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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 2000
COMMISSION FILE NO.: 333-60405
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4
TO FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IMAGING DIAGNOSTIC SYSTEMS, INC.
(Exact Name of Registrant As Specified In Its Charter)
Florida 3845 22-2671269
(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D. Number)
Classification Code Number)
6531 NW 18TH COURT
PLANTATION, FLORIDA 33313
(954) 581-9800
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(Address, including zip code and telephone number, including
area code of registrant's principal executive offices)
Linda B. Grable, President
IMAGING DIAGNOSTIC SYSTEMS, INC.
6531 NW 18TH COURT
PLANTATION, FLORIDA 33313
(954) 581-9800
(Name, address and telephone number of Agent for Service)
Copy to:
Christopher S. Auguste, Esquire
Parker Chapin LLP
405 Lexington Avenue
9th Floor
New York, New York 10174
Tel: (212) 704-6000
Fax: (212) 704-6288
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time, at the discretion of the selling shareholders after the effective date of
this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest Form 10-KSB, as amended, to
security holders or a complete and legible facsimile thereof, pursuant to Item
11.(a)(1) of this Form, check the following box. [X]
If the registrant elects to deliver its latest Form 10-QSB, as amended, to the
security holder or a complete and legible facsimile thereof, pursuant to Item
11.(a)(2)(ii) of this Form, check the following box. [X]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
<PAGE>
Calculation Of Registration Fee
<TABLE>
<CAPTION>
TITLE OF SECURITIES BEING REGISTERED AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED OFFERING PRICE PER AGGREGATE REGISTRATION
SHARE (1) OFFERING PRICE (1) FEE
<S> <C> <C> <C> <C>
COMMON STOCK, NO PAR VALUE 5,349,458 $.2969 $1,588,254.08 $ 481.29
COMMON STOCK, NO PAR, ISSUABLE UPON
CONVERSION OF THE SERIES B PREFERRED
STOCK (2)(3) 16,016,427 $.2969 $4,755,277.18 $1,440.99
COMMON STOCK, NO PAR, ISSUABLE UPON
CONVERSION OF THE SERIES G PREFERRED
STOCK (2)(3) 1,801,803 $.2969 $534,955.31 $ 162.11
COMMON STOCK, NO PAR, ISSUABLE UPON
CONVERSION OF THE SERIES H PREFERRED
STOCK (2)(3) 3,038,020 $.2969 $901,988.14 $ 273.33
COMMON STOCK, NO PAR, ISSUABLE UPON
CONVERSION OF THE SERIES I PREFERRED
STOCK (2)(3) 5,947,763 $.2969 $1,765,890.83 $ 532.12
COMMON STOCK, NO PAR, ISSUABLE UPON
CONVERSION OF THE CONVERTIBLE
DEBENTURE (2)(3) 4,740,971 $.2969 $1,407,594.29 $ 426.54
COMMON STOCK, NO PAR VALUE, ISSUABLE
UPON EXERCISE OF WARRANTS (2)(3) 190,625 $.2969 $56,596.56 $ 17.15
TOTAL (4) (5) 37,085,067 $.2969 $11,010,556.39 $3,336.53
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee according
to Rule 457(c) of the Securities Act of 1933, as amended, on the basis of the
average bid and ask price of our common stock on the NASDAQ Electronic Bulletin
Board on July 27, 1999.
(2) According to Rule 416 contained in the Securities Act of 1933, as amended,
this Registration Statement also covers such indeterminable additional shares of
common stock as may be issuable, as a result of any future anti-dilution
adjustments made in accordance with the terms of our Series B, G, H and I
convertible preferred stock and the warrants. In the event that the shares
registered in this prospectus are insufficient to meet the conversion
requirement at the actual time of conversion, we will file a new registration
statement to register the additional shares.
(3) According to the amended terms of the Registration Rights Agreement between
us and the Series H preferred holder, and the Registration Rights Agreements
with the Series B, G, I and the debenture holders, the amount being registered
is 100% of the number of shares that would be required to be issued if the
preferred stock and debentures were converted on the day before the filing of
the Registration Statement.
(4)All of the shares of common stock registered in this prospectus will be sold
by the selling security holders. In the event that the shares registered in this
prospectus are insufficient to meet the conversion requirement at the actual
time of conversion, we will file a new registration statement to register the
additional shares.
(5) A filing fee of $4,283.70 was paid in connection with the initial filing of
the Registration Statement and Amendment No. 2.
WE WILL AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY WHICH MAY DELAY ITS EFFECTIVE DATE UNTIL WE FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933
OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING ACCORDING TO SECTION 8(A), MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _____________, 2000
PROSPECTUS
IMAGING DIAGNOSTIC SYSTEMS, INC.
37,085,067 shares of common stock
o The shares of common stock offered by this prospectus are being sold
by the stockholders listed in the section of this prospectus called
"selling stockholders". We will not receive any proceeds from the sale
of these shares. We could receive up to $732,724 in proceeds from the
exercise of 190,625 warrants, the underlying shares of which we are
registering in this prospectus, by the selling stockholders, which
proceeds would be used for general corporate purposes. As of the date
of this prospectus, none of these warrants have been exercised.
o Our common stock is traded on the OTC Bulletin Board under the symbol
"IMDS".
o On February 28, 2000, the closing bid price of our common stock on
the OTC Bulletin Board was $3.8438.
The securities offered in this prospectus involve a high degree of
risk. You should carefully consider the factors described under the heading
"Risk Factors" beginning on page 5 of this prospectus.
--------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------------------
The date of this prospectus is __________, 2000
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
Forward-Looking Statements.....................................................................3
Prospectus Summary.............................................................................3
Recent Developments............................................................................4
The Offering...................................................................................5
Risk Factors...................................................................................6
Where You Can Find More Information...........................................................18
Incorporation of Certain Documents by Reference...............................................18
Information With Respect to the Registrant....................................................19
Management's Discussion and Analysis of Financial Condition and Results of Operation..........19
Material Changes..............................................................................20
Summary of Compensation Table.................................................................20
Option/SAR Grants in Last Fiscal Year.........................................................20
Security Ownership of Certain Beneficial Owners and Management................................21
Certain Relationships and Related Transactions................................................22
Sale of Unregistered Securities...............................................................23
Price Range of Common Stock...................................................................31
Dividend Policy...............................................................................31
Selling Security Holders......................................................................32
Use of Proceeds...............................................................................34
Plan of Distribution..........................................................................34
Description of Securities.....................................................................35
Disclosure of Commission Position on Indemnification for Securities and Liabilities...........36
Experts .....................................................................................36
Legal Opinion.................................................................................36
Financial Information.........................................................................36
</TABLE>
2
<PAGE>
Forward-Looking Statements
This prospectus contains some forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified by the use of forward-looking words like "may," "will,"
"except," "anticipate," "intend," "estimate," "continue," "believe" or other
similar words. Similarly, statements that describe our future expectations,
objectives and goals or contain projections of our future results of operations
or financial condition are also forward-looking statements. Our future results,
performance or achievements could differ materially from those expressed or
implied in these forward-looking statements as a result of certain factors,
including those listed under the heading "Risk Factors" and in other cautionary
statements in this prospectus.
Prospectus Summary
This summary highlights information in this document. You should
carefully review the more detailed information and financial statements included
in this document. The summary is not complete and may not contain all of the
information you may need to consider before investing in our common stock. We
urge you to carefully read this document, including the "Risk Factors" and the
financial statements and their accompanying notes.
The Company
We are a medical technology company that has developed and is testing Computed
Tomography Laser Mammography (CTLM(TM)) for detecting breast cancer through the
skin in a non-invasive procedure. The CTLM(TM) employs a laser and proprietary
scanning technology to produce visual images of the breast, which may be used to
detect and analyze tissue for indicia of malignancy or benignancy. The
components of the laser system are purchased from two unrelated parties and
assembled and installed into the CTLM(TM) by us. The CTLM(TM) will be used as an
adjunct to traditional breast imaging devices, such as mammography and
ultrasound machines, to assist in the detection of breast cancer. Medical
personnel will use the CTLM(TM) at medical facilities to do breast examinations
during routine check-ups and during more specific investigations in connection
with breast cancer.
Computed Tomography has had a basis in the science of medical imaging since the
early 1970's. Our chief executive officer Richard Grable, had experience with
Computed Tomography that inspired him to invent CT Laser Mammography in 1989.
The issues of evolving laser technology and software occupied the first several
years of our existence. After several limited clinical trials in our facilities
and the Strax Diagnostic Breast Clinic we learned what changes were required to
improve performance and stability of CTLM(TM). These changes included the
technological advances made with the lasers and other components. On July 8,
1999 we began a clinical investigational trial at Nassau County Medical Center,
East Meadow, NY. The clinical trials were then expanded to University of
Virginia Health System, Charlottesville, VA on November 15, 1999.
In connection with CTLM(TM) clinical trials, we are developing a clinical atlas
of the optical properties of benign and malignant tissues. The CTLM(TM) is
designed to provide the physician with objective visual data for interpretation
and further clinical analysis. Accordingly, we believe that the CTLM(TM) will
improve early diagnosis, reduce diagnostic uncertainty and decrease the number
of biopsies performed on benign breast lesions.
Due to the delays in obtaining the new laser system, the delays in the
modification and redesign of the CTLM(TM) and delays beyond our control
regarding hospital-based clinical trials, we are unable to determine when we
will receive FDA marketing clearance. In addition, due to these delays, we are
unable to determine when we will begin to generate revenue.
Our executive offices are located at 6531 NW 18th Court, Plantation, Florida
33313. Our telephone number is (954) 581-9800.
3
<PAGE>
Recent Developments
On October 14, 1999, we exhibited our most recent clinical studies from our
ongoing clinical trials at Nassau County Medical Center at the 19th Annual
Breast Imaging Conference in Anaheim, CA. At this conference, our clinical
images were compared against those of x-ray mammograms.
In December 1999 at the 1999 Radiological Society of North America Meeting, we
presented for the first time for review to radiologists and other medical
professionals from around the world clinical images produced by the CTLM(TM). We
compared our images of various breast abnormalities acquired through our ongoing
clinical trials at Nassau County Medical Center with those images produced by
mammography equipment and ultrasound machines. We also demonstrated the
potential of fluorescence through a simulation with our CTLM(TM) device.
Furthermore, on November 29, 1999, we entered into a distribution agreement with
Cycle of Life Technologies, Inc., a division of INTRACOR Inc., an international
trading company of medical products based in Canada, which we believe will help
us generate up to $500,000 in revenues in the first quarter of 2000 and up to a
total of $12 million in revenues over the life of the agreement. This agreement
gives Cycle of Life the exclusive right to distribute and sell the CTLM(TM) in a
number of countries for a period of three years with the possibility of a
two-year extension of the exclusive distribution and sales rights if Cycle of
Life meets specific sales requirements. As of February 28, 2000, we have not
earned any revenues from this agreement. We are currently preparing the
necessary documents required for FDA export approval to allow us to sell the
CTLM(TM) in Canada.
In January 1997, we applied for a patent for a fluorescence imaging scanner. We
have received Issue Notification from the U.S. Department of Commerce, Patent
and Trademark Office indicating that the Patent for the fluorescence imaging
scanner was issued on September 14, 1999, as Patent No. 5,952,664. A fluorescent
marker is a chemical compound that allows light to be absorbed at specific
locations in the tissue, which assists in detection of cancerous tissues.
On February 1, 2000, we received a loan from Cycle of Life Technologies, Inc. in
the aggregate amount of $500,000 evidenced by a promissory note. The term of the
note is six months and the interest rate is 12% per annum.
We received notice from the U.S. Department of Commerce, Patent and Trademark
Office on February 8, 2000 that our patent application for our reconstruction
algorithm had been granted. This patent assigned to us protects the proprietary
algorithms that assists in the formation of the visual images of the CTLM(TM)
breast imaging device.
Our website has been updated with the latest White Paper on "The Potential of
Fluorescent markers in Medical Optical Imaging: Part Two." This "White Paper" is
a technical narrative written by our scientists and engineers which describes
the results of our experiments with fluorescent markers. In our ongoing research
in this area we plan to conduct fluorescence imaging in-vivo studies with
Indocyanine Green injections. These injections will be used in these studies to
further enhance the visual imaging of a suspicious lesion in the breast. We have
been granted FDA approval to conduct this study, using a maximum of 50 test
subjects, at a clinical site and we will begin this study once we have obtained
approval from the review boards of the medical institutions we have selected as
possible sites.
On February 22, 2000 we received notice from the U.S. Department of Commerce,
Patent and Trademark Office that our patent application for our breast perimeter
technique had been granted. The Patent No. is 6,029,077.
Clinical Update
On November 16, 1999, we announced our agreement with the University of Virginia
Health System as the second approved testing site. The FDA approved protocol
under the Investigational Device Exemption provides for 275 subjects, similar to
the Investigational Device Exemption protocol approved for Nassau County Medical
Center. The clinical investigational trials began on Monday, November 15, 1999.
4
<PAGE>
The Offering
Securities Offered by Selling Security Holders
Common Stock(1)(3) 37,085,067
Equity Securities Outstanding(2)
Common Stock 97,200,698(3)
Series B Preferred 60
Series I Preferred 123
Warrants 1,058,125(4)
Options 3,932,193(4)
(1) According to the terms of the registration rights agreement among the
preferred stockholders, debenture holders and us, the amount of common
stock being registered and included in this prospectus is 100% of the
number of shares of common stock that would be required to be issued if
the preferred stock and debentures were converted on the day before the
filing of the registration statement. We believe that this is a good
faith estimate of the number of shares needed for conversion. In the
event that additional shares are needed to meet conversion requirements,
we will file a new registration statement to register the additional
shares.
(2) The total number of equity shares outstanding as of February 28, 2000.
(3) The total number of shares of common stock does not include shares of
common stock issuable upon conversion of the Series B and I preferred
stock and the debenture which, for the purpose of this prospectus, are
estimated to represent 177,111, 2,466,953 and 1,010,482 shares of common
stock, respectively, and warrants and options to purchase 1,058,125 and
3,932,193 shares of common stock, respectively.
(4) The options were issued in connection with our stock option plan and/or
in connection with some of our employment agreements. The exercise prices
of the options range from $.15 to $4.35 per share. The warrants were
issued to consultants, finders and private placement investors. The
exercise prices of the warrants range from $.50 to $5.00.
5
<PAGE>
Risk Factors
An investment in the common stock offered is highly speculative and
involves a high degree of risk. Accordingly, you should consider all of the risk
factors discussed below, as well as the other information contained in this
document. You should not invest in our common stock unless you can afford to
lose your entire investment and you are not dependent on the funds you are
investing.
Risks associated with our financial results
We have and are incurring significant losses and we may not be able to continue
our business in the future.
At December 31, 1999, we had an accumulated deficit of approximately
$37,709,561, after discounts and dividends on preferred stock. These losses have
resulted principally from costs associated with research and development,
clinical trials and from general and administrative costs associated with our
operations. We expect operating losses will increase for at least the next
several years due primarily to the anticipated expenses associated with:
o development,
o clinical trials,
o pre-market approval process,
o anticipated commercialization of the CTLM(TM), and
o other research and development activities that may arise.
We have a limited history of operations. Since our inception in December 1993,
we have been engaged principally in the development of the CTLM(TM), which has
not been approved for sale in the United States. In addition, we have not
applied to the FDA for export approval for foreign sales. Consequently, we have
little experience in manufacturing, marketing and selling our products. We
currently have no source of operating revenue and have incurred net operating
losses since inception.
Our auditor's have raised substantial doubts as to our ability to continue as a
going concern as we have not been and may not be able to be profitable.
We have received an opinion from our auditors stating that the fact that we have
suffered substantial losses and have yet to generate an internal cash flow
raises substantial doubt about our ability to continue as a going concern. Our
ability to achieve profitability will depend on our ability to obtain regulatory
approvals for the CTLM(TM), develop the capacity to manufacture and market the
CTLM(TM), either by our self or in collaboration with others and market
acceptance of the CTLM(TM). However, there can be no assurance we will achieve
profitability if and when we receive regulatory approvals for the development,
commercial manufacturing and marketing of the CTLM(TM).
Risks associated with our lack of capital
We require additional capital which we may be unable to raise which may cause us
to stop or cut back our operations.
Through February 28, 2000 we have spent approximately $37 million and expect to
spend another $4.2 million in order to bring the CTLM(TM) into the United States
market. After receiving pre-market approval from the FDA, we anticipate that we
will need approximately $9.0 million over the next two years to complete all
necessary stages in order to market the CTLM(TM) in the United States and
foreign countries. At present we do not have the required capital to do this and
will require substantial additional funds to market this product, including
funds for:
o clinical testing of the CTLM(TM)device,
o research, engineering and development programs,
6
<PAGE>
o pre-clinical and clinical testing of other proposed products,
o regulatory processes,
o inventory, such as sub-contracted components,
o manufacturing and marketing programs, and
o operating expenses (including general and administrative expenses).
Our future capital requirements depend on many factors, including the following:
o the progress of our research and development projects,
o the progress of pre-clinical and clinical testing,
o the time and cost involved in obtaining regulatory approvals,
o the cost of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights; competing technological and market
developments; changes and developments in our existing collaborative,
licensing and other relationships and the terms of any new collaborative,
licensing and other arrangements that we may establish, and
o the development of commercialization activities and arrangements.
In addition, our fixed commitments are substantial and would increase if
additional agreements were entered into and additional personnel were retained.
We do not expect to generate a positive internal cash flow for at least several
years due to expected increases in capital expenditures, working capital needs,
and ongoing losses. There can be no assurance that additional financing will be
available when needed, or if available, will be available on acceptable terms.
We have already granted a mortgage on our corporate property as security for a
debenture and in all likelihood, would be unable to use this property to
collateralize any additional financing. Insufficient funds may prevent us from
implementing our business strategy and will require us to further delay, scale
back or eliminate our research, product development and marketing programs; and
may require us to license to third parties rights to commercialize products or
technologies that we would otherwise seek to develop ourselves, or to scale back
or eliminate our other operations.
We have had and may have to issue securities for services which may further
depress our stock price and dilute the holdings of our shareholders.
Since we have generated no revenues to date, our ability to obtain and retain
consultants may be dependent on our ability to issue stock for services. Since
July 1, 1996, we have issued an aggregate of 1,806,500 shares of common stock
according to registration statements on Form S-8. The aggregate fair market
value of the shares when issued was $2,327,151. The issuance of large amounts of
our common stock for services rendered or to be rendered and the subsequent sale
of these shares may further depress the price of our common stock and dilute the
holdings of our shareholders. In addition, because of the possible dilution to
existing shareholders, the issuance of substantial additional shares may cause a
change-in-control.
We have in the past and may have to in the future sell additional unregistered
securities, possibly without limitations on the number of common shares the
securities are convertible into, which could dilute the value of the holdings of
current shareholders.
We have had to and have to rely on the private placement of preferred and common
stock and convertible debentures to obtain working capital and will continue to
do so in the future. As of the date of this registration statement, we have
issued 55,979,558 shares of common stock which were converted from preferred
stock and debentures that we privately placed. This number of shares of common
stock represents approximately 57.6%of the currently outstanding number of
shares of common stock.
In deciding to issue preferred stock and debentures through private placements,
we took into account:
o the number of common shares authorized and outstanding,
o the market price of the common stock at the time of each preferred or
debenture sale and
o the number of common shares the preferred stock would have been convertible
into at the time of the sale.
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<PAGE>
At the time of each private placement there were enough shares, based on the
price of our common stock at the time of the sale of the preferred stock to
satisfy the preferred conversion requirements. Although our board of directors
tried to negotiate a floor on the conversion price of each series of preferred
stock and the debentures prior to their sale, it was unable to do so.
Manipulation of our common stock through short sales and offers to sell our
preferred stock at a substantial discount may artificially depress our stock
price. These types of transactions are sometimes referred to as "toxic"
securities. After the stock is manipulated and the price is driven down, the
preferred stock is then converted which may give the preferred shareholder
control over a substantial percentage of the public float of our stock.
In order to obtain working capital we will continue to:
o seek capital through debt or equity financing which may include the
issuance of convertible preferred stock whose rights and preferences are
superior to those of the common stock holders, and
o try to negotiate the best transaction possible taking into account the
impact on our shareholders, dilution, loss of voting power and the
possibility of a change-in-control.
However, in order to satisfy our working capital needs, we may be forced to
issue convertible securities with no limitations on conversion.
In the event that we issue convertible preferred stock or convertible debentures
without a limit on the number of shares that can be issued upon conversion and
the price of our common stock decreases:
o the percentage of shares outstanding that will be held by these holders
upon conversion will increase accordingly,
o the lower the market price the greater the number of shares to be issued to
these holders upon conversion, thus increasing the potential profits to the
holder when the price per share then increases and the holder sells the
common shares,
o the preferred stockholders' and debenture holders potential for increased
share issuance and profit, including profits derived from shorting our
common stock, in addition to a stock overhang of an indeterminable amount,
may depress the price of our common stock,
o the sale of a substantial amount of preferred stock to relatively few
holders could effectuate a possible change-in-control and
o in the event of our voluntarily or involuntarily liquidation while the
preferred stock is outstanding, the holders will be entitled to a
preference in distribution of our property.
We may draw on our equity credit line which may cause the value of our common
stock to decline and dilute the holdings of our shareholders.
We have a firm commitment for a $15.0 Million, three-year equity line of credit.
Pursuant to the equity line of credit, when we feel it necessary, we may raise
capital through the sale of our common stock to a consortium of prominent
European banking institutions. In order to use the equity credit line, our
common stock must trade above $.50 per share. We would also be required to file
a shelf registration statement or other registration that may be available to
us. We may need capital in excess of the equity line of credit or if we decline
to use the equity line of credit, we may seek additional funding through public
or private financing or collaborative, licensing and other arrangements with
corporate partners. If we utilize 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.
We have had and may have to issue securities in order to pay off our debts which
may further depress our stock price and dilute the holdings of our shareholders.
Since we have generated no revenues to date, we have had difficulty in paying
off some of our debts which have become due. In order to pay these debts, we
have issued shares of common stock. For example, since the beginning of December
30, 1999, we have paid off approximately $532,100 in debt by issuing 3,129,811
shares of restricted
8
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common stock. In addition, as we have little or no present revenues, we may have
to issue more shares of common stock in order to pay off current or future debts
which become due. This type of issuance of common stock to pay off debt may
further depress the price of our common stock and would dilute the holdings of
our shareholders, and if substantial dilution does occur, could also cause a
change-in-control.
Conversions of our convertible preferred stock and exercise of our convertible
debenture and warrants may cause other detrimental effects to the value of our
shareholders' holdings.
If the market price declines significantly, we could be required to issue a
number of shares of common stock sufficient to result in our current
stockholders not having an effective vote in the election of directors and other
corporate matters. In the event of a change-in-control, it is possible that the
new majority stockholders may take actions that may not be consistent with the
objectives or desires of our current stockholders.
We are required to convert the convertible preferred stock and convertible
debenture based on a formula that varies with the market price of our common
stock. As a result, if the market price of our common stock increases after the
issuance of our convertible preferred stock and convertible debenture, it is
possible that, upon conversion of the convertible preferred stock and
convertible debenture, we will issue shares of common stock at a price that is
less than the then-current market price of the common stock.
If the market price of our common stock decreases after we issue the convertible
preferred stock or convertible debenture, upon conversion, we will have to issue
an increased number of shares to the preferred stock and convertible debenture
holder. The sale of convertible preferred stock and debentures may result in a
very large conversion at one time. If we do not have a sufficient number of
shares to cover the conversion we may have a risk of a civil lawsuit.
In addition, the warrants we issued are exercisable at a fixed price. If the
market price of our common stock increases above the warrant exercise price, we
will be required to issue shares of common stock upon exercise of the warrants
at a price that is less than the then-current market price. Issuances at less
than market price pose a risk to investors because these issuances may drive
down the market price of our common stock.
Risks associated with our industry
We depend on market acceptance to sell our products which have not been proven
and may not occur which would depress our sales.
There can be no assurance that physicians or the medical community in general,
will accept and utilize the CTLM(TM) or any other products that we develop. The
extent and rate the CTLM(TM) achieves market acceptance and penetration will
depend on many variables, including, but not limited to:
o the establishment and demonstration in the medical community of the
clinical safety, efficacy and cost-effectiveness of the CTLM(TM),
o the advantages of the CTLM(TM)over existing technology and cancer detection
methods, including:
- X-ray mammography,
- Ultrasound or high frequency ultrasound,
- MRI,
- Thermography,
- Diaphonography,
- Electrical impedance, and
- Transillumination devices
o third-party reimbursements practices, and
o our manufacturing, quality control, marketing and sales efforts.
There can be no assurance that the medical community and third-party payers will
accept our unique technology. Similar risks will confront any other products we
develop in the future. Failure of our products to gain market
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acceptance would hinder our sales efforts resulting in a loss of revenues and
net profit. It would further prevent us from developing new products.
Lack of third-party reimbursement may have a negative impact on the sales of our
products which would negatively impact our revenues.
In the United States, suppliers of health care products and services are greatly
affected by Medicare, Medicaid and other government insurance programs, as well
as by private insurance reimbursement programs. Third-party payers (Medicare,
Medicaid, private health insurance companies, and other organizations) may
affect the pricing or relative attractiveness of our products by regulating the
level of reimbursement provided by these payers to the physicians, clinics and
imaging centers utilizing the CTLM(TM) or any other products that we may
develop, by refusing reimbursement. The level of reimbursement, if any, may
impact the market acceptance and pricing of our products, including the
CTLM(TM). Failure to obtain favorable rates of third-party reimbursement could
discourage the purchase and use of the CTLM(TM) as a diagnostic device.
In international markets, reimbursement by private third-party medical insurance
providers, including governmental insurers and independent providers varies from
country to country. In addition, such third-party medical insurance providers
may require additional information or clinical data prior to providing
reimbursement for a product. In some countries, our ability to achieve
significant market penetration may depend upon the availability of third-party
governmental reimbursement. Revenues and profitability of medical device
companies may be affected by the continuing efforts of governmental and third
party payers to contain or reduce the cost of health care through various means.
There are uncertainties regarding healthcare reform including possible
legislation, whereby our customers may not receive medical reimbursement for the
use of our product on their patients, which may cause our customers to use other
services and products.
Several states and the United States government are investigating a variety of
alternatives to reform the health care delivery system. These reform efforts
include proposals to limit and further reduce and control health care spending
on health care items and services, limit coverage for new technology and limit
or control the price health care providers and drug and device manufacturers may
charge for their services and products, respectively. If adopted and
implemented, these reforms could cause our healthcare providers to limit or not
use the CTLM(TM) systems.
Competition in the medical imaging industry may result in competing products,
superior marketing and lower revenues and profits for us.
The market in which we intend to participate is highly competitive. Many of the
companies in the cancer diagnostic and screening markets have substantially
greater technological, financial, research and development, manufacturing, human
and marketing resources and experience than we do. These companies may succeed
in developing, manufacturing and marketing products that are more effective or
less costly than our products. Physicians using imaging equipment such as x-ray
mammography equipment, ultrasound or high frequency ultrasound systems, magnetic
resonance imaging systems, and thermography, diaphonography and
transilluminational devices may not use our products. Currently mammography is
employed widely and our ability to sell the CTLM(TM) to medical facilities will,
partially depend on our ability to demonstrate the clinical utility of the
CTLM(TM) as an adjunct to mammography and physical examination and its
advantages over other available diagnostic tests. The competition for developing
a commercial device utilizing computed tomography techniques and laser
technology is difficult to ascertain given the proprietary nature of the
technology. There are a significant number of academic institutions involved in
various areas of research involving "optical medical imaging" which is a
shorthand description of the technology our CTLM(TM) utilizes.
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Risks associated with our securities
Our common stock is considered "penny stock" and may be difficult to sell.
The SEC has adopted regulations, which generally define "penny stock" to be an
equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions.
Presently, the market price of our common stock is substantially less than $5.00
per share and therefore may be designated as a "penny stock" according to SEC
rules. This designation requires any broker or dealer selling these 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 the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares. In addition, since our common stock is traded on
the NASDAQ OTC Bulletin Board, investors may find it difficult to obtain
accurate quotations of our common stock.
The volatility of our stock price could adversely affect your investment in our
common stock.
The price of our common stock has fluctuated substantially since it began
trading on the OTC Bulletin Board in September 1994. The market price of our
shares, like that of the common stock of many other medical device companies, is
likely to continue to be highly volatile. Factors that may have an impact on the
price of our common stock include:
o the timing and results of our clinical trials or our competitors,
o governmental regulation,
o healthcare legislation,
o equity or debt financing, and
o developments in patent or other proprietary rights pertaining to our
competitors or us, including litigation, fluctuations in our operating
results, and market conditions for medical device company stocks and life
science stocks in general.
We may issue preferred stock at any time to prevent a takeover or acquisition,
any of which issuance could dilute the price of our common stock.
Our articles of incorporation authorize the issuance of preferred stock with
designations, rights, and preferences that may be determined from time to time
by the board of directors. Our board of directors is empowered, without
stockholder approval, to designate and issue additional series of preferred
stock with dividend, liquidation, conversion, voting and other rights, including
the right to issue convertible securities with no limitations on conversion,
which could adversely affect the voting power or other rights of the holders of
our common stock. This could substantially dilute the common shareholder's
interest and depress the price of our common stock. In addition, the preferred
stock could be utilized, as a method of discouraging, delaying or preventing a
change-in-control. The substantial number of issued and outstanding convertible
preferred stock and the convertible debentures, and their terms of conversion
may discourage or prevent an acquisition of our company
Although we have increased the number of shares of our authorized common stock
in order to help facilitate the conversion and exercise of outstanding and
future preferred stock and other securities, which conversion and exercise would
depress the value of our common stock and dilute shareholdings, we still may not
have enough authorized common stock available to convert the debentures and the
outstanding Series B and I preferred stock into common stock.
According to a written action of a majority of our shareholders, we have amended
our articles of incorporation, to increase our authorized common stock from
48,000,000 shares to 100,000,000 shares in order to facilitate the conversion of
our outstanding preferred stock and debentures. Prior to the amendment, we did
not have an adequate number of shares authorized to meet our contractual
obligations due to the decrease in our stock price. Furthermore, as our stock
price continues to fluctuate, even with this increase in the authorized common
stock, we may still not be able to convert into common stock the debentures and
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the Series B and I preferred stock which could cause us to accrue liquidated
damages under our registration rights agreement. The holder, Charlton Avenue
LLC, has waived its rights to any liquidated damages in may have in connection
with these securities through April 30, 2000. As long as we have outstanding
securities convertible into common stock at a price dependent on the market
price of the common stock, we may have to increase our authorized common stock
in order to have the available authorized common stock for conversions of these
convertible securities, which would result in further dilution to our existing
stockholders.
In addition, until the time when we are able to generate revenues, we are
dependent on equity or other financing to continue operations and the amendment
affords us common stock to finance our operations through equity financings,
which we will continue to do, as we will require substantial additional funds
for our operations. We may again be obligated to increase our authorized common
stock from 100,000,000 shares to 150,000,000 to facilitate the conversion of our
outstanding preferred stock and debentures.
Based on the closing price of our common stock as of February 28, 2000, of
$3.8438 per share, approximately:
o 177,111 shares would be required to convert the Series B shares,
o 2,466,953 shares would be required to convert the Series I shares,
o 1,010,482 shares would be required to convert the debentures and
o although we are contractually prohibited from doing so, 4,877,985 shares
would be required to draw down the entire equity line of credit.
In addition, 4,990,318 shares would be required for the exercise of options and
warrants. Based upon this information, as of February 28, 2000, we would need in
excess of approximately 10 million authorized shares for all conversions,
complete utilization of the equity line of credit and fulfillment of our
remaining stock related obligations.
We currently are controlled by our executive officers and directors, however, if
outstanding preferred stock and debentures are converted, a change-in-control
may occur.
Our management beneficially owns 21.9% including options, of our outstanding
common stock, assuming no exercise of outstanding warrants, options, or
conversion of preferred stock. Although management owns less than 50.1% of the
outstanding common stock, since we do not have cumulative voting, and since, in
all likelihood the officers will be voting as a block and will be able to obtain
proxies of other shareholders, management should continue to remain in a
position to elect all of our directors and control our policies and operations.
However, after giving effect to the conversion of the preferred stock and
debentures, management would own only 20.5% as of February 28, 2000. This
additional dilution to management's ownership percentage could cause a
change-in-control.
We have not paid and do not currently intend to pay dividends, which may limit
the current return you may receive on your investment in our common stock.
Since inception, we have not paid a dividend on our common stock and do not
intend to pay dividends on our common stock in the foreseeable future.
Risks associated with our technology
We depend on a patent licensed to us by our founder without which our operations
would cease.
We own the rights, through an exclusive patent licensing agreement, for the use
of the patent for the CTLM(TM) technology. Richard Grable owns the patent. In
addition, we have 10 additional United States patents pending with regard to
optical tomography, many of which are based on the original CTLM(TM) technology.
In the event that we breach the patent licensing agreement, we could lose the
licensing rights to the CTLM(TM) technology. The loss of the patent license
would have a material adverse effect on us and our continued operations.
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Our business would lose its primary competitive advantage if we are unable to
protect our proprietary technology, or if substantially the same technology is
developed by others.
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, and confidentiality procedures to protect our technology.
Our ability to compete effectively in the medical imaging products industry will
depend on our success in protecting our proprietary technology, both in the
United States and abroad. There can be no assurances that any patent that we
apply for will be issued, or that any patents issued will not be challenged,
invalidated, or circumvented, or that the rights granted will provide any
competitive advantage. Neither we nor Mr. Grable hold foreign patents, however,
we have applied for patents in several foreign countries. We could incur
substantial costs in defending any patent infringement suits or in asserting any
patent rights, including those granted by third parties, the expenditure of
which we might not be able to afford.
Although we have entered into confidentiality and invention agreements with our
employees and consultants, there can be no assurance that these agreements will
be honored or that we will be able to protect our rights to our non-patented
trade secrets and know-how effectively. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets and know-how. In
addition, we may be required to obtain licenses to patents or other proprietary
rights from third parties. If we do not obtain required licenses, we could
encounter delays in product development or find that the development,
manufacture, or sale of products requiring these licenses could be foreclosed.
Additionally, we may, from time to time, support and collaborate in research
conducted by universities and governmental research organizations. There can be
no assurance that we will have or be able to acquire exclusive rights to the
inventions or technical information derived from such collaborations or that
disputes will not arise with respect to rights in derivative or related research
programs that we conducted in conjunction with these organizations.
It may be necessary to enter into unfavorable agreements or defend law suits
which would be costly if we infringe upon the intellectual property rights of
others.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device and related industries. We have been, and
may be in the future, notified that we may be infringing on intellectual
property rights possessed by other third parties. If any claims are asserted
against our intellectual property rights, we may seek to enter into royalty or
licensing arrangements. There is a risk in situations that no license will be
available or that a license will not be available on reasonable terms.
Alternatively, we may decide to litigate these claims or design around the
patented technology. These actions could be costly and would divert the efforts
and attention of our management and technical personnel. Consequently, any
infringement claims by third parties or other claims for indemnification by
customers resulting from infringement claims, whether or not proven to be true,
may be costly to defend and may further limit the use of our technology.
We may not be able to keep up with the rapid technological change in the medical
imaging industry which could make the CTLM(TM) obsolete.
Methods for the detection of cancer are subject to rapid technological
innovation and there can be no assurance that technical changes will not render
our proposed products obsolete. Although we believe that the CTLM(TM) can be
upgraded to maintain its state-of-the-art character, the development of new
technologies or refinements of existing ones might make our existing system
technologically or economically obsolete, or cause a reduction in the value of,
or reduce the need for, our CTLM(TM). There can be no assurance that the
development and commercial availability of new types of diagnostic medical
equipment or technology will not have a material adverse effect on our business,
financial condition, and results of operations. Although we are aware of no
substantial technological changes pending, should a change occur, there can be
no assurance that we will be able to acquire the new or improved systems which
may be required to update the CTLM(TM).
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Risks associated with our business
We may not find sufficient facilities to adequately test the CTLM(TM) and, in
addition, clinical trials done at any of these facilities may not be successful,
which may keep us from receiving FDA approval.
We currently have two CTLM(TM) functioning and being tested, one in Nassau
County Medical Center and one in the University of Virginia Health System,
pursuant to investigational device exemptions granted by the FDA. The testing is
designed to develop diagnostic criteria for CTLM(TM) images. We have entered
into discussions with several hospitals, which are located throughout the United
States for further potential clinical test sites. The remaining proposed sites
have indicated an interest in participating in our clinical trials, however, we
do not anticipate a formal response until February 2000 at which point we would
have to request permission from the FDA to expand our clinical trials. The
delays are due to the time required for site surveys, locating available rooms
for the CTLM(TM) in the hospitals, subsequent room renovations and the hiring
and training of additional clinical application specialists. Furthermore, the
approval boards of some hospitals only meet once per month approval may be
further delayed. At the conclusion of the clinical trials we will submit the
pre-market approval application for the CTLM(TM).
Furthermore, there can be no assurance that:
o results obtained in any additional trials will be consistent with the
results obtained in trials conducted by us to date;
o results obtained in any clinical trial or series of clinical trials will be
consistent among all study sites, or
o results obtained in clinical trials conducted with U.S. study populations
will be consistent with results obtained in studies conducted in Europe or
other locations outside of the U.S.
We must comply with extensive government regulation and have no assurance of
regulatory approvals or clearances which could cause us to cut back or cease
operations.
Our delay or inability to obtain any necessary United States, state or foreign
regulatory clearances or approvals for our products would prevent us from
selling the CTLM(TM) system in the U.S. and other countries.
In the United States, the CTLM(TM) is regulated as a medical device and is
subject to the FDA's pre-market clearance or approval requirements. To obtain
FDA approval of an application for pre-market approval, the pre-market approval
application must demonstrate that the subject device has clinical utility,
meaning that the device has a beneficial therapeutic effect, or that as a
diagnostic tool it provides information that measurably contributes to a
diagnosis of a disease or condition.
We cannot file our pre-market approval application for the CTLM(TM) until our
clinical trials are completed. There can be no assurance, that our clinical
trials will be successfully completed, or if completed, will provide sufficient
data to support a pre-market approval application for the CTLM(TM); nor can
there be any assurance that the FDA will not require us to conduct additional
clinical trials for the CTLM(TM), which would delay the CTLM(TM) coming onto the
market.
In addition, sales of medical devices outside the United States may be subject
to international regulatory requirements that vary from country to country. The
time required to gain approval for international sales may be longer or shorter
than required for FDA approval and the requirements may differ. For example, in
order to sell our products within the European economic area, companies are
required to achieve compliance with the requirements of the medical devices
directive and affix a "CE" marking on their products to attest compliance. We
are in preliminary preparations regarding CE certification in Europe which
certification would allow us to conduct sales in member countries of the
European Union.
As of the date of this prospectus, we have not yet obtained these international
certifications and there can be no assurance that we will be able to do so.
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Regulatory approvals, if granted, may include significant limitations on the
indicated uses for which the CTLM(TM) may be marketed. In addition, to obtain
these approvals, the FDA and certain foreign regulatory authorities may impose
numerous other requirements which medical device manufacturers must comply with.
FDA enforcement policy strictly prohibits the marketing of approved medical
devices for unapproved uses. Product approvals could be withdrawn for failure to
comply with regulatory standards or the occurrence of unforeseen problems
following initial marketing.
The third-party manufacturers upon which we will depend to manufacture our
products are required to adhere to applicable FDA regulations regarding, quality
systems regulations commonly referred to as QSR,s, which include testing,
control and documentation requirements Failure to comply with applicable
regulatory requirements, including marketing and promoting products for
unapproved use, could result in warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to grant pre-market clearance or approval
for devices, withdrawal of approvals and criminal prosecution. Changes in
existing regulations or adoption of new government regulations or polices could
prevent or delay regulatory approval of our products. Material changes to
medical devices also are subject to FDA review and clearance or approval.
In addition, unapproved products subject to the pre-market approval requirements
must receive prior FDA export approval in order to be marketed outside of the
United States unless they are approved for use by any member country of the
European Union or certain other countries, including Australia, Canada, Israel,
Japan, New Zealand, Switzerland and South Africa, in which case the products can
be exported to any country provided that limited notification requirements are
met. There can be no assurance that we will meet the FDA's export requirements
or receive FDA export approval when our approval is necessary, or that countries
to which the devices are to be exported will approve the devices for import. Our
failure to meet the FDA's export requirements or obtain FDA export approval when
required to do so, or to obtain approval for import, could have a material
adverse effect on our business, financial condition, cash flows and results of
operations.
There can be no assurance that we will be able to obtain or maintain the
following:
o FDA approval of a pre-market approval application for the CTLM(TM),
o foreign marketing clearances for the CTLM(TM)or regulatory approvals or
clearances for other products that we may develop, on a timely basis, or at
all,
o timely receipt of approvals or clearances,
o continued approval or clearance of previously obtained approvals and
clearances, and
o compliance with existing or future regulatory requirements.
If we do not obtain or maintain any of the above-mentioned standards, there may
be material adverse effects on our business, financial condition and results of
operations.
We may not be able to develop other products that are currently in the early
stages of development due to our need for additional capital.
Due to our need for additional capital, our proposed products, other than the
CTLM(TM) device, including a scanner for the early detection of colon cancer,
are at early stages of development. There can be no assurance that any of our
proposed products will be, including the CTLM(TM):
o found to be safe and effective,
o meet applicable regulatory standards or receive necessary regulatory
clearance,
o or if safe and effective, can be developed into commercial products,
manufactured on a large scale or be economical to market, or
o achieve or sustain market acceptance.
Therefore, there is substantial risk that our product development and
commercialization efforts will not prove to be successful for our products.
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We will depend on a single product, the CTLM(TM), for our revenue in the next
few years, any problems with which would cause adverse affects to our business.
We are in the process of developing additional products based on our main
technology, including an enhancement of the CTLM(TM) device for use with
fluorescence contrast agents and photo-dynamic therapy drugs. Photo-dynamic
therapy drugs seek out cancer and are activated by light. Neither application is
expected to result in a commercial product for at least several years, if at
all. Consequently, pending its approval for commercial distribution in the
United States, the CTLM(TM) device would account for substantially all of our
revenues for at least the next two years. Failure to gain regulatory approvals
or market acceptance for the CTLM(TM) device would prevent the sale of the
CTLM(TM) device in the U.S. and other countries adhering to FDA approved
guidelines.
We depend upon suppliers with whom we have no contracts which suppliers could
cause production disruption if they terminated or changed their relationships
with us.
We believe that there are a number of suppliers for most of the components and
subassemblies required for the CTLM(TM). Particular components for our laser
system are provided by two unrelated suppliers. Although these components are
provided by a limited number of other suppliers, we believe our laser suppliers
and their products are the most reliable. We have no agreement with our laser
suppliers and purchase the laser components on an as needed basis. For certain
services and components, we currently rely on single suppliers. If we encounter
delays or difficulties with our third-party suppliers in producing, packaging,
or distributing components of the CTLM(TM) device, market introduction and
subsequent sales would be adversely affected.
We have no experience in sales, marketing and distribution which could
negatively impact our ability to enter into collaborative arrangements or other
third party relationships which are important to the successful development and
commercialization of our products and potential profitability.
We have limited internal marketing and sales resources and personnel. There can
be no assurance that we will be able to establish sales and distribution
capabilities or that we will be successful in gaining market acceptance for any
products we may develop. There can be no assurance that we will be able to
recruit and retain skilled sales, marketing, service or support personnel, that
agreements with distributors will be available on terms commercially reasonable
to us, or at all, or that our marketing and sales efforts will be successful.
There can be no assurance that we will be able to further develop our
distribution network on acceptable terms, if at all or that any of our proposed
marketing schedules or plans can or will be met.
We depend on qualified personnel to run and develop our specialized business who
we may be unable to retain or hire.
Due to the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified scientific, technical
and managerial personnel. We have entered into employment agreements with some
of our executive officers and key employees. The loss of the services of
existing personnel, especially Mr. Grable, as well as the failure to recruit key
scientific, technical and managerial personnel in a timely manner would be
detrimental to our research and development programs and could have an adverse
impact upon our business affairs and finances. Our anticipated growth and
expansion into areas and activities requiring additional expertise, such as
marketing, will require the addition of new management personnel. Competition
for qualified personnel is intense and there can be no assurance that we will be
able to continue to attract and retain qualified personnel necessary for the
development of our business.
We have a possible conflict of interest in our management which could cause us
to enter into agreements on less favorable terms than we may otherwise get.
Richard Grable and Linda Grable hold a majority of the seats on our board of
directors. Consequently, they are in a position to control their own
compensation and to approve affiliated transactions. For example, in June 1998,
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we finalized an exclusive patent license agreement with Richard Grable. The
board's policy is to obtain unanimous consent for affiliated transactions and
compensation issues. Although our board intends to act fairly and in full
compliance with its fiduciary obligations, there can be no assurance that we
will not, as a result of the conflict of interest described above, enter into
arrangements under terms less favorable than those which we could have obtained
had we been dealing with unrelated persons.
We have a limited manufacturing history which could cause delays in the
production and shipment of our product.
We will have to expand our CTLM(TM) manufacturing and assembly capabilities and
contract for the manufacture of the CTLM(TM) components in volumes that will be
necessary for us to achieve significant commercial sales in the event we begin
foreign sales and/or obtain regulatory approval to market our products in the
United States. We have limited experience in the manufacture of medical products
for clinical trials or commercial purposes. Should we manufacture our products,
our manufacturing facilities would be subject to the full range of the FDA's
current quality system regulations, and we would need additional capital to
establish these types of facilities. In addition, there can be no assurance that
we would be able to manufacture our products successfully or cost-effectively.
We depend on third parties who may not be in compliance with the FDA's quality
system regulations which may delay the approval or decrease the sales of the
CTLM(TM).
We have used and do use third parties to manufacture and deliver the components
of the CTLM(TM) and intend to continue to use third parties to manufacture and
deliver these components and other products we may develop. There can be no
assurance that the third-party manufacturers we depend on for the manufacturing
of CTLM(TM) components will be in compliance with the quality system regulations
at the time of the pre-approval inspection or will maintain compliance
afterwards. This failure could significantly delay FDA approval of the
pre-market approval application for the CTLM(TM) device.
We have had and may have delays in getting our products to market both
domestically and internationally which have hindered and may hinder our sales.
Originally, we anticipated that the CTLM(TM) would be ready for distribution in
the summer of 1998, however, during the course of clinical trials, we learned of
problems with particular components of the CTLM(TM) that needed to be corrected
before distribution. Solutions to these problems had to be found and adjustments
had to be made to the CTLM(TM) to correct these problems. Specifically, the
laser components, the electronic technology involved in image acquisition and
the fiber optics had to be modified.
As of the date of this prospectus, our Canadian distributor has placed an order
for two CTLM(TM) systems to be delivered in late March 2000. We are currently
preparing the necessary documents required for FDA export approval to Canada. We
intend to continue to sell CTLM(TM) systems through distributors in those
countries where sales are permitted. No CTLM(TM) systems have been sold pursuant
to an investigational device exemption in the United States market.
We will rely on international sales and may be subject to risks associated with
international commerce.
We intend to commence international sales of the CTLM(TM) in Canada, Europe and
Asia, prior to commencing commercial sales in the U.S. Until we receive
pre-market approval from the FDA to market the CTLM(TM) in the United States,
our revenues, if any, will be derived from sales to international distributors.
A significant portion of our revenues may be subject to the risks associated
with international sales, including:
o economical and political instability,
o shipping delays,
o fluctuation of foreign currency exchange rates,
o foreign regulatory requirements, and
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o various trade restrictions, all of which could have a significant impact on
our ability to deliver products on a timely basis.
Significant increases in the level of customs duties, export quotas or other
trade restrictions could have a material adverse effect on our business,
financial condition and results of operations. The regulation of medical
devices, particularly in Europe, continues to develop and there can be no
assurance that new laws or regulations will not have an adverse effect on us. In
order to minimize the risk of doing business with distributors in countries
which are having difficult financial times, our international distribution
agreements all require payment via an irrevocable letter of credit drawn on a
United States bank prior to shipment of the CTLM(TM).
Our business has the risk of product liability claims and preferred insurance
coverage may be expensive or unavailable which may expose us to material
liabilities.
Our business exposes us to potential product liability risks, which are inherent
in the testing, manufacturing, and marketing of cancer detection products.
Significant litigation, not involving us, has occurred in the past based on the
allegations of false negative diagnoses of cancer. While the CTLM(TM) device is
being developed as an adjunct to other diagnostic techniques, there can be no
assurance that we will not be subjected to future claims and potential
liability. Although the FDA does not require product liability insurance with
regard to clinical investigations, we obtained and presently carry product
liability insurance in the amount of $3,000,000, at the request of Nassau
County. While we plan to maintain insurance against product and professional
liability and defense costs, there can be no assurance that claims against us
arising with respect to our products will be successfully defended or that the
insurance to be carried by us will be sufficient to cover liabilities arising
from any claims. A successful claim against us in excess of our insurance
coverage could have a material adverse effect on us. Furthermore, there can be
no assurance that we will be able to continue to obtain or maintain product
liability insurance on acceptable terms.
We lack a feasibility study and do not know if sufficient demand exists for our
product.
We have not performed any market or feasibility study to assess the interest,
demand, or need for the CTLM(TM). There can be no assurance that a study would
support management's belief that sufficient demand will exist.
Where You Can Find More Information
We have filed with the SEC a Registration Statement on Form S-2 with all
amendments and exhibits under the Securities Act of 1933, concerning the common
stock offered in this prospectus. This prospectus does not contain all of the
information contained in the registration statement. We have omitted parts of
the registration statement in accordance with the rules and regulations of the
SEC. For further information with respect to IDSI and our securities, you should
refer to the registration statement, including its schedules and exhibits.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, you should
refer to the copy of the filed contract or document which is qualified in all
respects by such reference. You may obtain copies of the registration statement
from the SEC's principal office in Washington, D.C. upon payment of the fees
prescribed by the SEC, or you may examine the registration statement without
charge at the offices of the SEC described below.
We have filed annual, quarterly and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms at 450 Fifth Street, NW, Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further filing information on then
public reference rooms. Our SEC filings are also available to the public on the
SEC's website at http://www.sec.gov.
Incorporation Of Certain Documents By Reference
The SEC allows us to "incorporate by reference" the information that we file
with it, meaning we can disclose important information to you by referring you
to those documents already on file with the SEC. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the following documents:
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<PAGE>
1. Our annual report on Form 10-KSB for the year ended June 30, 1998, filed on
October 13, 1998, amended on April 12, 1999 and July 23, 1999.
2. Our annual report on Form 10-KSB for the year ended June 30, 1999, filed on
October 12, 1999.
3. Our quarterly reports on Form 10-QSB for the following fiscal quarters:
(a) December 31, 1999, filed on February 18, 2000;
(b) September 30, 1999, filed on November 17, 1999;
(c) March 31, 1999, filed May 20,1999 and amended on July 22, 1999;
(d) December 31, 1998, filed on February 19,1999 and amended on May 21,
1999; and
(e) September 30, 1998, filed on November 13, 1999 and amended on April 21,
1999.
We also incorporate by reference any future filings made with the SEC under
Sections 13 (a), 13 (c), 14 or 15 (d) of the Securities Act of 1934, as amended,
prior to the termination of the offering to which this prospectus relates.
You may request a copy of any of these filings, at no cost, by writing or
calling us at the following address:
Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation, Florida 33313.
Telephone number (954) 581-9800.
Attn: Investor Relations
Information With Respect To The Registrant
The information required to be disclosed in the registration statement
pertaining to this prospectus is incorporated by reference, including, among
other documents, our latest Form 10-KSB, as amended, and Form 10-QSB, as
amended, which are both being delivered with this prospectus. See "Documents
Incorporated by Reference", "Prospectus Summary", "Risk Factors" and "Material
Changes."
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
The information required for this Post Effective Amendment No. 4 to Form S-2,
including our financial statements and notes to the financial statements,
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended June 30, 1999, is incorporated by reference
to our annual report on Form 10-KSB filed with the SEC on October 12, 1999.
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Material Changes
Executive Compensation
The following table represents the compensation awarded to, earned by or paid to
our chief executive officer and other executive officers for services rendered
to us from 1997 to 1999. No other person during this time who served as one of
our executive officers had a total annual salary and bonus in excess of
$100,000.
Summary Of Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Name & Principal
Position Year Salary (2) Other Annual Restricted Securities/Underlying
Compensation Stock Awards Option/SARs (1)
<S> <C> <C> <C> <C> <C>
Richard J. Grable, CEO 1997 $289,779 $115,000 $268,000 22,883
and Director 1998 $286,225 -0- -0- 534,602
1999 $286,225 -0- -0- 458,333
Linda B. Grable, President 1997 $ 97,451 $115,000 $268,000 22,883
and Director 1998 $119,070 -0- -0- 534,602
1999 $119,070 -0- -0- 458,333
Allan L. Schwartz, Exec 1997 $111,534 $115,000 $268,000 130,410
VP, CFO and Director 1998 $119,070 -0- -0- 534,602
1999 $119,070 -0- -0- 458,333
</TABLE>
(1) The aggregate dollar value of the 1998 and 1999 options, based on the
averaged high and low price on June 30, 1999 are as follows: Richard J.
Grable, $341,321; Linda B. Grable, $341,321; and Allan L. Schwartz,
$341,321.
(2) The salaries include compensation, which has been accrued and not paid as
of February 28, 2000 in the amounts as follows: Richard J. Grable, $47,704;
Linda B. Grable, $19,890 and Allan L. Schwartz, $19,806.
Employment Agreements
We entered into five-year employment agreements with Mr. Richard J. Grable, Mr.
Allan L. Schwartz and Ms. Linda B. Grable that expire on August 29, 2004.
According to the terms of their respective employment agreements, base annual
salaries, after giving effect to cost of living adjustments, are as follows:
Richard J. Grable, $286,224.96; Linda B. Grable, $119,069.52; and Allan L.
Schwartz, $119,069.52. In addition, Messrs. Grable and Schwartz and Ms. Grable
each receive a car allowance of $500 per month. Each employment agreement
provides for bonuses, health insurance, car allowance, and related benefits, and
a cost of living adjustment of 7% per annum. No bonuses have been paid to date.
The following table explains information regarding the Options/SARs we granted
to management for the fiscal year ended June 30, 1999.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
No. of Securities % of Total Options Exercise or Market Price
Underlying Options Granted to Employees Base Price On Date of Expiration
Name Granted In Fiscal Year ($/Share) Grant Date
<S> <C> <C> <C> <C> <C>
Richard J. 250,000 16% $.17 $.44 7/5/03
Grable 208,333 14$ $.48 $.44 7/5/03
Linda B. 250,000 16% $.17 $.44 7/5/03
Grable 208,333 14$ $.48 $.44 7/5/03
Allan L 250,000 16% $.17 $.44 7/5/03
Schwartz 208,333 14$ $.48 $.44 7/5/03
</TABLE>
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<PAGE>
Stock Option Plans
For the fiscal year ended June 30, 1999, all of our executive officers were
participants in our 1995 stock option plan. The plan was approved by our 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
options pursuant to Internal Revenue Code, Section 422. We may grant incentive
stock options to purchase up to 5% of our issued and outstanding common stock at
any time. Our board of directors has direct responsibility for the
administration of the plan.
On August 30, 1999, we established an equity incentive plan. The shareholders
must approve this plan within 1 year. The maximum number of shares that can be
granted under this plan is 15,000,000 shares of common stock and 5,000,000
shares of preferred stock. The series, rights and preferences of the preferred
stock are to be determined by our board of directors. This plan also includes
any stock available for future stock rights under our 1995 stock option plan.
Under both of these plans, 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.
According to stock option agreements, Mr. Richard J. Grable, Mr. Allan L.
Schwartz and Mrs. Linda B. Grable each have an option to purchase 2,500,000
shares of common stock or preferred stock. These options vest in equal
installments over a five-year period at an exercise price of $.21 per share
(110% of the fair market value of the shares on the date of grant). These stock
option agreements terminate on August 30, 2003.
Security Ownership of Certain Beneficial Owners and Management
The following table shows the beneficial ownership of our common stock as of
February 28, 2000 regarding:
(i) each person that we know of who beneficially owns more than 5% of the
outstanding shares of our common stock,
(ii) each current director and executive officer, and
(iii) all executive officers and directors as a group.
The actual number of shares of common stock held by Richard Grable and Linda
Grable, without giving effect to options, are 11,494,540 and 3,572,300 shares,
respectively. Both Richard Grable and Linda Grable specifically disclaim any
beneficial interest in each other's shares.
Name and Address Number of Shares Owned % of Outstanding
of Beneficial Owner Beneficially (1)(2) Shares of Common Stock
- ------------------- ----------------------- ----------------------
Richard J. Grable 16,983,506(3) 17.5%
c/o 351 NW 18th Court
Plantation, FL 33313
Linda B. Grable 16,983,506(4) 17.5%
c/o 6351 NW 18th Court
Plantation, FL 33313
Allan L. Schwartz 4,320,893(5) 4.4%
c/o 6351 NW 18th Court
Plantation, FL 33313
All officers and directors 21,304,399 (6) 21.9%
as a group (3 persons)
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<PAGE>
(1) Except as indicated in the footnotes to this table, based on information
provided by such persons, the persons named in the table above have sole
voting power and investment power with respect to all shares of common
stock shown beneficially owned by them.
(2) Percentage of ownership is based on 97,200,698 shares of common stock
outstanding as of February 28, 2000 plus each person's options that are
exercisable within 60 days. Shares of common stock subject to stock
options that are exercisable within 60 days as of February 28, 2000 are
deemed outstanding for computing the percentage of that person and the
group.
(3) Includes 958,333 shares subject to options and 3,572,300 shares owned by
the wife of Richard J. Grable, Linda B. Grable, of which he disclaims
beneficial ownership.
(4) Includes 958,333 shares subject to options and 11,494,540 shares owned by
the husband of Linda B. Grable, Richard J. Grable, of which she disclaims
beneficial ownership.
(5) Includes 958,333 shares subject to options and 9,000 shares owned by the
wife of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims
beneficial ownership.
(6) Includes 1,916,666 shares subject to options held by Linda and Richard
Grable and 958,333 shares subject to options held by Allan Schwartz. Also
includes 9,000 shares owned by the wife of Allan L. Schwartz, Carolyn
Schwartz, of which he disclaims beneficial ownership.
Certain Relationships and Related Transactions
Richard J. Grable and Linda B. Grable are husband and wife. They are each
"control persons" as a result of their control of a majority voting power of our
outstanding stock. Both parties disclaim, however, any beneficial interest or
ownership in the shares owned by the other party.
In September and October 1998, Linda Grable, our president, personally
guaranteed three promissory notes we issued to third parties. Ms. Grable
received no compensation for these guarantees. As of the date of the
registration statement, all three notes have been repaid.
In June 1998, we finalized an exclusive patent license agreement with Richard
Grable. Mr. Grable is the owner of the patent, which encompasses the technology
for the CTLM(TM). Our company and Mr. Grable had previously entered into an oral
agreement for the exclusive license for the patent that was never memorialized
in written form. The term of the license is for the life of the patent (17
years) and any renewals, subject to termination, under specific conditions. As
consideration for this license, we issued to Mr. Grable 3,500,000 shares of
common stock and were required to issue to him an additional 3,500,000 shares in
June 1999. In addition, we have agreed to pay Mr. Grable a royalty based upon
the net selling price (the dollar amount earned from our sale, 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. During the second year of the agreement there is
a minimum cash royalty provision of $250,000 payable at the end of the second
year which Mr. Grable has deferred until we commence sales and delivery of
CTLM(TM) systems.
Since October 1998, we have accrued $87,440 in salaries payable to our executive
officers and directors, Richard J. Grable, Allan Schwartz and Linda B. Grable,
due to our lack of working capital.
In January 1999 and February 1999, Richard Grable, sold an aggregate of 831,743
shares of our common stock owned by him in excess of 4 years, according to Rule
144 and lent the aggregate proceeds of approximately $347,775 directly to us. In
January 1999, February 1999 and March 1999, Linda Grable, also sold an aggregate
of 520,000 shares of our common stock owned by her in excess of 4 years,
according to Rule 144 and lent the aggregate proceeds of approximately $166,618
directly to us and in December 1998, January 1999 and February 1999, Allan
Schwartz, sold an aggregate of 820,000 shares owned by him in excess of 4 years,
according to Rule 144 and lent the aggregate proceeds of approximately $359,707
directly to us. All of these loans were interest free and were evidenced by
promissory notes. These promissory notes were due on January 30, 1999, February
28, 1999, March 31, 1999, and April 30, 1999, respectively. The net proceeds
were recorded as a loan payable to each respective lender.
A meeting of our board of directors was held on May 12, 1999 to review and act
upon the previously adopted schedule of repayment of the loans, interest and
potential tax liability. Based on an opinion of the Grables' personal outside
22
<PAGE>
counsel and upon advice of a tax advisor, our board voted to rescind the
previously adopted resolution. The new resolution authorized the repayment of
the December, January, February, and March promissory notes in full by the
issuance of shares equal to the number of shares sold. The restricted shares
issued as repayment for the loans bear registration rights. Since the loans were
repaid on a share for share basis with no other consideration, the Grables have
been advised that there is no capital gain and therefore no tax liability.
Messrs. Grable, Schwartz and Ms. Grable received 831,743, 820,000, and 520,000
shares of our restricted common stock, respectively, as payment in full for the
loans made between December 1998 and March 1999.
In May 1999, Messrs. Grable and Schwartz each sold 110,000 shares, respectively,
of our common stock owned by them in excess of 4 years, according to Rule 144
and lent the aggregate proceeds of approximately $91,759 directly to us. The
loans were evidenced by interest free promissory notes, which were due, and
payable on June 30, 1999. In June 1999, Messrs. Grable and Schwartz each sold
280,000 and 315,020 shares, respectively, of our common stock owned by them in
excess of 4 years, according to Rule 144 and lent the aggregate proceeds of
approximately $201,795 directly to us. The loans were evidenced by interest free
promissory notes, which were due, and payable on July 31, 1999. In July 1999,
Mr. Schwartz sold 500,000 shares of our common stock owned by him in excess of 4
years, according to Rule 144 and lent the aggregate proceeds of approximately
$137,241 directly to us. The loan was evidenced by interest free promissory
notes, which were due, and payable on August 31, 1999. All of these loans were
interest free and were evidenced by promissory notes. The May, June and July
promissory notes were due on June 30, 1999, July 31, 1999 and August 31, 1999,
respectively. The net proceeds were recorded as a loan payable to each
respective lender. Messrs. Grable and Schwartz received 390,000 and 925,500
shares of our restricted common stock, respectively, as payment in full for the
loans made between May 1999 and July 1999.
Sale of Unregistered Securities
Private Placement of Preferred Stock
We have had to rely on the private placement of preferred and common stock to
obtain working capital. In deciding to issue preferred stock pursuant to the
private placements, we 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 stock 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 our
common stock at the time of the sale of the preferred to satisfy the preferred
conversion requirements. Although our 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 we 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 to those
of the common stock holders. We will endeavor to negotiate the best transaction
possible taking into account the impact on our shareholders, dilution, loss of
voting power and the possibility of a change-in-control. However, in order to
satisfy our working capital needs, we may be forced to issue convertible
securities and debentures with no limitations on conversion. In addition, the
dividends on the preferred stock affect the net losses applicable to
shareholders. There are also applicable adjustments as a result of the
calculation of the deemed preferred stock dividends because we have entered into
contracts providing for discounts on the preferred stock when it is converted.
As a result of the dividends on cumulative preferred stock, the net loss per
common shareholder has increased from $.07 per share for the fiscal year ending
June 30, 1998 to $.02 per share for the fiscal year ending June 30, 1999. The
cumulative total is $.21 per share.
In the event that we issue preferred stock without a limit on the number of
shares that can be issued upon conversion and the price of our 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 shares to be issued to the preferred holders, upon
conversion, thus increasing the potential profits to the holders when the price
per share increases and the holders sell the common shares. In addition, the
sale of a substantial amount of preferred stock to relatively few holders could
cause a possible change-in-control. In the event of a voluntary or involuntary
liquidation while the preferred stock is outstanding, the holders will be
entitled to a preference in distribution of our property available for
distribution equal to $10,000 per share. The following table summarizes certain
information with regard to the Series B, C, D, E, F, G, H, and I preferred stock
as of February 28, 2000.
23
<PAGE>
<TABLE>
<CAPTION>
Series B Series C Series D Series E Series F Series G Series H Series I
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Regulation D or S Reg D. Reg. S Reg. S Reg. S Reg. S Reg. D Reg. D Reg. D
No. of Pfd. Shares 450 210 50 50 75 35 100 138
Price per Pfd. share $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Total Offering $ 4,500,000 $2,100,000 $ 500,000 $ 500,000 $ 750,000 $ 350,000 $1,000,000 $1,380,000
Placement Fee-Cash None $ 220,500 $ 5,000 $ 5,000 $ 50,000 None $ 10,000 None
Placement Fee-Stock None None 4 Pfd. Sh. 4 Pfd. Sh. None 3 Pfd. Sh. 8 Pfd. Sh. None
Avg. Bid & Ask Price
at Time of Issuance:
Common Stock $ 4.70 $ 1.63 $ 1.22 $ 1.09 $ 1.31 $ 0.34 $ 0.56 $ 0.38
Conversion Price $ 3.85 $ 1.22 $ 0.9150 $ 0.8198 $ 0.9170 $ 0.2550 $ 0.42 $ 0.2850
# of Conversion Shares
at Time of Issuance 1,168,831 1,721,311 546,448 609,905 817,884 1,490,196 2,571,429 4,842,105
Option to Repay
Dividends in Cash
or Stock Yes No No No Yes No No Yes
4.99% Ownership Limit Yes Yes Yes Yes Yes Yes Yes Yes
# of Outstanding
Preferred Shares 60 -0- -0- -0- -0- -0- -0- 123
Total # of Shares Issued
Upon Conversion to Date 30,444,719 2,646,527 1,717,134 1,282,826 3,410,571 3,834,492 11,161,725 579,177
</TABLE>
Series B Preferred Stock
In December 1996, Weyburn Overseas Limited and Goodland International Investment
Ltd. purchased the Series B preferred stock offering pursuant to Regulation D.
Net proceeds were used for working capital and the continuous research,
development and testing of our CTLM(TM). The conversion rate is 82% of the
average closing price over a five-day period prior to conversion.
On April 6, 1999, the Series B preferred stock was sold by the Series B
preferred holders to Charlton Avenue, LLC, an unaffiliated third party with no
prior relationship to us or the Series B preferred holders. On April 6, 1999, we
also entered into a subscription agreement with Charlton whereby we agreed to
issue to Charlton 138 shares of our Series I, 7% convertible preferred stock as
discussed below.
Series C Preferred Stock
On October 6, 1997, we finalized the private placement to Austost Anstalt
Schaan, UFH Endowment, Inc., Chris Baum, Avalon Capital Limited, Dominion
Capital, Ltd. and The Cuttyhunk Fund Limited, of our Series C convertible
preferred stock and warrants to purchase up to 105,000 shares of our common
stock at an exercise price of $1.63 per share and to purchase up to 50,000
warrants at an exercise price of $1.562 per share. These preferred shares were
convertible, at any time, commencing 45 days from the date of issuance and for a
period of 3 years thereafter, without additional consideration. The number of
fully paid and non-assessable shares of our common stock, no par value, 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 75% of the average closing price of our 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.
According to the Regulation S sale documents, we were also required to escrow an
aggregate of 3,435,583 shares of our common stock. The shares underlying the
preferred stock and warrants were entitled to demand registration rights in the
event that Regulation S was amended prior to the conversion of the preferred
stock. This right expired upon conversion.
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<PAGE>
Series D Preferred Stock
On January 9, 1998, we finalized the private placement to Avalon Capital Ltd. of
our Series D convertible preferred stock and warrants to purchase up to 25,000
shares of our common stock at an exercise price of $1.22 per share.
These 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. The conversion price was equal to 75% of the average
closing price of our common stock for the five-day trading period ending on the
day prior to the date of conversion. The shares underlying the preferred stock
and warrants were entitled to demand registration rights in the event that
Regulation S was amended prior to the conversion of the preferred stock. This
right expired upon conversion.
Net proceeds to us of $495,000 were used for working capital and the continuous
research, development and testing of the CTLM(TM).
Series E Preferred Stock
On February 5, 1998, we finalized the private placement to Austost Anstalt
Schaan and Balmore Funds S.A. of our Series E convertible preferred stock and
warrants to purchase up to 25,000 shares of our common stock at an exercise
price of $1.093 per share
These 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 The number of fully paid and non-assessable shares of
our common stock, no par value, 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 is equal to 75% of the average closing
price of our common stock for the five-day trading period ending on the day
prior to the date of conversion.
The shares underlying the preferred stock and warrants were entitled to demand
registration rights in the event that Regulation S was amended prior to the
conversion of the preferred stock. This right expired upon conversion.
Net proceeds to us of $495,000 were used for working capital and the continuous
research, development and testing of the CTLM(TM).
Series F Preferred Stock
On February 20, 1998, we finalized a private placement to Dominion Capital Fund,
LTD and Canadian Advantage, LTD of our Series F convertible preferred stock
The 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. The number of fully paid and non-assessable shares of our common
stock, issued upon conversion was determined by dividing (i) the sum of $10,000
plus any earned dividends by (ii) the conversion price in effect at the time of
conversion. The conversion price is equal to 70% of the average closing price of
our common stock for the five-day trading period ending on the day prior to the
date of conversion. The shares underlying the preferred stock are entitled to
demand registration rights in the event that Regulation S was amended prior the
conversion of the preferred stock. According 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 according to a
registration statement on Form S-2.
Net proceeds to us of $700,000 were used for working capital and the continuous
research, development and testing of the CTLM(TM).
25
<PAGE>
Series G Preferred Stock
On March 17, 1999, we finalized a private placement to Amro International, S.A.,
Nesher Inc., Hewlett Fund, and Guaranty & Finance Ltd., of our Series G
convertible preferred stock and two year warrants to purchase 65,625 shares of
our common stock at an exercise price of $.50 per share. Net proceeds of
$350,000 were used for working capital and the continuous research, development
and testing of the CTLM(TM).
The Series G convertible preferred stock has no dividend provisions. The number
of fully paid and non-assessable shares of common stock to be issued upon
conversion will be determined by dividing (i) the sum of $10,000 by (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to the lesser of (i) 75% discount to the two lowest bids in a ten-day
period immediately preceding the conversion date or (ii) $.54. There is no floor
on the conversion price and no time limits on conversion. The shares can be
converted at any time without additional consideration According to the terms of
the registration rights agreement we were 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. In the
event that the registration statement was not filed within 14 days from the
closing or that it was not declared effective within 60 days, we are required to
pay the Series G preferred holders, as liquidated damages, for failure to have
the registration statement declared effective, not as a penalty, 3% of the
principal amount of the securities sold for each 30-day period thereafter until
we procure registration of the securities. In the event that the registration
statement is not declared effective within 120 days, the Series G preferred
holders have the right to force us to redeem the Series G preferred at a
redemption price of 120% of the face value of the preferred. According to the
registration rights agreement, 100% of that number of shares that would be
required to be issued if the Series G preferred were converted on the day before
the filing of the registration statement, 1,801,803, are being registered on
behalf of the holders.
Series H Preferred Stock
On June 2, 1998, we finalized a private placement to Austost Anstalt Schaan and
Balmore Funds S.A. of our Series H convertible preferred stock and 75,000 A
warrants and 50,000 B warrants. The A and B warrants are exercisable at $1.00
and $1.50 per share, respectively. Net proceeds of $990,000 were used for
working capital and the continuous research, development and testing of the
CTLM(TM).
The number of fully paid and non-assessable shares of common stock to be issued
upon conversion will be determined by dividing the (i) the sum of $10,000 by
(ii) the conversion price in effect at the time of conversion. The conversion
price is equal to the lesser of $.53 and 75% of the lowest closing bid price of
our 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 and no time limits
on conversion. The shares can be converted at any time without additional
consideration. According to the terms of the registration rights agreement, as
amended, we have registered herein 100% of that 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, 3,038,020 shares. We are in technical
default of the registration rights agreement, which required the registration
statement to be declared effective by October 2, 1998. According to the
registration rights agreement, we are required to pay the Series H preferred
holders in cash or in stock, as liquidated damages for failure to have the
registration statement declared effective, not as a penalty, 2% of the principal
amount of the securities sold for first 30-day period, and 3% of the principal
amount of the securities for each 30-day period thereafter until we procure
registration of the securities. According to the registration rights agreement,
liquidated damages of $169,000 have accrued as of March 31, 1999. We are
presently unable to comply with the liquidated damage provision payment and no
assurances can be given that we will be able to do so in the future. On March
25, 1999, we issued 424,242 shares of restricted common stock with registration
rights to the Series H preferred shareholders in lieu of cash for liquidated
damages through March 2, 1999. The value of these shares was $140,000, leaving a
balance of $29,000 due for liquidated damages through March 31, 1999. We have
the option of paying the accrued dividends and liquidated damages in common
stock.
26
<PAGE>
Series I Preferred
On April 6, 1999, we also entered into a subscription agreement with Charlton
where we agreed to issue Charlton 138 shares of our Series I, 7% convertible
preferred stock. Our board of directors established the value of the Series I
preferred at $10,000 per share. Consideration for the subscription was paid as
follows:
(i) payments of all of the accumulated dividends (approximately $725,795)
in connection with the Series B preferred stock;
(ii) settlement and dismissal, with prejudice, of all litigation concerning
the Series B preferred stock and the exchange of mutual releases;
(iii) cancellation of 112,500 warrants that were issued with the Series B
preferred stock; and
(iv) amendment of the Series B designation to impose a limitation on the
owner(s) of the Series B preferred stock to ownership of not more than
4.99% of our outstanding common stock at any one time.
The Series I preferred pay a 7% premium, to be paid in cash or freely trading
common stock in our sole discretion, at the time of each conversion. The number
of fully paid and non-assessable shares of common stock to be issued upon
conversion will be determined by dividing (i) the sum of $10,000 by (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to 75% of the average closing price of our common stock for the five-day
trading period ending on the day prior to the date of the conversion.
According to the registration rights agreement, 100% of that number of shares
that would be required to be issued if the I preferred stock were converted on
the day before the filing of the registration statement, 5,947,763, are being
registered on behalf of the holders.
Private Placement of Convertible Debentures
We have also had to rely on the private placement of convertible debentures to
obtain working capital. In deciding to issue convertible debentures, the board
of directors took into account many of the same considerations it did when it
decided to issue preferred stock. The following table summarizes certain
information with regard to our outstanding convertible debentures as of February
28, 2000.
27
<PAGE>
Charlton Debentures Spinneret Debentures
Regulation D or S Reg. D Reg. D
Annual Dividend % 7 7
# Tranches (up to) 3 3
Maximum Proceeds $ 3,080,000 $ 51,000
Placement Fee-Cash None None
Placement Fee-Stock None None
Avg. Bid & Ask Price
at Time of Issuance:
Common Stock $ .39 $ .0875
Conversion Price $ .29 $ .0656
# of Conversion Shares
at Time of Registration 4,740,971 0
Option to Repay
Interest in Cash
or Stock Yes Yes
4.99% Ownership Limit Yes Yes
% of Outstanding
Debentures 100 100
Total # of Shares Issued
Upon Conversion to Date 0 0
Automatic Conversion Date 2 years 2 years
from issuance from issuance
Convertible Debentures - Charlton
We also entered into a subscription agreement with Charlton, where Charlton
purchased a convertible debenture for $1,100,000. In addition, we may draw down
a second tranche in the amount of $825,000 anytime 30 days after the effective
date of the registration statement as long as we maintain an average closing bid
price of $.45 for the 10 trading days immediately prior to the date we request
the second tranche funding. We may draw down a third tranche in the amount of
$825,000 anytime 60 days after the effective date of the registration statement
as long as we maintain an average closing bid price of $.45 for the 10 trading
days immediately prior to the date we request the third tranche funding. When
concluded, assuming all the conditions set forth above are met, the proceeds
from the original debenture offering will be $2,750,000. We entered into an
additional subscription agreement with Charlton for tranches totaling $330,000.
The debentures are secured by a mortgage on our corporate office building. The
mortgage will be released after the registration statement covering the common
stock underlying the debentures has been declared effective and upon the earlier
of (a) the day we qualify for listing on AMEX or NASDAQ, as long as said listing
requirements are not being met through a reverse split of our common stock, and
(b) 180 days from the date we receive the third tranche funding, as described
above.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to 75% of the average closing price of our common
stock for the five-day trading period ending on the day prior to the date of the
conversion. The debentures can be converted at any time without additional
consideration.
In the event of a voluntary or involuntary liquidation while any of the
debentures are outstanding the holders are entitled to a preference in
distribution of our property available for distribution equal to the debentures
then outstanding principal and interest and will be able to foreclose against
the mortgage.
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<PAGE>
The proceeds from the sale of the Charlton convertible debenture ($1,100,000)
and any subsequent tranches of $1,980,000 totaling $3,080,000 will be used for
clinical trials expenses and working capital. As of the date of the registration
statement, no portion of the convertible debentures have been converted.
Convertible Debenture - Spinneret
We entered into a subscription agreement with Spinneret, LTD., where Spinneret
purchased a convertible debenture for $51,000. The sum of $1,000 was paid upon
issuance of the debenture for legal fees. The sum of $50,000 was advanced as a
loan on July 12, 1999, and the debenture was issued in the principal amount of
$51,000 on August 11, 1999. The debenture is due on August 11, 2001.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to 75% of the average closing price of our common
stock for the five-day trading period ending on the day prior to the date of the
conversion. The debenture can be converted at any time without additional
consideration.
The proceeds from the sale of the debenture will be used for working capital. As
of the date of this report no portion of the convertible debenture has been
converted.
Private Placement of Common Stock
In August 1998, we 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. No placement fee was paid in connection
with this offering. Net proceeds of $59,990 were used to pay the salaries of our
non-executive employees. At the time the placement was concluded, the average
bid and ask price of our common stock was approximately $.28 per share. These
shares are being registered pursuant to the registration statement.
In September 1998, we 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. These shares are included in the registration statement. At
the time the sale occurred, the average bid and ask price of our common stock
was $.595. The note bore interest at the rate of 12% per annum. In connection
with this sale, we 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 to executive officers and $62,447 to
employees; (ii) machinery and equipment, $5,959; (iii) operating expenses,
$55,240 for inventory parts and assemblies, employee health insurance, workers
compensation and property insurance; and (iv) working capital, $82,000. On
December 30, 1999, we repaid the promissory note in full from Settondown Capital
International, Ltd. with restricted stock. The total principal and interest
accrued was $359,203.33. For the note, we issued a total of 2,112,961 shares of
restricted stock.
In October 1998, we 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, according to Regulation D, for an aggregate purchase price of $100,000.
These shares are included in the registration statement. No placement fee was
paid in connection with this offering, however, we did issue 5,000 shares of
common stock to Goldstein, Goldstein and Reis LLC, an unaffiliated third party,
as payment for the attorney's fees incurred by the purchaser pursuant to the
sale. At the time the placement was concluded, the average bid and ask price of
our common stock was approximately $.50 per share. The note bore interest at the
rate of 12% per annum. 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. On December 30, 1999, we repaid the promissory note in full
from Avalon Capital, Inc. with restricted stock. The total principal and
interest accrued was $119,041.67. For the note, we issued a total of 700,245
shares of restricted stock.
In October 1998, we 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. These shares are included in the registration statement. At
the time the placement was concluded, the average bid and ask price of our
common stock was approximately $.43 per share. The note bore interest at the
rate of 12% per annum. In connection with the sale, we paid the sum of $23,000
29
<PAGE>
to LKB Financial LLC, an unaffiliated third party, as a placement fee. Net
proceeds of $210,000 were used as follows: (i) salaries, $21,849-executive
officers and $62,448-employees; and (ii) working capital, $125,703. The note,
and all accrued interest, was paid in January 1999. Our officers provided the
payment for this loan through the sale of a portion of their shares of our
common stock.
In November 1998, we issued 286,000 shares of common stock as partial
consideration for a $115,000 aggregated loan to us by Deborah O'Brien, an
employee. At the time the loan was concluded, the average bid and ask price of
our common stock was approximately $.625 per share. We were obligated to repay
the lender the sum of $50,000. In January 1999, we issued a note evidencing this
indebtedness. The note bore interest at the rate of 7% per annum and was 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 compensation and property insurance; and (iv) working capital, $14,359.
On April 8, 1999, we paid the balance due on the loan of $47,396 to the lender.
These shares are included in the registration statement.
As of the date of this registration statement, we have entered into loans with
Balmore Funds S.A. for the aggregate sum of $100,000 and signed promissory notes
with an interest rate of 15% per annum. These notes were guaranteed by Richard
J. Grable and by Linda B. Grable. On December 30, 1999, we agreed to pay all the
promissory notes in full from Balmore funds S.A. with restricted stock. The
total principal and interest accrued was $104,802.08. For the notes, we will
issue a total of 616,483 shares of restricted stock. We also entered into loans
with Austost Anstalt Schaan for the aggregate sum of $50,000 and signed
promissory notes with an interest rate of 15% per annum. These notes were also
guaranteed by Richard J. Grable and by Linda B. Grable. On December 30, 1999, we
agreed to pay all the promissory notes in full from Austost Anstalt Schaan with
restricted stock. The total principal and interest accrued was $53,822.92. For
the notes, we will issue a total of 316,605 shares of restricted stock.
On January 26, 2000, we entered into a consulting agreement with Anthony
Giambrone, an unaffiliated third party, which provided payment for services in
warrants exercisable into 500,000 shares of common stock at a price of $0.93 per
share.
30
<PAGE>
Price Range On Common Stock
Our common stock is traded on the NASDAQ OTC Bulletin Board under the symbol
IMDS. There has been trading in our common stock since September 20, 1994. The
following table sets forth, for each of the fiscal periods indicated, the
high/low and low/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.
Quarter Ending High/Low Bid Low/Low Bid
Fiscal Year 1996
September 1995 $1.69 $0.56
December 1995 $4.31 $0.56
March 1996 $8.00 $2.56
June 1996 $7.38 $2.50
Fiscal Year 1997
September 1996 $3.93 $2.25
March 1997 $4.00 $2.50
December 1996 $4.50 $1.44
June 1997 $3.06 $2.44
Fiscal Year 1998
September 1997 $2.69 $1.44
December 1997 $1.56 $0.60
March 1998 $1.23 $0.61
June 1998 $1.39 $0.40
Fiscal Year 1999
September 1998 $0.56 $0.21
December 1998 $1.00 $0.35
March 1999 $0.59 $0.34
June 1999 $0.47 $0.28
Fiscal Year 2000
September 1999 $0.33 $0.11
December 1999 $0.80 $0.08
On February 28, 2000, the closing trade price of the common stock as reported on
the OTC Bulletin Board was $3.8438 per share. As of such date, there were
approximately 745 holders of record of our common stock.
Dividend Policy
To date, we have not declared or paid any dividends with respect to our capital
stock, and the current policy of our board of directors is to retain any
earnings to provide for our growth. Consequently, no cash dividends are expected
to be paid on our common stock in the foreseeable future.
Selling Security Holders
The selling security holders consist of common stock holders, the Series B, G, H
and I preferred holders and the holder of the convertible debentures. The
registration statement is a part of the prospectus being filed. The shares
offered in this prospectus are based on the various registration rights in the
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<PAGE>
subscription agreement and registration rights agreements between the selling
security holders and us. We are unable to determine the exact number of shares
that will actually be sold according to this prospectus due to:
o the ability of the selling security holders to determine when and whether
they will sell any shares under this prospectus; and
o the uncertainty as to how many of the warrants will be exercised and how
many shares of common stock will be issued upon conversion of the
convertible debenture and the Series B, G, H and I preferred stock.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion of the convertible debenture and the
unconverted outstanding preferred stock will be determined by dividing (i) the
sum of $10,000 by (ii) the conversion price in effect at the time of conversion.
The conversion prices are as follows:
(i) Series B, 82% of the five-day average closing price;
(ii) Series I, 75% of the five-day average closing price; and
(iii) the debentures, 75% of the five-day average closing price.
Since the conversion price of each of the preferred shares is based on the
market price of our common stock prior to the date of conversion, the number of
shares subject to registration rights will increase if the market price of our
common stock decreases, and also will decrease if the market price increases.
See "Sale of Unregistered Securities-Financing/Equity Line of Credit.
The following table identifies each selling security holder based upon
information provided to us as of July 27, 1999, with respect to the shares
beneficially held by or acquirable by, each selling security holder, and the
shares of common stock beneficially owned by the selling security holders which
are not covered by this prospectus. No selling security holder or its
affiliates, except for Deborah O'Brien, have held any position, office, or other
material relationship with us. Ms. O'Brien is one of our employees and the niece
of Linda Grable. Ms. O'Brien's shares were issued as partial compensation for a
$115,000 loan to us.
Selling Security Holders' Table
<TABLE>
<CAPTION>
NAME OF INVESTOR COMMON SHARES PREFERRED COMMON SHARES COMMON SHARES UNDERLYING TOTAL NUMBER
SHARES OWNED SHARES UNDERLYING WARRANTS OF SHARES TO
PRIOR TO OWNED PREFERRED BE REGISTERED (2)
OFFERING /DEBENTURE (1)
<S> <C> <C> <C> <C> <C>
Balmore Funds SA
C/O Trident Trust Company 422,601 H-30 1,340,303 50,000 1,600,783
(BVI) Limited
Trident Chambers
Road Town
Tortola British Virgin
Islands (3)
Austost Anstalt Schaan
Ladstrasse 163 422,601 H-30 1,340,303 50,000 1,600,783
9494 Furstentums
Vaduz, Liechtenstein (4)
Amro International, S.A.
c/o Ultra Finanz 0 G-15 711,238 28,125 739,363
Grossmunsterplatz 6
Zurich CH 8022,
Switzerland (5)
Nesher Inc.
Ragnalt Houise 0 G-8 379,327 15,000 394,327
18 Pell Road
Douglas, Isle of Man
IM14U2, United Kingdom (6)
Hewlett Fund
20 Adele Road 0 G-5 237,079 9,375 246,454
Brooklyn, New York (7)
Guaranty & Finance Ltd.
Vallarino PH 0 G-7 331,911 13,125 345,036
Calle 52, Panama (8)
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<PAGE>
Libra Finance SA
Trident Chambers 0 G-2 94,832 0 94,832
PO Box 146, Road Town
Tortola, British Virgin
Islands (9)
Dominion Capital Fund C/o
Thomas Kernaghan & Co. Ltd. 1,334,996 0 0 0 1,334,996
365 Bay Street
Toronto, Ontario (10)
Canadian Advantage Ltd.
Partnership 636,379 0 0 0 636,379
C/o Thomas Kernaghan & Co.
Ltd.
365 Bay Street
Toronto, Ontario (11)
Scott Hugh Goldstein
C/o 65 Boradwat 10th Floor 25,000 0 0 0 25,000
New York, NY 10006
Sheldon E. Goldstein
C/o 65 Boradwat 10th Floor 25,000 0 0 0 25,000
New York, NY 10006
Deborah O'Brien
C/o 6531 NW 18th Court 287,800 0 0 0 286,000
Plantation, FL 33313
GCA Strategic Investment
Fund Ltd (12) 210,000 0 0 0 210,000
106 Colony Park Drive
Suite 900
Cumming, GA 30040
Avalon Capital, Inc.
487 Sherwood Drive 80,000 0 0 0 80,000
Salusaliton, CA 94965 (13)
Frank Giambroni
118 Park Ave. 200,000 0 0 0 200,000
Bay Head, NJ 08742
Charlton Avenue, LLC
c/o Citco Trustees (Cayman) 1,931,123 Series B-390 16,016,427 0 28,636,284
Limited Series I-138 5,947,763 0
P.O. Box 31106 SMB Debenture 4,740,971
Grand Cayman
Cayman Island, British West
Indies (14)
Settondown Capital
International, Ltd 200,000 H-8 357,414 25,000 629,830
Charlotte House, Charlotte G-1 47,416
Street
P.O. Box N 9204
Nassau, Bahamas (15)
</TABLE>
(1) Based on the number of shares that would be required to be issued if the
preferred stock and debenture were converted as follows: Series B at
$.2435, Series G at $.2109, Series H at $.22383, Series I at $.23202 and
the debenture at $.23202 per share.
(2) Where applicable, the amount being registered is 100% of the number of
common shares that would be required to be issued if the preferred stock
or debenture was converted on the day before the filing of the
registration statement plus common stock and the shares underling the
warrants.
(3) Of the 422,601 common shares, only 210,480 are being registered. Francois
Morax and Matityahu Kaniel are the directors of and have voting control
over Balmore Funds S.A.
(4) Of the 422,601 shares, only 210,480 are being registered. Thomas Hackl and
Peter Nakowitz are the directors of and have voting control over Austost
Anstalt Schaan.
(5) H.U. Bachofen is the director of and has voting control over AMRO
International, S.A.
(6) David Grin and John Clark are the directors of and have voting control over
Nesher, Inc.
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<PAGE>
(7) Jenifer Spinner is the director of and has voting control over Hewlett
Fund.
(8) Dr. Durling is the director of and has voting control over Guaranty &
Finance Ltd.
(9) Seymour Braun is the director of and has voting control over Libra Finance
SA.
(10) Livingston Asset Management Ltd. has voting control over Dominion
Capital Fund. David Sims has voting control over Livingstone.
(11) VHM Management Ltd. holds the voting shares of Canadian Advantage Ltd. Ian
McKinnon and Mark Valentine have voting control over VMH.
(12) Prime Management LTD. has voting control of GCA Strategic Investment Fund
LTD. John Kelly is the sole shareholder of and has voting control over
Prime Management LTD.
(13) Wayne Coleson is the sole shareholder of and has voting control over Avalon
Capital, Inc.
(14) Minglewood Capital LLC holds the voting shares of Charlton Avenue LLC. CTC
Corporation LTD is the director of Minglewood. Michael Francombe is a
director of and has voting control over CTC Corporation LTD.
(15) Anthony L.M. Inder Rieden is the director of and has voting control over
Settondown Capital International, Ltd.
Use Of Proceeds
The selling security holders are selling all of the shares covered by
this prospectus for their own accounts. Accordingly, we will not receive any
proceeds from the resale of the shares. We will receive proceeds from the
exercise of the warrants, but, to date, none of the warrants have been
exercised. However, if all the warrants of which we are registering the
underlying shares on this prospectus were exercised as of February 28, 2000, we
would receive approximately $732,724 in proceeds. We would use any of these net
proceeds from the sale of these warrants for general corporate purposes,
including working capital. We will bear all expenses relating to this
registration.
Plan Of Distribution
The shares may be sold or distributed from time to time by the selling
security holders or by pledgees, donees or transferees of, or successors in
interest to, the selling security holders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
distribution of the shares may be effected in one or more of the following
methods:
o ordinary brokers transactions, which may include long or short sales,
o transactions involving cross or block trades or otherwise on the OTC
Bulletin Board,
o purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this prospectus,
o "at the market" to or through market makers or into an existing market for
the common stock,
o in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
o through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or
o any combination of the foregoing, or by any other legally available means.
In addition, the selling security holders may enter into hedging transactions
with broker-dealers who may engage in short sales of shares in the course of
hedging the positions they assume with the selling security holders. The selling
security holders may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
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<PAGE>
Brokers, dealers, underwriters or agents participating in the distribution of
the shares may receive compensation in the form of discounts, concessions or
commissions from the selling security holders and/or the purchasers of shares
for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). The selling security holders and any
broker-dealers acting in connection with the sale of the shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act of 1933, and any commissions received by them and any profit realized by
them on the resale of shares as principals may be deemed underwriting
compensation under the Securities Act of 1933, as amended. Neither we nor the
selling security holders can presently estimate the amount of such compensation.
We know of no existing arrangements between the selling security holders and any
other security holders, broker, dealer, underwriter or agent relating to the
sale or distribution of the shares.
We will not receive any proceeds from the sale of the common shares pursuant to
this prospectus. We have agreed to bear the expenses of the registration of the
shares, including legal and accounting fees, and such expenses are estimated to
be $30,874.
We have informed the selling stockholders that certain anti-manipulative rules
contained in Regulation M under the Securities Exchange Act of 1934, as amended,
may apply to their sales in the and have informed them of the need for delivery
of copies of this prospectus.
The selling security holders may also use Rule 144 under the Securities Act, to
sell the shares if they meet the criteria and conform to the requirements of
such rule.
Description Of Securities
Our authorized capital stock consists of 102,000,000 shares of capital stock of
which 100,000,000 shares are common stock, no par value, and 2,000,000 shares
are preferred stock, no par value. As of February 28, 2000, there were issued
and outstanding 97,200,698 shares of common stock, 60 shares of Series B
convertible preferred stock and 123 shares of Series I convertible preferred
stock, options to purchase 3,932,193 shares of common stock and warrants to
purchase 1,058,125 shares of common stock. In addition, Charlton has subscribed
for $3,080,000 in convertible debentures, $3,080,000 of which have been issued
to date, and Spinneret has a convertible debenture convertible into $51,000 of
shares of our common stock.
Common Stock
Holders of the common stock are entitled to one vote for each share held in the
election of directors and in all other matters to be voted on by shareholders.
There is no cumulative voting in the election of directors. Holders of common
stock are entitled to receive dividends as may be declared from time to time by
our board of directors out of funds legally available. In the event of
liquidation, dissolution or winding up, holders of common stock are to share in
all assets remaining after the 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 non-assessable.
Preferred Stock
Our articles of incorporation authorize the issuance of preferred stock with
designations, rights, and preferences as may be determined from time to time by
the board of directors. 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, including the right
to issue convertible securities with no limitations on conversion, which could
adversely affect the voting power or other rights of the holders of our common
stock, substantially dilute a common shareholder's interest and depress the
price of our common stock.
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<PAGE>
Disclosure Of Commission Position On Indemnification For
Securities Act Liabilities
Section 607.0850 of the Florida General Corporation Act allows
companies to indemnify their directors, officers and agent against expenses,
judgments, fines and amounts paid in settlement under that conditions and
limitations described in that law.
Article VII of our Articles of Incorporation authorizes us to
indemnify our directors and officers in the following manner:
o To the extent permitted by law, none of our directors or officers will be
personally liable to us or our shareholders for damages for breach of any
duty owed by the directors and officers to us or our shareholders;
provided, that, to the extent required by law, the directors and officers
will not be relieved from liability for any breach of duty based upon an
act or omission (i) in breach of such person's duty of loyalty to us or our
shareholders, (ii) not in good faith or involving a knowing violation of
law or (iii) resulting in receipt by a director or an officer of an
improper personal benefit. No amendment to or repeal of this Article and no
amendment, repeal or termination of effectiveness of any law authorizing
this Article shall apply to or effect adversely any right or protection of
any of our directors or officers for or with respect to any acts or
omissions of the directors or officers occurring prior to amendment, repeal
or termination of effectiveness.
o To the extent that any of our directors, officers or other corporate agents
have been successful on the merits or otherwise in defense of any civil or
criminal action, suit, or proceeding referred to above, or in defense of
any claim, issue, or matter therein, any director, officer or corporate
agent will be indemnified against any expenses (including attorneys' fees)
actually and reasonably incurred by the director, officer or corporate
agent in connection therewith.
o Expenses incurred by a director, officer, or other corporate agent in
connection with a civil or criminal action, suit, or proceeding may be paid
by the Company in advance of the final disposition of the action suit, or
proceeding as authorized by our board of directors upon receipt of an
undertaking by or on behalf of the corporate agent to repay the amount if
it shall ultimately be determined that the director, officer or corporate
agent is not entitled to be indemnified. The officers and directors have
indemnification agreements and are covered by Directors and Officers
Liability Insurance in the amount of 1 million dollars.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling
persons pursuant to these provisions, or otherwise, we have been advised
that, in the opinion of the SEC, this type of indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
Experts
Our audited financial statements incorporated by reference have been examined by
Margolies, Fink and Wichrowski, independent certified public accountants, for
the periods and extent in their respective report and are used in reliance upon
their authority as experts in accounting and auditing.
Legal Opinions
For the purpose of this offering, Christopher S. Auguste, Esq., Parker Chapin
LLP, is our counsel in regard to this amendment to the registration statement.
36
<PAGE>
Financial Information
The following financial statements should be read in conjunction with the
financial statement information contained in and incorporated by reference from
our most recent report on Form 10-KSB, which is being furnished with this
prospectus.
37
<PAGE>
<TABLE>
<CAPTION>
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This prospectus is part of a registration statement
we filed with the SEC. You should rely on the
information or representations provided in this
prospectus. We have authorized no one to provide you 37,085,067 SHARES
with different information. The selling security
holders described in this prospectus are not making IMAGING DIAGNOSTIC SYSTEMS, INC.
an offer in any jurisdiction where the offer is not
permitted. You should not assume that the Common Stock
information in this prospectus is accurate as of any
date other than the date of this prospectus.
_________________
TABLE OF CONTENTS
_________________
________________
Page
Forward-Looking Statements........................3 PROSPECTUS
Prospectus Summary................................3 ________________
Recent Developments...............................4
The Offering......................................5
Risk Factors......................................6
Where You Can Find More Information..............18
Incorporation of Certain Documents by Reference..18
Information With Respect to the Registrant.......19
Management's Discussion and Analysis
of Financial Condition and Results of Operation 19
Material Changes.................................20
Summary of Compensation Table....................20
Option/SAR Grants in Last Fiscal Year............20
Security Ownership of Certain Beneficial
Owners and Management...........................21
Certain Relationships and Related Transactions...22 IMAGING DIAGNOSTIC SYSTEMS, INC.
Sale of Unregistered Securities..................23 6531 NW 18TH COURT
Price Range of Common Stock......................31 PLANTATION, FLORIDA 33313
Dividend Policy..................................31 (954) 581-9800
Selling Security Holders.........................32
Use of Proceeds..................................34
Plan of Distribution.............................34
Description of Securities........................35
Disclosure of Commission Position on
Indemnification for Securities and Liabilities..36
Experts ........................................36
Legal Opinion....................................36
Financial Information............................37
__________ ___, 2000
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the estimated expenses in connection with the issuance
and distribution of the securities being registered:
SEC registration fees ............................$ 4,284.00
Legal fees and expenses...........................$15,000.00
Accounting fees and expenses......................$ 3,000.00
Miscellaneous.....................................$ 100.00
Edgar formatting fees.............................$ 8,490.00
-----------
TOTAL $30,874.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida General Corporation Act permits a Florida corporation to indemnify a
present or former director or officer of the corporation (and certain other
persons serving at the request of the corporation in related capacities) for
liabilities, including legal expenses, arising by reason of service in such
capacity if such person shall have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and in any criminal proceeding if such person had no reasonable
cause to believe his conduct was unlawful. However, in the case of actions
brought by or in the right of the corporation, no indemnification may be made
with respect to any matter as to which such director or officer shall have been
adjudged liable, except in certain limited circumstances.
Article VII of our Articles of Incorporation authorizes us to indemnify
directors and officers as follows:
1. So long as permitted by law, no director of the corporation shall be
personally liable to the corporation or its shareholders for damages
for breach of any duty owed by such person to the corporation or its
shareholders; provided, however, that, to the extent required by
applicable law, this Article shall not relieve any person from
liability for any breach of duty based upon an act or omission (i) in
breach of such person's duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing violation
of law or (iii) resulting in receipt by such person of an improper
personal benefit. No amendment to or repeal of this Article and no
amendment, repeal or termination of effectiveness of any law
authorizing this Article shall apply to or effect adversely any right
or protection of any director for or with respect to any acts or
omissions of such director occurring prior to such amendment, repeal or
termination of effectiveness.
2. So long as permitted by law, no officer of the corporation shall be
personally liable to the corporation or its shareholders for damages
for breach of any duty owed by such person to the corporation or its
shareholders; provided, however, that, to the extent required by
applicable law, this Article shall not relieve any person from
liability for any breach of duty based upon an act or omission (i) in
breach of such person's duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing violation
of law or (iii) resulting in receipt by such person of an improper
personal benefit. No amendment to or repeal of this Article and no
amendment, repeal or termination of effectiveness of any law
authorizing this Article shall apply to or effect adversely any right
or protection of any director for or with respect to any acts or
omissions of such officer occurring prior to such amendment, repeal or
termination of effectiveness.
3. To the extent that a Director, Officer, or other corporate agent of
this corporation has been successful on the merits or otherwise in
defense of any civil or criminal action, suit, or proceeding referred
to in sections (a) and (b), above, or in defense of any claim, issue,
or matter therein, he shall be indemnified against any expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
4. Expenses incurred by a Director, Officer, or other corporate agent
in connection with a civil or criminal action, suit, or proceeding may
be paid by the corporation in advance of the final disposition of such
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<PAGE>
action suit, or proceeding as authorized by the Board of Directors upon
receipt of an undertaking by or on behalf of the corporate agent to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified.
INDEMNIFICATION FOR LIABILITIES UNDER THE SECURITIES ACT OF 1933 MAY BE
PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING US ACCORDING TO THE
PROVISIONS IN OUR ARTICLES OF INCORPORATION, WE HAVE BEEN INFORMED THAT IN THE
OPINION OF THE SEC, THIS INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED
IN THE ACT AND IS THEREFORE UNENFORCEABLE
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT DESCRIPTION
3.1 Articles of Incorporation (Florida)- Incorporated by reference to Exhibit
3(a) of IDSI's Form 10-KSB for the fiscal year ending June 30, 1995
3.2 Amendment to Articles of Incorporation (Designation of Series A
Convertible Preferred Shares) - Incorporated by reference to Exhibit 3.
(i). 6 of IDSI's Form 10-KSB for the fiscal year ending June 30, 1996.
File number 033-04008.
3.3 Amendment to Articles of Incorporation (Designation of Series B
Convertible Preferred Shares). Incorporated by reference to IDSI's
Registration Statement on Form S-1 dated July 1, 1997.
3.4 Amendment to Articles of Incorporation (Designation of Series C
Convertible Preferred Shares). Incorporated by reference to IDSI's Form
8-K dated October 15, 1997.
3.5 Amendment to Articles of Incorporation (Designation of Series D
Convertible Preferred Shares). Incorporated by reference to IDSI's Form
8-K dated January 12, 1998.
3.6 Amendment to Articles of Incorporation (Designation of Series E
Convertible Preferred Shares). Incorporated by reference to IDSI's Form
8-K dated February 19,1998.
3.7 Amendment to Articles of Incorporation (Designation of Series F
Convertible Preferred Shares). Incorporated by reference to IDSI's Form
8-K dated March 6, 1998.
3.8 Amendment to Articles of Incorporation (Designation of Series H
Convertible Preferred Shares). Incorporated by reference to IDSI's
Registration Statement on Form S-2 File Number 333-59539.
3.9 Certificate of Dissolution - is incorporated by reference to Exhibit
(3)(a) of IDSI's Form 10-KSB for the fiscal year ending June 30, 1995.
3.10 Articles of Incorporation and By- Laws (New Jersey) -are incorporated by
reference to Exhibit 3 (i) of IDSI's Form 10-SB, as amended, file number
0-26028, filed on May 6, 1995 ("Form 10-SB").
3.11 Certificate and Plan of Merger - is incorporated by reference to Exhibit
3(i) of the Form 10-SB.
3.12 Certificate of Amendment - is incorporated by reference to Exhibit 3(i) of
the Form 10-SB.
3.13 Amended Certificate of Amendment-Series G Designation.
3.14 Certificate of Amendment-Series I Designation
3.15 Amended Certificate of Amendment-Series B Designation
4.1 Instruments Defining the Rights of Security Holders - Designation of
Series B Convertible Preferred Shares. (See Exhibit 3.3, above).
4.2 Instruments Defining the Rights of Security Holders - Designation of
Series C Convertible Preferred Shares. (See Exhibit 3.4, above).
4.3 Instruments Defining the Rights of Security Holders -Designation of Series
D Convertible Preferred Shares. (See Exhibit 3.5, above).
4.4 Instruments Defining the Rights of Security Holders - Designation of
Series E Convertible Preferred Shares. (See Exhibit 3.6, above).
4.5 Instruments Defining the Rights of Security Holders - Designation of
Series F Convertible Preferred Shares. (See Exhibit 3.7, above).
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<PAGE>
EXHIBIT (cont.) DESCRIPTION (cont.)
4.6 Instruments Defining the Rights of Security Holders - Designation of
Series H Convertible Preferred Shares. (See Exhibit 3.8, above).
4.7 Instruments Defining the Rights of Security Holders - Amended Designation
of Series G Convertible Preferred Shares. (See Exhibit 3.13, above).
4.8 Instruments Defining the Rights of Security Holders - Designation of
Series I Convertible Preferred Shares. (See Exhibit 3.14, above).
4.9 Instruments Defining the Rights of Security Holders - Amended Designation
of Series B Convertible Preferred Shares. (See Exhibit 3.15, above).
4.10 Convertible Debenture
5 Legal opinion of Rebecca J. Del Medico, Esq., dated July 26, 1999.
Incorporated by reference to ISDI's Registration Statement on Form S-2,
File Number 333-59539.
10.1 Form of Subscription Agreement by and between Imaging Diagnostic Systems,
Inc. and Alfred Ricciardi. Incorporated by reference to IDSI's
Registration Statement on Form S-2, File Number 333-59539.
10.2 Patent Licensing Agreement. Incorporated by reference to the IDSI's
Registration Statement on Form S-2, File Number 333-59539.
10.3 Incentive Stock Option Plan - is incorporated by reference to Exhibit
10(b) of the Form 10-SB.
10.4 Employment Agreement(s) for Richard J. Grable, Allan L. Schwartz and Linda
B. Grable are incorporated by reference to Exhibit 10(c) of the Form
10-SB.
10.5 Lock Up Agreement By and Between IDSI and Richard J. Grable, Linda B.
Grable, and Allan L. Schwartz, is incorporated by reference to Exhibit
10.5 of IDSI's Form 10-KSB for the fiscal year ending June 30, 1996. File
number 033-04008.
10.6 Form of Series F Preferred Stock Subscription Documents. Incorporated by
reference to IDSI's Registration Statement on Form S-2, File Number
333-60405.
10.7 Form of Series H Preferred Stock Subscription Documents. Incorporated by
reference to IDSI's Registration Statement on Form S-2, File Number
333-60405.
10.8 OEM Agreement incorporated by reference to Exhibit 10.8 of IDSI's Form
10-KSB for the fiscal year ending June 30, 1998.
10.9 Form of Equity Line of Credit Agreement incorporated by reference to
Exhibit 10.9 of IDSI's Form 10-KSB for the fiscal year ending June 30,
1998.
10.10 Focus Distribution Agreement (United Kingdom and Ireland). Incorporated by
reference to IDSI's Form 10-QSB/A filed on April 2, 1999.
10.11 Focus Distribution Agreement (Benelux countries). Incorporated by
reference to IDSI's Amendment number 1 to Registration on Form S-2, File
Number 333-60405.
10.12 Syncor Distribution Agreement. Incorporated by reference to IDSI's
Amendment number 1 to Registration on Form S-2, File Number 333-60405.
10.14 Consultronix S.A. Distribution Agreement. Incorporated by reference to
IDSI's Form 10-KSB/A filed on April 9, 1999.
10.15 Iberadac, S.A. Distribution Agreement. Incorporated by reference to IDSI's
Form 10-KSB/A filed on April 9, 1999.
10.16 Form of Series I Preferred Stock Subscription Documents. Incorporated by
reference to IDSI's Amendment number 1 to Registration on Form S-2, File
Number 333-60405.
10.17 Form of Debenture Subscription Documents. Incorporated by reference to
IDSI's Amendment number 1 to Registration on Form S-2, File Number
333-60405.
10.18 Form of Mortgage. Incorporated by reference to IDSI's Amendment number 1
to Registration on Form S-2, File Number 333-60405.
10.19 Form of Series G Subscription Documents. Incorporated by reference to
IDSI's Amendment number 1 to Registration on Form S-2, File Number
333-60405.
10.20 Form of Registration Rights Agreement. Incorporated by reference to IDSI's
Amendment number 1 to Registration on Form S-2, File Number 333-60405.
10.21 Form of Debenture in the amount of $825,000. Incorporated by reference to
our Form 10-KSB for the fiscal year ending June 30, 1999 filed on October
12, 1999.
10.22 Registration Rights Agreement $825,000 Convertible Debenture. Incorporated
by reference to our Form 10-KSB for the fiscal year ending June 30, 1999
filed on October 12, 1999.
II-3
<PAGE>
EXHIBIT (cont.) DESCRIPTION (cont.)
10.23 Subscription Agreement $825,000 Convertible Debenture. Incorporated by
reference to our Form 10-KSB for the fiscal year ending June 30, 1999
filed on October 12, 1999.
10.24 1999 Equity Incentive Plan. Incorporated by reference to our Form 10-KSB
for the fiscal year ending June 30, 1999 filed on October 12, 1999.
10.25 Distribution Agreement by and between IDSI and Cycle of Life Technologies,
Inc., dated November 29, 1999.
10.26 Promissory Note by and between IDSI and Cycle of Life Technologies, Inc.,
dated February 1, 2000.
10.27 Consulting Agreement with Anthony Giambrone signed January 26, 2000.
10.28 Employment Agreements(s) for Richard J. Grable, Allan L. Schwartz
and Linda B. Grable signed August 30, 1999.
24.2 Consent of Independent Certified Public Accountants.
(b) Reports on Form 8-K
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424 (b) if, in the aggregate the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE>
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bonafide offering thereof.
II-5
<PAGE>
SIGNATURES
According to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets the
requirement for filing on Form S-2 and has duly caused this Amended Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Plantation, State of Florida, on the 29th day of
February 2000.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ Linda B. Grable
Linda B. Grable, Chairman of the Board,
Director, and President
According to the requirements of the Securities Act of 1933, as amended, this
Amended Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Dated: February 29, 2000 By: /s/ Linda B. Grable
-------------------
Linda B. Grable, Chairman of the Board
Director and President
Dated: February 29, 2000 By: /s/ Richard J. Grable
---------------------
Richard J. Grable, Director
and Chief Executive Officer
Dated: February 29, 2000 By: /s/ Allan L. Schwartz
---------------------
Allan L. Schwartz, Director
and Executive Vice-President
Chief Financial Officer
(PRINCIPAL ACCOUNTING OFFICER)
<PAGE>
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Post-Effective Amendment No. 4 to the
Registration Statement on Form S-2, of Imaging Diagnostic Systems, Inc. of our
report dated August 31, 1999, which appears on Page F-1 of Form 10-KSB for the
year ended June 30, 1999, and to the reference to our firm under the caption
"Experts" in the prospectus.
__/s/ Margolies, Fink and Wichrowski
---------------------------------------
MARGOLIES, FINK and WICHROWSKI
Pompano Beach, Florida
February 29, 2000
IMAGING DIAGNOSTIC SYSTEMS, INC.
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made and entered into as
of November 29, 1999, by and between Cycle of Life Technologies, Inc., a
division of 1384141 Ontario Inc., a corporation duly incorporated under the laws
of the Province of Ontario, Canada "Distributor"), and Imaging Diagnostic
Systems, Inc., a corporation organized and existing under the laws of the State
of Florida ("IDSI").
WITNESSETH:
RECITALS
WHEREAS, IDSI is the owner, and manufacturer of a state of the art laser
imaging system for detection and analysis of masses in the breast, and ancillary
equipment as more fully described on Exhibit A hereto and incorporated herein
(the "Equipment").
WHEREAS, IDSI is the owner of a certain Patent, Patents pending and Patent
applications, trade secrets and other proprietary information in connection with
the Equipment and represents that it has the legal right to manufacture, sell
and distribute the Equipment, either individually or through others;
WHEREAS, IDSI wishes to grant to Distributor and Distributor wishes to
obtain the exclusive right to be supplied with, sell, distribute and market the
Equipment, individually or through others, in the territory defined in paragraph
1(b) below.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following terms shall have
the definition set forth below.
(a) Equipment. The term "Equipment" shall mean and include only those
products listed on Exhibit A, as amended from time to time. IDSI may add to,
upgrade or change the Equipment from time to time by providing written notice
not less than thirty (30) days prior to any such change. If the nature or type
of equipment changes, the distributor has the option to terminate the agreement
forthwith.
(b) Territory. The term "Territory" shall mean Canada, Slovakia, Bulgaria,
Greece, Hungary, Slovenia, Croatia, Bosnia, Macedonia, Serbia, Benelux, Denmark,
France, Trinidad & Tobago, Barbados, South America (except Ecuador), Ukraine,
Romania, South Africa, South Arabia, Kuwait, Kirghistan, Tajikistan, Uzbekistan,
and Kazakhstan.
<PAGE>
(c) Territory Exclusions. In the event that a country listed in (b)
Territory becomes restricted from trade by the United States government, that
country shall automatically be removed from the Distributor's territory until
such time that the U.S. government lifts the trade restriction.
(d) In the event that USA government lifts the trade embargo with Iran,
Cycle of Life shall have the right of first refusal for that territory.
2. TERM. This Agreement shall be for a term of three years from the date of its
execution by Distributor. This Agreement will automatically renew for an
additional two years term provided that Distributor meets the Performance
Standards set forth in Section 5. and, provided that Distributor satisfactorily
fulfills all other terms and conditions of this Agreement.
3. RIGHT TO SELL, DISTRIBUTE AND MARKET. During the term of this Agreement and
any renewal hereof, IDSI hereby grants to Distributor, as its exclusive agent,
the right to sell, distribute, individually or through outside distributors, and
market the Equipment in the Territory. Distributor shall also have the right to
use the trade names, and trademarks associated with the Equipment in connection
with the promotion, sale, marketing and distribution of the Equipment.
Distributor hereby acknowledges and agrees that all trade names and trademarks
associated with the Equipment are the property of and proprietary to IDSI.
4. DISTRIBUTOR'S DUTIES, REPRESENTATIONS AND WARRANTIES. Distributor agrees to
use its best efforts to sell, market and/or distribute the Equipment in the
Territory. Distributor agrees that it will perform at its expense the following
duties to IDSI's reasonable satisfaction. It is understood that Cycle of Life
Technologies Inc. will adhere to the stipulation of this contract. It is further
understood that Cycle of Life Technologies Inc. has the right to assign these
stipulation to the designated Dealer/Distributor and act as an Agent.
(a) Promotion and Marketing.
(i) Distributor will maintain a qualified sales and
distribution organization which will provide sales personnel, advertisement,
marketing and distribution support for the solicitation of customers and
potential customers in the Territory for the sale of the Equipment.
(ii) Any sales promotion, promotional activities, marketing or
advertising strategies, pamphlets, advertisements, brochures or other
promotional materials, other than those provided by IDSI, must have the prior
written approval of IDSI. At least one copy of all Distributor's advertising and
sales promotion materials in which the Equipment of IDSI is mentioned, must be
provided for IDSI's review and approval prior to the time of first use. All
advertisements, pamphlets, brochures or other promotional materials, other than
those provided by IDSI shall be at the sole cost of the Distributor. The
Distributor shall have the continuing right to use any promotional materials
produced by IDSI while this Agreement is in effect.
<PAGE>
(iii) The Distributor cost on RSNA show shall be limited on
the travel and accommodation. The Distributor representative shall be present in
the IDSI booth for 4 hours each day of the RSNA.
(b) Quarterly Reports. Distributor shall promptly prepare and deliver to
IDSI, within 21 days of the end of each quarter, reports identifying each
purchaser of Equipment by name, address and designation of type of business and
the date of sale, model and serial number for each unit of Equipment sold during
the preceding three months and a forecast of requirements for Equipment for the
following six months, as well as a description of all training, support, and
advertising and sales promotional activities undertaken during such period. In
addition, such Report shall contain a statement of the Distributor then current
inventory of spare parts and technical literature available for customer
service, maintenance and support of the Equipment. An officer of the Distributor
shall certify the Report.
(c) General Conduct. Distributor shall at all times conduct its business in
a manner that reflects favorably on IDSI and its Equipment and will not engage
in any deceptive, misleading, illegal or unethical business practices.
(d) Service and Support. Distributor's personnel will be required to be
trained at IDSI headquarter facilities in sales and support techniques for all
of the Equipment and services. IDSI will not charge for such training, however
Distributor shall be responsible for all travel, accommodation and other
expenses. Distributor will provide adequate installation, customer service, and
maintenance and support for the Equipment in the Territory. Distributor will
provide a schedule of service and support representatives in each country listed
under (b) Territory. Distributor will establish and maintain a staff of trained
technicians and purchase and maintain stock of spare parts and technical
literature necessary in order to provide adequate installation, customer
service, maintenance and support of the Equipment in the Territory. Distributor
hereby agrees to provide such service and support in a prompt and workmanlike
manner to any user of the Equipment in the Territory. The time frame for such
service in Canada shall be 12 Months from the first delivery of the first
Equipment. For services outside Canada the conditions remain unchanged
(e) Competitive Products. Distributor will do everything within its power
to feature, promote, and advertise, as part of its merchandising and sales
policy, the Equipment and use its best efforts to stimulate and increase
interest in IDSI's Equipment. IDSI understands that some existing and some new
customers may request competitors' products. Distributor will use its best
efforts to sell, market and distribute the IDSI Equipment to such customers.
Distributor will give IDSI the opportunity to assist with these accounts.
(f) Customer Requirements. With a view to maximizing the potential market
for the Equipment within the Territory, Distributor will report to IDSI on a
quarterly basis, and assist IDSI in the assessment of the needs and requirements
of the potential customer base in the Territory with respect to the Equipment,
including, but not limited to: (i) a rolling twelve-month quantity forecast,
(ii) quality of the Equipment, (iii) design, functional capability and
<PAGE>
additional features of the Equipment and related modifications, improvements and
enhancements, and (iv) general market conditions of the Territory.
(g) Co-marketing Protection. Distributor will maintain confidentiality of
IDSI supplied prospective customers and not conduct any direct efforts to
persuade such clients toward competitive equipment or services.
(h) Purchase Orders. Distributor shall forward all orders promptly to IDSI.
The orders shall state clearly the name of the purchaser, the quantity
purchased, and the time and place of delivery.
(i) Delivery. Distributor shall give IDSI at least 120 days prior
written notice before each shipment is required.
(j) Expenses and Taxes. Distributor is an independent contractor, and as
such shall pay all expenses, including compensation of salesmen, rentals,
travel, and all taxes, including assessments, which may be made against the
salary or wages of those directly employed by Distributor.
(k) Relationship of Parties. Except as set forth herein, Distributor shall
have no right or authority to create any obligation on the part of IDSI or bind
IDSI to any agreement.
(1) Offices. Distributor shall maintain a suitable office in Toronto,
Ontario, Canada with a telephone and facsimile line suitable for use for the
sale of the Equipment. The office shall contain a suitable display area where
the Equipment shall be prominently displayed at all times. This display area or
another area shall be suitable for and used for the demonstration of and
training in the use of, the Equipment. The office shall be staffed from 9:00
a.m. to 5:00 p.m., Monday through Friday, subject to recognized national
holidays.
5. PERFORMANCE STANDARDS.
If the following performance standards (the "Minimum Performance Standards") are
not met, IDSI will notify Distributor, in writing, that it is in default of this
Agreement. If Distributor does not cure the deficiency within 30 days from
receipt of the notice, IDSI, at its sole option, may: (i) continue this
Agreement on a nonexclusive basis; (ii) continue this Agreement on a
nonexclusive basis and limit the Territory; or (iii) terminate this Agreement.
Any such action taken by IDSI shall be without prejudice to the rights of the
parties with respect to Equipment already ordered, sold or delivered.
For the purpose of this agreement one year shall begin upon PMA/FDA acceptance.
This is mandatory only where FDA is applicable by country.
<PAGE>
YEAR. NUMBER OF CTLM(TM)UNITS
In 2 Years 50
Quantity breakdown per country refer to "Schedule C"
6. PURCHASE OF EQUIPMENT.
(a) Orders. Orders from Distributor for equipment shall be made by delivery
of a purchase order to IDSI. As soon as practicable after receipt of such
purchase order, IDSI will: (i) if such order is accepted, return to Distributor
IDSI's standard form of Sales Acknowledgment (the "Acknowledgment") setting
forth dates on which delivery will be made, or (ii) notify Distributor in
writing that such order is rejected. IDSI will use its best efforts to make
prompt delivery of the Equipment accepted by IDSI on the delivery dates
specified in the Acknowledgment, F.O.B. Fort Lauderdale, at the time and to the
entities and destinations listed in the purchase orders. IDSI shall not be
liable for any failure to deliver, if such failure has been occasioned by fire,
embargo, strike, failure to secure materials from a usual source of supply, or
any circumstance beyond IDSI's control, which shall prevent IDSI from making
deliveries in the normal course of its business. IDSI shall not, however, be
relieved from making delivery when the causes interfering with deliveries shall
have been removed. In particular, the Parties acknowledge that IDSI is reliant
on outside suppliers, which supply the components for its Equipment. Should
these suppliers fail to produce the required components in a timely manner, than
IDSI shall be excused from the delivery obligations under this Agreement until
such time as the components can be manufactured, delivered and installed in the
Equipment. In no event shall IDSI be responsible for any loss or liability
suffered by Distributor as a result of delay in delivery of any order. An order
could be rejected if the Distributor fails to meet the commitments of the
Agreement within the territory or otherwise acts inappropriately with respect to
distribution of the equipment.
(b) Cancellation of Orders. Distributor may cancel any order (or any part
thereof) for Equipment by giving IDSI written notice of such cancellation at
least 91 days prior to the shipping date. If an order is cancelled, the charge
to the Distributor is 15% of the amount of the purchase order.
(c) Rescheduling Orders. Distributor may at any time, upon not less than
thirty (30) days written notice to IDSI, reschedule and/or postpone the delivery
date relating to an order (or any part thereof) for up to thirty (30) days. The
postponement of delivery to a date more than thirty (30) days from the delivery
date specified in the initial order shall be deemed a cancellation of such
order. DISTRIBUTOR MAY NOT POSTPONE THE DELIVERY DATE MORE THAN ONCE WITH
RESPECT TO ANY ORDER. If Distributor cancels a previously rescheduled delivery
of Equipment, the applicable cancellation charges shall be based on the delivery
date specified in the initial order submitted by Distributor for such delivery.
7. PRICE.
<PAGE>
(a) Purchase Price. The purchase price for the Equipment to be sold
hereunder shall initially be as set forth on IDSI's Price List attached hereto
as Exhibit A, which may be discounted at the sole discretion of IDSI based on
the cumulative quantities of such Equipment purchased by Distributor during the
term hereof or any Additional Term. Discounts shall not apply retroactively to
prior purchases of Equipment. IDSI shall have the sole right to set the price
and other terms of the sales of the Equipment. IDSI, at its sole discretion,
reserves the right to change prices, materials used, Equipment line and the
components of the Equipment. IDSI will provide reasonable notice of any price or
other changes to Distributor as to not disrupt the sales and distribution of the
Equipment. IDSI reserves the right to amend Exhibit A with respect to any
Additional Term.
(b) Price Changes. IDSI may change the prices to be charged for Equipment
sold hereunder by amending its published Price List and giving Distributor sixty
(60) days prior notice. All orders received and accepted by IDSI prior to the
effective date of the price increase for shipment within thirty (30) days of
such effective date will be billed at the prices in effect at the time of
acceptance of the order; provided, however, that if Distributor notifies IDSI in
writing prior to the effective date of such price increase that it quoted the
original price in an outstanding bid submitted prior to receipt of IDSI's
amended Price Lists, any order relating to such bid accepted by IDSI prior to
the effective date of such price increase for shipment within ninety (90) days
of such effective date will be billed at the prices in effect at the time of
acceptance. All other shipments after thirty (30) days (or ninety days, if
applicable) of such effective date shall be billed at the prices set forth in
the amended Price List.
(c) Payment. All payments hereunder shall be in United States dollars and
shall be effected by means of confirmed, irrevocable letters of credit opened by
the Distributor 90 days prior to shipping date on a United States bank
established, to IDSI's satisfaction. All exchange, interest, banking, collection
and other charges outside U.S.A. shall be the sole expense of the Distributor.
There will be a collaborative terms for both parties.
Distributor shall have the option to wire transfer funds ninety (90) days in
advance of shipment to IDSI as follows:
First Union National Bank of Florida, Jacksonville, Florida
ABA Number 063000021
Account of Imaging Diagnostic Systems, Inc.
Account Number 2090000431548
Shipment will be made upon either receipt of the letter of credit approved by
IDSI or confirmation that a wire transfer has been received.
8. TERMS AND CONDITIONS OF SALE. This Agreement and all sales of Equipment
hereunder by IDSI to Distributor shall be subject to IDSI's standard terms and
conditions of sale as set forth on the applicable Acknowledgment. A copy of
IDSI's current Standard Terms and Conditions of Sale is attached hereto as
Exhibit D and incorporated herein. To the extent that IDSI's standard terms and
conditions are inconsistent with express provisions of this Agreement, the
provisions of this Agreement shall prevail. Distributor agrees that although it
may use its standard forms for others or other notices hereunder, said standard
<PAGE>
forms will be governed by the terms and conditions of this Agreement and any
applicable Acknowledgment shall have no force and effect. Distributor agrees to
place the following legend on its standard forms submitted to IDSI hereunder:
"NOTWITHSTANDING ANY OTHER TERMS AND CONDITIONS APPEARING HEREON, THIS PURCHASE
SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF SALE SET FORTH IN THE IDSI
DISTRIBUTION AGREEMENT."
9. PRODUCT WARRANTY.
LIMITED WARRANTY
With respect to Equipment for which Company is the original Company,
Company warrants to Distributor that, for a period of twelve (12) months from
installation each item of Equipment will conform in all materials and
workmanship. Company's obligation under this warranty is limited to, at
Company's option, repairing or replacing, at Company's facility or at the
location of the Equipment, any Equipment or parts thereof that do not conform to
this warranty. Distributor shall promptly notify Company in writing of any
alleged defects in the Equipment and specifically describe the problem. Company
shall have no obligations under this warranty with respect to any defect unless
it receives notice and a description of such defect no later than ten (10)
working days following the expiration of the warranty period. Upon receipt of
such notice, Company shall either advise Distributor that warranty service shall
be provided at the location of the Equipment or shall instruct Distributor as to
the part or parts of the Equipment that Distributor shall ship back to Company
for repair or replacement. Company will pay the costs of transporting Equipment
to Company which to have been defective; otherwise, Distributor shall pay all
costs of transportation in both directions.
With respect to Equipment for which Company is the original Company,
Company warrants to Distributor that the Programs provided to Distributor in
connection with such Equipment will conform to and perform in accordance with
the then existing Equipment documentation for a period of one (1) year from
shipment of the last item of Equipment in conjunction with which the Programs
are to be used if properly used on the Equipment. Company's obligation under
this warranty is limited to, at Company's option, correcting, repairing or
replacing, at Company's option, at Company's facility or the location of the
Programs, any Program or parts thereof that do not conform to this warranty.
With respect to Equipment for which Company is not the original Company and
the Programs provided to Distributor in connection with such Equipment, the sole
warranties provided by Company to Distributor shall be equivalent to the sole
warranties provided by the original Company to Company (current original Company
warranties and the identification of Equipment to which they pertain shall be
provided to Distributor upon request).
The foregoing warranties shall not apply to any Equipment or Programs which
have been (i) used or operated in a manner inconsistent with the license granted
by Company, (ii) modified or repaired by anyone other than Company personnel or
Company's authorized service representatives in a manner which adversely affects
their operations or reliability, or (iii) damaged because of accident, neglect
or misuse by anyone other than Company personnel, failure or surge of electrical
power, air conditioning or humidity control, transportation, or other than
ordinary use.
THE FOREGOING WARRANTIES APPLY ONLY TO THE ORIGINAL PURCHASER AND ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY UPON THE RIGHTFUL CLAIM
OF ANY THIRD PERSON.
<PAGE>
10. SUBLICENSES.
(a) Programs Sublicense. Distributor is authorized to grant restrictive,
nonexclusive, nontransferable sublicenses to customers to use the Programs or
any portion thereof, provided that each such Customer (sublicensee) enters into
an agreement with Distributor pursuant to which the sublicensee expressly
accepts and agrees to the terms and conditions of the license set forth in the
Acknowledgment. In addition to any other remedy IDSI may have, IDSI reserves the
right to terminate any sublicensee's sublicense if said sublicensee fails to
comply with any term or condition of any such sublicense. Any sublicense granted
by Distributor to a sublicense hereunder shall also terminate and such
sublicense shall cease to use and return the Programs.
(b) Proprietary Technical Materials Sublicense. Distributor is authorized
to grant restrictive, nonexclusive, nontransferable sublicenses to customers to
use the Proprietary Technical Materials or any portion thereof, provided that
each such customer (sublicensee) enters into an agreement with Distributor
pursuant to which the sublicensee expressly accepts and agrees to the terms and
conditions of the license set forth in the Acknowledgment. In addition to any
other remedy IDSI may have, IDSI reserves the right to terminate any
sublicensee's sublicense if said sublicensee fails to comply with any term or
condition of any such sublicense. Any sublicense granted by Distributor to a
sublicense hereunder shall also terminate and such sublicense shall cease to use
and return the Proprietary Technical Materials.
11. MAINTENANCE.
(a) Distributor's Obligation to Provide Service. Distributor agrees that
IDSI shall have no obligation to maintain the Equipment except for the warranty
obligations specified in Section 9. Distributor acknowledges and agrees that it
will perform, at no expense to IDSI, maintenance and repair of Equipment sold or
leased to the Distributors customers
(b) Spares Parts. Distributor shall purchase a basic spare parts kit to
support warranty repair service in Distributor's Territory. In the event that
spare parts are used to support warranty repair, IDSI shall replace said parts
at no charge upon receipt of a copy of the field service report and the
defective part. Distributor will provide IDSI with a monthly report, not later
than 15 days after the first day of each month, which will indicate the
Customers name, address and phone number, the work performed, the parts used and
whether the repair was under warranty. The report shall also include a total
dollar amount for parts used for non-warranty repair. IDSI shall sell to
Distributor spare parts for use in connection with the Products. IDSI shall
supply Distributor with a price list for spare parts, which prices may be
increased at any time or from time to time by IDSI. Distributor shall pay IDSI
for such parts in accordance with Section7 (c). Distributor shall pay all
shipping costs to send spare parts to Distributor or to the Customer. IDSI shall
not pay any shipping costs. Unused, uninstalled spare parts, which are returned
<PAGE>
undamaged to IDSI, may be subject to a restocking charge equal to twenty-five
percent (25%) of the then current price therefore.
12. TERMINATION.
(a) Either party may, by written notice to the other party, terminate this
Agreement upon the occurrence of any one or more of the following events:
(i) Upon the failure of the other party to pay any monies when
due hereunder, if such default continues for five (5) business days or more
after written notice to the defaulting party;
(ii) Upon material failure of a party to observe, keep or
perform any of the covenants, terms or conditions herein, if such default
continues for thirty (30) business days or more after written notice to the
defaulting party;
(iii) In the event: (A) a party makes a general assignment for
the benefit of creditors or transfers all or a substantial portion of its
assets; (B) a receiver is appointed and not discharged within 30 days of
appointment, or (C) the other party has become insolvent.
(b) IDSI may, by written notice to Distributor, terminate this Agreement
upon occurrence of any one more of the following events:
(i) In the event that Distributor solicits orders for Equipment
outside its Territory;
(ii) In the event of any dispute, disagreement or controversy
between or among the owners, partners, managers, officers or
stockholders of Distributor which in the opinion of IDSI
adversely affects the ownership, operation, management, business
or interests of Distributor, or in the event of a change in
control or majority ownership of Distributor;
(iii) If Distributor ceases to function as a going concern or to
conduct its operations in the normal course of business, or
(c) If Distributor fails to meet the Minimum Performance Standards set
forth in Section 5, IDSI shall have the right, upon 30 days written notice to
the Distributor, to terminate this Agreement. Distributor shall have the right
to cure the deficiency within such 30-day period. If Distributor does not cure
the Deficiency within such 30-day period, IDSI may terminate this Agreement on
the 30th day.
(d) Upon termination or expiration of this Agreement, for any reason
Distributor shall discontinue the use of IDSI's name, trademarks, trade names,
labels, copyrights, and other advertising media and shall remove all signs and
displays relating thereto: and will no longer identify itself as a distributor
of IDSI or indicate, in any way, that it is associated with IDSI. Distributor
shall promptly return to IDSI all marketing and selling materials, all manuals,
<PAGE>
all technical data, all other documents and copies thereof previously supplied
by IDSI and all spare parts consigned to Distributor by IDSI.
(e) Upon termination or expiration of this Agreement, for any reason, IDSI
shall have the option to repurchase its Equipment and spare parts then in
possession of the Distributor, at prices originally billed to the Distributor if
the Equipment and spare parts are new and at an adjusted price if the Equipment
is used, and with deductions for money due or to become due to IDSI under this
Agreement. As to any of the IDSI's Equipment or spare parts not repurchased by
IDSI, Distributor shall have the right to dispose of them in the regular course
of its business and for this purpose only, the restrictions of preceding sub
paragraph shall be deferred until three months after the termination of this
Agreement.
(f) It is expressly understood and agreed that the rights of
termination as provided in this Agreement are absolute and that both parties
hereto have considered the costs and expenditures associated with the
preparation and performance of this Agreement and the possible losses and
damages which may be incurred by both parties in the event of its termination.
The parties hereto acknowledge and agree, by execution hereof that they have
entered into this Agreement with full knowledge of such possibilities, and
except as provided herein neither party hereto shall be responsible to the other
for compensation, damages, losses, or otherwise, for termination of this
Agreement as set forth above.
13. TRADEMARKS: MARKINGS.
(a) Trademarks and Names. Distributor is hereby granted permission to use
during the term of this Agreement, and any renewal hereof, the trademarks and
trade names used by IDSI in connection with the Equipment. Such permission is
expressly limited to uses by Distributor necessary to performance of
Distributor's obligations under this Agreement, and Distributor hereby admits
and recognizes IDSI's exclusive ownership of such marks and names and the renown
of IDSI's marks and names, both worldwide and specifically in the Territory.
Distributor agrees not to take any action, inconsistent with such ownership and
further agrees to take any action, including without limitation the conduct of
legal proceedings, which IDSI deems necessary to establish and preserve IDSI's
exclusive rights in and to its trademarks and trade names. Reproductions of
IDSI'S trademarks, logos, symbols, etc. shall be true reproductions and shall be
done photographically or digitally in a manner, which enhances the reputation
and status of IDSI.
(b) Markings. Distributor will not remove or make or permit any alterations
in any labels or other identifying markings placed by IDSI on any of the
Equipment without written consent by IDSI.
(c) No Additional Rights. No rights to manufacture, alter, or use the
Equipment for purposes other than those contained herein are granted by this
Agreement. Moreover, no licenses are granted or implied by this Agreement under
any patents owned or controlled by IDSI or under which IDSI has a right, excep
<PAGE>
the right to sell, market and distribute IDSI's Equipment, as contemplated
herein, during the term of this Agreement.
14. INDEMNIFICATION. Distributor shall indemnify and hold harmless IDSI, its
officers, directors, employees, or agents (collectively referred to in this
Section 14 as "IDSI") for damages or expenses resulting from any claim, suit or
proceeding brought against IDSI, with regard to any untrue statement or alleged
untrue statement, misrepresentation or alleged misrepresentations, promise or
agreements made or allegedly made by Distributor or its subdistributors or
arising from the marketing, sale or distribution of the Product by Distributor
or its sub-distributors. This provision shall not apply to Distributor or any
person controlling Distributor in respect of any losses, claims, damages,
liabilities or actions arising out of or based upon any untrue statement or
alleged untrue statement, misrepresentation or alleged misrepresentations,
promise or agreement made or allegedly made by Distributor or arising from the
marketing, sale or distribution of the Product by Distributor, if such untrue
statement or alleged untrue statement, misrepresentation or alleged
misrepresentations, promise or agreement was made in reliance upon information
furnished in writing to Distributor by IDSI specifically for use in connection
with the sale, marketing or distribution of the Equipment. IDSI agrees that
Distributor has the right to defend, or at its option to settle, and Distributor
agrees, at its own expense, to defend or at its option to settle, any claim,
suit or proceeding brought against IDSI. Distributor agrees to pay any costs of
litigation, investigation or defense incurred by IDSI, including reasonable
attorney fees, and final judgment, entered against IDSI on such issue in any
such suit or proceeding. Distributor shall be relieved of the foregoing
obligations unless IDSI notifies Distributor in writing, within fifteen days of
receipt of notification of such suit, claim or proceeding, and gives Distributor
authority to proceed as contemplated herein.
15. RISK OF LOSS. Title to the Equipment shipped shall pass upon shipping,
subject to full payment. Distributor assumes the risk of loss and damage of the
Equipment in transit from IDSI's shipping point to the point of destination.
16. COMPLIANCE WITH LAWS. Distributor shall comply with all material applicable
present and future federal, state, county, local and foreign laws, ordinances
and regulations relating to the importation and sale of the Equipment.
Distributor will take all steps necessary to obtain the proper import licenses,
if applicable and Distributor shall be solely responsible for any excise tax,
duties or other costs for the importation of the Equipment.
17. NON-CIRCUMVENTION AGREEMENT. The respective Parties involved in this
Agreement, agree not to circumvent each other. The Parties agree that they will
not make any contact, directly or indirectly, written, oral, electronic or by
any medium of contact whatsoever, with any Sources without the express written
consent of the other introducing Party. Each of the listed Parties hereto,
accepts and understands that any overt or covert action of circumvention, or
unauthorized disclosure shall constitute a breach of trust and shall be
considered a breach of the terms and conditions of this agreement. Such action
shall be subject to judicial action, and recompense.
If either Party shall bring an action to recover payment or other compensation
pursuant to the terms of this Agreement, the prevailing Party shall be entitled
to reasonable attorney's fees and expenses as may be awarded, including legal
<PAGE>
fees and costs, and recovery for liquidated damages and punitive damages as may
be awarded by and through any legal process or jurisdiction.
For the purposes of this Section 17, the term "Party" or "Parties" shall be
considered to include and be binding upon the parties to this Agreement, any
individual, entity or entities, including but not limited to, associates,
partners, assigns, spouses, employees, agents, principals, clients,
corporations, companies, subsidiaries, divisions, affiliated, associations,
collateral providers or the like, which the Parties hereto may now or in the
future be associated with during the term of this Agreement and any renewal
thereof.
For the purposes of this Section 17, the term "Sources" shall be considered to
include any business opportunity, principal, individual, entity or entities,
including but not limited to, customers and distributors, their associates,
partners, assigns, spouses, employees, agents, principals, clients,
corporations, companies, subsidiaries, divisions, affiliated partnerships,
associations or the like, introduced to or brought to the attention of a Party
to the other Party during the term of this Agreement or any renewal thereof.
Distributor acknowledges and agrees that no separate or additional payment will
be required to be made to it in consideration of its undertakings in this
Section 17.
18. NO COPYING. Without the prior written consent of IDSI, Distributor shall
refrain from copying, reverse engineering, disassembling, translating or
modifying the Equipment for its benefit, or granting any other person or entity
the right to do so.
19. NOTICES. Any notice required or permitted by this Agreement shall be in
writing and shall be delivered by U.S. Certified Mail, return receipt requested,
or by special messenger service with receipt (such as Federal Express), by
facsimile delivery or by hand, to the parties at the following addresses or such
substitute person or address of which notice is given in like manner:
Imaging Diagnostics Systems, Inc.
6531 NW 18 Court
Plantation, Florida 33313
Phone (954) 581-9800
Fax (954) 581-0555
Distributor:
Cycle of Life Technologies, Inc.
20 Queen Street West, Suite 3208
Toronto, Ontario M5H3R3 Canada
Phone (416) 408-1200
Fax (416) 408-2268
<PAGE>
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. GOVERNING LAW. VENUE AND ARBITRATION. This Agreement shall be deemed to be
executed in the State of Florida and governed by the laws of the State of
Florida. Any controversy or claim arising out of or relating to this Agreement
or to the interpretation, breach or enforcement thereof, except a claim for
injunctive relief, shall be submitted to an arbitrator and settled by
arbitration in Broward County, Florida, in accordance with the rules then
obtaining of the American Arbitration Association. Any award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgment may be entered thereon in any court having jurisdiction
thereof. Nothing contained herein shall serve to prohibit the parties from
seeking injunctive relief in a court of competent jurisdiction.
21. GENERAL.
(a) Independent Contractor. Distributor will act as an independent
contractor under the terms of this Agreement and not an agent or legal
representative of IDSI for any purpose, whatsoever, and, except for the
extension of the warranty set forth in Section 9, Distributor has no right or
authority to assume or create any obligation of any kind, express or implied, on
behalf of IDSI to Distributor's customers or to any other person.
(b) Product Changes. IDSI reserves the right to make design and other
modifications in the Equipment at any time but shall not be obligated to
implement such modifications in Equipment that has previously been delivered.
(c) Confidential Information. Distributor agrees not to disclose to any
person outside of its employ, and not to use for any purpose other than to
fulfill its obligations under this Agreement, any information which is disclosed
to Distributor by IDSI and which is not otherwise publicly available.
Distributor agrees to take all preventative measures and precautions to guard
against and prevent any use or disclosure of such confidential information by
its partners, employees, agents, or other persons consistent with the intent of
this paragraph. Distributor further agrees not to disclose to IDSI any
information, which Distributor deems to be confidential, and it is understood
that any information received by IDSI will not be of a confidential nature.
(d) Waiver and Amendment. Any party shall not construe the waiver by any
party to this Agreement of a breach of any provision hereof by any other party
as a waiver of any subsequent breach. The failure by either party at any time to
enforce the provisions of this Agreement, or to exercise any election or option
provided herein, shall in no way be construed as a waiver of such provisions or
options, nor in any way to affect the validity of this Agreement or any part
thereof, or the right of either party thereafter to enforce each and every such
provision. No provision of this Agreement may be terminated, amended,
supplemented, waived or modified other than by an instrument in writing signed
by the party against whom the enforcement of the termination, amendment,
supplement, waiver or modification is sought.
<PAGE>
(e) No Other Warranty or Representation. Distributor hereby
acknowledges that it has not entered into this Agreement in reliance upon any
warranty or representation by any person or entity except for the warranties or
representations specifically set forth herein.
(f) Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon the
parties hereto. All communications and materials made or given pursuant to this
Agreement, including without limitation any operations and maintenance manuals,
shall be in the English language. IDSI shall have no obligations or liabilities
to Distributor or any other person for loss of profits, loss of use or
incidental, special or consequential damages, even if IDSI has been advised of
the possibility thereof, arising out of or in connection with the translation
from English into any other language of any materials made or given pursuant to
this Agreement, including without limitation any operations and maintenance
manuals.
(g) Licenses and Permits. IDSI will use its best efforts to secure all
export licenses and permits required by the United States government, and
Distributor will secure all import licenses and permits required in connection
with the importation, marketing, sale and distribution of the Equipment. Each
party will furnish any information and assistance reasonably required by the
other party in connection with securing any such licenses and permits.
(h) Import/Export Controls. IDSI's obligations hereunder shall be at all
times subject to the export administration and control laws and regulations of
the United States Government, and any amendments thereof and the import
administration and control laws and regulations of the Territory, and any
amendments thereof. Distributor shall provide IDSI with any written assurances
it may reasonably request with respect to Distributor's compliance with such
laws or regulations. Distributor agrees that, with respect to the import, resale
or any other disposition of Equipment and any printed commercial and technical
data and information supplied by IDSI, Distributor will comply fully with the
import/export administration and control laws and regulations of the United
States of America and the Territory, and any amendments of such laws and
regulations.
(i) Compliance with Laws. IDSI represents that, with respect to the
production of Equipment to be furnished hereunder, IDSI will fully comply with
all applicable laws of the United States and the State of Florida. Distributor
represents that, with respect to the purchase, marketing, sale and distribution
of the Equipment furnished hereunder, Distributor will comply with all
applicable laws of the Territory.
(j) Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties concerning the subject matter hereof and
supersedes all prior agreements, negotiations and understandings of the parties
with respect thereto. No representation, promise, modification or amendments
shall be binding upon either party as a warranty or otherwise, unless in writing
and signed on behalf of each party by a duly authorized representative. Although
Distributor may use its standard purchase order form to give any order or other
notice provided for hereunder, said order or notice will be governed by the
terms and conditions of this Agreement any applicable Acknowledgment, and any
<PAGE>
term or condition set forth in any such standard form which is inconsistent with
or in addition to the terms and conditions of this Agreement and any applicable
Acknowledgment shall have no force or effort.
(k) Attorney's Fees. In the event any action is commenced with regard to
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and expenses.
(l) Severability Clause. In the event any parts of this Agreement are found
to be void, the remaining provisions of this Agreement shall nevertheless be
binding with the same effect as though the void parts were deleted.
(m) Successors. Subject to the provisions of this Agreement, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
(n) Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
(o) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature, provided however that
original signatures must be provided within ten days from the date of signing.
(p) Further Assurances. The Parties hereto agree to execute and deliver
from time to time at the other Party's request, without further consideration,
such additional documents and to take such other action necessary to consummate
the transactions contemplated herein.
(q) Assignment. This Agreement may be assigned by IDSI. Distributor will
not be permitted to assign this Agreement with out the prior written consent of
IDSI.
(r) U.N. Convention. The parties hereby agree to opt out of the coverage of
the United Nations Convention on Contracts for the International Sale of Goods,
to the extent that such convention might by its terms apply to this Agreement.
(s) Foreign Corrupt Practices Act. Under U.S. law it is a criminal offense
for IDSI to make payments directly or indirectly to foreign governmental
officials or political parties to influence any act or decision of such
officials or parties and thereby obtain or retain business. In order to avoid
criminal sanctions under this act, ETC agrees (i) to not give or offer anything
of value to any governmental official, political party, or candidate for
governmental office in connection with the sale of Products; (ii) to comply with
all laws and regulations of the United States, including, without limitation,
those regarding corrupt payments and anti-boycott laws; (iii) that there is and
will be no employment of, or beneficial ownership of ETC by any governmental or
political officials in connection with the sale of Products; (iv) to IDSI's
<PAGE>
right to terminate the agreement immediately upon violation by ETC of these
obligations; and (v) to indemnify IDSI for losses and damages due to breach of
the above obligations.
(t) Anti-Boycott Laws. U.S. law prohibits IDSI from taking or knowingly
agreeing to take certain specified actions, which support unauthorized boycotts
against Israel. Distributor agrees to not participate in or support any such
boycott in connection with the sale of Products.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth below.
Dated: November 29, 1999
In the presence of: Imaging Diagnostic Systems, Inc.
/s/ Allan L. Schwartz BY: /s/ Linda B. Grable
- --------------------- -------------------
Allan L. Schwartz Linda B. Grable, President
Dated: November 29, 1999
In the presence of: Cycle of Life Technologies, Inc.
/s/ Kassahun A. Tiku BY: /s/ Lee Anne Gibbs
- ------------------------------- ------------------
Kassahun A. Tiku Lee Anne Gibbs, President
<PAGE>
SCHEDULE A
EQUIPMENT
Computed Tomography Laser Mammography (CTLM(TM)) Device
<PAGE>
SCHEDULE B
PURCHASE PRICE
$250,000. U.S.
<PAGE>
SCHEDULE C
TERRITORY
Canada -10
Slovakia -1
Bulgaria -1
Greece -2
Hungary -1
Slovenia -1
Croatia -1
Bosnia -1
Macedonia -1
Serbia -1
Benelux -3
Denmark -1
France -3
Trinidad & Tobago -1
Barbados -1
South America (except Ecuador) -3
Venezuela on a non-exclusive basis
Ukraine -1
Romania -1
South Africa -2
Saudi Arabia -4
Kuwait -2
Kirghistan -1
Tajikistan -1
Uzbekistan -1
Kazakhstan -1
China on a non-exclusive basis from November 10, 1999 to September 30, 2000
and further subject to a waiver by Syncor Overseas Ltd.
dated October 1, 1999. -5
PROMISSORY NOTE
$500,000.00 Plantation, Florida
January 27, 2000
FOR VALUE RECEIVED, the undersigned Imaging Diagnostic Systems, Inc. a Florida
corporation ("Debtor"). Promises to pay to the order of Cycle of Life
Technologies, Inc. or its successors or assigns ("Lender"), on July 26, 2000
("Maturity Date") at 20 Queen Street West, Suite 3208, Toronto, Ontario M5H3R3,
Canada or at such other place as the Lender may designate from time to time in
writing to the Debtor, in lawful money of the United States of America, the
principal sum of Five Hundred Thousand Dollars ($500,000.00), together with
interest on the unpaid principal balance of this Note from the date hereof until
paid at twelve percent (12%) per annum. Interest shall be computed on the basis
of a 360-day year. Upon the maturity date of the note, the Lender has the option
of being repaid the principal and accrued interest with warrants in lieu of
cash. The Lender shall notify the Debtor by facsimile seven days prior to the
Maturity Date that they wish to be repaid with warrants. Upon said notice the
Debtor shall issue 1,500,000 warrants with an exercise price of $.35 per
warrant. The Debtor shall deliver the warrants to the Lender via overnight
courier. Each warrant may be exercised into one share of common stock of Imaging
Diagnostic Systems Inc. Form of Warrant is attached to this Promissory Note as
Exhibit "A".
The delay or failure to exercise any right hereunder shall not waive such right.
The undersigned hereby waves demand, presentment, protest notice of dishonor or
nonpayment, notice of protest, any and all delays or lack of diligence in
collection hereof and assents to each and every extension or postponement of the
time of payment or other indulgence. In the event of bankruptcy or
merger/acquisition the warrants become immediately exercisable into common
shares.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Florida. Exclusive jurisdiction relating to this
Note shall vest in courts located in Florida.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Note
the date and year first above written.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ Linda B. Grable
-------------------
Linda B. Grable, President
ATTEST:
/s/ Andrea Lasorsa
- ------------------
Andrea Lasorsa
EXHIBIT "A"
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
Act PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
To Purchase 1,500,000 Shares of Common Stock of
IMAGING DIAGNOSTIC SYSTEMS, INC.
THIS CERTIFIES that, for value received, Cycle of Life Technologies,
Inc.(the "Investor/Lender"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after July 26, 2000, and on
or prior to July 25, 2002 (the "Termination Date") but not thereafter, to
subscribe for and purchase from IMAGING DIAGNOSTIC SYSTEMS, INC., a Florida
corporation (the "Company"), one million five hundred thousand (1,500,000)
shares of Common Stock (the "Warrant Shares"). The purchase price of one share
of Common Stock (the "Exercise Price") under this Warrant shall be equal to
$.35. The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. The Warrant
cannot be exercised into common shares for 180 days from the date of execution
of this Common Stock Purchase Warrant. The Exercise Price may be satisfied by
the delivery of the Note to the Company. This Warrant is being issued in
connection with a Promissory Note dated as of January 27, 2000, in the amount of
five hundred thousand ($500,000) Dollars (the "Note") between the Company and
Investor/Lender and is subject to its terms. In the event of any conflict
between the terms of this Warrant and the Note, the Note shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and non-assessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
<PAGE>
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made at any time or times, in whole, before the close of business
on the Termination Date, or such earlier date on which this Warrant may
terminate as provided in paragraph 11 below, by the surrender of this Warrant
and the Subscription Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price of
the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to the
holder hereof within five business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by a certified check or cashier's check or by wire transfer to an
account designated by the Company or by surrender of the Note or by a "cashless
exercise" of the Warrant in which event the Holder shall receive from the
Company the number of shares of common stock equal (i) the number of shares as
to which this Warrant is being exercised, minus (ii) the number of shares having
an aggregate value (determined by the average closing bid price of the Common
stock (as reported by Bloomberg, LP) for the 20 consecutive trading days prior
to the "cashless exercise") equal to the product of (x) the Exercise Price times
(y) the number of Warrant Shares as to which this Warrant is being exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase the holder hereof shall be entitled to exercise
this Warrant, the shares so purchased shall be and be deemed to be issued to
<PAGE>
such holder as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all
or substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is disposed
of (collectively, a "Sale or Merger Transaction"), in which the consideration to
be received by the Company or its shareholders consists solely of cash, the
Company shall give the holder of this Warrant thirty (30) days' written notice
by certified mail of the proposed effective date of the transaction specifying
that the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) Registration. The Company agrees to register the shares of Common Stock
underlying this Warrant pursuant to the terms of the Agreement and the
<PAGE>
Registration Rights Agreement dated January 27, 2000. In addition to the
foregoing, the Holder of this Warrant shall have the right to include all of the
shares of Common Stock underlying this Warrant (the "Registrable Securities") as
part of any registration of securities filed by the Company (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Act or pursuant to Form S-8) and must be notified in writing of such filing.
Holder shall have five (5) business days to notify the Company in writing as to
whether the Company is to include Holder or not include Holder as part of the
registration; provided, however, that if any registration pursuant to this
Section shall be underwritten, in whole or in part, the Company may require that
the Registrable Securities requested for inclusion pursuant to this Section be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. If in the good faith judgment of
the underwriter evidenced in writing of such offering only a limited number of
Registrable Securities should be included in such offering, or no such shares
should be included, the Holder, and all other selling stockholders, shall be
limited to registering such proportion of their respective shares as shall equal
the proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the Holders thereof for a period, not to exceed one hundred eighty
(180) days, which the underwriter may reasonably determine is necessary in order
to effect such underwritten offering.
12. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock for less
than 35 cents per share or effect a reclassification of the Common Stock, the
number of Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted so that the holder of this Warrant shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exchange Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
<PAGE>
14. Notice of Adjustment. Whenever the number of Warrant shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
holder of this Warrant notice of such adjustment or adjustments setting forth
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth computation by which such adjustment was made. Such
notice, in absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. In the event that
the Company has insufficient authorized and unissued Common Stock it shall seek
to increase its authorized shares through either a written action of the
majority of its shareholders or a shareholder's meeting. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the OTC Bulletin Board
or any domestic securities exchange upon which the Common Stock may be listed.
16. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of Florida and for all purposes shall be construed in
accordance with and governed by the laws of said state without regard to its
conflict of law, principles or rules. The party who initiates legal action shall
choose the jurisdiction of the federal courts or the state courts in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party waives its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Common Stock
acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
<PAGE>
(d) Notices. Any notice, request or other document required or permitted to
be given or delivered to the holders hereof of the Company shall be delivered or
shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: July___, 2000
IMAGING DIAGNOSTIC SYSTEMS, INC.
By
___________________________
Linda B. Grable, President
<PAGE>
NOTICE OF EXERCISE
To: IMAGING DIAGNOSTIC SYSTEMS, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of IMAGING DIAGNOSTIC SYSTEMS, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price in full, together
with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:________________________
_____________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
_______________________________________________ whose address is
_______________________________________________
Dated: ________________________
Holder's Signature: _____________________________
Holder's Address: _____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made as of the 26th day
of January, 2000, by and between Imaging Diagnostic Systems, Inc., located at
6531 NW 18th Court, Plantation, Florida 33133 (hereinafter referred to as
"Company"), and Anthony Giambrone, located at 24 Pheasant Run Lane, Dix Hills,
New York 11746-8142 (hereinafter referred to as "Consultant").
RECITALS:
Whereas, the Company is in the business of developing, manufacturing,
marketing, and selling laser based medical imaging diagnostic equipment;
Whereas, the Consultant has certain expertise, experience and
capabilities in consulting developmental stage companies; and,
Whereas, the Company desires to retain the Consultant, and Consultant
desires to be retained by the Company, upon the following terms and conditions.
NOW THEREFORE, in consideration of the promises herein contained and
the following provisions, the parties agree to be legally bound as follows:
1. Status of Consultant. Company hereby employs Consultant and
Consultant hereby accepts such employment by Company, upon the terms and
conditions set forth herein. This Agreement calls for the performance of the
services of the Consultant on a non-exclusive basis as an independent contractor
and Consultant will not be considered an employee of the Company for any purpose
whatsoever. Nothing in this Agreement shall be construed to prevent the
Consultant from performing services for himself or any other person or entity.
The Company is not responsible for withholding, and shall not withhold, FICA or
taxes of any kind from any payments which it owes the Consultant. The Consultant
shall not be entitled to receive any benefits which employees of the Company are
entitled to receive and shall not be entitled to workers' compensation,
unemployment compensation, medical insurance, life insurance, paid vacations,
paid holidays, pension, profit sharing, or Social Security on account of their
work for the Company.
<PAGE>
2. Appointment of Consultant. Company hereby engages Consultant and
Consultant hereby agrees to provide on a timely basis the following enumerated
services plus any additional services mutually agreed upon.
(a) The implementation of short range and long term strategic planning to
fully develop and enhance the Company's assets, resources, products and
services;
(b) The implementation of a marketing program to assist the Company in
broadening the markets for its business and services and promote the image of
the Company and its business and services;
(c) Assist the Company in the monitoring of services provided by the
Company's advertising firm, public relations firm and other professionals to be
employed by the Company;
(d) Advise the Company relative to the continued development of a
stockholder relations program and to stimulate interest in the Company by
institutional investors and other members of the financial community;
(e) Advise the Company relative to the recruitment and employment of key
executives consistent with the expansion of operations of the Company;
(f) Advise and recommend to the Company additional services relating to the
present business and services provided by the Company as well as new products
and services that may be provided by the Company;
4. Term. Subject to the provisions of Section 8 below, the term of this
Consulting Agreement shall commence on the date hereof and shall continue until
Consultant shall have rendered the services described in Section 2 above, but in
no event beyond six (6) months from the date hereof.
5. Compensation. As compensation for its services hereunder, the Company
agrees to issue to the Consultant warrants to purchase 500,000 shares of free
trading common stock of the Company, no par value (the "Shares") at $.93 per
share. The warrants shall be issued at the inception of the agreement. The
2
<PAGE>
Company shall include the common shares underlying the warrants in its next S-2
or S-3 Registration Statement.
6. Expenses. Consultant shall not be entitled to reimbursement by the
Company for out-of-pocket expenses unless authorized in writing prior to
incurring the expense. Authorized expenses shall be reimbursed by the Company
within seven (7) days.
7. Confidentiality. Consultant will not disclose to any other person, firm
or corporation, nor use for its own benefit, during or after the term of this
Consulting Agreement, any trade secrets or other information designated as
confidential by the Company which is acquired by the Consultant in the course of
its performing services hereunder. (A trade secret is information not generally
known to the trade which gives the Company an advantage over its competitors.
Trade secrets can include, by way of example, products or services under
development, production methods and processes, sources of supply, customer
lists, marketing plans and information concerning the filing of patent
applications). The obligation of the Consultant hereunder shall not apply to any
confidential information which: (a) is in the public domain at the time it was
disclosed; (b) enters the public domain other than by breach of this Agreement
by the Consultant; (c) is already known by the Consultant at the time of
disclosure to the Consultant by the Company; (d) is developed independently by
the Consultant and such fact can be objectively determined; or (e) is required
to be disclosed by law.
8. Indemnification. The Company agrees to indemnify and hold the Consultant
harmless from and against all losses, claims, damages, liabilities, costs or
expenses (including reasonable attorneys' fees (collectively the "Liabilities")
joint and several, arising out of the performance of this Consulting Agreement
except where the Consultant engaged in gross recklessness and willful misconduct
in the performance of its services hereunder which gave rise to the losses,
claim, damage, liability, cost or expense sought to be recovered hereunder. The
provisions of this paragraph 8 shall survive the termination and expiration of
this Consulting Agreement.
9. Miscellaneous.
3
<PAGE>
a) Entire Agreement. This Consulting Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof, and
supersedes and cancels any prior communications, understandings and agreements
between the parties.
b) Modification. This Consulting Agreement cannot be modified or changed,
nor can any of its provisions be waived, except by written agreement signed by
all parties.
c) Governing Law. This Consulting Agreement shall be governed, construed
and enforced in all respects in accordance with the laws of the State of
Florida.
d) Litigation. In the event of any cause of action, arbitration or
litigation arising hereunder, all costs and reasonable attorney's fees of the
prevailing party, including, without limitation, attorney's fees and costs at
all administrative and appellate levels and in all bankruptcy proceedings, shall
be paid by the non-prevailing party.
e) Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall be deemed to be an original, but all of
which shall be deemed to constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
Imaging Diagnostic Systems, Inc.
By: /s/ Linda B. Grable
Linda B. Grable, as
President
By: /s/ Anthony Giambrone
Anthony Giambrone
4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated August 30, 1999, between Imaging Diagnostic
Systems, Inc. (the "Company"), and Allan L. Schwartz (the "Executive").
WHEREAS, the Company desires to employ Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
(a) Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for a period
commencing on the date of this Agreement and ending five years from
the date hereof (the "Term").
(b) Continuing Effect. Notwithstanding any termination of this
Agreement at the end of the Term or otherwise, the provisions of
Sections 6 and 7 shall remain in full force and effect and the
provisions of Sections 6(b) and 7 shall be binding upon the legal
representatives, successors and assigns of the Executive, except as
otherwise provided in Section 5(d).
2. Duties.
(a) General Duties. The executive shall serve as Executive Vice
President/Chief Financial Officer of the Company, with duties and
responsibilities that are customary for such executives. The Executive
will also perform services for such subsidiaries as may be necessary.
The Executive will use his best efforts to performs his duties and
discharge his responsibilities pursuant to this Agreement competently,
carefully and faithfully.
(b) Devotion of Time. The Executive will devote all of his time,
attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and
vacation periods as have been established by the Company) to the
affairs of the Company. The Executive will not enter the employ of or
serve as a consultant to, or in any way perform any services with or
without compensation to, any other persons, business or organization
without the prior consent of the Board of Directors of the Company;
provided, that the Executive shall be permitted to devote a limited
amount of his time, without compensation, to charitable or similar
organizations.
<PAGE>
3. Compensation and Expenses.
(a) Salary. For the services of the Executive to be rendered
under this Agreement, the Company will pay the Executive an annual
base salary of $119,069.52 during the Term, subject to annual cost of
living increases based upon changes in the Consumer Price Index
published by the Bureau of Labor Statistics (or similar successor
index) for the region in which the Executive resides, but in no event
shall the cost of living increase be less than 7% per annum. The
annual salary under this Section 3(a) will be reduced, however, to the
extent that the Executive elects to defer any portion thereof under
the terms of any deferred compensation or savings plan maintained by
the Company. The Company will pay the Executive his annual salary in
equal installments no less frequently than twice a month.
(b) Bonus. For the services to be rendered by the Executive under
this Agreement, the Company's Board of Directors, on a yearly basis,
shall determine a bonus to be paid to Employee, based upon a
percentage of the adjusted consolidated net earnings of the Company
for each calendar year of Executive's employment, such sum to be
computed as follows:
(i) The adjusted consolidated net earnings of the Company shall
be determined in accordance with accepted accounting practice by the
independent accounting firm employed by the Company as its auditors,
within 90 days after the end of each fiscal year.
(ii) This computation of net earnings and of the Executive's
percentage compensation, made in the manner here provided, shall be
final and binding upon the Company and the Executive, and the Company
shall pay such compensation to the Executive within 120 days after the
end of the fiscal year in question. The Bonus may be paid in cash,
stock, or options, by mutual agreement of the Executive and the
Company.
(iii) For purposes of computing the Executive's percentage
compensation, the adjusted consolidated net earnings of the Company
shall be determined after full allowance for, and deduction of the
following: (a) all federal, state and municipal taxes; (b)
depreciation for the period based on the amount of depreciation set
forth in the annual report of the Company to its shareholders for the
fiscal year which includes such period.
(c) Expenses. In addition to any compensation received pursuant
to Section 3(a), (b) and (c), the Company will reimburse or advance
funds to the Executive for all reasonable travel, entertainment and
miscellaneous expenses incurred in connection with the performance of
his duties under this Agreement, provided that the Executive properly
accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement or advances will be made in
accordance with policies and procedures of the Company in effect from
time to time relating to reimbursement of or advances to executive
officers.
4. Benefits.
<PAGE>
(a) Vacation. For each 12-month period during the Term, the
Executive will be entitled to six weeks of vacation without loss of
compensation or other benefits to which he is entitled under this
Agreement, to be taken at such times as the Executive may select and
the affairs of the Company may permit.
(b) Employee Benefit Programs. Without limiting the compensation
to which the Executive is entitled pursuant to the provisions of
Section 3 or this Section 4, during the Term, the Executive will be
entitled to participate in any pension, insurance or other employee
benefit plan that is maintained at that time by the Company for its
executive officers, including programs of life and medical insurance
and reimbursement of membership fees in civic, social and professional
organizations.
(c) Incentive Stock Options. The Executive shall receive
incentive options to purchase up to an aggregate of 2,500,000 shares
of the Company's common or preferred stock, the terms and conditions
of which are more fully set forth in that certain Stock Option
Agreement dated August 30, 1999.
(d) Miscellaneous Benefits. The Company shall also provide
Executive with the following: (a) a $500 per month automobile
allowance, and (b) telephone card, cellular phone, and major credit
card.
5. Termination.
(a) Termination Without Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement without
cause. Such termination will become effective upon the date specified
in such notice, provided that such date is at least 60 days from the
date of such notice. Upon any such termination without cause:
(i) for the remainder of the term of this Agreement or for a
period of 36 months following such termination, whichever is
greater, the Company will continue to pay the Executive his
annual salary pursuant to Section 3(a) and his Bonus pursuant to
Section 3(b), and
(ii) the Company will continue to maintain for such period,
for the benefit of the Executive, the employee benefit programs
referred to in Section 4(b) that were in effect on the date of
such termination.
(b) Termination for Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement at any
time for cause by given written notice of termination. Such
termination will become effective upon the giving of such notice,
except that termination based upon clause (v) below shall not become
effective unless the Executive shall fail to correct such breach
within 30 days of receipt of written notice thereof provided pursuant
to the preceding sentence. Upon any such termination for cause, the
Executive shall have no right to compensation, commission, bonus or
reimbursement under Section 3, or to participate in any employee
benefit programs under Section 4 for any period subsequent to the
<PAGE>
effective date of termination. For purposes of this Section 5(b),
"cause" shall mean: (i) the Executive is convicted of a felony which
is related to the Executive's employment or the business of the
Company; (ii) the Executive, in carrying out his duties hereunder, has
been found in a civil action by the Company, to have committed willful
gross negligence or willful gross misconduct resulting, in either
case, in material harm to the Company; (iii) the Executive
misappropriates Company funds or otherwise defrauds the Company; (iv)
the Executive materially breaches any provision of Section 6 or
Section 7; and (v) the Executive materially fails to perform his
duties under Section 2 resulting in material harm to the Company.
(c) Death or Disability. Excepting for the conditions and
obligations contained in this Section 5(c), this Agreement and the
obligations of the Company hereunder will terminate upon the death or
disability of the Executive. For purposes of this Section 5(c),
"disability" shall mean that for a period of six months in any
12-month period the Executive is incapable of substantially fulfilling
the duties set forth in Section 2 because of physical, mental or
emotional incapacity resulting from injury, sickness or disease.
Upon termination by death or disability, the Company will pay the
Executive or his legal representative, as the case may be: (i) his
annual salary at such time pursuant to Section 3(a) through the date of
such termination of employment; and (ii) the Executive's share of the
Bonus as set forth in Section 3(b) of this Agreement. ;
(d) Special Termination. In the event that (i) the Executive,
with or without change in title or formal corporate action, shall no
longer exercise all of the duties and responsibilities and shall no
longer possess substantially all the authority set forth in Section 2;
or (ii) the Company materially breaches this Agreement or the
performance of its duties and obligations hereunder; or (iii) any
entity or person not now an executive officer of the Company becomes
either individually or as part of a group the beneficial owner of 20%
or more of the Company's common stock, the Executive, by written
notice to the Company, may elect to deem the Executive's employment
hereunder to have been terminated by the Company without cause under
Section 5(a) hereof, in which event the Executive shall be entitled to
the compensation payable pursuant to clauses (i)-(iii) of Section
5(a).
(e) Voluntary Termination. The Executive, on 30 days prior
written notice to the Company, may terminate his employment
voluntarily (i) at any time following termination of the initial Term
or (ii) at any time following the death or disabling illness of a
member of the Executive's immediate family or similar personal,
non-business related occurrence as a result of which the Executive
concludes he must devote a substantial amount of his time and energies
to his family or other personal matter and not to his business
activities so as to preclude his fulfilling his obligations under this
Agreement. Upon any such termination, the Company will pay the
Executive (i) his annual salary at such time pursuant to Section 3(a)
through the date of such termination of employment; and (ii) any bonus
which would have been payable through the date of termination pursuant
to Section 3(b).
(f) Continuing Effect. Notwithstanding any termination of the
<PAGE>
Executive's employment as provided in this Section 5 or otherwise, the
provisions of Sections 6 and 7 shall remain in full force and effect.
6. Non-competition Agreement.
(a) Competition with the Company. Until termination of his
employment and for a period of 12 months commencing on the date of
termination, the Executive, directly or indirectly, in association
with or as a stockholder, director, officer, consultant, employee,
partner, joint venturer, member or otherwise of or through any person,
firm, corporation, partnership, association or other entity, will not
compete with the Company or any of its affiliates in the offer, sale
or marketing of products or services that are competitive with the
products or services offered by the Company, within any metropolitan
area in the United States or elsewhere in which the Company is then
engaged in the offer and sale of competitive products or services;
provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines
of business, one of which is the same or similar to the Company's
business (the "Prohibited Business") if Executive's employment is
totally unrelated to the Prohibited Business; provided, further, the
foregoing shall not prohibit Executive from owning up to 5% of the
securities of any publicly-traded enterprise provided Executive is not
an employee, director, officer, consultant to such enterprise or
otherwise reimbursed for services rendered to such enterprise.
(b) Solicitation of Customers. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, directly
or indirectly, will not seek Prohibited Business from any Customer (as
defined below) on behalf of any enterprise or business other than the
Company, refer Prohibited Business from any Customer to any enterprise
or business other than the Company or receive commissions based on
sales or otherwise relating to the Prohibited Business from any
Customer, or any enterprise or business other than the Company. For
purposes of this Section 6(b), the term "Customer" means any person,
firm, corporation, partnership, association or other entity to which
the Company or any of its affiliates sold or provided goods or
services during the 24-month period prior to the time at which any
determination is required to be made as to whether any such person,
firm, corporation, partnership, association or other entity is a
Customer.
(c) Solicitation of Employees. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, will not
directly or indirectly, solicit employees of the Company for
employment by any person, enterprise, business, company, partnership,
joint venture or other entity. For the purposes of this Agreement, the
term "Employee " means any person, firm, corporation, partnership,
association or other entity which the Company, or any of its
affiliates, employed during the during the 24-month period prior to
the time at which any determination is required to be made as to
whether any such person, firm, corporation, partnership, association
or other entity is an Employee.
(d) No Payment. The Executive acknowledges and agrees that no
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
<PAGE>
7. Nondisclosure of Confidential Information. The Executive acknowledges
that during his employment he will learn and will have access to confidential
information regarding the Company and its affiliates, including without
limitation (i) confidential or secret plans, programs, documents, agreements or
other material relating to the business, services or activities of the Company
and its affiliates and (ii) trade secrets, market reports, customer
investigations, customer lists and other similar information that is proprietary
information of the Company or its affiliates (collectively referred to as
"confidential information"). The Executive acknowledges that such confidential
information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. All records, files, materials and
confidential information obtained by the Executive in the course of his
employment with the Company are confidential and proprietary and shall remain
the exclusive property of the Company or its affiliates, as the case may be. The
Executive will not, except in connection with and as required by his performance
of his duties under this Agreement, for any reason use for his own benefit or
the benefit of any person or entity with which he may be associated or disclose
any such confidential information to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever without the prior written
consent of the board of directors of the Company, unless such confidential
information previously shall have become public knowledge through no action by
or omission of the Executive.
8. Equitable Relief.
(a) The Company and the Executive recognize that the services to
be rendered under this Agreement by the Executive are special, unique
and of extraordinary character, and that in the event of the breach by
the Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action
in violation of Section 6 or Section 7, the Company will be entitled
to institute and prosecute proceedings in any court of competent
jurisdiction referred to in Section 8(b) below, to enjoin the
Executive from breaching the provisions of Section 6 or Section 7. In
such action, the Company will not be required to plead or prove
irreparable harm or lack of an adequate remedy at law. Nothing
contained in this Section 8 shall be construed to prevent the Company
from seeking such other remedy in arbitration in case of any breach of
this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in the federal
courts, or in the absence of federal jurisdiction in state court, in
either case in Florida where the Company maintains its principal
offices. The Executive and the Company irrevocably and unconditionally
submit to the jurisdiction of such courts and agree to take any and
all future action necessary to submit to the jurisdiction of such
courts. The Executive and the Company irrevocably waive any objection
that they now have or hereafter irrevocably waive any objection that
they now have or hereafter may have to the laying of venue of any
suit, action or proceeding brought in any such court and further
irrevocably waive any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Final judgment against the Executive or the Company in any such suit
shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment, a certified or true copy or which shall be conclusive
<PAGE>
evidence of the fact and the amount of any liability of the Executive
or the Company therein described, or by appropriate proceedings under
any applicable treaty or otherwise.
9. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
obligations hereunder may not be assigned or alienated and any attempt to do so
by the Executive will be void.
<PAGE>
10. Severability.
(a) The Executive expressly agrees that the character, duration
and geographical scope of the provisions set forth in this Agreement
are reasonable in light of the circumstances, as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to
impose only those restrictions on the Executive's conduct that are
reasonable in the light of the circumstances and as are necessary to
assure to the Company the benefits of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the
separate covenants deemed included herein because taken together they
are more extensive than necessary to assure to the Company the
intended benefits of this Agreement, it is expressly understood and
agreed by the parties hereto that the provisions of this Agreement
that, if eliminated, would permit the remaining separate provisions to
be enforced in such proceeding shall be deemed eliminated, for the
purposes of such proceeding, from this Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and
of like effect as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Allan L. Schwartz
5493 NW 42nd Avenue
Boca Raton, Florida 33496
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterpart. This Agreement may be executed in one or more
<PAGE>
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for any controversy or claim seeking equitable
relief as provided in Section 8 of this Agreement, any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof or any other dispute between the parties, shall be
submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any reward made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
14 Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
18. Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
Imaging Diagnostic Systems, Inc.
__________________________ By: ___________________________________
Executive Linda B. Grable, President
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") entered into as of the 30th
day of August 1999, between Imaging Diagnostic Systems, Inc. the "Company") and
Allan L. Schwartz, an Executive of the Company ("Executive").
WHEREAS, by action taken by the board of directors of the Company on August
30, 1999, it has adopted a 1999 Equity Incentive Plan (the "Plan"); and
WHEREAS, by action taken by the board of directors of the Company on the
same date, it has been determined that in order to enhance the ability of the
Company to attract and retain qualified officers it will grant Executive the
right to purchase stock in the Company pursuant to incentive options.
NOW THEREFORE, in consideration of the mutual covenants and promises
hereafter set forth and for other good and valuable consideration, receipt of
which is acknowledged, the parties hereto agree as follows:
1. Grant of Incentive Options. The Company irrevocably grants to Executive,
as a matter of separate agreement and not in lieu of salary or other
compensation for services, the right and option (the "Options") to purchase all
or any part of an aggregate of 2,500,000 shares of authorized but unissued
common stock of the Company or, at Executive's option, that number of Voting
Convertible Preferred Stock that would give Executive voting rights equal to the
2,500,000 shares of common stock, on the terms and conditions herein set forth.
The Options are intended to be Incentive Stock Options as defined by Section
422A of the Internal Revenue Code (the "Code").
2. Price. The exercise price of the shares of common stock subject to the
Options shall be 110% of fair market value on the date of the grant ($.21 per
share).
3. When Exercisable.
(a) Provided that Executive is employed by the Company on the
respective dates below, the Options shall vest as follows:
Date No. of Shares
August 30, 1999 500,000
August 30, 2000 500,000
August 30, 2001 500,000
August 30, 2002 500,000
August 30, 2003 500,000
(b) Except as provided in paragraphs 2 and 3 of this Agreement, once
any Option become exercisable they shall remain exercisable through August
30, 2004.
4. Conversion to Non-Qualified Options. In the event that the
stockholders of the Company fail to approve the Plan within one year after
approval by the Board of Directors, or in the event that the Executive is
terminated with pursuant to Section 5 (a) or 5(d) of that certain
Employment Agreement dated August 30, 1999 between the Company and the
Executive, a copy of which, is on file at the Company's corporate office
(the "Employment Agreement"), the exercise period for the Options shall be
extended through August 30, 2009 thereby converting all of the Options to
Non-Qualified Options. In such event, the Company shall pay Executive a
tax-offset bonus each time he exercises any Options. The amount of the tax
offset bonus shall be equal to the amount of federal income tax he incurs
in connection with the exercise of the Options assuming he is at the
highest marginal United States income bracket for the year of exercise.
Such bonus shall be paid to Executive on or before February 1, of the year
following exercise.
<PAGE>
5. Termination of Relationship.
(a) Except as set forth in Section 4 above, if for any reason, except
death, Executive ceases to act as an employee of the Company, all rights
granted hereunder shall terminate effective three months from the date
Executive ceases to act as an employee.
(b) If Executive shall die while an employee of the Company, his
estate or any transferee, as defined herein, shall have the right within
three months from the date of Executive's death to exercise Executive's
Options to the extent the right to exercise to the Options shall have
accrued at the date of death, except to the extent the Options shall have
been exercised prior thereto. The exercise period for any Options not
vested, shall be extended through August 30, 2004 thereby converting all of
the Options to Non-Qualified Options. For the purpose of this Agreement,
"transferee" shall mean a person to whom such shares are transferred by
will or by the laws of descent and distribution.
(c) No transfer of the Options by Executive by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of
the letters testamentary or such other evidence as the board may deem
necessary to establish the authority of the state and the acceptance by the
transferee or transferees of the terms and conditions of the Options.
(d) If Executive becomes disabled while employed by the Company within
the meaning of Section 22(e)(3) of the Code, the three month period
referred to in paragraph 3(a) of this Agreement shall be extended to one
year.
6. Method of Exercise/Registration. These Options shall be exercisable by a
written notice, which shall:
(a) state the election to exercise the Options, the number of shares
to be exercised, the person in whose name the stock certificate or
certificates for such shares of common stock is to be registered, his
address and social security number (or if more than one, the names,
addresses and social security numbers of such persons);
(b) contain such representations and agreements as to the holder's
investment intent with respect to such shares of common stock as set forth
in paragraph 8 hereof;
<PAGE>
(c) be signed by the person or persons entitled to exercise the
Options and, if the Options is being exercised by any person or persons
other than the Executive, be accompanied by proof, satisfactory to counsel
for the Company, of the right of such person or persons to exercise the
Options.
(d) be accompanied by full payment of the purchase or exercise price
there for either (i) in United States dollars in cash or by check; (ii) by
Executive's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable federal rate, as
defined in Section 1274(d) of the Code; (iii) by having the Company retain
a portion of the Shares covered by the option exercise, or (iv) by any
combination of (i) (ii) and (iii) above.
If the Executive chooses to pay the exercise price pursuant to (iii) above,
the number of Shares to be delivered to or withheld by the Company times the
fair market value shall equal the cash required for exercise. To the extent that
the Participant elects to either deliver or have withheld Shares of the
Company's Common Stock, the Board of Directors may require the Executive to make
such election only during certain periods of time as may be necessary to comply
with appropriate exemptive procedures regarding the "short-swing" profit
provisions of Section 16(b) of the Securities Exchange Act of 1934 or to meet
certain Internal Revenue Code requirements.
The certificate or certificates for shares of common stock as to which the
Options shall be exercised shall be registered in the name of the person or
persons exercising the Options.
The Company shall, if requested by the Executive, as expeditiously as
possible file a registration statement on a form of general use under the
Securities Act to permit the sale or other disposition of the Optioned Shares.
The Executive shall provide all information reasonable requested by the Company
for inclusion in any registration statement to be filed under this Agreement.
The Company will use its best efforts to cause such registration statement first
to become effective at the earliest practicable time and then to remain
effective for such period as the Executive reasonably deems necessary to effect
such sales or other dispositions or until all Optioned Shares no longer will
constitute "restricted securities" with the meaning of Rule 144 under the
Securities Act. Such registration shall be effected at the Company's expense
except for underwriting commissions and the fees and disbursements of the
Executive's counsel attributable to the registration of the Optioned Shares. The
Company and the Executive shall enter into an agreement under which each will
indemnify the other with respect to information provided by such party for use
in the registration statement, such indemnities and the procedures for them to
be in a form customarily included in registration rights agreements. The Company
further agrees to use its best efforts to register or qualify the Optioned Stock
covered under such registration statement under such other securities or
blue-sky laws of such jurisdictions as the Executive shall reasonably request.
7. Reload Options. If the Executive pays all or a portion of the exercise
price of an Option or the tax required to be withheld pursuant to an exercise of
<PAGE>
an Option by surrendering shares of Stock pursuant to Section 6(d) above, the
Executive shall be automatically granted an Option for the purchase of Stock
equal to the number of shares surrendered (a "Reload Option"). The grant of the
Reload Option shall be effective on the date the Participant surrenders the
shares of Stock in respect of which the Reload Option is granted (the "Reload
Date"). The Reload Option shall have an exercise price equal to the Fair Market
Value of the Stock on the Reload Date, and shall have a term which is no longer,
and which shall lapse no later, than the original term of the underlying option.
If stock otherwise available under an Incentive Stock Option is withheld
pursuant to Section 6(d) above, any Reload Option granted in connection with the
withholding shall be treated as a new Incentive Stock Option, subject to the
rules set forth in the Plan..
8. Adjustments. Upon the occurrence of any of the following events, the
Executive's rights with respect to Options granted hereunder shall be adjusted
as hereinafter provided unless otherwise specifically provided in the written
agreement between the Executive and the Company relating to such Option:
(a) If the shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of
Options shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend.
(b) Except as provided for pursuant to Section 5 (a) or 5(d) of the
Employment Agreement, if the Company is to be consolidated with or acquired
by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board") shall at the Executives sole option, as
to outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) terminate all Options in exchange for a cash payment
equal to the excess of the fair market value of the shares subject to such
Options (to the extent then exercisable) over the exercise price thereof.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subparagraph (b) above)
pursuant to which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock, the
Executive upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.
(d) Except as expressly provided herein, no issuance by the Company of
shares of stock of any class or securities convertible into shares of stock
of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends or other distributions paid in cash
or in property other than securities of the Company.
<PAGE>
(e) No fractional shares shall be issued pursuant to the Options, the
Executive shall receive from the Company cash in lieu of such fractional
shares.
9. Necessity to Become Holder of Record. Neither the Executive nor his
estate, as provided in paragraph 3(b), shall have any rights as a
shareholder with respect to any shares covered by the Options until such
person shall have become the holder of record of such shares. No adjustment
shall be made for cash dividends or cash distributions, ordinary or
extraordinary, in respect of such shares for which the record date is prior
to the date on which he shall become the holder of record thereof.
10. Reservation of Right to Terminate Relationship. Nothing contained
in this Agreement shall restrict the right of the Company to terminate the
relationship of Executive at any time, with or without cause. The
termination of the relationship of Executive by the Company, regardless of
the reason there for, shall have the results provided for in Section 5 of
this Agreement.
11. Conditions to Exercise of Options. In order to enable the Company
to comply with the Securities Act of 1933 (the "Securities Act") and
relevant state law, the Company shall require Executive, his estate, or any
Transferee as a condition of the exercising of the Options granted
hereunder, to give written assurance satisfactory to the Company that the
shares subject to the Options are being acquired for his own account, for
investment only, with no view to the distribution of same, and that any
subsequent resale of any such shares either shall be made pursuant to a
registration statement under the Securities Act and applicable state law
which has become effective and is current with regard to the shares being
sold, or shall be pursuant to an exemption from registration under the
Securities Act and applicable state law.
The Options are subject to the requirement that, if at any time the
board of directors shall determine, in its discretion, that the listing,
registration, or qualification of the shares of common stock subject to the
Options upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary
as a condition of, or in connection with the issue or purchase of shares
under the Options, the options may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected.
12. Duties of Company. The Company will at all times during the term
of Options:
(a) Reserve and keep available for issue such number of shares of
its authorized and unissued common stock as will be sufficient to
satisfy the requirements of this Agreement;
(b) Pay all original issue taxes with respect to the issue of
shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith;
(c) Use its best efforts to comply with all laws and regulations,
which, in the opinion of counsel for the Company, shall be applicable
thereto.
13. Parties Bound by Plan. The Plan and each determination, interpretation
<PAGE>
or other action made or taken pursuant to the provisions of the Plan shall be
final and shall be binding and conclusive for all purposes on the Company and
Executive and his respective successors in interest.
14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or to the interpretations, breach or enforcement thereof, shall
be submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any award made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
15. Benefit. This Agreement shall be binding upon and insure to the benefit
of the parties hereto and their legal representatives, successors and assigns.
16. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Allan L. Schwartz
5493 NW 42nd Avenue
Boca Raton, Florida 33496
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
17. Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
18. Construction. In the event any parts of this Agreement are found to be
void, the remaining provisions of this Agreement shall nevertheless be binding
with the same effect as though the void parts were deleted.
19. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
<PAGE>
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
20. Oral Evidence. This Agreement supersedes all prior oral and written
agreements between the parties hereto with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, except by a statement in writing signed by the
party or parties against which enforcement or the change, waiver discharge or
termination is sought.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
22. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
23. Paragraph Headings. Paragraph headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Agreement.
IN WITNESS WHEREOF the parties hereto have set their hand and seal the day
and year first above written.
WITNESSES: Imaging Diagnostic Systems, Inc.
___________________________ By: _____________________________
Linda B. Grable, President
___________________________ By: ______________________________
Allan L. Schwartz, Executive
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated August 30, 1999, between Imaging Diagnostic
Systems, Inc. (the "Company"), and Linda B. Grable (the "Executive").
WHEREAS, the Company desires to employ Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
(a) Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for a period
commencing on the date of this Agreement and ending five years from
the date hereof (the "Term").
(b) Continuing Effect. Notwithstanding any termination of this
Agreement at the end of the Term or otherwise, the provisions of
Sections 6 and 7 shall remain in full force and effect and the
provisions of Sections 6(b) and 7 shall be binding upon the legal
representatives, successors and assigns of the Executive, except as
otherwise provided in Section 5(d).
2. Duties.
(a) General Duties. The executive shall serve as Executive Vice
President/Chief Financial Officer of the Company, with duties and
responsibilities that are customary for such executives. The Executive
will also perform services for such subsidiaries as may be necessary.
The Executive will use his best efforts to performs his duties and
discharge his responsibilities pursuant to this Agreement competently,
carefully and faithfully.
(b) Devotion of Time. The Executive will devote all of his time,
attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and
vacation periods as have been established by the Company) to the
affairs of the Company. The Executive will not enter the employ of or
serve as a consultant to, or in any way perform any services with or
without compensation to, any other persons, business or organization
without the prior consent of the Board of Directors of the Company;
provided, that the Executive shall be permitted to devote a limited
amount of his time, without compensation, to charitable or similar
organizations.
<PAGE>
3. Compensation and Expenses.
(a) Salary. For the services of the Executive to be rendered
under this Agreement, the Company will pay the Executive an annual
base salary of $119,069.52 during the Term, subject to annual cost of
living increases based upon changes in the Consumer Price Index
published by the Bureau of Labor Statistics (or similar successor
index) for the region in which the Executive resides, but in no event
shall the cost of living increase be less than 7% per annum. The
annual salary under this Section 3(a) will be reduced, however, to the
extent that the Executive elects to defer any portion thereof under
the terms of any deferred compensation or savings plan maintained by
the Company. The Company will pay the Executive his annual salary in
equal installments no less frequently than twice a month.
(b) Bonus. For the services to be rendered by the Executive under
this Agreement, the Company's Board of Directors, on a yearly basis,
shall determine a bonus to be paid to Employee, based upon a
percentage of the adjusted consolidated net earnings of the Company
for each calendar year of Executive's employment, such sum to be
computed as follows:
(i) The adjusted consolidated net earnings of the Company shall
be determined in accordance with accepted accounting practice by the
independent accounting firm employed by the Company as its auditors,
within 90 days after the end of each fiscal year.
(ii) This computation of net earnings and of the Executive's
percentage compensation, made in the manner here provided, shall be
final and binding upon the Company and the Executive, and the Company
shall pay such compensation to the Executive within 120 days after the
end of the fiscal year in question. The Bonus may be paid in cash,
stock, or options, by mutual agreement of the Executive and the
Company.
(iii) For purposes of computing the Executive's percentage
compensation, the adjusted consolidated net earnings of the Company
shall be determined after full allowance for, and deduction of the
following: (a) all federal, state and municipal taxes; (b)
depreciation for the period based on the amount of depreciation set
forth in the annual report of the Company to its shareholders for the
fiscal year which includes such period.
(c) Expenses. In addition to any compensation received pursuant
to Section 3(a), (b) and (c), the Company will reimburse or advance
funds to the Executive for all reasonable travel, entertainment and
miscellaneous expenses incurred in connection with the performance of
his duties under this Agreement, provided that the Executive properly
accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement or advances will be made in
accordance with policies and procedures of the Company in effect from
time to time relating to reimbursement of or advances to executive
officers.
4. Benefits.
<PAGE>
(a) Vacation. For each 12-month period during the Term, the
Executive will be entitled to six weeks of vacation without loss of
compensation or other benefits to which he is entitled under this
Agreement, to be taken at such times as the Executive may select and
the affairs of the Company may permit.
(b) Employee Benefit Programs. Without limiting the compensation
to which the Executive is entitled pursuant to the provisions of
Section 3 or this Section 4, during the Term, the Executive will be
entitled to participate in any pension, insurance or other employee
benefit plan that is maintained at that time by the Company for its
executive officers, including programs of life and medical insurance
and reimbursement of membership fees in civic, social and professional
organizations.
(c) Incentive Stock Options. The Executive shall receive
incentive options to purchase up to an aggregate of 2,500,000 shares
of the Company's common or preferred stock, the terms and conditions
of which are more fully set forth in that certain Stock Option
Agreement dated August 30, 1999.
(d) Miscellaneous Benefits. The Company shall also provide
Executive with the following: (a) a $500 per month automobile
allowance, and (b) telephone card, cellular phone, and major credit
card.
5. Termination.
(a) Termination Without Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement without
cause. Such termination will become effective upon the date specified
in such notice, provided that such date is at least 60 days from the
date of such notice. Upon any such termination without cause:
(i) for the remainder of the term of this Agreement or for a
period of 36 months following such termination, whichever is
greater, the Company will continue to pay the Executive his
annual salary pursuant to Section 3(a) and his Bonus pursuant to
Section 3(b), and
(ii) the Company will continue to maintain for such period,
for the benefit of the Executive, the employee benefit programs
referred to in Section 4(b) that were in effect on the date of
such termination.
(b) Termination for Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement at any
time for cause by given written notice of termination. Such
termination will become effective upon the giving of such notice,
except that termination based upon clause (v) below shall not become
effective unless the Executive shall fail to correct such breach
within 30 days of receipt of written notice thereof provided pursuant
to the preceding sentence. Upon any such termination for cause, the
Executive shall have no right to compensation, commission, bonus or
reimbursement under Section 3, or to participate in any employee
benefit programs under Section 4 for any period subsequent to the
<PAGE>
effective date of termination. For purposes of this Section 5(b),
"cause" shall mean: (i) the Executive is convicted of a felony which
is related to the Executive's employment or the business of the
Company; (ii) the Executive, in carrying out his duties hereunder, has
been found in a civil action by the Company, to have committed willful
gross negligence or willful gross misconduct resulting, in either
case, in material harm to the Company; (iii) the Executive
misappropriates Company funds or otherwise defrauds the Company; (iv)
the Executive materially breaches any provision of Section 6 or
Section 7; and (v) the Executive materially fails to perform his
duties under Section 2 resulting in material harm to the Company.
(c) Death or Disability. Excepting for the conditions and
obligations contained in this Section 5(c), this Agreement and the
obligations of the Company hereunder will terminate upon the death or
disability of the Executive. For purposes of this Section 5(c),
"disability" shall mean that for a period of six months in any
12-month period the Executive is incapable of substantially fulfilling
the duties set forth in Section 2 because of physical, mental or
emotional incapacity resulting from injury, sickness or disease.
Upon termination by death or disability, the Company will pay the
Executive or his legal representative, as the case may be: (i) his
annual salary at such time pursuant to Section 3(a) through the date of
such termination of employment; and (ii) the Executive's share of the
Bonus as set forth in Section 3(b) of this Agreement. ;
(d) Special Termination. In the event that (i) the Executive,
with or without change in title or formal corporate action, shall no
longer exercise all of the duties and responsibilities and shall no
longer possess substantially all the authority set forth in Section 2;
or (ii) the Company materially breaches this Agreement or the
performance of its duties and obligations hereunder; or (iii) any
entity or person not now an executive officer of the Company becomes
either individually or as part of a group the beneficial owner of 20%
or more of the Company's common stock, the Executive, by written
notice to the Company, may elect to deem the Executive's employment
hereunder to have been terminated by the Company without cause under
Section 5(a) hereof, in which event the Executive shall be entitled to
the compensation payable pursuant to clauses (i)-(iii) of Section
5(a).
(e) Voluntary Termination. The Executive, on 30 days prior
written notice to the Company, may terminate his employment
voluntarily (i) at any time following termination of the initial Term
or (ii) at any time following the death or disabling illness of a
member of the Executive's immediate family or similar personal,
non-business related occurrence as a result of which the Executive
concludes he must devote a substantial amount of his time and energies
to his family or other personal matter and not to his business
activities so as to preclude his fulfilling his obligations under this
Agreement. Upon any such termination, the Company will pay the
Executive (i) his annual salary at such time pursuant to Section 3(a)
through the date of such termination of employment; and (ii) any bonus
which would have been payable through the date of termination pursuant
to Section 3(b).
(f) Continuing Effect. Notwithstanding any termination of the
<PAGE>
Executive's employment as provided in this Section 5 or otherwise, the
provisions of Sections 6 and 7 shall remain in full force and effect.
6. Non-competition Agreement.
(a) Competition with the Company. Until termination of his
employment and for a period of 12 months commencing on the date of
termination, the Executive, directly or indirectly, in association
with or as a stockholder, director, officer, consultant, employee,
partner, joint venturer, member or otherwise of or through any person,
firm, corporation, partnership, association or other entity, will not
compete with the Company or any of its affiliates in the offer, sale
or marketing of products or services that are competitive with the
products or services offered by the Company, within any metropolitan
area in the United States or elsewhere in which the Company is then
engaged in the offer and sale of competitive products or services;
provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines
of business, one of which is the same or similar to the Company's
business (the "Prohibited Business") if Executive's employment is
totally unrelated to the Prohibited Business; provided, further, the
foregoing shall not prohibit Executive from owning up to 5% of the
securities of any publicly-traded enterprise provided Executive is not
an employee, director, officer, consultant to such enterprise or
otherwise reimbursed for services rendered to such enterprise.
(b) Solicitation of Customers. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, directly
or indirectly, will not seek Prohibited Business from any Customer (as
defined below) on behalf of any enterprise or business other than the
Company, refer Prohibited Business from any Customer to any enterprise
or business other than the Company or receive commissions based on
sales or otherwise relating to the Prohibited Business from any
Customer, or any enterprise or business other than the Company. For
purposes of this Section 6(b), the term "Customer" means any person,
firm, corporation, partnership, association or other entity to which
the Company or any of its affiliates sold or provided goods or
services during the 24-month period prior to the time at which any
determination is required to be made as to whether any such person,
firm, corporation, partnership, association or other entity is a
Customer.
(c) Solicitation of Employees. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, will not
directly or indirectly, solicit employees of the Company for
employment by any person, enterprise, business, company, partnership,
joint venture or other entity. For the purposes of this Agreement, the
term "Employee " means any person, firm, corporation, partnership,
association or other entity which the Company, or any of its
affiliates, employed during the during the 24-month period prior to
the time at which any determination is required to be made as to
whether any such person, firm, corporation, partnership, association
or other entity is an Employee.
(d) No Payment. The Executive acknowledges and agrees that no
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
<PAGE>
7. Nondisclosure of Confidential Information. The Executive acknowledges
that during his employment he will learn and will have access to confidential
information regarding the Company and its affiliates, including without
limitation (i) confidential or secret plans, programs, documents, agreements or
other material relating to the business, services or activities of the Company
and its affiliates and (ii) trade secrets, market reports, customer
investigations, customer lists and other similar information that is proprietary
information of the Company or its affiliates (collectively referred to as
"confidential information"). The Executive acknowledges that such confidential
information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. All records, files, materials and
confidential information obtained by the Executive in the course of his
employment with the Company are confidential and proprietary and shall remain
the exclusive property of the Company or its affiliates, as the case may be. The
Executive will not, except in connection with and as required by his performance
of his duties under this Agreement, for any reason use for his own benefit or
the benefit of any person or entity with which he may be associated or disclose
any such confidential information to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever without the prior written
consent of the board of directors of the Company, unless such confidential
information previously shall have become public knowledge through no action by
or omission of the Executive.
8. Equitable Relief.
(a) The Company and the Executive recognize that the services to
be rendered under this Agreement by the Executive are special, unique
and of extraordinary character, and that in the event of the breach by
the Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action
in violation of Section 6 or Section 7, the Company will be entitled
to institute and prosecute proceedings in any court of competent
jurisdiction referred to in Section 8(b) below, to enjoin the
Executive from breaching the provisions of Section 6 or Section 7. In
such action, the Company will not be required to plead or prove
irreparable harm or lack of an adequate remedy at law. Nothing
contained in this Section 8 shall be construed to prevent the Company
from seeking such other remedy in arbitration in case of any breach of
this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in the federal
courts, or in the absence of federal jurisdiction in state court, in
either case in Florida where the Company maintains its principal
offices. The Executive and the Company irrevocably and unconditionally
submit to the jurisdiction of such courts and agree to take any and
all future action necessary to submit to the jurisdiction of such
courts. The Executive and the Company irrevocably waive any objection
that they now have or hereafter irrevocably waive any objection that
they now have or hereafter may have to the laying of venue of any
suit, action or proceeding brought in any such court and further
irrevocably waive any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Final judgment against the Executive or the Company in any such suit
shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment, a certified or true copy or which shall be conclusive
<PAGE>
evidence of the fact and the amount of any liability of the Executive
or the Company therein described, or by appropriate proceedings under
any applicable treaty or otherwise.
9. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
obligations hereunder may not be assigned or alienated and any attempt to do so
by the Executive will be void.
<PAGE>
10. Severability.
(a) The Executive expressly agrees that the character, duration
and geographical scope of the provisions set forth in this Agreement
are reasonable in light of the circumstances, as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to
impose only those restrictions on the Executive's conduct that are
reasonable in the light of the circumstances and as are necessary to
assure to the Company the benefits of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the
separate covenants deemed included herein because taken together they
are more extensive than necessary to assure to the Company the
intended benefits of this Agreement, it is expressly understood and
agreed by the parties hereto that the provisions of this Agreement
that, if eliminated, would permit the remaining separate provisions to
be enforced in such proceeding shall be deemed eliminated, for the
purposes of such proceeding, from this Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and
of like effect as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Linda B. Grable
12000 NW 11th Street
Plantation Florida 33323
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterpart. This Agreement may be executed in one or more
<PAGE>
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for any controversy or claim seeking equitable
relief as provided in Section 8 of this Agreement, any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof or any other dispute between the parties, shall be
submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any reward made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
14 Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
18. Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
Imaging Diagnostic Systems, Inc.
__________________________ By: ___________________________________
Executive Allan L. Schwartz, Exec Vice President
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") entered into as of the 30th
day of August 1999, between Imaging Diagnostic Systems, Inc. the "Company") and
Linda B. Grable, an Executive of the Company ("Executive").
WHEREAS, by action taken by the board of directors of the Company on August
30, 1999, it has adopted a 1999 Equity Incentive Plan (the "Plan"); and
WHEREAS, by action taken by the board of directors of the Company on the
same date, it has been determined that in order to enhance the ability of the
Company to attract and retain qualified officers it will grant Executive the
right to purchase stock in the Company pursuant to incentive options.
NOW THEREFORE, in consideration of the mutual covenants and promises
hereafter set forth and for other good and valuable consideration, receipt of
which is acknowledged, the parties hereto agree as follows:
1. Grant of Incentive Options. The Company irrevocably grants to Executive,
as a matter of separate agreement and not in lieu of salary or other
compensation for services, the right and option (the "Options") to purchase all
or any part of an aggregate of 2,500,000 shares of authorized but unissued
common stock of the Company or, at Executive's option, that number of Voting
Convertible Preferred Stock that would give Executive voting rights equal to the
2,500,000 shares of common stock, on the terms and conditions herein set forth.
The Options are intended to be Incentive Stock Options as defined by Section
422A of the Internal Revenue Code (the "Code").
2. Price. The exercise price of the shares of common stock subject to the
Options shall be 110% of fair market value on the date of the grant ($.21 per
share).
3. When Exercisable.
(a) Provided that Executive is employed by the Company on the
respective dates below, the Options shall vest as follows:
Date No. of Shares
August 30, 1999 500,000
August 30, 2000 500,000
August 30, 2001 500,000
August 30, 2002 500,000
August 30, 2003 500,000
(b) Except as provided in paragraphs 2 and 3 of this Agreement, once
any Option become exercisable they shall remain exercisable through August
30, 2004.
4. Conversion to Non-Qualified Options. In the event that the
stockholders of the Company fail to approve the Plan within one year after
approval by the Board of Directors, or in the event that the Executive is
terminated with pursuant to Section 5 (a) or 5(d) of that certain
Employment Agreement dated August 30, 1999 between the Company and the
Executive, a copy of which, is on file at the Company's corporate office
(the "Employment Agreement"), the exercise period for the Options shall be
extended through August 30, 2009 thereby converting all of the Options to
Non-Qualified Options. In such event, the Company shall pay Executive a
tax-offset bonus each time he exercises any Options. The amount of the tax
offset bonus shall be equal to the amount of federal income tax he incurs
in connection with the exercise of the Options assuming he is at the
highest marginal United States income bracket for the year of exercise.
Such bonus shall be paid to Executive on or before February 1, of the year
following exercise.
<PAGE>
5. Termination of Relationship.
(a) Except as set forth in Section 4 above, if for any reason, except
death, Executive ceases to act as an employee of the Company, all rights
granted hereunder shall terminate effective three months from the date
Executive ceases to act as an employee.
(b) If Executive shall die while an employee of the Company, his
estate or any transferee, as defined herein, shall have the right within
three months from the date of Executive's death to exercise Executive's
Options to the extent the right to exercise to the Options shall have
accrued at the date of death, except to the extent the Options shall have
been exercised prior thereto. The exercise period for any Options not
vested, shall be extended through August 30, 2004 thereby converting all of
the Options to Non-Qualified Options. For the purpose of this Agreement,
"transferee" shall mean a person to whom such shares are transferred by
will or by the laws of descent and distribution.
(c) No transfer of the Options by Executive by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of
the letters testamentary or such other evidence as the board may deem
necessary to establish the authority of the state and the acceptance by the
transferee or transferees of the terms and conditions of the Options.
(d) If Executive becomes disabled while employed by the Company within
the meaning of Section 22(e)(3) of the Code, the three month period
referred to in paragraph 3(a) of this Agreement shall be extended to one
year.
6. Method of Exercise/Registration. These Options shall be exercisable by a
written notice, which shall:
(a) state the election to exercise the Options, the number of shares
to be exercised, the person in whose name the stock certificate or
certificates for such shares of common stock is to be registered, his
address and social security number (or if more than one, the names,
addresses and social security numbers of such persons);
(b) contain such representations and agreements as to the holder's
investment intent with respect to such shares of common stock as set forth
in paragraph 8 hereof;
<PAGE>
(c) be signed by the person or persons entitled to exercise the
Options and, if the Options is being exercised by any person or persons
other than the Executive, be accompanied by proof, satisfactory to counsel
for the Company, of the right of such person or persons to exercise the
Options.
(d) be accompanied by full payment of the purchase or exercise price
there for either (i) in United States dollars in cash or by check; (ii) by
Executive's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable federal rate, as
defined in Section 1274(d) of the Code; (iii) by having the Company retain
a portion of the Shares covered by the option exercise, or (iv) by any
combination of (i) (ii) and (iii) above.
If the Executive chooses to pay the exercise price pursuant to (iii) above,
the number of Shares to be delivered to or withheld by the Company times the
fair market value shall equal the cash required for exercise. To the extent that
the Participant elects to either deliver or have withheld Shares of the
Company's Common Stock, the Board of Directors may require the Executive to make
such election only during certain periods of time as may be necessary to comply
with appropriate exemptive procedures regarding the "short-swing" profit
provisions of Section 16(b) of the Securities Exchange Act of 1934 or to meet
certain Internal Revenue Code requirements.
The certificate or certificates for shares of common stock as to which the
Options shall be exercised shall be registered in the name of the person or
persons exercising the Options.
The Company shall, if requested by the Executive, as expeditiously as
possible file a registration statement on a form of general use under the
Securities Act to permit the sale or other disposition of the Optioned Shares.
The Executive shall provide all information reasonable requested by the Company
for inclusion in any registration statement to be filed under this Agreement.
The Company will use its best efforts to cause such registration statement first
to become effective at the earliest practicable time and then to remain
effective for such period as the Executive reasonably deems necessary to effect
such sales or other dispositions or until all Optioned Shares no longer will
constitute "restricted securities" with the meaning of Rule 144 under the
Securities Act. Such registration shall be effected at the Company's expense
except for underwriting commissions and the fees and disbursements of the
Executive's counsel attributable to the registration of the Optioned Shares. The
Company and the Executive shall enter into an agreement under which each will
indemnify the other with respect to information provided by such party for use
in the registration statement, such indemnities and the procedures for them to
be in a form customarily included in registration rights agreements. The Company
further agrees to use its best efforts to register or qualify the Optioned Stock
covered under such registration statement under such other securities or
blue-sky laws of such jurisdictions as the Executive shall reasonably request.
7. Reload Options. If the Executive pays all or a portion of the exercise
price of an Option or the tax required to be withheld pursuant to an exercise of
<PAGE>
an Option by surrendering shares of Stock pursuant to Section 6(d) above, the
Executive shall be automatically granted an Option for the purchase of Stock
equal to the number of shares surrendered (a "Reload Option"). The grant of the
Reload Option shall be effective on the date the Participant surrenders the
shares of Stock in respect of which the Reload Option is granted (the "Reload
Date"). The Reload Option shall have an exercise price equal to the Fair Market
Value of the Stock on the Reload Date, and shall have a term which is no longer,
and which shall lapse no later, than the original term of the underlying option.
If stock otherwise available under an Incentive Stock Option is withheld
pursuant to Section 6(d) above, any Reload Option granted in connection with the
withholding shall be treated as a new Incentive Stock Option, subject to the
rules set forth in the Plan..
8. Adjustments. Upon the occurrence of any of the following events, the
Executive's rights with respect to Options granted hereunder shall be adjusted
as hereinafter provided unless otherwise specifically provided in the written
agreement between the Executive and the Company relating to such Option:
(a) If the shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of
Options shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend.
(b) Except as provided for pursuant to Section 5 (a) or 5(d) of the
Employment Agreement, if the Company is to be consolidated with or acquired
by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board") shall at the Executives sole option, as
to outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) terminate all Options in exchange for a cash payment
equal to the excess of the fair market value of the shares subject to such
Options (to the extent then exercisable) over the exercise price thereof.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subparagraph (b) above)
pursuant to which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock, the
Executive upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.
(d) Except as expressly provided herein, no issuance by the Company of
shares of stock of any class or securities convertible into shares of stock
of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends or other distributions paid in cash
or in property other than securities of the Company.
<PAGE>
(e) No fractional shares shall be issued pursuant to the Options, the
Executive shall receive from the Company cash in lieu of such fractional
shares.
9. Necessity to Become Holder of Record. Neither the Executive nor his
estate, as provided in paragraph 3(b), shall have any rights as a
shareholder with respect to any shares covered by the Options until such
person shall have become the holder of record of such shares. No adjustment
shall be made for cash dividends or cash distributions, ordinary or
extraordinary, in respect of such shares for which the record date is prior
to the date on which he shall become the holder of record thereof.
10. Reservation of Right to Terminate Relationship. Nothing contained
in this Agreement shall restrict the right of the Company to terminate the
relationship of Executive at any time, with or without cause. The
termination of the relationship of Executive by the Company, regardless of
the reason there for, shall have the results provided for in Section 5 of
this Agreement.
11. Conditions to Exercise of Options. In order to enable the Company
to comply with the Securities Act of 1933 (the "Securities Act") and
relevant state law, the Company shall require Executive, his estate, or any
Transferee as a condition of the exercising of the Options granted
hereunder, to give written assurance satisfactory to the Company that the
shares subject to the Options are being acquired for his own account, for
investment only, with no view to the distribution of same, and that any
subsequent resale of any such shares either shall be made pursuant to a
registration statement under the Securities Act and applicable state law
which has become effective and is current with regard to the shares being
sold, or shall be pursuant to an exemption from registration under the
Securities Act and applicable state law.
The Options are subject to the requirement that, if at any time the
board of directors shall determine, in its discretion, that the listing,
registration, or qualification of the shares of common stock subject to the
Options upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary
as a condition of, or in connection with the issue or purchase of shares
under the Options, the options may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected.
12. Duties of Company. The Company will at all times during the term
of Options:
(a) Reserve and keep available for issue such number of shares of
its authorized and unissued common stock as will be sufficient to
satisfy the requirements of this Agreement;
(b) Pay all original issue taxes with respect to the issue of
shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith;
(c) Use its best efforts to comply with all laws and regulations,
which, in the opinion of counsel for the Company, shall be applicable
thereto.
13. Parties Bound by Plan. The Plan and each determination, interpretation
<PAGE>
or other action made or taken pursuant to the provisions of the Plan shall be
final and shall be binding and conclusive for all purposes on the Company and
Executive and his respective successors in interest.
14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or to the interpretations, breach or enforcement thereof, shall
be submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any award made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
15. Benefit. This Agreement shall be binding upon and insure to the benefit
of the parties hereto and their legal representatives, successors and assigns.
16. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Linda B. Grable
12000 NW 11th Street
Plantation Florida 33323
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
17. Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
18. Construction. In the event any parts of this Agreement are found to be
void, the remaining provisions of this Agreement shall nevertheless be binding
with the same effect as though the void parts were deleted.
19. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
<PAGE>
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
20. Oral Evidence. This Agreement supersedes all prior oral and written
agreements between the parties hereto with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, except by a statement in writing signed by the
party or parties against which enforcement or the change, waiver discharge or
termination is sought.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
22. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
23. Paragraph Headings. Paragraph headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Agreement.
IN WITNESS WHEREOF the parties hereto have set their hand and seal the day
and year first above written.
WITNESSES: Imaging Diagnostic Systems, Inc.
___________________________ By: _____________________________
Allan L. Schwartz, Executive
Vice President
___________________________ By: ______________________________
Linda B. Grable, Executive
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated August 30, 1999, between Imaging Diagnostic
Systems, Inc. (the "Company"), and Richard J. Grable (the "Executive").
WHEREAS, the Company desires to employ Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
(a) Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for a period
commencing on the date of this Agreement and ending five years from
the date hereof (the "Term").
(b) Continuing Effect. Notwithstanding any termination of this
Agreement at the end of the Term or otherwise, the provisions of
Sections 6 and 7 shall remain in full force and effect and the
provisions of Sections 6(b) and 7 shall be binding upon the legal
representatives, successors and assigns of the Executive, except as
otherwise provided in Section 5(d).
2. Duties.
(a) General Duties. The executive shall serve as Executive Vice
President/Chief Financial Officer of the Company, with duties and
responsibilities that are customary for such executives. The Executive
will also perform services for such subsidiaries as may be necessary.
The Executive will use his best efforts to performs his duties and
discharge his responsibilities pursuant to this Agreement competently,
carefully and faithfully.
(b) Devotion of Time. The Executive will devote all of his time,
attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and
vacation periods as have been established by the Company) to the
affairs of the Company. The Executive will not enter the employ of or
serve as a consultant to, or in any way perform any services with or
without compensation to, any other persons, business or organization
without the prior consent of the Board of Directors of the Company;
provided, that the Executive shall be permitted to devote a limited
amount of his time, without compensation, to charitable or similar
organizations.
<PAGE>
3. Compensation and Expenses.
(a) Salary. For the services of the Executive to be rendered
under this Agreement, the Company will pay the Executive an annual
base salary of $119,069.52 during the Term, subject to annual cost of
living increases based upon changes in the Consumer Price Index
published by the Bureau of Labor Statistics (or similar successor
index) for the region in which the Executive resides, but in no event
shall the cost of living increase be less than 7% per annum. The
annual salary under this Section 3(a) will be reduced, however, to the
extent that the Executive elects to defer any portion thereof under
the terms of any deferred compensation or savings plan maintained by
the Company. The Company will pay the Executive his annual salary in
equal installments no less frequently than twice a month.
(b) Bonus. For the services to be rendered by the Executive under
this Agreement, the Company's Board of Directors, on a yearly basis,
shall determine a bonus to be paid to Employee, based upon a
percentage of the adjusted consolidated net earnings of the Company
for each calendar year of Executive's employment, such sum to be
computed as follows:
(i) The adjusted consolidated net earnings of the Company shall
be determined in accordance with accepted accounting practice by the
independent accounting firm employed by the Company as its auditors,
within 90 days after the end of each fiscal year.
(ii) This computation of net earnings and of the Executive's
percentage compensation, made in the manner here provided, shall be
final and binding upon the Company and the Executive, and the Company
shall pay such compensation to the Executive within 120 days after the
end of the fiscal year in question. The Bonus may be paid in cash,
stock, or options, by mutual agreement of the Executive and the
Company.
(iii) For purposes of computing the Executive's percentage
compensation, the adjusted consolidated net earnings of the Company
shall be determined after full allowance for, and deduction of the
following: (a) all federal, state and municipal taxes; (b)
depreciation for the period based on the amount of depreciation set
forth in the annual report of the Company to its shareholders for the
fiscal year which includes such period.
(c) Expenses. In addition to any compensation received pursuant
to Section 3(a), (b) and (c), the Company will reimburse or advance
funds to the Executive for all reasonable travel, entertainment and
miscellaneous expenses incurred in connection with the performance of
his duties under this Agreement, provided that the Executive properly
accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement or advances will be made in
accordance with policies and procedures of the Company in effect from
time to time relating to reimbursement of or advances to executive
officers.
4. Benefits.
<PAGE>
(a) Vacation. For each 12-month period during the Term, the
Executive will be entitled to six weeks of vacation without loss of
compensation or other benefits to which he is entitled under this
Agreement, to be taken at such times as the Executive may select and
the affairs of the Company may permit.
(b) Employee Benefit Programs. Without limiting the compensation
to which the Executive is entitled pursuant to the provisions of
Section 3 or this Section 4, during the Term, the Executive will be
entitled to participate in any pension, insurance or other employee
benefit plan that is maintained at that time by the Company for its
executive officers, including programs of life and medical insurance
and reimbursement of membership fees in civic, social and professional
organizations.
(c) Incentive Stock Options. The Executive shall receive
incentive options to purchase up to an aggregate of 2,500,000 shares
of the Company's common or preferred stock, the terms and conditions
of which are more fully set forth in that certain Stock Option
Agreement dated August 30, 1999.
(d) Miscellaneous Benefits. The Company shall also provide
Executive with the following: (a) a $500 per month automobile
allowance, and (b) telephone card, cellular phone, and major credit
card.
5. Termination.
(a) Termination Without Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement without
cause. Such termination will become effective upon the date specified
in such notice, provided that such date is at least 60 days from the
date of such notice. Upon any such termination without cause:
(i) for the remainder of the term of this Agreement or for a
period of 36 months following such termination, whichever is
greater, the Company will continue to pay the Executive his
annual salary pursuant to Section 3(a) and his Bonus pursuant to
Section 3(b), and
(ii) the Company will continue to maintain for such period,
for the benefit of the Executive, the employee benefit programs
referred to in Section 4(b) that were in effect on the date of
such termination.
(b) Termination for Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement at any
time for cause by given written notice of termination. Such
termination will become effective upon the giving of such notice,
except that termination based upon clause (v) below shall not become
effective unless the Executive shall fail to correct such breach
within 30 days of receipt of written notice thereof provided pursuant
to the preceding sentence. Upon any such termination for cause, the
Executive shall have no right to compensation, commission, bonus or
reimbursement under Section 3, or to participate in any employee
benefit programs under Section 4 for any period subsequent to the
<PAGE>
effective date of termination. For purposes of this Section 5(b),
"cause" shall mean: (i) the Executive is convicted of a felony which
is related to the Executive's employment or the business of the
Company; (ii) the Executive, in carrying out his duties hereunder, has
been found in a civil action by the Company, to have committed willful
gross negligence or willful gross misconduct resulting, in either
case, in material harm to the Company; (iii) the Executive
misappropriates Company funds or otherwise defrauds the Company; (iv)
the Executive materially breaches any provision of Section 6 or
Section 7; and (v) the Executive materially fails to perform his
duties under Section 2 resulting in material harm to the Company.
(c) Death or Disability. Excepting for the conditions and
obligations contained in this Section 5(c), this Agreement and the
obligations of the Company hereunder will terminate upon the death or
disability of the Executive. For purposes of this Section 5(c),
"disability" shall mean that for a period of six months in any
12-month period the Executive is incapable of substantially fulfilling
the duties set forth in Section 2 because of physical, mental or
emotional incapacity resulting from injury, sickness or disease.
Upon termination by death or disability, the Company will pay the
Executive or his legal representative, as the case may be: (i) his
annual salary at such time pursuant to Section 3(a) through the date of
such termination of employment; and (ii) the Executive's share of the
Bonus as set forth in Section 3(b) of this Agreement. ;
(d) Special Termination. In the event that (i) the Executive,
with or without change in title or formal corporate action, shall no
longer exercise all of the duties and responsibilities and shall no
longer possess substantially all the authority set forth in Section 2;
or (ii) the Company materially breaches this Agreement or the
performance of its duties and obligations hereunder; or (iii) any
entity or person not now an executive officer of the Company becomes
either individually or as part of a group the beneficial owner of 20%
or more of the Company's common stock, the Executive, by written
notice to the Company, may elect to deem the Executive's employment
hereunder to have been terminated by the Company without cause under
Section 5(a) hereof, in which event the Executive shall be entitled to
the compensation payable pursuant to clauses (i)-(iii) of Section
5(a).
(e) Voluntary Termination. The Executive, on 30 days prior
written notice to the Company, may terminate his employment
voluntarily (i) at any time following termination of the initial Term
or (ii) at any time following the death or disabling illness of a
member of the Executive's immediate family or similar personal,
non-business related occurrence as a result of which the Executive
concludes he must devote a substantial amount of his time and energies
to his family or other personal matter and not to his business
activities so as to preclude his fulfilling his obligations under this
Agreement. Upon any such termination, the Company will pay the
Executive (i) his annual salary at such time pursuant to Section 3(a)
through the date of such termination of employment; and (ii) any bonus
which would have been payable through the date of termination pursuant
to Section 3(b).
(f) Continuing Effect. Notwithstanding any termination of the
<PAGE>
Executive's employment as provided in this Section 5 or otherwise, the
provisions of Sections 6 and 7 shall remain in full force and effect.
6. Non-competition Agreement.
(a) Competition with the Company. Until termination of his
employment and for a period of 12 months commencing on the date of
termination, the Executive, directly or indirectly, in association
with or as a stockholder, director, officer, consultant, employee,
partner, joint venturer, member or otherwise of or through any person,
firm, corporation, partnership, association or other entity, will not
compete with the Company or any of its affiliates in the offer, sale
or marketing of products or services that are competitive with the
products or services offered by the Company, within any metropolitan
area in the United States or elsewhere in which the Company is then
engaged in the offer and sale of competitive products or services;
provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines
of business, one of which is the same or similar to the Company's
business (the "Prohibited Business") if Executive's employment is
totally unrelated to the Prohibited Business; provided, further, the
foregoing shall not prohibit Executive from owning up to 5% of the
securities of any publicly-traded enterprise provided Executive is not
an employee, director, officer, consultant to such enterprise or
otherwise reimbursed for services rendered to such enterprise.
(b) Solicitation of Customers. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, directly
or indirectly, will not seek Prohibited Business from any Customer (as
defined below) on behalf of any enterprise or business other than the
Company, refer Prohibited Business from any Customer to any enterprise
or business other than the Company or receive commissions based on
sales or otherwise relating to the Prohibited Business from any
Customer, or any enterprise or business other than the Company. For
purposes of this Section 6(b), the term "Customer" means any person,
firm, corporation, partnership, association or other entity to which
the Company or any of its affiliates sold or provided goods or
services during the 24-month period prior to the time at which any
determination is required to be made as to whether any such person,
firm, corporation, partnership, association or other entity is a
Customer.
(c) Solicitation of Employees. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, will not
directly or indirectly, solicit employees of the Company for
employment by any person, enterprise, business, company, partnership,
joint venture or other entity. For the purposes of this Agreement, the
term "Employee " means any person, firm, corporation, partnership,
association or other entity which the Company, or any of its
affiliates, employed during the during the 24-month period prior to
the time at which any determination is required to be made as to
whether any such person, firm, corporation, partnership, association
or other entity is an Employee.
(d) No Payment. The Executive acknowledges and agrees that no
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
<PAGE>
7. Nondisclosure of Confidential Information. The Executive acknowledges
that during his employment he will learn and will have access to confidential
information regarding the Company and its affiliates, including without
limitation (i) confidential or secret plans, programs, documents, agreements or
other material relating to the business, services or activities of the Company
and its affiliates and (ii) trade secrets, market reports, customer
investigations, customer lists and other similar information that is proprietary
information of the Company or its affiliates (collectively referred to as
"confidential information"). The Executive acknowledges that such confidential
information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. All records, files, materials and
confidential information obtained by the Executive in the course of his
employment with the Company are confidential and proprietary and shall remain
the exclusive property of the Company or its affiliates, as the case may be. The
Executive will not, except in connection with and as required by his performance
of his duties under this Agreement, for any reason use for his own benefit or
the benefit of any person or entity with which he may be associated or disclose
any such confidential information to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever without the prior written
consent of the board of directors of the Company, unless such confidential
information previously shall have become public knowledge through no action by
or omission of the Executive.
8. Equitable Relief.
(a) The Company and the Executive recognize that the services to
be rendered under this Agreement by the Executive are special, unique
and of extraordinary character, and that in the event of the breach by
the Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action
in violation of Section 6 or Section 7, the Company will be entitled
to institute and prosecute proceedings in any court of competent
jurisdiction referred to in Section 8(b) below, to enjoin the
Executive from breaching the provisions of Section 6 or Section 7. In
such action, the Company will not be required to plead or prove
irreparable harm or lack of an adequate remedy at law. Nothing
contained in this Section 8 shall be construed to prevent the Company
from seeking such other remedy in arbitration in case of any breach of
this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in the federal
courts, or in the absence of federal jurisdiction in state court, in
either case in Florida where the Company maintains its principal
offices. The Executive and the Company irrevocably and unconditionally
submit to the jurisdiction of such courts and agree to take any and
all future action necessary to submit to the jurisdiction of such
courts. The Executive and the Company irrevocably waive any objection
that they now have or hereafter irrevocably waive any objection that
they now have or hereafter may have to the laying of venue of any
suit, action or proceeding brought in any such court and further
irrevocably waive any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Final judgment against the Executive or the Company in any such suit
shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment, a certified or true copy or which shall be conclusive
<PAGE>
evidence of the fact and the amount of any liability of the Executive
or the Company therein described, or by appropriate proceedings under
any applicable treaty or otherwise.
9. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
obligations hereunder may not be assigned or alienated and any attempt to do so
by the Executive will be void.
<PAGE>
10. Severability.
(a) The Executive expressly agrees that the character, duration
and geographical scope of the provisions set forth in this Agreement
are reasonable in light of the circumstances, as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to
impose only those restrictions on the Executive's conduct that are
reasonable in the light of the circumstances and as are necessary to
assure to the Company the benefits of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the
separate covenants deemed included herein because taken together they
are more extensive than necessary to assure to the Company the
intended benefits of this Agreement, it is expressly understood and
agreed by the parties hereto that the provisions of this Agreement
that, if eliminated, would permit the remaining separate provisions to
be enforced in such proceeding shall be deemed eliminated, for the
purposes of such proceeding, from this Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and
of like effect as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Richard J. Grable
12000 NW 11th Street
Plantation Florida 33323
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterpart. This Agreement may be executed in one or more
<PAGE>
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for any controversy or claim seeking equitable
relief as provided in Section 8 of this Agreement, any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof or any other dispute between the parties, shall be
submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any reward made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
14 Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
18. Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
Imaging Diagnostic Systems, Inc.
__________________________ By: ___________________________________
Executive Allan L. Schwartz, Exec Vice President
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") entered into as of the 30th
day of August 1999, between Imaging Diagnostic Systems, Inc. the "Company") and
Richard J. Grable, an Executive of the Company ("Executive").
WHEREAS, by action taken by the board of directors of the Company on August
30, 1999, it has adopted a 1999 Equity Incentive Plan (the "Plan"); and
WHEREAS, by action taken by the board of directors of the Company on the
same date, it has been determined that in order to enhance the ability of the
Company to attract and retain qualified officers it will grant Executive the
right to purchase stock in the Company pursuant to incentive options.
NOW THEREFORE, in consideration of the mutual covenants and promises
hereafter set forth and for other good and valuable consideration, receipt of
which is acknowledged, the parties hereto agree as follows:
1. Grant of Incentive Options. The Company irrevocably grants to Executive,
as a matter of separate agreement and not in lieu of salary or other
compensation for services, the right and option (the "Options") to purchase all
or any part of an aggregate of 2,500,000 shares of authorized but unissued
common stock of the Company or, at Executive's option, that number of Voting
Convertible Preferred Stock that would give Executive voting rights equal to the
2,500,000 shares of common stock, on the terms and conditions herein set forth.
The Options are intended to be Incentive Stock Options as defined by Section
422A of the Internal Revenue Code (the "Code").
2. Price. The exercise price of the shares of common stock subject to the
Options shall be 110% of fair market value on the date of the grant ($.21 per
share).
3. When Exercisable.
(a) Provided that Executive is employed by the Company on the
respective dates below, the Options shall vest as follows:
Date No. of Shares
August 30, 1999 500,000
August 30, 2000 500,000
August 30, 2001 500,000
August 30, 2002 500,000
August 30, 2003 500,000
(b) Except as provided in paragraphs 2 and 3 of this Agreement, once
any Option become exercisable they shall remain exercisable through August
30, 2004.
4. Conversion to Non-Qualified Options. In the event that the
stockholders of the Company fail to approve the Plan within one year after
approval by the Board of Directors, or in the event that the Executive is
terminated with pursuant to Section 5 (a) or 5(d) of that certain
Employment Agreement dated August 30, 1999 between the Company and the
Executive, a copy of which, is on file at the Company's corporate office
(the "Employment Agreement"), the exercise period for the Options shall be
extended through August 30, 2009 thereby converting all of the Options to
Non-Qualified Options. In such event, the Company shall pay Executive a
tax-offset bonus each time he exercises any Options. The amount of the tax
offset bonus shall be equal to the amount of federal income tax he incurs
in connection with the exercise of the Options assuming he is at the
highest marginal United States income bracket for the year of exercise.
Such bonus shall be paid to Executive on or before February 1, of the year
following exercise.
<PAGE>
5. Termination of Relationship.
(a) Except as set forth in Section 4 above, if for any reason, except
death, Executive ceases to act as an employee of the Company, all rights
granted hereunder shall terminate effective three months from the date
Executive ceases to act as an employee.
(b) If Executive shall die while an employee of the Company, his
estate or any transferee, as defined herein, shall have the right within
three months from the date of Executive's death to exercise Executive's
Options to the extent the right to exercise to the Options shall have
accrued at the date of death, except to the extent the Options shall have
been exercised prior thereto. The exercise period for any Options not
vested, shall be extended through August 30, 2004 thereby converting all of
the Options to Non-Qualified Options. For the purpose of this Agreement,
"transferee" shall mean a person to whom such shares are transferred by
will or by the laws of descent and distribution.
(c) No transfer of the Options by Executive by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of
the letters testamentary or such other evidence as the board may deem
necessary to establish the authority of the state and the acceptance by the
transferee or transferees of the terms and conditions of the Options.
(d) If Executive becomes disabled while employed by the Company within
the meaning of Section 22(e)(3) of the Code, the three month period
referred to in paragraph 3(a) of this Agreement shall be extended to one
year.
6. Method of Exercise/Registration. These Options shall be exercisable by a
written notice, which shall:
(a) state the election to exercise the Options, the number of shares
to be exercised, the person in whose name the stock certificate or
certificates for such shares of common stock is to be registered, his
address and social security number (or if more than one, the names,
addresses and social security numbers of such persons);
(b) contain such representations and agreements as to the holder's
investment intent with respect to such shares of common stock as set forth
in paragraph 8 hereof;
<PAGE>
(c) be signed by the person or persons entitled to exercise the
Options and, if the Options is being exercised by any person or persons
other than the Executive, be accompanied by proof, satisfactory to counsel
for the Company, of the right of such person or persons to exercise the
Options.
(d) be accompanied by full payment of the purchase or exercise price
there for either (i) in United States dollars in cash or by check; (ii) by
Executive's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable federal rate, as
defined in Section 1274(d) of the Code; (iii) by having the Company retain
a portion of the Shares covered by the option exercise, or (iv) by any
combination of (i) (ii) and (iii) above.
If the Executive chooses to pay the exercise price pursuant to (iii) above,
the number of Shares to be delivered to or withheld by the Company times the
fair market value shall equal the cash required for exercise. To the extent that
the Participant elects to either deliver or have withheld Shares of the
Company's Common Stock, the Board of Directors may require the Executive to make
such election only during certain periods of time as may be necessary to comply
with appropriate exemptive procedures regarding the "short-swing" profit
provisions of Section 16(b) of the Securities Exchange Act of 1934 or to meet
certain Internal Revenue Code requirements.
The certificate or certificates for shares of common stock as to which the
Options shall be exercised shall be registered in the name of the person or
persons exercising the Options.
The Company shall, if requested by the Executive, as expeditiously as
possible file a registration statement on a form of general use under the
Securities Act to permit the sale or other disposition of the Optioned Shares.
The Executive shall provide all information reasonable requested by the Company
for inclusion in any registration statement to be filed under this Agreement.
The Company will use its best efforts to cause such registration statement first
to become effective at the earliest practicable time and then to remain
effective for such period as the Executive reasonably deems necessary to effect
such sales or other dispositions or until all Optioned Shares no longer will
constitute "restricted securities" with the meaning of Rule 144 under the
Securities Act. Such registration shall be effected at the Company's expense
except for underwriting commissions and the fees and disbursements of the
Executive's counsel attributable to the registration of the Optioned Shares. The
Company and the Executive shall enter into an agreement under which each will
indemnify the other with respect to information provided by such party for use
in the registration statement, such indemnities and the procedures for them to
be in a form customarily included in registration rights agreements. The Company
further agrees to use its best efforts to register or qualify the Optioned Stock
covered under such registration statement under such other securities or
blue-sky laws of such jurisdictions as the Executive shall reasonably request.
7. Reload Options. If the Executive pays all or a portion of the exercise
price of an Option or the tax required to be withheld pursuant to an exercise of
<PAGE>
an Option by surrendering shares of Stock pursuant to Section 6(d) above, the
Executive shall be automatically granted an Option for the purchase of Stock
equal to the number of shares surrendered (a "Reload Option"). The grant of the
Reload Option shall be effective on the date the Participant surrenders the
shares of Stock in respect of which the Reload Option is granted (the "Reload
Date"). The Reload Option shall have an exercise price equal to the Fair Market
Value of the Stock on the Reload Date, and shall have a term which is no longer,
and which shall lapse no later, than the original term of the underlying option.
If stock otherwise available under an Incentive Stock Option is withheld
pursuant to Section 6(d) above, any Reload Option granted in connection with the
withholding shall be treated as a new Incentive Stock Option, subject to the
rules set forth in the Plan..
8. Adjustments. Upon the occurrence of any of the following events, the
Executive's rights with respect to Options granted hereunder shall be adjusted
as hereinafter provided unless otherwise specifically provided in the written
agreement between the Executive and the Company relating to such Option:
(a) If the shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of
Options shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend.
(b) Except as provided for pursuant to Section 5 (a) or 5(d) of the
Employment Agreement, if the Company is to be consolidated with or acquired
by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board") shall at the Executives sole option, as
to outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) terminate all Options in exchange for a cash payment
equal to the excess of the fair market value of the shares subject to such
Options (to the extent then exercisable) over the exercise price thereof.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subparagraph (b) above)
pursuant to which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock, the
Executive upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.
(d) Except as expressly provided herein, no issuance by the Company of
shares of stock of any class or securities convertible into shares of stock
of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends or other distributions paid in cash
or in property other than securities of the Company.
<PAGE>
(e) No fractional shares shall be issued pursuant to the Options, the
Executive shall receive from the Company cash in lieu of such fractional
shares.
9. Necessity to Become Holder of Record. Neither the Executive nor his
estate, as provided in paragraph 3(b), shall have any rights as a
shareholder with respect to any shares covered by the Options until such
person shall have become the holder of record of such shares. No adjustment
shall be made for cash dividends or cash distributions, ordinary or
extraordinary, in respect of such shares for which the record date is prior
to the date on which he shall become the holder of record thereof.
10. Reservation of Right to Terminate Relationship. Nothing contained
in this Agreement shall restrict the right of the Company to terminate the
relationship of Executive at any time, with or without cause. The
termination of the relationship of Executive by the Company, regardless of
the reason there for, shall have the results provided for in Section 5 of
this Agreement.
11. Conditions to Exercise of Options. In order to enable the Company
to comply with the Securities Act of 1933 (the "Securities Act") and
relevant state law, the Company shall require Executive, his estate, or any
Transferee as a condition of the exercising of the Options granted
hereunder, to give written assurance satisfactory to the Company that the
shares subject to the Options are being acquired for his own account, for
investment only, with no view to the distribution of same, and that any
subsequent resale of any such shares either shall be made pursuant to a
registration statement under the Securities Act and applicable state law
which has become effective and is current with regard to the shares being
sold, or shall be pursuant to an exemption from registration under the
Securities Act and applicable state law.
The Options are subject to the requirement that, if at any time the
board of directors shall determine, in its discretion, that the listing,
registration, or qualification of the shares of common stock subject to the
Options upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary
as a condition of, or in connection with the issue or purchase of shares
under the Options, the options may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected.
12. Duties of Company. The Company will at all times during the term
of Options:
(a) Reserve and keep available for issue such number of shares of
its authorized and unissued common stock as will be sufficient to
satisfy the requirements of this Agreement;
(b) Pay all original issue taxes with respect to the issue of
shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith;
(c) Use its best efforts to comply with all laws and regulations,
which, in the opinion of counsel for the Company, shall be applicable
thereto.
13. Parties Bound by Plan. The Plan and each determination, interpretation
<PAGE>
or other action made or taken pursuant to the provisions of the Plan shall be
final and shall be binding and conclusive for all purposes on the Company and
Executive and his respective successors in interest.
14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or to the interpretations, breach or enforcement thereof, shall
be submitted to one arbitrator and settled by arbitration in Fort Lauderdale,
Florida, in accordance with the rules, then obtaining, of the American
Arbitration Association. Any award made by such arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
15. Benefit. This Agreement shall be binding upon and insure to the benefit
of the parties hereto and their legal representatives, successors and assigns.
16. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: Imaging Diagnostic Systems, Inc.
6531 NW 18th Court
Plantation Florida 33313
To the Executive: Richard J. Grable
12000 NW 11th Street
Plantation Florida 33323
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
17. Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
18. Construction. In the event any parts of this Agreement are found to be
void, the remaining provisions of this Agreement shall nevertheless be binding
with the same effect as though the void parts were deleted.
19. Governing Law. This Agreement and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
<PAGE>
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
20. Oral Evidence. This Agreement supersedes all prior oral and written
agreements between the parties hereto with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, except by a statement in writing signed by the
party or parties against which enforcement or the change, waiver discharge or
termination is sought.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
22. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
23. Paragraph Headings. Paragraph headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Agreement.
IN WITNESS WHEREOF the parties hereto have set their hand and seal the day
and year first above written.
WITNESSES: Imaging Diagnostic Systems, Inc.
___________________________ By: _____________________________
Allan L. Schwartz, Executive
Vice President
___________________________ By: ______________________________
Richard J. Grable, Executive
<PAGE>
