
of its receipt of the Conversion Notice and original Preferred Stock
Certificate, issue and deliver or cause to be issued and delivered to such
holder of Preferred Stock, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. Such conversion shall be deemed to have been made on the date that
the Corporation receives the Conversion Notice by facsimile or otherwise, and
the person or persons entitled to receive the share of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Upon the conversion of any
shares of Preferred Stock, such shares shall be restored to the status of
authorized but unissued shares and may be reissued as a new series by the
Corporation at any time.
(c) Notices of Record Date. In the event of (i) any declaration by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Corporation, any classification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior to the
record date specified therein, a notice specifying (i) the date on which any
such record is to be declared for the purpose of such dividend or distribution
and a description of such dividend or distribution; (ii) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective; and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, transfer, consolidation, merger, dissolution or
winding up.
(d) Stock Dividends; Stock Splits; Etc. In the event that the Corporation shall
(i) take a record of holders of shares of the Common Stock for the purpose of
determining the holders entitled to receive dividends payable in shares of
Common Stock; (ii) subdivide the outstanding shares of Common Stock; (iii)
combine the outstanding shares of Common Stock into smaller number of shares; or
(iv) issue, by reclassification of the Common Stock, any other securities of the
Corporation, then, in each such case, the Conversion Price then in effect shall
be adjusted so that upon conversion of each share of Convertible Preferred Stock
then outstanding the number of shares of Common Stock into which such shares of
Convertible Preferred Stock are convertible after the happening of any of the
events described in clauses (i)through(iv) above shall be the number of such
shares of Common Stock into which such shares of Preferred Stock would have been
converted if so converted immediately prior to the happening of such event or
any record date with respect thereto.
(e) Common Stock Reserved. The Corporation shall reserve and keep available out
of its authorized but unissued Common Stock such numbers of shares of Common
Stock as shall from time to time be sufficient to effect conversion of all of
the then outstanding shares of Preferred Stock. In the event there are
insufficient shares to effect a conversion, the Corporation shall increase the
number of authorized shares to effect conversion, the holder shall be entitled
to vote with the holders of the Common Stock, as a single class, where each
share of Preferred Stock shall be entitled to that number of votes to which it
would be entitled had all of its shares of Preferred Stock been converted into
shares of Common Stock were notice of conversion given on the date of such vote.
No sale or disposition of all or substantially all of the Corporation's assets
shall take place without approval of the holders of the Convertible Preferred
Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as otherwise required
by law and as provided for in Section 2(e), the holders of outstanding shares of
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or involuntarily
liquidated, dissolved or wound up, at any time when any shares of Preferred
Stock shall be outstanding, the holders of the then outstanding shares of
Preferred Stock shall have a preference in distribution of the Corporation's
property available for the distribution to the holders of any other class of
capital stock of the Corporation, including but not limited to, the Common
Stock, equal to $10,000.00 consideration per share.
4. Adjustments Due to Merger or Consolidation, Etc. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
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<PAGE>
Common Stock issuable (at the time of such consolidation, merger, sale, lease,
or conveyance) upon conversion of such share of Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Preferred Stock
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonable be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Convertible Preferred Stock.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation has
been executed and attested by the undersigned duly authorized officers of the
Corporation as of the 19th day of February 1998.
/s/Linda B. Grable, President and Director
/s/Allan L. Schwartz, Executive Vice President and Director
/s/Richard J. Grable, Chief Executive Officer and Director
F-3
<PAGE>
APPENDIX H
SERIES H
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
IMAGING DIAGNOSTIC SYSTEMS, INC.
The undersigned do hereby certify that, pursuant to the authority
conferred upon the Board of Directors of IMAGING DIAGNOSTIC SYSTEMS, INC. (the
"Corporation") a corporation organized and existing under the Florida Business
Corporation Act, by Florida Statute 607.0821 and Florida Statute 607.0602 and
pursuant to the written consent dated May 28, 1998, duly executed by all of the
members of the Corporation's Board of Directors, adopting the resolutions
providing for the issuance of up to 108 shares of the Corporation's authorized
but unissued preferred stock, no par value, to be designated the Series H
Convertible Preferred Stock (the "Preferred Stock"), and the Amendment of the
Corporation's Articles of Incorporation to provide for the Preferred Stock, and
there being no shareholder action required, the Corporation Articles of
Incorporation are hereby Amended as follows:
ARTICLE III CAPITAL STOCK
-------------------------
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS OF SERIES H
CONVERTIBLE PREFERRED STOCK
1. Designation and Rank. The number and designation of the series of Preferred
Stock fixed by this amendment shall be 108 Shares of "Series H Convertible
Preferred Stock" (hereinafter referred to as the "Convertible Preferred Stock"),
all of which shall rank equally and be identical in all respects.
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series H Convertible Preferred
Stock (the "Preferred Stock") may, at any time, for a period of two years
thereafter, convert all or a portion of the Preferred Stock and any accrued
interest thereon, without the payment of any additional consideration therefor,
into that number of fully paid and non-assessable shares of common stock, no par
value, of the Corporation as is determined by dividing (i) the sum of $10,000 by
(ii) the Conversion Price (determined as hereinafter provided) in effect at the
time of conversion. The "Conversion Price" shall be equal to the lesser of $.53
or seventy five percent (75%) of the Average Closing Price of the Corporation's
Common Stock for the ten-day trading period ending on the day prior to the date
of the conversion (the "Lookback Period"). On the last trading day of each
month, starting on the first day of the 5th month from the Closing Date, the
Lookback period will be increased by two trading days until the Lookback period
equals a maximum of twenty two (22) trading days. For purposes of this Section
3, the Average Price shall be the lowest closing bid price of the Common Stock
during the Lookback period as (i) quoted by Bloomberg, L.P. or if not quoted by
Bloomberg, L.P., then (ii) as reported by the National Association of Securities
Automated Quotation System ("NASDAQ"), or if not quoted by NASDAQ then; (iii)
the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
trading day immediately preceding the date of the Conversion Notice; or (iv) in
the event the Common Stock is listed on a national stock exchange, the Market
Price shall be the average of the closing prices of the Common Stock on such
exchange, as reported in The Wall Street Journal over the five consecutive
trading days immediately preceding the date of the Conversion Notice.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. If upon conversion of shares of
Preferred Stock held by a registered holder which are being converted, such
register holder would, but for the provisions of this Section 3(b), receive a
fraction of a share of Common Stock thereon, then in lieu of any such fractional
share to which such holder would otherwise be entitled, the Corporation shall
round up or down, as the case may be, to the nearest share. Before any holder of
the Preferred Stock shall be entitled to convert the same into full shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer agent
for the Preferred Stock, and shall give written notice by facsimile or otherwise
(the "Conversion Notice") to the Corporation at such office that such holder
elects to convert the same and shall state therein such holder's name or the
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<PAGE>
name of its nominees in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, but in any event within five business days of the date
of its receipt of the Conversion Notice and original Preferred Stock
Certificate, issue and deliver or cause to be issued and delivered to such
holder of Preferred Stock, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. Such conversion shall be deemed to have been made on the date that
the Corporation receives the Conversion Notice by facsimile or otherwise, and
the person or persons entitled to receive the share of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Upon the conversion of any
shares of Preferred Stock, such shares shall be restored to the status of
authorized but unissued shares and may be reissued as a new series by the
Corporation at any time.
(c) Notices of Record Date. In the event of (i) any declaration by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Corporation, any classification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior to the
record date specified therein, a notice specifying (i) the date on which any
such record is to be declared for the purpose of such dividend or distribution
and a description of such dividend or distribution; (ii) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective; and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, transfer, consolidation, merger, dissolution or
winding up.
(d) Stock Dividends; Stock Splits; Etc. In the event that the Corporation shall
(i) take a record of holders of shares of the Common Stock for the purpose of
determining the holders entitled to receive dividends payable in shares of
Common Stock; (ii) subdivide the outstanding shares of Common Stock; (iii)
combine the outstanding shares of Common Stock into smaller number of shares; or
(iv) issue, by reclassification of the Common Stock, any other securities of the
Corporation, then, in each such case, the Conversion Price then in effect shall
be adjusted so that upon conversion of each share of Convertible Preferred Stock
then outstanding the number of shares of Common Stock into which such shares of
Convertible Preferred Stock are convertible after the happening of any of the
events described in clauses (i)through(iv) above shall be the number of such
shares of Common Stock into which such shares of Preferred Stock would have been
converted if so converted immediately prior to the happening of such event or
any record date with respect thereto.
(e) Common Stock Reserved. The Corporation shall reserve and keep available out
of its authorized but unissued Common Stock such numbers of shares of Common
Stock as shall from time to time be sufficient to effect conversion of all of
the then outstanding shares of Preferred Stock. In the event there are
insufficient shares to effect a conversion, the Corporation shall increase the
number of authorized shares to effect conversion, the holder shall be entitled
to vote with the holders of the Common Stock, as a single class, where each
share of Preferred Stock shall be entitled to that number of votes to which it
would be entitled had all of its shares of Preferred Stock been converted into
shares of Common Stock were notice of conversion given on the date of such vote.
No sale or disposition of all or substantially all of the Corporation's assets
shall take place without approval of the holders of the Convertible Preferred
Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as otherwise required
by law and as provided for in Section 3(e), the holders of outstanding shares of
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
4. Liquidation Rights. If the Corporation shall be voluntarily or involuntarily
liquidated, dissolved or wound up, at any time when any shares of Preferred
Stock shall be outstanding, the holders of the then outstanding shares of
Preferred Stock shall have a preference in distribution of the Corporation's
property available for the distribution to the holders of any other class of
capital stock of the Corporation, including but not limited to, the Common
Stock, equal to $10,000.00 consideration per share.
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<PAGE>
5. Adjustments Due to Merger or Consolidation, Etc. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease,
or conveyance) upon conversion of such share of Preferred Stock would have been
entitled upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Preferred Stock
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonable be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Convertible Preferred Stock.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation has
been executed and attested by the undersigned duly authorized officers of the
Corporation as of the 28th day of May 1998.
/s/Linda B. Grable, President and Director
/s/Allan L. Schwartz, Executive Vice President and Director
/s/Richard J. Grable, Chief Executive Officer and Director
H-3
