SCHEDULE 14C INFORMATION
DEFINITIVE INFORMATION STATEMENT
PURSUANT TO SECTION 14(c) OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Check the appropriate box:
[ ] Preliminary information statement [ ] Confidential, for use of the Commission only (as permitted
by Rule 14c-5(d)(2))
[X] Definitive information statement
</TABLE>
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: January 28, 1999
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IMAGING DIAGNOSTIC SYSTEMS, INC.
6531 NW 18TH COURT
PLANTATION, FLORIDA 33313
January 28, 1999
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 January 28,1999, 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.
Preferred Holders, pursuant to the Certificates, are granted voting rights, and
voted solely for the purpose of increasing the number of authorized shares to
accommodate the conversion of their preferred shares into common shares.
Pursuant to the Certificates, the holders of the Preferred Shares are entitled
to vote with the holders of the Common Stock for this purpose, as a single
class, where each share of Preferred Stock is 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
Preferred Holders.
As of the 3rd day of December 1998, Austost Anstalt Schaan, Avalon Capital Ltd.,
Balmore Funds S.A., Steven Cohen, Canadian Capital Fund Ltd., Dominion Capital
Funds, Ltd. Linda B. Grable, Richard J. Grable, Deborah O'Brien, The Malcolm
Kanan Empire Trust and Allan L. Schwartz, (collectively "the Majority Common
Shareholders"), and Goodland International Investment Ltd., Weyburn Overseas
Limited, Austost Anstalt Schaan and Balmore Funds S.A (collectively "the
Majority Preferred 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 provisions, the Majority Common Shareholders and the Majority
Preferred Shareholders (collectively, "the Majority Shareholders") were entitled
to and voted the number of shares set forth opposite their names:
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<TABLE>
<CAPTION>
NAME # OF COMMON % OF COMMON # OF PREFERRED % OF
SHARES SHARES SHARES PREFERRED
OUTSTANDING (1) SHARES
OUTSTANDING (2)
--------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Austost Anstalt Schaan (4) 342,533 .9% 50 8.96%
Avalon Capital Ltd. 673,401 1.7%
Balmore Funds S.A. (5) 342,533 .9% 50 8.96%
Steve Cohen 396,700 1.0%
Canadian Capital Fund Ltd. 636,379 1.65%
Dominion Capital Funds Ltd. 1,334,996 3.5%
Goodland International
Investment Ltd. (3) 315 56.45%
Linda B. Grable 3,497,800 9.1%
Richard J. Grable 7,995,040 20.8%
Deborah O'Brien 287,000 .75%
Allan L. Schwartz 3,579,980 9.3%
The Malcolm Kanan Empire Trust 1,200,000 3.1%
Weyburn Overseas Limited (2) 135 24.19%
TOTAL 20,328,462 52.8% 550 98.56%
</TABLE>
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1. This column sets forth the percentage of the total number of common shares
outstanding as of December 3, 1998 (38,510,399 shares), the date the final
written action was executed and presented to the Company's Board of
Directors. As of January 25, 1999, there are 39,381,401 shares of common
stock outstanding.
2. This column set forth the percentage of the total number of Preferred
Shares outstanding as of December 3, 1998 (558 Shares)
3. 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.
4. Thomas Hackl and Peter Nakowitz are the Directors of and have voting
control over Austost Anstalt Schaan, a British Virgin Island corporation.
5. Francois Morax and Matityahu Kaniel are the Directors of and have voting
control over Balmore Funds S.A., a Liechtenstein 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.
2
<PAGE>
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:
"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. For the 36
trading day period prior to 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 and did not recover despite a
retraction from Barron's on April 7, 1997. Based upon this decline the Nasdaq
staff refused to approve the Company for listing on the Nasdaq Small Cap Market.
The following table sets forth, for each of the fiscal periods indicated, the
high and low bid prices for the Common Stock, as reported on the OTC Bulletin
Board. These per share quotations reflect inter-dealer prices in the
over-the-counter market without real mark-up, markdown, or commissions and may
not necessarily represent actual transactions. On January 19, 1999, the
Company's common stock closed at $.42.
QUARTER ENDING HIGH BID LOW BID
FISCAL YEAR 1996
September 1995 $ .78 $ .71
December 1995 $3.15 $ .75
March 1996 $8.25 $8.00
June 1996 $3.90 $3.87
FISCAL YEAR 1997
September 1996 $3.93 $2.25
December 1996 $3.93 $1.43
March 1997 $4.12 $2.43
June 1997 $3.08 $2.62
FISCAL YEAR 1998
September 1997 $2.25 $1.87
December 1997 $1.61 $1.22
March 1998 $1.65 $1.02
June 1998 $0.78 $0.67
FISCAL YEAR 1999
September 1998 $0.58 $0.50
December 1998 $0.62 $0.54
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 which stated, in
part that despite the Company's argument, the Panel was of the opinion that the
Company must satisfy the $4.00 per share bid price requirement as well as all
other requirements for initial listing. The Panel noted that there were in
excess of 25,000,000 total shares outstanding which it stated, would allow the
Company to effect a reverse split sufficient to raise the bid price above the
$4.00 minimum. The Panel was of the opinion that the Company was in compliance
with the net tangible assets requirement, however the Panel expressed concern
relating to the Company's ability to maintain compliance with the $2,000,000 net
tangible assets requirement over the long term. The Panel granted 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.
3
<PAGE>
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. We note that
at the time of our consideration, the bid price for the Company's was 1
1/16. This is well below Nasdaq's initial inclusion standards.
The Council also agreed with the Panel's determination to require a heightened
net tangible assets requirement based upon the Company's history of losses which
have increased on a quarterly basis.
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 initially rejected for listing by the Nasdaq Staff and Panel on grounds
that were ultimately reversed by the Committee in the first appeal; (ii) that
the Company satisfied the listing requirement and this fact was so recognized in
the Committee'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
- -------------
The Company, as authorized by the necessary approvals of a majority of the
common and preferred 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 Preferred
Holders are attached hereto as Exhibits B, C, D and E, respectively. The
Majority Preferred Holders and the Majority Common Holders are collectively
referred to herein as the Majority Shareholders.
The Majority Shareholders consent with respect to the Amendment will take effect
20 days from the date the Information Statement is first sent to shareholders.
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.
4
<PAGE>
THE AMENDMENT
- -------------
PURPOSE OF THE AMENDMENT
The Majority Shareholders have 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 to facilitate the conversion of approximately
$4,500,000 in Series B Convertible Stock and $1,080,000 in Series H Preferred
Stock, the only two Preferred Series still outstanding. The Series B and Series
H Preferred Stock is convertible at a percentage of the average 5 day stock
price. Due to the decrease in the Company's stock price, the Company does not
have an adequate number of shares authorized to meet is contractual obligations.
In addition, the Amendment will insure that there are a sufficient number of
shares of Common Stock available for issuance upon exercise of outstanding stock
options and warrants and enhance the ability of the Company to attract and
retain qualified employees, consultants, officers and directors by enabling the
Company to create stock option, incentives and rewards for their contributions
to the success of the Company. Moreover, until such time as the Company is able
to generate revenues, it is dependant on equity or other financing to continue
operations. The Company will require substantial additional funds for its
research and development programs, pre-clinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs.
The issuance of large amounts of common stock upon conversion of the preferred
and the subsequent sale of such shares may further depress the price of the
common stock. In addition, since each new issuance of common stock dilutes
existing shareholders, the issuance of substantial additional shares may
effectuate a change of control of the Company. As of January 6, 1999, there are
39,381,401 shares outstanding. Based on the closing price of the Company's
common stock as of January 19, 1999 ($.42), 3,269,841 shares would be required
to convert the Series H shares and, although the Company is contractually
prohibited from doing so, 44,642,857 shares would be required to draw down the
entire Equity Line of Credit. See "Equity Line of Credit". In addition,
14,394,879 shares are required to fulfill the Series B conversion and interest,
4,570,871 shares would be required for the exercise of options and warrants and
3,500,000 shares are required to be issued to Mr. Grable in July 1999 pursuant
to the Patent Licensing Agreement. Based upon the foregoing, as of January 19,
1998, the Company would need in excess of 109 million authorized shares to
effectuate all conversion, utilize the total Equity Line of Credit and fulfill
its remaining stock related obligations. See "Interests of Certain Persons" and
"Patent Licensing Agreement".
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 for 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.
5
<PAGE>
The Company's Articles of Incorporation authorize the issuance of "blank check"
preferred stock with such designations, rights, and preferences as may be
determined from time to time by the board of directors. Accordingly, the board
of directors is empowered, without stockholder approval, to designate and issue
additional series of preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In addition, the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company.
The Company has had to rely on the private placement of Preferred and common
stock to obtain working capital and will continue to do so in the future. 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. In order to obtain working capital the
Company will continue to seek capital through debt or equity financing, which
may include the issuance of Convertible Preferred Stock whose rights and
preferences are superior than those of the common stock holders. The Company
will endeavor to negotiate the best transaction possible taking into account the
impact on its shareholders, dilution, loss of voting power and the possibility
of a change of control. However, in order to satisfy its working capital needs,
the Company may be forced to issue convertible securities with no limitations on
conversion price.
In the event that the Company issues preferred stock without a limit on the
number of shares that can be issued upon conversion and the price of the
Company's common stock decreases, the percentage of shares outstanding that will
be held by preferred holders upon conversion will increase accordingly. The
lower the market price the greater the number of share to be issued to the
preferred 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 stockholders potential for increased share issuance and
profit, including profits derived from shorting the Company's common stock, in
addition to a stock overhang of an undeterminable amount, may depress the price
of the Company's common stock. In addition, the sale of a substantial amount of
preferred stock to relatively few holders could effectuate a possible change of
control. Moreover, in the event of a voluntarily or involuntarily liquidation of
the Company while the preferred stock is outstanding, the holders will be
entitled to a preference in distribution of the Company's property available for
distribution equal to $10,000 consideration per share.
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.
The following table summarizes certain information with regard to the Series B,
C, D, E, F, and H Preferred Shares
<TABLE>
<CAPTION>
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
SERIES/# OF COMMON CONVERSION # OF COMMON SHARES APPROX. PRICE OR # OF COMMON SHARES
PREFERRED STOCK PRICE PRICE AT CONVERTIBLE INTO AT PRICE RANGE OF ISSUED UPON
SHARES AT TIME OF TIME OF TIME OF ISSUANCE (1) COMMON STOCK AT CONVERSION
ISSUANCE ISSUANCE TIME OF CONVERSION
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
B/450 $4.70 $3.85 1,168,831 $.35014 12,852,002 (2)
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
C/210 $1.63 $1.2225 1,714,268 $.4950-$1.0095 2,646,527
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
D/50 $1.22 $.915 546,448 $.2265-$.495 1,717,134
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
E/54 $1.093 $.81975 658,737 $.29775- $.77475 1,282,826
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
F/75 $1.31 $.917 817,884 $.46760-$.47320 1,971,375
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
H/108 $.56 $.42 2,571,429 $.5025 99,502 (3)
- -------------- ------------- ------------- ---------------------- --------------------- ----------------------
</TABLE>
6
<PAGE>
1. Approximate number estimated for the purpose of this table only.
2. At present the Company does not have enough shares available to issued the
shares underlying the B Preferred. Does not include an aggregate of
1,542,877 shares required to be issued pursuant to the dividend provision
of the Preferred Shares.
3. Represents conversion of 5 shares of Series H Preferred Stock. The
remaining 103 shares remain unconverted. As of January 19, 1999, 3,269,841
shares would be required to convert the Series H shares at a conversion
price of $.315 per share.
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 ("Weyburn") and Goodland International Investment Ltd. ("Goodland")
pursuant to Regulation D. At the time the placement was concluded, the average
bid and ask price of the Company's common stock was approximately $4.70 per
share. Net proceeds to the Company of $4,500.000 were used for working capital
and the continuous research, development and testing of the Company's CTLM (TM)
device. No fees were paid in connection with this offering.
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 was 82% of the average market price over a
five-day period prior to conversion or approximately $.35014 per share. 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. The Company is uncertain as to how the Series B Holders determined the
number of shares that they noticed for issuance upon conversion. 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 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 the Series
B Holders initial $4.5 million investment. The Company does not have the
financial ability to rescind the transaction and any award for damages would
have a material adverse effect on the Company and its ability to continue
operations.
Series C Preferred Stock
- ------------------------
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 Fund 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, without additional
consideration. Pursuant to the Subscription Agreement, the Series C Holder, or
any subsequent holder of the Preferred Shares, was prohibited from converting
any portion of the Preferred Stock which would result in the Holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding Common Stock of the Company. Due to this contractual ownership
limitation, the Series C Preferred Shares were converted, in increments that,
together with all shares of the Company's common stock held by the Holder, did
not exceed 4.9% of the Company's outstanding common stock. The number of fully
paid and non-assessable shares of common stock, no par value, of the Company
issued upon conversion was determined by dividing (i) the sum of $10,000 by (ii)
the Conversion Price 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.
7
<PAGE>
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 in
the event that Regulation S was amended prior the conversion of the Preferred
Stock.
This right expired upon conversion. 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 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 2,646,527 common shares.
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, without additional
consideration. Pursuant to the Subscription Agreement, the Series D Holder, or
any subsequent holder of the Preferred Shares, was prohibited from converting
any portion of the Preferred Stock which would result in the Holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding Common Stock of the Company. Due to this contractual ownership
limitation, the Series D Preferred Shares were converted in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.99% of the Company's outstanding common stock. The number of fully
paid and non-assessable shares of common stock, no par value, of the Company
issued upon conversion was 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 were entitled to demand
registration rights in the event that Regulation S was amended prior the
conversion of the Preferred Stock. This right expired upon conversion.
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, without additional
consideration. Pursuant to the Subscription Agreement, the Series E Holder, or
any subsequent holder of the Preferred Shares, was prohibited from converting
any portion of the Preferred Stock which would result in the Holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
8
<PAGE>
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding Common Stock of the Company. Due to this contractual ownership
limitation, the Series E Preferred Shares were converted in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.99% of the Company's outstanding common stock. The number of fully
paid and non-assessable shares of common stock, no par value, of the Company
issued upon conversion was 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 were entitled to demand
registration rights in the event that Regulation S was amended prior the
conversion of the Preferred Stock. This right expired upon conversion.
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 E Preferred Stock was subsequently converted, in increments of less
than 4.9% of the Company's outstanding shares, into an aggregate of 1,282,826
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 were convertible, at any time, commencing May
15, 1998 and for a period of two years thereafter, without additional
consideration. Pursuant to the Subscription Agreement, the Series F Holder, or
any subsequent holder of the F Preferred Shares, was prohibited from converting
any portion of the Preferred Stock which would result in the Holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding Common Stock of the Company. Due to this contractual ownership
limitation, the Series F Preferred Shares were converted in increments that,
together with all shares of the Company's common stock held by the Holder, would
not exceed 4.99% of the Company's outstanding common stock. The number of fully
paid and non-assessable shares of common stock, no par value, of the Company
issued upon conversion was 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 were entitled to
demand registration in the event that Regulation S was amended prior the
conversion of the Preferred Stock. Pursuant to these demand rights the 1,971,375
shares of Common Stock issued upon the conversion of the Series F Preferred are
being registered on behalf of the Holders (the "Series F Preferred Holders") on
Form S-2, initially filed with the Securities and Exchange Commission on July
31, 1998 (the "Registration Statement").
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.
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
9
<PAGE>
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. As of the
date of this Information Statement, five shares of the Series H Convertible
Preferred Stock have been converted into 99,502 shares of common stock, at a
conversion price of $.5025 per share.
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
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 at any time without
additional consideration. Pursuant to the Subscription Agreement, the Series H
Holder, or any subsequent holder of the Preferred Shares, is prohibited from
converting any portion of the Preferred Stock which would result in the Holder
being deemed the beneficial owner, in accordance with the provisions of Rule
13d-3 of the Securities Exchange Act of 1934, as amended, of 4.99% or more of
the then issued and outstanding Common Stock of the Company. Due to this
contractual ownership limitation, the Series H Preferred Shares can only 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, as amended, between the Company and the Series H
holder, the Company is required to register 100% 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 (2,661,698 shares). The Company
filed Amendment 1 to the Registration Statement on November 16 1998. 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 Pursuant to
the Registration Rights Agreement, liquid damages of $80,000 have accrued as of
December 27,1998. The Company is presently unable to comply with the liquidated
damage provision payment and no assurances can be given that it will be able to
do so in the future.
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 consideration per share.
FINANCING/EQUITY LINE OF CREDIT
- -------------------------------
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. The Company's
capital requirements will depend on numerous factors, including the progress of
its research and development programs, results of pre-clinical and clinical
testing, the time and cost invoked in obtaining regulatory approvals, the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market developments
and changes in the Company's existing research, licensing and other
relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish. Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
and other contractual agreements are likely to increase as additional agreements
are entered into and additional personnel are retained.
On November 20, 1998, the Company finalized a $15 Million, three year, Equity
Line of Credit Agreement, 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 "Investors"). Austost Anstalt Schaan and Balmore Funds S.A.
will be deemed the beneficial ownership of the shares.
10
<PAGE>
Pursuant to the Equity Line of Credit Agreement, the Company may, but is not
obligated to, sell to the Investors shares of the Company's common stock at a
purchase price of 80% of the market price if the shares are traded in the OTC
Bulletin Board and 85% of the market price if traded on Nasdaq Small Cap Stock
Market or American Stock Exchange. As of January 6, 1999, based on the closing
price on that date of $.44, the Company would need to issue 42,613,636 shares of
common stock, in order to completely utilize the Equity Line of Credit. However,
if the Company utilizes the Equity Line of Credit, it intends to do so over a
period of three years, at times that are as advantageous as possible to the
Company. It addition, the limitations set forth below would prohibit the Company
from utilizing the entire Line of Credit at one time.
The Investors are irrevocably committed, subject to certain limitations
discussed below, to purchase that number of shares noticed for sale by the
Company (the "Put Notice"), however the maximum amounts that the Company can
require the Investor to purchase at any one time are indicated in the table
below opposite the heading Closing Price (the range in which the Closing Price
is on the date the Company elects to exercise its right to tender a notice of
sale to the Investors, referred to as the "Put Date") and below the heading 30
Day Average Daily Trading Volume (the range of the trading volume of the
Company's common stock for the thirty day trading period.
prior to the Put Date).
<TABLE>
<CAPTION>
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg.
----------- ----------- ----------- ----------- ----------- -----------
Daily Daily Daily Trading Daily Daily Trading Daily
----- ----- ------------- ----- ------------- -----
Closing Price Trading Trading Volume Trading Volume Trading
- ------------- ------- ------- ------ ------- ------ -------
Volume Volume 75,001-100,000 Volume 125,001-150,000 Volume
------ ------ -------------- ------ --------------- ------
25,000-50,000 50,001-75,000 100,001-125,000 150,001 and
------------- ------------- --------------- -----------
Above
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.50-$1.00 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$1.01 - $1.50 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$1.51 - $2.00 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
2.01 - $2.50 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$2.51 - $3.00 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$3.01 - $3.50 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$3.51 - $4.00 $400,000 $450,000 $500,000 $550,000 $600,000 $650,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
$4.01 - Above $450,000 $500,000 $550,000 $600,000 $650,000 $700,000
- --------------- ------------- -------------- ------------------ -------------- --------------- --------------
</TABLE>
The terms of the Equity Line of Credit Agreement require that the number of
shares noticed for sale by the Company must be the subject of an effective
Registration Statement prior to the time Company elects to tender a Put Notice
requiring the Investors to purchase shares of the Company's Common Stock. In the
event that the Investors would want to complete the equity line arrangement as a
private placement prior to the filing of a registration statement, the Company
may consent to restructure the transaction accordingly.
The Investors obligations under the Equity Line of Credit shall mean any effect
on the business, Bid Price, trading volume of the Common Stock, operations,
properties, prospects, results of operations, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, individually, or taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, or the
Warrants in any material respect.
The right of the Company to deliver a Put Notice and the obligation of the
Investors hereunder to acquire and pay for the Put Shares is subject to the
normal and customary contract representations and warranties, breach of contract
provisions and the following conditions:
1. The Company shall have filed with the SEC a Registration
Statement with respect to the resale of at least that amount
of common stock contained in the Put Notice (the
"Securities").
2. The Registration Statement shall have previously become
effective and shall remain effective until the Securities are
sold or until two years from the date if issuance and (i) no
11
<PAGE>
notice has been received that the SEC has issued or intends to
issue a stop order or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been
addressed and the Investors are reasonably satisfied that the
SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related
prospectus shall exist. The Registration Statement must be
declared effective by the SEC prior to the first and each
subsequent Put Date.
3. The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Put
Shares, or shall have the availability of exemptions
therefrom. The sale and issuance of the Put Shares shall be
legally permitted by all laws and regulations to which the
Company is subject.
4. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects
any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
5. Since the date of the Equity Line of Credit Agreement, no
event has had or is reasonably likely to have a material
adverse effect on the Company and its operations has occurred.
6. The trading of the Company's Common Stock has not been
suspended, and the common stock has not been delisted or
threatened by delisting, and the issuance of the Securities to
the Investors shall not violate the shareholder approval
requirements of the OTC Bulletin Board, the Nasdaq Small-Cap
Market, or the American Stock Exchange, as applicable.
7. The number of Put Shares to be purchased by each Investor will
not exceed the number of such shares which, when aggregated
with all other shares of Common Stock then owned by such
Investor beneficially or deemed beneficially owned by such
Investor, would result in any Investor owning more than 4.99%
of all of such Common Stock as would be outstanding on such
Closing Date, as determined in accordance with Rule 13d-3 of
the Exchange Act and the regulations promulgated thereunder.
8. The closing bid price of the Company's common stock must equal
or exceed $.50 per share for the six day period commencing
three (3) trading days immediately preceding the Put Notice,
the trading day the Put Notice is deemed delivered and the two
trading days immediately following the Trading Day on which a
Put Notice is deemed to be delivered.
9. The average trading volume for the Common Stock over the
previous thirty trading days must exceed 25,000 shares per
Trading Day.
The Investors, as holders of common stock, shall have the same rights as all
other holders of common stock, Holders of the Common Stock are entitled to one
vote for each share in the election of directors and in all other matters to be
voted on by the shareholders. There is no cumulative voting in the election of
directors. Holders of Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors of the Company (the
"Board") out of funds legally available thereof and, in the event of
liquidation, dissolution or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock have
no preemptive or conversion rights and are not subject to further calls or
assessments. There are no redemption or sinking fund provisions applicable to
the Common Stock. The rights of the holders of the Common Stock are subject to
any rights that may be fixed for holders of Preferred Stock. All of the
outstanding shares of Common Stock are fully paid and nonasseable.
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 the Company may seek such additional funding through public or
private financing or collaborative, licensing and other arrangements with
corporate partners.
12
<PAGE>
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.
PRIVATE PLACEMENT OF COMMON STOCK
- ---------------------------------
In August 1998, the Company sold 200,000 shares of restricted common stock to
Frank Giambroni, 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. No placement fee was paid in connection with this offering. Net
proceeds of $59,990 were used to pay the salaries of the Company's non-executive
employees. 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 Settondown Capital
International, Ltd., 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 Note is personally guaranteed
by Linda B. Grable, the Company's President. The repayment of the Note, which
was originally due on October 2, 1998 was extended twice, was due on January 15,
1999, and remains unpaid to date. The Company has not received a notice of
default in connection with this Note. In connection with the sale, the Company
paid the sum of $23,000 to Manchester Asset Management, Ltd., an unaffiliated
third party, as a placement fee. Net proceeds of $227,000 were used as follows:
(i) salaries ($21,849-executive officers and $62,447-employees) (ii) machinery
and equipment $5,959; (iii) operating expenses ($55,240-inventory parts and
assemblies, employee health insurance, workers comp. and property insurance) and
(iv) working capital $82,000). These Shares are being registered pursuant to a
Form S-2 Registration Statement. The Company is presently negotiating the terms
of an equity and/or debt financing with unaffiliated third parties, that is
different and apart from the Equity Line of Credit discussed above, the proceeds
of which, if consummated, will be used in part to repay the Note. See
"Financing/Equity Line of Credit.
In October 1998, the Company sold one unit, consisting of a $100,000 promissory
note and 80,000 shares of common stock, to Avalon Capital, Inc., an unaffiliated
third party, pursuant to Regulation D for an aggregate purchase price of
$100,000. No placement fee was paid in connection with this offering, however
the Company did issue 5,000 shares of common stock to Goldstein, Goldstein and
Reis LLC, an unaffiliated third party, as payment for the attorneys fees
incurred by the Purchaser pursuant to the offering. 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
annum. The Note, which was originally due on November 2, 1998, was extended
twice, became due on January 15, 1999, and remains unpaid to date. The Company
has not received a notice of default in connection with the Note. The Note is
personally guaranteed by Linda B. Grable, the Company's President. Net proceeds
of $100,000 were used as follows: (i) salaries ($21,849-executive officers and
$62,448-employees) and (ii) working capital $15,703. These Shares are being
registered pursuant to a Form S-2 Registration Statement. The Company is
presently negotiating the terms of an equity and a debt financing, with
unaffiliated third parties, that is different and apart from the Equity Line of
Credit discussed above, the proceeds of which, if consummated, will be used in
part to repay the Note. See "Financing/Equity Line of Credit.
In October 1998, the Company sold one unit, consisting of a $250,000 promissory
note and 210,000 shares of common stock to GCA Strategic Investment Fund Ltd.,
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 annum, was due and payable on
November 19, 1998, and remains unpaid to date. The Company has not received a
notice of default in connection with the Note. The Note is personally guaranteed
by Linda B. Grable, the Company's President. In connection with the sale, the
Company paid the sum of $23,000 to LKB Financial LLC, an unaffiliated third
13
<PAGE>
party, as a placement fee. Net proceeds of $227,000 were used as follows: (i)
salaries ($21,849-executive officers and $62,447-employees) (ii) machinery and
equipment $5,959; (iii) operating expenses ($55,240-inventory parts and
sub-assemblies, employee health insurance, workers comp. and property insurance)
and (iv) working capital ($82,000). These Shares are being registered pursuant
to a Form S-2 Registration Statement. The officers of the Company have agreed to
provide the payment for this loan through the sale of a portion of their shares
of the Company's common stock.
In November the Company issued 286,000 shares of common stock as partial
consideration for a $115,000 aggregate loan to the Company by Deborah O'Brien,
an employee. At the time the loan was concluded, the average bid and ask price
of the Company's common stock was approximately $.625 per share. The Company is
also obligated to repay the lender the sum of $50,000.00. In January the Company
issued a Note evidencing this indebtedness. The Note bears interest at the rate
of 7% per annum and is due and payable upon demand. Net proceeds of $115,000
were used as follows: (i) salaries ($21,849-executive officers and
$62,447-employees) (ii) operating expenses ($16,345-inventory parts and
assemblies, employee health insurance, workers comp. and property insurance) and
(iv) working capital ($14,359). These Shares are being registered pursuant to a
Form S-2 Registration Statement.
ISSUANCE OF STOCK FOR SERVICES
- ------------------------------
The Company from time to time, has and may continue to issue stock for services
performed and to be performed by consultants, all of which have been
unaffiliated. The consultants provided the following consulting services
pursuant to their Consulting Agreements.
Legal-General Counseling
Legal-Litigation Counseling
Investor Relations-Introducing the Company and its emerging technology to
stockbrokers and the investment community.
Shareholder Relations-Keeping shareholders informed of new developments.
Public Relations-Creating public awareness of the Company and its emerging
technology to the public through print and electronic media.
Product Planning & Feasibility-Research into all aspects of product planning and
its acceptance into the medical imaging marketplace.
Clinical Site Consulting-Selection and introduction to potential clinical sites.
Design Consulting-Design and feasibility of components for the CTLM(TM).
SEC Filing and Compliance-Filing and compliance consultation.
Engineering-Mechanical engineering and prototype development.
Video Production Consultant-Script writing and production consultation.
Since the Company has generated no revenues to date, its ability to obtain and
retain consultants may be dependant on it ability to issue stock for services in
lieu of cash payment. Since 1996, the Company has issued an aggregate of
1,806,500 shares of common stock to independent consultants pursuant to
Registration Statements on Form S-8. The aggregate fair market value of the
shares was $2,327,151. The issuance of large amounts of common stock for
services rendered or to be rendered and the subsequent sale of such shares may
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.
14
<PAGE>
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, which is the
minimum amount invested by the Series B Holders. 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.
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 an aggregate of 500,000 Common Shares each. The grants were for the
July 1996 and July 1997 anniversary dates of their employment but the actual
options were never issued due to an oversight 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. For July 1998, Messrs. Grable and
Schwartz and Ms. Grable were issued non-qualified options to purchase 250,000
shares at $.15 per share (35% of fair market value ($.435) on day of grant- July
6, 1998). None of these options have been exercised to date.
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 (110% of the fair market value on the date of grant),
respectively. Pursuant to their stock option agreements Richard Grable, Linda
Grable, and Allan Schwartz 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. For July 1998, Messrs. Grable and Schwartz and Ms. Grable were
issued qualified options to purchase up to 208,333 shares at $.48 per share
(110% of fair market value ($.435) on day of grant). The Stock Option Agreement
terminates on September 1, 1999. None of these options have been exercised to
date.
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 (the "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(TM). Since inception, the Company and Mr. Grable had an
understanding that the Company would have the exclusive license for use of the
patent, however the amount to be paid for the license and other terms and
conditions of the license were never discussed and the exclusive license for the
patent was never memorialized in written form. See "Patent Licensing Agreement"
below.
15
<PAGE>
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. In February 1995, pursuant to an amendment to his July 5, 1994
employment agreement, (the "Employment Agreement") he was granted a development
royalty based on the net sales of the CTLM(TM). The Company still did not have a
binding agreement with regard to its use of the Patent. 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. The Company's
prior General Counsel was involved with funding agreements, Federal filings,
employment contracts and other legal issues which are inherent to a development
stage Company and never prepared the Patent License Agreement and the Company
did not realize that a formal agreement had not been executed.
Negotiations
- ------------
In September 1997 the Company hired new general counsel. In her review of the
records of the Company she discovered that no agreement for the use of the
Patent had been executed and apprised the Board of Directors of this fact that
the Company had no binding agreement for the use of the Patent. Since it was
always the intent of Mr. Grable to grant the Company an exclusive license to the
Patent, a licensing agreement was negotiated. 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. The Company did not seek the services of a financial advisor to
issue a fairness opinion with regard to the Patent License.
Even though Mr. Schwartz and Mr. Grable are both founders of the Company, the
Company believes that the parties negotiating the transaction were independent
of each other and on equal footing. Mr. Schwartz had full knowledge of the
patent, had physically seen the original prototype, Mammoscan, operate in May of
1990 and recognized the CTLM's(TM) potential to generate revenues for the
Company upon receiving FDA marketing clearance.
Moreover, the Company believes that the terms of the Patent License Agreement
are fair to the Company and comparable to terms that would have been required by
an unrelated third party holding the Patent, given the same circumstances and
conditions that existed at the time the Patent License was negotiated. The
Company's belief is based on the following facts and circumstances; (i) an oral
understanding with Mr. Grable already existed from the inception of the Company
regarding the Patent License; (ii) a Royalty Agreement was already included in
Mr. Grable's Employment Agreement; (iii) the negotiations were conducted to
agree on the number of shares to be issued as consideration for the Patent
License, to modify the terms of the royalty, and memorialize the agreed upon
terms in a written contract; (iv) the Company had expended substantial funds for
the development of the CTLM(TM)and technically had no legal right for its use;
(v). Mr. Grable and Mr. Schwartz both had a fiduciary duty to the Company and
its Shareholders to formalize, in writing, the oral agreement regarding the
Patent and (vi) the value of the Patent to the Company was determined by the
preparation of a confidential three year pro-forma statement of operations
beginning with fiscal year June 30, 1998 and ending with fiscal year ended June
30, 2000. This statement reflected an average of $35,615,732 Net Revenues over
the last two fiscal years assuming that the Company received FDA marketing
clearance in the latter part of calendar 1998. Although no assurances can be
given, the Company now anticipates FDA marketing clearance in the very latter
part of calendar 1999. Since all of the revenues and the Company's existence
were totally dependent on Mr. Grable's patent, it was determined that a
reasonable one-time license fee would be 10% of that average over the two-year
period. That amount, $3,561,573 was approximately the value of the shares
ultimately agreed upon by both parties.
Due to the foregoing and because, 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, and because the Board believed that the transaction was fair, the lack
of a fairness opinion by a financial advisor did not affect the decision of the
Board. This situation placed Mr. Grable in better bargaining position, which
strengthened as the CTLM(TM) moved closer to being a marketable medical imaging
device.
16
<PAGE>
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 (7,000,000) 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.
Once the Company begins to generate revenues, it is contractually obligated to
pay, until July 4, 1999 (the expiration date of Mr. Grable's Employment
Agreement), Development Royalties set forth below pursuant to Mr. Grable's
Employment Agreement and the Licensing Royalties set forth below pursuant to the
Patent Licensing Agreement until such time as the Patent Licensing Agreement is
ratified by the shareholders. See "The Agreement" below.
Pursuant to the License 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. Although the License Royalty
structure is higher on every level than the Development Royalty structure, the
Company believes that in the long run it is more advantageous for the Company to
pay a higher Royalty and have the legal and exclusive right to use the patent as
opposed to being obligated to pay a lower development Royalty pursuant to an
Employment Agreement, with no right to the Patent. Moreover, at the $10,000,000
plus level (the level which represents the sale of approximately 29 machines per
year) the difference in the Royalty structure is only 1%.
The following is a comparison of the Development and License Royalty structures:
<TABLE>
<CAPTION>
DEVELOPMENT ROYALTY STRUCTURE LICENSING ROYALTY STRUCTURE
----------------------------- ---------------------------
GROSS SALES PERCENTAGE GROSS SALES PERCENTAGE
----------------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
$0 to $999,999 2.5% $0 to $1,999,999 10%
----------------------- ----------------- ---------------------- ------------------
$1,000,000 to 3% $2,000,000 to 9%
$1,999,999 $3,999,999
----------------------- ----------------- ---------------------- ------------------
$2,000,000 to 3.5% $4,000,000 to 8%
$3,999,999 $6,999,999
----------------------- ----------------- ---------------------- ------------------
$4,000,000 to 4% $7,000,000 to 7%
$9,999,999 $9,999,99
----------------------- ----------------- ---------------------- ------------------
Greater than 5% Greater than 6%
$10,000,000 $10,000,000
----------------------- ----------------- ---------------------- ------------------
</TABLE>
Agreement
- ---------
In June 1998, the Company and Mr. Grable entered into a Patent License
Agreement. Pursuant to the terms of the Patent License 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. The market price of the Shares at the time of issuance was $.54 per Share.
In addition, the Company has agreed to pay to Mr. Grable, the royalty set forth
above, 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"). During the second
year of the Patent License Agreement there is a minimum cash royalty provision
of $250,000 payable at the end of the second year.
The Board of Directors did not submit the matter for a shareholder's vote prior
to the execution of the Patent License Agreement or the issuance of the shares,
since shareholder approval was not required by the Florida Business Corporation
Act. Pursuant to the Patent License Agreement, the Company is required to have
the Patent License Agreement ratified by its Shareholders at its next special or
annual meeting of Shareholders in order for the Licensing Royalties set forth
above to take the place of the Development Royalties set forth in the Amendment
to Mr. Grable's Employment Agreement and for such Amendment to become void and
have no effect. The ratification by the shareholders was requested by Mr.
Grable, based upon advice from counsel. If shareholder ratification is not
obtained, the Company would contractually be required to pay Development
Royalties until July 4, 1999 (the expiration date of Mr. Grable's Employment
Agreement) in addition to the Patent License Royalties. If ratification is
received, in the event that litigation is instituted with regard to the validity
of the Patent License Agreement, the Company or Mr. Grable could and may assert
as a defense that shareholders approved the Patent License All shareholders will
be entitle to vote on the ratification.
17
<PAGE>
The Patent License 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 Patent License Agreement. The Patent has generated
no revenues to date. The Company anticipates that it will receive revenues
related to the Patent its fourth fiscal quarter beginning April 1999, however no
assurance can be given in this regard.
HOLDERS OF COMMON STOCK
- -----------------------
As of January 25, 1999, there were 745 record holders of the Company's common
stock with 39,381,401 shares of Common stock outstanding.
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 of the action is given to all other shareholders.
PRINCIPAL STOCKHOLDERS
- ----------------------
The following table sets forth the beneficial ownership of Common Stock of the
Company as of January 25, 1999 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) 31.6%
C/o 6351 NW 18th Court
Plantation, FL 33313
Linda B. Grable 12,606,606(4) 31.6%
C/o 6351 NW 18th Court
Plantation, FL 33313
Allan L. Schwartz 3,903,390 (5) 9.8%
C/o 6351 NW 18th Court
Plantation, FL 33313
Weyburn Overseas Limited 4,455,000 (6) 11.3%
C/o Everest Capital Limited
The Bank of Butterfield Bldg.
65 Front Street
6th Floor
Hamilton HM JX, Bermuda
18
<PAGE>
Goodland International 10,744,488 (6) 27.3%
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 16,509,996 (7) 41.4%
as a group (3 persons)
</TABLE>
- --------------------
(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 39,381,401 shares of Common Stock
outstanding as of January 18, 1999 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 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 556,883 shares subject to options held by Linda and Richard Grable.
Also 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>
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.
19
<PAGE>
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.
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.
20
<PAGE>
<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 $100,000 divided by 110% of the fair market value of the shares on July
6th of each year. The Stock Option Agreements terminate on September 1, 1999.
The following table sets forth certain information with regard to the
Options/SAR grants by the Company for the fiscal year ended June 31, 1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No. of Securities %of Total Options Exercise or Market Price
Underlying Options Granted to Employees Base Price on Date of Expiration
Name Granted ` In Fiscal Year ($/Share) Grant Date
- ------------ ----------------- -------------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
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>
21
<PAGE>
(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 27TH DAY OF JANUARY 1999.
/s/ Allan L. Schwartz, Secretary
--------------------------------
Allan L. Schwartz, Secretary
22
<PAGE>
EXHIBIT A
FORM OF PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
Pursuant to the written actions dated July 10, 1998 and December 3,
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 and December 3, 1998 by written action by a majority of the
holders of the Corporation's common stock, no par value and the holders of the
Preferred Shares., and approved by a sufficient number of votes pursuant to the
Florida Statutes.
ATTESTED TO: IMAGING DIAGNOSTIC SYSTEMS, INC
By: ________________________________ By:_________________________________
Name:_______________________________ Name________________________________
Title:______________________________ Title_______________________________
<PAGE>
EXHIBIT 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.
<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.
<PAGE>
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.
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.
<PAGE>
EXHIBIT 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 C 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.
<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.
<PAGE>
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.
<PAGE>
EXHIBIT 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.
<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.
<PAGE>
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.
<PAGE>
EXHIBIT 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.
<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.
<PAGE>
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.
<PAGE>
EXHIBIT 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
<PAGE>
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
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.
<PAGE>
(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
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
<PAGE>
EXHIBIT 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
<PAGE>
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
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.
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(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.
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
