As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-_____________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________________________________
INTELLIGENT MEDICAL IMAGING, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________
Delaware 3841 65-0136178
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
John G. Igoe, Esq.
Edwards & Angell
4360 Northlake Boulevard, Suite 214 250 Royal Palm Way
Palm Beach Gardens, Florida 33410 Palm Beach, Florida 33480
(561)627-0344 (561)833-7700
(Address, including zip code, and telephone number, (Name, address, including
including area code, of registrant's zip code, and telephone
principal executive offices) number, including area
code, of agent for services)
______________________________________________________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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 this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
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 statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]. _____________________
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Class Amount to Proposed maximum Proposed maximum Amount of
of Securities to be Registered be registered (1) offering price per unit (2) aggregate offering price (2) registration fee (2)
<S> <C> <C> <C> <C>
Common Stock, 4,596,315 shares $1.9844 $9,120,927 $2,691
$.01 par value per share
</TABLE>
(1) There is also registered hereunder such indeterminate number of shares
of Common Stock, $.01 par value, of the Registrant as may be issuable in
connection with the Shares registered for sale hereby (i) by reason of any
stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an increase
in the Registrant's number of outstanding shares of Common Stock or (ii)
payment of interest thereon, pursuant to fluctuations in the price of the
Common Stock thereof in accordance with Rule 416 under the Securities Act
of 1933, as amended
(2) These figures are estimates made solely for the purpose of calculating
the registration fee pursuant to Rule 457 under the Securities Act of 1933,
as amended. The registration fee has been calculated in accordance Rule
457(c) based upon the average of the bid and asked prices of the
Registrant's Common Stock on the Nasdaq National Market on July 24, 1998.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall 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 the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 30, 1998
PROSPECTUS
4,596,315 Shares
INTELLIGENT MEDICAL IMAGING, INC.
Common Stock
$.01 Par Value
This prospectus relates to (a) 4,596,315 shares (the "Shares") of common stock,
par value $.01 per share (the "Common Stock"), of Intelligent Medical Imaging,
Inc. ("IMI" or the "Company") which may be offered hereby from time to time by
any or all of the selling stockholders of the Company named herein
(collectively, the "Selling Stockholders") of which (i) 3,647,860 are shares
which may in the future be issued to certain of the Selling Stockholders upon
the conversion of an aggregate of $3,000,000 principal amount of Convertible
Debentures (the "Debentures"), (ii) 656,614 are Shares which may be issued to
certain of the Selling Stockholders as accrued interest for three years on the
Debentures, (iii) 180,000 are Shares which may in the future be issued to
certain of the Selling Stockholders upon the exercise of outstanding warrants
held by such Selling Stockholders (the "Warrants"), and (iv) 111,841 are
outstanding Shares which may be offered for resale from time to time by certain
of the Selling Stockholders and (b) such presently indeterminate number of
additional Shares as may be issuable in connection with the Shares registered
for sale hereby (i) by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) as payment of interest thereon,
pursuant to fluctuations in the price of the Common Stock thereof in accordance
with Rule 416 under the Securities Act of 1933, as amended (the "Securities
Act"). The amount of Shares referenced above as issuable upon the conversion of
the Debentures and as payment of interest on the Debentures was calculated in
accordance with the terms of a registration rights agreement between the Company
and the recipient of the Debentures which provides that, for purposes of
determining the number of shares to be included in any registration statement,
the amount of shares issuable upon the conversion of the Debentures shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 200% of the number of shares of Common Stock into which the Debentures
(together with the payment of interest thereon) are convertible, assuming such
conversion occurred on June 30, 1998 or the filing date for such registration
statement, whichever yields a lower conversion price. In accordance with this
formula, the applicable conversion price for determining the amount of shares
issuable upon conversion of the Debentures and as payment of interest thereon
for purposes of this Prospectus is $1.6448 per share. The Selling Stockholders
may sell the Shares from time to time at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. See "Selling Stockholders" and "Plan of Distribution".
The Company will not receive any of the proceeds from the sale of the Shares by
the Selling Stockholders, but the Company will receive the proceeds from any
exercise of Warrants by the Selling Stockholders except to the extent such
Selling Stockholders elect to pay the applicable excercise price by means of a
cashless excercise, as permitted under the terms of the Warrants. See "Use of
Proceeds".
The Debentures and Warrants were issued to certain of the Selling Stockholders
in a private placement transaction (the "Private Placement") consummated on June
30, 1998 ("Original Issue Date"). Subject to adjustment in certain events,
twenty-five percent (25%) of the aggregate principal amount of the Debentures is
convertible into the Common Stock of the Company beginning on September 28, 1998
("Initial Conversion Date") and on the first, second and third month
anniversaries of the Initial Conversion Date up to 50%, 75% and 100%,
respectively, of the aggregate principal amount of the Debentures originally
issued on the Original Issue Date is convertible. The Debentures are convertible
at a conversion price ("Conversion Price") equal to the lesser of (a) 120% of
the average of the closing bid price for the Common Stock of the Company for the
five (5) trading days immediately preceding the Original Issue Date or (b) 86%
multiplied by the average of the five (5) lowest closing bid prices of the
Common Stock of the Company during the twenty-five (25) trading days immediately
preceding the date of the applicable conversion notice. Subject to certain
notification requirements, the Company has the right to prepay all or any
portion of the outstanding principal amount of the Debentures which has not
previously been repaid or converted. The principal amount of the Debentures for
which conversion notices have not previously been received or for which
prepayment has not been made will be automatically converted on June 30, 2001 at
the Conversion Price on such date. The Shares issuable in connection with the
conversion of Debentures and in satisfaction of interest obligations on the
Debentures are subject to adjustment and could be more or less than the
estimated amount listed herein depending on, among other things, the future
market price of the Common Stock. The Warrants are exercisable between June 30,
1998 and June 30, 2003 at an exercise price equal to $3.923 per share (120,000
shares) or $3.63 per share (60,000 shares), as the case may be, subject to
adjustment in certain events.
The Company has agreed to bear all of the expenses in connection with the
registration and sale of the Shares, including certain fees and disbursements of
counsel to certain of the Selling Stockholders but excluding any underwriter
fees, disbursements, commissions or discounts.
The Common Stock of the Company is quoted on the Nasdaq National Market under
the symbol "IMII". On July 24, 1998, the last reported sale price for the Common
Stock on the Nasdaq National Market was $2.00 per share.
Certain Selling Stockholders who are affiliates of the Company and anyone
effecting sales on behalf of such Selling Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
("Securities Act"), and commissions or discounts given may be regarded as
underwriting commissions or discounts under the Securities Act.
SEE "RISK FACTORS," BEGINNING ON PAGE 4, FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July ______, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Proxy statements, reports, information statements, and other information
concerning the Company can be inspected and copied at the Commission's office at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and the
Commission's Regional Offices located at Suite 1300, Seven World Center, Suite
1300, New York, New York 10048; and Northwestern Atrium Center, 500 Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a web
site that contains reports, proxy and information statements and information
statements and other information filed electronically with the Commission, the
address of which is http://www.sec.gov. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports, proxy statements and information
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc. located at 1735
K Street, N.W., Washington D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information regarding the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are necessarily summaries of such documents, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement for a more complete description of the matters
involved. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549 or
through its web site (http://www.sec.gov).
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated in this Prospectus by reference (File No. 1-14190):
1. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1998.
2. Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
3. The description of the Common Stock contained in a Registration
Statement on Form 8-A dated February 1, 1996, and any amendment or
report filed for the purpose of updating such description.
All reports and other documents filed by the Company with the Commission
after the date of this Prospectus and prior to the termination of the offering
of the Shares pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated in this Prospectus by reference shall
be deemed to be modified or superseded for the purpose of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated in
this Prospectus by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All reports and other documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and all
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that the prospectus incorporates) are available, without charge,
upon written or oral request from any person to whom this Prospectus is
delivered, to Intelligent Medical Imaging, Inc., 4360 Northlake Boulevard, Suite
214, Palm Beach Gardens, Florida 33410, Attention: Corporate Secretary
(telephone: (561) 627-0344.)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Prospectus.
This Prospectus may contain certain "forward-looking" information, as that term
is defined by (i) the Private Securities Litigation Reform Act of 1995 (the
"Act") and (ii) releases made by the Securities and Exchange Commission. Such
information involves risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
THE COMPANY
IMI has developed and is marketing the Micro21 System(TM), an intelligent,
automated microscope system, for diagnostic use in hospital, commercial
reference and physician group practice laboratories. The Micro21 System is
designed to automate a broad range of manual microscopic procedures, potentially
enabling the laboratory to reduce costs and exposure to liabilities, enhance
analytical accuracy and consistency, increase the productivity of medical
technologists and improve patient care. The Company has also developed two
automated slide makers, a Hematology Slide Maker and a Urine Slide Maker, for
use in the two most commonly performed microscopic review procedures, the White
Blood Cell Differential and Urine Analysis. These two products allow for
automation of the White Blood Cell Differential and Urine Analysis which, in
turn, may allow customers to reduce costs and contamination risks.
IMI was incorporated in the State of Florida in June 1989 and
reincorporated in the State of Delaware in January 1996. Its principal executive
offices are located at 4360 Northlake Boulevard, Suite 214, Palm Beach Gardens,
Florida 33410, and its telephone number is (561) 627-0344.
Recent Developments
On June 30, 1998, the Company consummated the Private Placement, pursuant
to which the Company issued the Debentures in an aggregate principal amount of
$3,000,000 to JNC Opportunity Fund, Ltd. ("JNC"). The Debentures mature on June
30, 2001 and are convertible into Common Stock of the Company at a floating
conversion rate which is determined in part by the future market price of the
Common Stock. A more detailed description of the conversion price and other
features of the Debentures is provided on page 1 of this Prospectus. In
connection with the Private Placement, the Company issued the Warrants to JNC
(120,000 shares), the financial consultant, Wharton Capital Partners, Ltd.
("Wharton") (42,000 shares), and Elizabeth D'Angelis (18,000 shares). The
Warrants entitle JNC, Wharton and Ms. D'Angelis to purchase Common Stock of the
Company between June 30, 1998 and June 30, 2003 at an exercise price of $3.923,
$3.63 and $3.63 per share, respectively, subject to adjustment in certain
events.
On July 24, 1998, the Company's Board of Directors authorized the Company
to enter into separate Extension Agreements with the Company's President and
Chief Executive Officer, Mr. Tyce Fitzmorris, and with a former Company Director
and current Company shareholder, R. Wayne Fritzsche, pursuant to which the due
dates for repayment of Company advances to Mr. Fitzmorris and Mr. Fritzsche in
the amounts of $196,000 and $424,000, respectively, were extended until August
28, 1998, subject to certain conditions. The Company entered into separate
Extension Agreements with Mr. Fitzmorris and Mr. Fritzsche (the "Extension
Agreements"). The Extension Agreements require Mr. Fitzmorris and Mr. Fritzsche
to make payments to the Company in partial satisfaction of the advances in the
amounts of $10,000 and $25,000, respectively, prior to July 28, 1998 and to
repay the advances in full, plus accrued but unpaid interest, no later than
August 28, 1998. Each of the advances are secured by shares of the Company's
Common Stock beneficially owned by the respective debtor.
THE OFFERING
This Prospectus relates to the sale of (a) 4,596,315 shares of Common Stock by
the Selling Stockholders of which (i) 3,647,860 are shares which may in the
future be issued to certain of the Selling Stockholders upon the conversion of
the Debentures, (ii) 656,614 are Shares which may be issued to certain of the
Selling Stockholders as accrued interest for three years on the Debentures,
(iii) 180,000 are Shares which may in the future be issued to certain of the
Selling Stockholders upon the exercise of the Warrants, and (iv) 111,841 are
outstanding Shares which may be offered for resale from time to time by certain
of the Selling Stockholders and (b) such presently indeterminate number of
additional Shares as may be issuable (i) by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without the
receipt of consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) as payment of interest thereon,
pursuant to fluctuations in the price of the Common Stock. The Company will not
receive any of the proceeds from the sale of the Shares of Common Stock by the
Selling Stockholders, but the Company will receive the proceeds from any
exercise of Warrants by the Selling Stockholders, except to the extent that such
Selling Stockholders elect to pay the applicable exercise price by means of a
cashless exercise, as permitted under the terms of the Warrants. See "Use of
Proceeds".
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In evaluating the Company and its business, prospective
investors should carefully consider the following risk factors in addition to
the other information included herein.
History of Operating Losses; Uncertainty of Profitability
The Company is in an early stage of product commercialization. The Company
has generated limited revenue to date, has experienced operating losses since
its inception in 1989 and has not yet achieved profitability. Operating losses
for the years ended December 31, 1995, December 31, 1996 and December 31, 1997
were approximately $4.0 million, $7.9 million and $12.8 million, respectively,
and at December 31, 1997, the Company had an accumulated deficit of
approximately $27.1 million. There can be no assurance that the Company's
products will achieve meaningful market acceptance or that the Company will ever
produce significant levels of product revenue or achieve or sustain
profitability. The Company may encounter substantial delays and expenses
relating to regulatory clearance, research, development and testing for new
procedures. In addition, delays or expenses associated with the defense of
potential patent infringement claims or other unforeseen difficulties may limit
the Company's ability to achieve profitability. The likelihood of the Company's
success must be considered in light of these and other problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the formation of a new business and the development and commercialization of new
products.
Reliance on the Micro21 System; Uncertain Market Acceptance
The Company has concentrated its efforts primarily on the development of
the Micro21 System and is dependent on the successful commercialization of this
product to generate revenues. The success of the Micro21 System is dependent
upon many variables, including its acceptance as a reliable, accurate and
cost-effective tool for microscopic analysis as well as the Company's
manufacturing capacity and marketing efforts. Currently, the medical industry
relies primarily on medical technologists for the performance of microscopic
cellular analysis procedures. There can be no assurance that the Micro21 System
will perform as expected or that the Micro21 System will achieve meaningful
market acceptance. The current model of the Micro21 System may not be cost
effective for lower volume laboratories. There can be no assurance that lower
priced models of the Micro21 System, which the Company plans to develop, will be
successfully developed by the Company or accepted by lower volume laboratories.
In addition to the development of the Micro21 System, the Company has also
developed automated slide makers for the White Blood Cell Differential and Urine
Analysis, the two most commonly performed microscopic review procedures.
Although the Company is hopeful that these two products, a Hematology Slide
Maker ("HSM") and a Urine Slide Maker ("USM"), will allow customers to achieve
reductions in labor costs and contamination risks, there can be no assurance
that the HSM and the USM will perform as expected or achieve meaningful market
acceptance since neither product has been released. Furthermore, there can be no
assurance that customers will find the HSM and the USM to be cost effective for
their particular needs.
The FDA clearances obtained by the Company for the Micro21 System require
that a medical technologist analyze the images shown on the Micro21 System. The
need to continue to employ a medical technologist to perform a review may limit
market acceptance of the Micro21 System. While the Company intends to submit
applications to the FDA for additional procedures, there can be no assurance
that the Company will obtain FDA clearance for additional procedures, or that
the Company will successfully complete development of its NeuralVision software
for the performance of such additional procedures. Specifically, the Company has
recently submitted a urine analysis procedure for the Micro21 System for FDA
clearance and the uncertainty regarding FDA clearance for this procedure must be
considered. The cost effectiveness of the Micro21 System to an end user, and
consequently meaningful market acceptance of the Micro21 System, may depend on
the Company's ability to develop and obtain regulatory clearance for
applications in addition to the currently cleared procedures, and there can be
no assurance that the Company will successfully develop such procedures or
obtain such clearances. The inability of the Company to develop the Micro21
System to perform additional procedures, or the failure by the Company to obtain
regulatory approval with respect to such additional procedures, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Future Capital Needs and Uncertainty of Additional Financing
The implementation of the Company's business strategy will require
significant expenditures of capital, and the Company will require additional
financing in the future. Additional funds may be sought through equity or debt
financings. There can be no assurance that commitments for such financings will
be obtained on favorable terms, if at all. Equity financing could result in
dilution to holders of Common Stock, and debt financing could result in the
imposition of significant financial and operational restrictions on the Company.
Lack of access to adequate capital on acceptable terms could have a material
adverse effect on the Company's business, results of operations and financial
condition, especially in the event of future delays in widespread market
acceptance of the Micro21 System. While the Company recently entered into a
Customer Financing Agreement with Prime Capital Corporation (the "Prime
Agreement") which the Company hopes will provide an attractive financing
alternative for the Company's customers, there can be no assurance that this
financing arrangement will favorably impact sales. The risks and uncertainties
associated with the Prime Agreement include the possibility that customers will
not qualify for financing from Prime and the possibility that Prime may at some
later date discontinue its financing operations. Another risk associated with
the Prime Agreement is that the Company may have to devote sales and marketing
efforts toward the resale of customer-returned products, for which Prime would
receive all sales proceeds, in the event customer returns of products initially
financed by Prime exceed certain levels.
Uncertainty of Pricing of the Micro21 System and New Products
The Company has sold or leased only a limited number of Micro21 Systems to
end users. As a result, there can be no assurance whether the prices for such
sales and leases will be indicative of the prices at which the Company will be
able to sell or lease the current model of the Micro21 System to end users in
the future. In addition, the Company anticipates that the price of the Micro21
System will vary depending on a variety of factors including the level of
acceptance in the marketplace, the number of microscopic procedures implemented
and the number of peripheral devices sold or leased with the Micro21 System. The
uncertainties discussed above regarding the pricing of the Micro21 System are
equally applicable to the HSM and the USM since these products have not yet been
released. Consequently, there are a number of uncertainties regarding the
pricing of HSM and USM, including the possibility that customers will perceive
these products as too expensive and not cost-effective for their particular
needs. The Company may discount asking prices to facilitate early market
penetration or in response to market conditions, which may reduce the Company's
gross profit margins which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Limited Sales, Marketing and Service Capability; Risks Arising from
Termination of Coulter Agreement, Coulter Settlement Agreement and DiaSys
Arbitration
In August 1995, the Company entered into an exclusive distribution
agreement (the "Coulter Agreement") with Coulter Corporation ("Coulter") for
worldwide sales, marketing and service of the Micro21 System. Prior to the
Company's termination of the Coulter Agreement (as described below), the Company
was dependent on its relationship with Coulter for sales, marketing and service
of its products. The Company terminated the Coulter Agreement in the fourth
quarter of 1996 because of Coulter's revocation of its commitment to purchase
$5,500,000 of Micro21 Systems during the third and fourth quarters of 1996 and
other actions by Coulter deemed by the Company to be in breach of the Coulter
Agreement. The parties settled this dispute as of March 27, 1997 pursuant to the
terms of a settlement agreement (the "Coulter Settlement Agreement"). The
dispute between the Company and Coulter has had and may continue to have an
adverse effect on sales and marketing and has been a factor in the return of
some Micro21 Systems placed with customers by Coulter for evaluation. The
Company anticipates that its business, results of operations and financial
condition will be adversely affected in 1998 as a result of the dispute with
Coulter and negative industry and market perception of such dispute and delays
in building the Company's sales and marketing organization and implementing its
sales and marketing program following termination of the Coulter Agreement. In
addition, as a result of certain rights granted by the Company to Coulter in
connection with the Coulter Settlement Agreement, the Company may be unable to
enter into an alternative exclusive distribution agreement, the lack of which
may adversely affect sales. Although the Company is currently engaged in
negotiations with Bayer Corporation for a definitive non-exclusive manufacturing
and distribution agreement and is also negotiating with Coulter for a definitive
distribution agreement relating to the HSM, there can be no assurance that the
Company will be able to negotiate mutually acceptable terms for these
agreements. Furthermore, the Company's inability to consummate these or other
agreements with strategic partners may have a material adverse effect on the
Company's operations, sales and costs.
The Company has limited sales, marketing and service capability and
experience. There can be no assurance that the Company will be able to build and
maintain a suitable sales force or that its direct sales and marketing efforts
will be successful. The expense, delay and potential setbacks in developing, or
the Company's ultimate failure to develop, an effective sales and marketing
organization for penetration and support of the market for the Micro21 System,
including but not limited to the pharmaceutical and veterinary lab market, could
have a material adverse effect on the Company's business, results of operations
and financial condition. There can be no assurance that the Company's sales team
and the Company's distributors such as Coulter will be able to sell the Micro21
System in sufficient quantities so as to allow the Company to achieve its sales
goals. In addition, while the Company intends to focus its marketing and sales
efforts on direct sales, the Company may continue to sell Micro21 Systems to
Coulter pursuant to the Coulter Settlement Agreement and to other distributors
for resale to customers, and substantial sales to distributors may be possible
only at transfer prices substantially lower than projected prices for direct
sales. During the fourth quarter of 1997, the Company began to offer a
short-term rental program which provides for monthly or annual rentals of the
MICRO21 system. The Company believes that this program will augment its sales
and long-term lease programs by giving potential customers the ability to fund a
MICRO21 with operating funds, thereby overcoming potential cost barriers
associated with limited or non-existent capital expenditure funds. However,
there can be no assurance that this short-term rental program will have a
positive impact on the Company's sales and any expansion of the short-term
rental program may require that the Company secure additional financing.
In November 1996, the Company entered into a Product Integration Agreement
(the "DiaSys Agreement") pursuant to which the Company committed to purchase
certain equipment from DiaSys Corporation ("DiaSys") to be integrated into the
MICRO21 system workstation. In June 1997, the Company notified DiaSys that it
was terminating the DiaSys Agreement due to DiaSys' material breaches of the
DiaSys Agreement. The Company also rejected all goods delivered by DiaSys to the
Company as non-conforming. DiaSys expressed its disagreement with the Company's
position regarding conformity of DiaSys's products and the Company's termination
of the DiaSys Agreement, and in January 1998 DiaSys filed for arbitration
against the Company (the "DiaSys Arbitration"). In its demand, DiaSys alleges
that the Company breached the DiaSys Agreement and defamed DiaSys and seeks
damages in excess of $1 million. As of March 31, 1998, the Company has not
accrued any loss contingencies or related expenses in connection with this
lawsuit. Management is unable to make a meaningful estimate of the likelihood or
amount or range of loss that could result from an unfavorable outcome of the
pending arbitration. Although the Company believes that it has meritorious
defenses which it will pursue vigorously and that the Company has valid
counterclaims against DiaSys, there can be no assurance that the ultimate
resolution of this dispute will not have a material adverse effect on the
Company's liquidity, financial condition and results of operations. In
particular, negative industry and market perception of the DiaSys Arbitration
and the ultimate settlement or conclusion of this matter may have an adverse
effect on the Company's sales and marketing.
Limited Manufacturing Experience; Risk of Manufacturing Scale-up
The Company's manufacturing experience to date has been limited. In order
to achieve significant revenue, the Company will have to produce the Micro21
System on a commercial scale. There can be no assurance that the Company will be
able to manufacture the Micro21 System in commercial-scale quantities at
commercially viable costs. The Company may encounter unexpected delays or costs
in scaling-up its manufacturing operations or in hiring and training additional
personnel to manufacture its products. The failure to scale-up manufacturing
successfully in a timely or cost-effective manner, future production problems or
interruptions in supply could have a material adverse effect on the Company's
business, results of operations and financial condition. Manufacturing cost
increases could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, the Company will be
required to adhere to applicable regulatory requirements, including regulations
as prescribed by the FDA from time to time, in the manufacture of the Micro21
System. Any failure to meet such requirements could delay or prohibit the
manufacturing of the Company's products, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
Since the Company currently has an adequate inventory of Micro21 Systems,
the Company anticipates that its manufacturing efforts in the near future will
be primarily directed towards the manufacture of the HSM and the USM. While the
Company has limited experience in manufacturing Micro21 Systems, the Company has
virtually no experience in manufacturing the HSM and the USM. As is the case
with the Micro21 System, the Company will need to manufacture the HSM and the
USM on a commercial scale in order to achieve significant revenue. Due to the
Company's lack of experience in manufacturing the HSM and the USM, there can be
no assurance that the Company will be able to manufacture these products in
commercial-scale quantities at commercially viable costs. The above-referenced
risk factors relating to the Micro21 System regarding delays in or failure to
scale-up manufacturing operations in a timely or cost-effective manner and the
possibility of future production problems or interruptions in supply are even
more relevant with respect to the manufacture of the HSM and the USM since these
products have not yet been released and the Company has no experience in
manufacturing these products.
Reliance on Single Source Suppliers
Certain key components of the Micro21 System are currently obtained from
single sources, are available only in limited quantities and require substantial
production lead times. The Company has in the past experienced delays in the
delivery of such components. Certain other components of the Micro21 System are
manufactured to the Company's specifications by single suppliers. There can be
no assurance that custom-made components from alternative vendors would be
available on terms satisfactory to the Company, if at all. If the Company were
to change suppliers of these components, it would likely experience an
interruption in supply, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the purchase of certain key components by the Company is based on internal
forecasts of future product sales. The preparation of such forecasts is based on
inexact methods and may vary considerably from actual results. The Company may
be required to maintain significant inventory and there can be no assurance that
purchases based on forecasting will be adequate to meet the Company's needs.
Fluctuations in Operating Results
The Company's results of operations have in the past and may in the future
be subject to significant fluctuation. Factors contributing to fluctuations in
operating results include the rate of acceptance of the Micro21 System by the
market, the timing of purchase orders, the timing of the introduction of new
procedures and products, if any, and the success and timing of obtaining
regulatory clearance. Such fluctuations could result in significant volatility
in, and could have a material adverse effect on, the market price for the Common
Stock.
Dependence on Trade Secrets and Proprietary Technology
The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology. The Company does not believe an
automated microscope system is patentable, and therefore does not intend to seek
patent protection for the Micro21 System, as a system. The Company does not hold
any patents and currently does not intend to seek patent protection for its
NeuralVision software as a whole. The Company relies principally on a
combination of trade secrets, proprietary knowledge, technological advances and
disclosure, confidentiality and non-competition agreements entered into with its
employees and certain consultants to protect its proprietary rights. No
assurance can be given that the Company's efforts will provide meaningful
protection for its unpatented proprietary technology against others who
independently develop or otherwise acquire substantially equivalent techniques
or gain access to, misappropriate or disclose the Company's proprietary
technology. In addition, there can be no assurance that any patent applications
filed by the Company will result in the issuance of patents or that any patents
issued to the Company will afford protection against competitors that develop
similar technology, or that a competitor will not reverse-engineer the Company's
software codes.
There can be no assurance that the Company's technology does not infringe
the proprietary rights of others. The Company has received, and may in the
future receive, notices claiming that the Company is infringing patents or other
proprietary rights. In 1991, the Company received a letter stating that the
Micro21 System may infringe a patent of Neuromedical Systems, Inc.
("Neuromedical"). The Company has investigated this matter and believes that the
Micro21 System does not infringe the specified patent. The Company has received
an opinion of its patent counsel that the Micro21 System does not infringe any
valid claims of such patent.
The Company settled its litigation with International Remote Imaging
Systems, Inc. ("IRIS") as of March 1, 1997 by entering into a settlement
agreement and related license agreement with IRIS (collectively, the "IRIS
Settlement Agreement"). Under the IRIS Settlement Agreement, IRIS granted the
Company a fully-paid, royalty-free license for worldwide direct sales of the
Micro21 System by the Company. The Company agreed to pay a 4% royalty on future
sales of the Micro21 System through third-party distributors in the United
States. This 4% royalty obligation expires in September 2000. The Company has
the right, but not the obligation, to request a license from IRIS for sales
through third-party distributors outside of the United States; however, the
Company does not believe that the Micro21 System infringes any foreign patents
held by IRIS and the Company has no current plans to request such a license.
Notwithstanding the Company's belief, there can be no assurance that IRIS or
other parties will not threaten to take legal action against the Company
alleging infringement of patents by the Micro21 System.
Patent litigation can be costly and time consuming, and there can be no
assurance that the Company's litigation expenses will not increase in the
future. If the Company were determined to be infringing any patent, the Company
could be required to pay damages, alter its products or processes, obtain
licenses and/or cease certain activities. In addition, if patents are issued to
others which contain claims that cover subject matter made, used or sold by the
Company, the Company may be required to obtain licenses to these patents, to
develop or obtain alternative technology or to cease using such technology. If
the Company is required to obtain any licenses, there can be no assurance that
the Company will be able to do so on commercially favorable terms, if at all. A
finding of infringement against the Company or the Company's failure to obtain a
license to any technology that it may require to commercialize its products
could have a material adverse effect on the Company's operations and financial
condition.
Competition and Technological Change
The markets in which the Company competes are highly competitive.
Competition exists and potential competition may arise from several sources,
including skilled medical technologists and manufacturers of clinical laboratory
equipment (including flow cytometer manufacturers such as Coulter), older
image-based systems and machine vision software.
The Company is aware of one other intelligent optical system utilizing
neural network software which is manufactured and developed by Neuromedical.
Neuromedical has received FDA clearance and commenced market launch of its
system. Neuromedical has notified the Company of its belief that the Micro21
System may infringe certain patents held by Neuromedical. The Company believes
that Neuromedical's product has been developed primarily for the Pap smear
procedure, a procedure for which the Company may, in the future, develop a
Micro21 System application. There can be no assurance that Neuromedical will not
adapt its system for other applications competing directly with the Company's
Micro21 System. The Company is aware that at least one other company, IRIS, has
developed and is marketing an optical system for performing the white blood cell
("WBC") differential (the "WBC Diff") and an automated system for urinalysis. In
addition, other companies, including NeoPath, Inc. and ChromaVision, Inc., are
marketing or may market intelligent optical systems applicable to microscopic
testing procedures that compete or may compete with the Micro21 System. The
Company's competition in the HSM market consists primarily of four companies,
Coulter, Abbott Laboratories, Sysmex Corporation of America ("Sysmex") and Omron
Corporation, with Sysmex and Omron being Japanese entities. The Company is aware
of two companies, IRIS and DiaSys, which have products competitive with the USM.
The clinical laboratory testing industry has undergone rapid and
significant technological change, and the Company expects that such change will
continue. Many current and potential competitors have substantially greater
financial resources than the Company, as well as extensive experience in
research and development, obtaining regulatory approvals and manufacturing and
marketing. There can be no assurance that existing technologies or technologies
under development by the Company's competitors will not be more effective,
easier to use or less expensive than those which have been or are being
developed by the Company or that any such technologies will not render the
Company's technology and products obsolete or otherwise non-competitive.
The Company's ability to react quickly to changing technology and other
competitive trends will be critical to the Company's success. The Company
intends to seek to develop, either internally or through licensing arrangements
with third parties with specialized slide preparation technology or related
microscopy expertise, products that can meet potential demand for a variety of
automated microscopic procedures. There can be no assurance that the Company's
competitors will not develop such products before the Company can, or that any
products developed by the Company, even if timely, will receive sufficient FDA
clearance or approval or will meet with greater market acceptance than those
manufactured by the Company's competitors.
In 1993, the Company established arrangements with XL Vision, Inc. ("XL
Vision") providing for XL Vision to provide design, engineering and
manufacturing services with respect to the Micro21 System. Under these
arrangements, XL Vision manufactured two Micro21 System prototype units for the
Company. In July 1994, the Company and XL Vision terminated these arrangements.
Pursuant to such termination, the Company granted to XL Vision a nonexclusive,
transferable license in the hardware, electrical, mechanical, structural and
circuit board portions of the June 1994 version of the Micro21 System and the
related machine control software. Such license did not include any rights
relating to the Company's neural network or image processing software programs.
In addition, the Company and XL Vision entered into a non-competition agreement
pursuant to which the Company agreed not to develop, market or sell products or
services related to certain immunocytochemical and nucleic acid probes, and XL
Vision agreed not to develop, market or sell products or services related to
certain microscopic and manual testing procedures. The non-competition agreement
expired in July 1996. There can be no assurance that XL Vision (or a sublicensee
thereof) will not attempt to utilize information it obtained in providing
services to the Company and the license granted to it by the Company to develop
products competitive with the Micro21 System. The Company believes that
ChromaVision, Inc. acquired its rights relating to the Micro21 System from XL
Vision.
Product Liability and Uncertainty of Adequate Insurance; Potential Exposure
to Claims
The Company's product is used to gather information for medical decisions
and diagnoses. Accordingly, the manufacture and sale of Micro21 Systems, the HSM
and the USM entails an inherent risk of product liability arising from an
inaccurate, or allegedly inaccurate, test or diagnosis. There can be no
assurance that product liability insurance maintained by the Company would be
sufficient to protect the Company in the event of a product liability claim.
Furthermore, there can be no assurance that the Company will be able to obtain
product liability insurance in the future with adequate coverages or at
acceptable costs. Any product liability claim against the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, under the terms of the Coulter Settlement
Agreement, the Company is required to indemnify Coulter for injuries to person
or property resulting from the design or manufacture of Micro21 Systems sold to
Coulter for distribution to end users. The failure to comply with FDA
regulations could have a material adverse effect on the ability of the Company
to defend against product liability lawsuits.
Uncertainty of Third Party Reimbursement and Health Care Reform Policies
and Cost Containment Measures
The willingness of hospitals, laboratories and other health care providers
to purchase or lease the Micro21 System, the HSM or the USM may depend on the
extent to which such providers limit capital expenditures due to cost
reimbursement regulations, including regulations promulgated by the Health Care
Financing Administration ("HCFA") and other regulatory agencies, and general
uncertainty about government health care policy. In addition, sales volumes and
prices of the Company's products will depend in part upon the level of
reimbursement available to hospitals, laboratories and other health care
providers for automated microscopic blood tests from third-party payors, such as
government and private insurance plans, health maintenance organizations and
preferred provider organizations. There can be no assurance that existing
reimbursement levels will not be decreased in the future and that any such
decrease will not reduce the demand for, or the price of, the Company's
products. Health care reform measures adopted by the federal government or state
governments could adversely affect the price of medical devices in the United
States or the amount of reimbursement available, and, consequently, could have a
material adverse effect on the Company's business, results of operations and
financial condition. Further, the Company believes that pressure in the health
care industry to control and contain patient care costs has increased and will
continue to increase. Such pressure may result in a reduction in the number and
type of clinical laboratory microscopic procedures performed (i.e., a reduction
in precautionary testing), thus decreasing the cost savings and other benefits
of the Micro21 System and, accordingly, demand for the Micro21 System. A
reduction in the number of precautionary tests and other clinical laboratory
microscopic procedures may also trigger a reduction in the need and demand for
automation of these procedures, which would adversely affect the Company's sales
of the HSM and the USM. No prediction can be made as to the outcome of any
reform initiatives or health care cost containment measures, or their respective
impacts on the Company.
Government Regulation; No Assurance of Future Regulatory Approval
The Company's products are subject to stringent government regulation in
the United States and other countries. In the United States, the Federal Food,
Drug, and Cosmetic Act, as amended (the "FDC Act"), and other statutes and
regulations govern the testing, manufacture, labeling, storage, record keeping,
distribution, sale, marketing, advertising and promotion of such products.
Failure to comply with applicable requirements can result in fines, recall or
seizure of products, total or partial suspension of production, withdrawal of
existing product approvals or clearances, refusal to approve or clear new
applications or notices and criminal prosecution.
Prior to commercial distribution in the United States, most medical
devices, including the Company's products, must be cleared or approved by the
FDA. The regulatory process is lengthy, expensive and uncertain. The Company's
Micro21 System has been cleared by the FDA through the 510(k) pre-market
notification process as a Class II automated cell locating device for the
automated location and display of nucleated blood cells to assist medical
technologists in performing WBC Diffs and WBC morphological analysis and for the
display of up to 20 full screen images of fields of a blood sample on a slide to
assist a medical technologist in assessing red blood cell ("RBC") morphologies
and in estimating platelets. The Company also has received FDA clearances for
three additional commonly performed microscopic procedures, the reticulocyte
count, anti-nuclear antibodies ("ANA") and DNA procedures, each of which also
requires review by a medical technologist, as well as 510(k) clearance for the
cerebrospinal fluid white blood cell differential, which is the examination of
white blood cells in spinal fluid and is used to diagnose inflammation and
infection of the central nervous system, including meningitis. The Company's
business strategy includes the development of additional applications for the
Micro21 System to perform additional cell location and classification functions.
No assurance can be given that the necessary permission from the FDA to market
the Micro21 System for such additional applications will not require the
submission and approval of additional 510(k) applications and/or pre-market
approval ("PMA") applications. The PMA approval process entails considerably
greater time (i.e., several years) and expense than does the 510(k) process,
including the performance of clinical trials to determine the safety and
efficacy of the device. No assurance can be given that the Company will obtain
clearance or approval with respect to any additional applications of the
Company's technology. Furthermore, FDA clearance of a 510(k) application or
approval of a PMA application is subject to continual review, and later
discovery of previously unknown problems may result in restrictions on a
product's marketing or withdrawal of the product from the market.
The FDA regulates computer software, such as the Company's NeuralVision
software, that performs the function of a regulated device or that is intimately
associated with a given device, such as control software for imaging or other
diagnostic devices. The FDA is in the process of reevaluating its regulation of
such software, and the Company cannot predict the extent to which the FDA will
regulate such software in the future. Should the FDA increase regulation of such
software, the Company's NeuralVision software platform may become subject to
more extensive regulatory processes and clearance requirements. No assurance can
be given that compliance with more extensive regulatory processes will be
achieved or that the necessary clearances for such software will be obtained by
the Company on a timely basis, if at all. The Company may, as a result, be
required to expend additional time, resources and effort in the areas of
software design, production and quality control to ensure compliance. Delay in
any FDA clearance with respect to such software could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company must also comply with regulations promulgated by the FDA from
time to time. The Company will be required to expend time, resources and effort
in product manufacturing and quality control to ensure compliance. If violations
of the applicable regulations are noted during FDA inspections of the Company's
manufacturing facilities and related software development facilities, the
continued marketing of the Company's products may be materially adversely
affected.
In addition, the Company has begun to market the Micro21 System in certain
foreign markets. Requirements for the sale of the Micro21 System vary widely
from country to country, ranging from simple product registrations to detailed
submissions such as those required by the FDA. To date, the Company has obtained
regulatory clearances or approvals to market the Micro21 System in the United
States, Canada and Japan; no regulatory clearances or approvals have yet been
applied for in any countries other than the United States, Canada and Japan, and
there is no assurance that any such approvals or clearances will be issued. The
ability to export into other countries may require obtaining ISO 9001
certification, which is analogous to compliance with FDA requirements, and CE
Mark certification. The Company has received CE Mark certification and ISO 9001
certification. The market for the Micro21 System also could be affected by the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). This law is
intended to assure the quality and reliability of all medical testing in the
United States.
Any change in existing federal, state or foreign laws or regulations, or in
the interpretation or enforcement thereof, or the promulgation of any additional
laws or regulations could have a material adverse effect on the Company's
business, results of operations and financial condition.
Dependence on Key Personnel; Ability to Manage Growth; Reductions in
Workforce
The Company depends to a substantial degree on the services of Tyce M.
Fitzmorris, Eric Espenhahn and Jaime Pereira, all of whom were instrumental in
founding the Company and in developing the Micro21 System. Mr. Fitzmorris serves
as the Company's Chairman, Chief Executive Officer and President. Mr. Espenhahn,
who serves as the Company's Vice President-Product Development, is primarily
responsible for the technical development of the Micro21 System and its
NeuralVision software. Mr. Pereira is a significant contributor to the
development of the NeuralVision software utilized in the Micro21 System and
serves as Vice President-Engineering. The Company has key man life insurance
policies on Messrs. Fitzmorris, Espenhahn and Pereira in the amounts of
$2,500,000, $1,250,000 and $1,250,000, respectively. In addition, as a result of
the dispute with Coulter, the Company believes that it is vital for the Company
to develop an effective sales and marketing organization. The loss of the
services of any of Messrs. Fitzmorris, Espenhahn or Pereira, or other key
personnel, including the Vice President of Sales, could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company does not have employment agreements, other than disclosure,
confidentiality and non-competition agreements, with any of its personnel.
The Company is highly dependent on the principal members of its management
and engineering staff, the loss of whose services might impede the achievement
of the Company's business objectives. As the Company grows, recruiting and
retaining additional qualified personnel to supervise and manage the Company's
research and development and manufacturing operations will be important to the
Company's success. Competition exists for qualified personnel, and there can be
no assurance that the Company will be able to retain and attract skilled and
experienced management, manufacturing, engineering and research and development
personnel on acceptable terms.
In order to reduce costs, the Company has recently implemented a cost
reduction program, including reduction of personnel. While the Company believes
it can operate and succeed with the current level of personnel, the reductions
could have an adverse effect on the Company's business, results of operations
and financial condition.
Control by Directors and Executive Officers
As of the date of this Prospectus, Mr. Fitzmorris, the Company's Chairman,
Chief Executive Officer and President, beneficially owned approximately 16.4% of
the outstanding shares of Common Stock, and the directors and executive officers
of the Company as a group beneficially owned approximately 29.2% of the
outstanding shares of Common Stock. Accordingly, directors and executive
officers will have significant influence over the policies and operations of the
Company, including the ability to replace Company's management or to alter the
conduct of the Company's business.
Anti-Takeover Effect of Certain Charter, By-law and Delaware Law Provisions
Certain provisions of the Company's Certificate of Incorporation, By-laws
and Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a chance in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. These provisions provide, among other things, for the
issuance, without further stockholder approval, of preferred stock with rights
and privileges which could be senior to the Common Stock and advance notice
provisions and other limitations on the right of stockholders to call a special
meeting of stockholders, to nominate directors and to submit proposals to be
considered at stockholders' meetings. The Company also is subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
Possible Volatility of Stock Price
Factors such as market acceptance of the Company's products, the timing of
purchase orders, announcements of technological innovations, the attainment of
(or failure to attain) milestones in the commercialization of the Company's
technology, the introduction of new products, or establishment of new
collaborative arrangements by the Company, its competitors or other third
parties, as well as claims of patent infringement or other material litigation,
government regulations, investor perception of the Company, fluctuations in the
Company's operating results and general market conditions in the industry may
cause the market price of the Common Stock to fluctuate significantly. In
addition, the stock market in general has recently experienced extreme price and
volume fluctuations, which have particularly affected the market prices of
technology companies for reasons frequently unrelated to the operating
performance of such companies. These broad market fluctuations may have a
material adverse effect on the market price of the Common Stock.
Dilution; Effect of Outstanding Options and Warrants
Investors in this offering will experience immediate and substantial
dilution in net tangible book value per share of the Common Stock of $.92. To
the extent that the Debentures are converted or the Warrants or outstanding
options are exercised, there will be further dilution to new investors. See
"Dilution."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders hereunder. However, if and when all or any portion of
the Warrants are exercised and up to 180,000 Shares are issued to the Selling
Stockholders, the Company will receive the proceeds from the sale of such Shares
to the Selling Stockholders, except to the extent that such Selling Stockholders
elect to pay the applicable exercise price by means of a cashless exercise, as
permitted under the terms of the Warrants. If the Warrants are exercised in full
and no cashless exercises are effected, the Company will receive $688,560 in
connection with such Warrant exercises. The Company intends to use any such
proceeds for working capital and other general corporate purposes. See "Selling
Stockholders" and "Plan of Distribution."
DILUTION
Dilution is the amount by which the price paid by the purchasers of the
shares of Common Stock will exceed the net tangible book value per share of
Common Stock. The net tangible book value per share of Common Stock is
determined by subtracting the total liabilities of the Company from the total
book value of the tangible assets of the Company and dividing the difference by
the number of shares of Common Stock outstanding on the date as of which such
book value is determined. Since the Selling Stockholders may sell the shares of
Common Stock from time to time at market prices prevailing at the time of sale,
at the prices related to such prevailing market prices or at negotiated prices,
and such prices cannot be determined at this time, the price paid by the
purchasers used in calculating the dilution to new investors in the following
table has been deemed to be $2.00, the closing price of the Common Stock on July
24, 1998. At March 31, 1998, the Company had a net tangible book value of
approximately $11,918,400 or $1.08 per share. The price of $2.00 represents an
immediate dilution to new investors of $.92 per share. The following table
illustrates this per share dilution:
Deemed price per share.............................................. $2.00
Net tangible book value per share at March 31, 1998..... ........... $1.08
Dilution per share to new investors............................... $ .92
The foregoing table does not take into account the possible conversion of
the Debentures or the exercise of outstanding stock options or Warrants after
March 31, 1998. There were 1,871,508 shares of Common Stock issuable upon
exercise of options outstanding at March 31, 1998 at a weighted average exercise
price of $2.63 per share, 568,977 shares of Common Stock issuable upon exercise
of warrants outstanding at March 31, 1998 (excluding the Warrants issued in
connection with the Private Placement) at a weighted average exercise price of
$1.12 per share, and 814,992 additional shares of Common Stock reserved for
issuance upon exercise of options that may be granted subsequent to March 31,
1998 under the Company's stock option plans. To the extent that these options or
warrants are exercised or the Debentures are converted, there will be further
dilution to new investors.
<PAGE>
SELLING STOCKHOLDERS
Set forth below is information as to the Selling Stockholders, the number
of shares of Common Stock of the Company beneficially owned, the number of
shares which may be offered as set forth on the cover of this Prospectus
(assuming that certain debentures, options and warrants are exercised) and the
number of shares to be beneficially owned assuming all offered shares are sold.
<TABLE>
Number of Shares Number of
Name and Position of Beneficially Owned Shares Being Shares to be Beneficially
Selling Stockholder Prior to the Offering Offered Owned After the Offering5
Number Percent
<S> <C> <C> <C> <C>
Robert Edward Baldini* 6,000 6,000 -0- -0-
Elizabeth D'Angelis 1 18,000 18,000 -0- -0-
Jerry Heymann* 4,000 4,000 -0- -0-
JNC Opportunity Fund Ltd. 2 1,031,965 4,424,474 -0- -0-
Gary Jones* 1,500 1,500 -0- -0-
Thomas J. Kumbatovic 3* 2,295 2,295 -0- -0-
LBI Group* 25,000 25,000 -0- -0-
James L. Melcher* 6,000 6,000 -0- -0-
Edmond P. Rochat, Jr.* 25,000 25,000 -0- -0-
George F. Rochat* 37,501 37,501 -0- -0-
WBM Investors Limited Partnership* 4,545 4,545 -0- -0-
Wharton Capital Partners, Ltd. 4 42,000 42,000 -0- -0-
</TABLE>
_________________________
* The Selling Stockholder has elected to register these Shares pursuant to
registration rights previously granted to the Selling Stockholder by the
Company. The Selling Stockholders who have elected to register Shares pursuant
to such registration rights shall hereinafter be collectively referred to as the
Electing Selling Stockholders.
1 Includes 18,000 shares issuable upon the exercise of warrants issued to Ms.
D'Angelis on June 30, 1998.
2 Includes the number of shares of Common Stock issuable upon (a) conversion of
the Debentures (3,647,860 Shares), (b) payment in lieu of cash, at the Company's
option, as interest on the Debentures (656,614 Shares) and (c) exercise of
warrants issued to JNC on June 30, 1998 (120,000 Shares). The amount of shares
of Common Stock referenced above as issuable upon conversion of the Debentures
and as payment of interest thereon was calculated in accordance with the terms
of a registration rights agreement between the Company and JNC which provides
that, for purposes of determining the number of Shares to be included on the
Registration Statement, the amount of such shares issuable upon conversion of
the Debentures shall include (but not be limited to) a number of shares of
Common Stock equal to no less than 200% of the number of shares of Common Stock
into which the Debentures (together with the payment of interest thereon) are
convertible, assuming such conversion occurred on June 30, 1998 or the filing
date for the Registration Statement, whichever yields a lower Conversion Price.
In accordance with this formula, the applicable Conversion Price for determining
the amount of shares issuable upon conversion of the Debentures and as payment
of interest thereon, as reflected in (a) and (b) above, is $1.6448 per share.
Since $2,250,000 principal amount of the Debentures is not convertible into
Common Stock within 60 days of the date of this Prospectus, 2,735,895 of the
3,647,860 Shares underlying the Debentures are not reflected as beneficially
owned by JNC prior to the Offering. Likewise, since the issuance of any Shares
issuable as payment, in lieu of cash, of interest on the Debentures is at the
Company's option, the 656,614 Shares referenced in (b) above as issuable as
interest on the Debentures are not reflected as beneficially owned by JNC prior
to the Offering The terms of the Debentures limit JNC's conversion rights
relating to the Debentures to the extent that (a) the number of shares of Common
Stock beneficially owned by JNC and its affiliates after such conversion would
exceed 4.999% of the Company's then issued and outstanding shares of Common
Stock or (b) the aggregate number of shares of Common Stock issued by the
Company in such conversion and as payment of interest thereon, together with the
shares issued in all prior conversions of the Debentures, would equal or exceed
20% of the number of shares of the Company's Common Stock outstanding on June
30, 1998.
3 Includes 2,295 shares of Common Stock issuable upon exercise of warrants
issued to Mr. Kumbatovic on December 4, 1995.
4 Includes 42,000 shares issuable upon the exercise of warrants issued to
Wharton on June 30, 1998.
5 Assumes the Selling Stockholder sells all of the Shares being offered.
Except as noted in this Prospectus and the Registration Statement, none of
the Selling Stockholders has any position, office or other material relationship
with the Company or any of its affiliates within the past three years.
Each of the Electing Selling Stockholders represented that he or she was
purchasing the Shares from the Company without any present intention of
effecting a distribution of those Shares other than in compliance with the
Securities Act. In recognition of the fact, however, that investors may want to
be able to resell their shares when they consider appropriate, and in
fulfillment of certain contractual commitments to the Electing Selling
Stockholders pursuant to registration rights agreements between the Company and
the Electing Selling Stockholders described herein under "Registration Rights",
the Company has provided the Electing Selling Stockholders with an opportunity
to include Shares owned by them in the Registration Statement (of which this
Prospectus is a part). The Company will prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep it
effective until the earlier of the sale of all Shares pursuant to the
Registration Statement or that date which is three years from the effective date
of the Registration Statement.
The registration rights agreements entered into by the Company and certain
of the Selling Stockholders provide that, in general, the Company will indemnify
the Selling Stockholders for any losses incurred by them in connection with
actions arising from any untrue statement of material fact in the Registration
Statement or from any omission of a material fact required to be stated therein,
unless such statement or omission was made in reliance upon written information
furnished to the Company by the Selling Stockholders. Similarly, the
registration rights agreements provide that, in general, each Selling
Stockholder will indemnify the Company and its officers and directors for any
losses incurred by them in connection with any action arising from any untrue
statement of material fact in the Registration Statement or an omission of a
material fact required to be stated therein, if such statement or omission was
made in reliance on written information furnished to the Company by such Selling
Stockholders.
REGISTRATION RIGHTS
On June 21, 1991, the Board of Directors adopted the following policy
("Registration Rights Policy") relating to any proposed registration of the
Company's shares of Common Stock for sale pursuant to the Securities Act. In the
event of such registration, if the Board of Directors approves inclusion of any
shares held by stockholders, subject to any limitations imposed by the
underwriter, all of the Company's stockholders may participate on a pro rata
basis in proportion to the number of shares held of record on a fully diluted
basis (assuming the exercise of any warrants or options then exercisable) by
such stockholders who desire to participate as selling stockholders in such
registration.
Pursuant to an Amended and Restated Registration Rights Agreement
("Registration Rights Agreement") dated as of January 3, 1995 between the
Company and R. Wayne Fritzsche, Mr. Fritzsche, certain transferees of Mr.
Fritzsche and certain stockholders of the Company hold: (a) piggyback
registration rights to include their shares in a Company registration under the
Securities Act (other than on Form S-4 or Form S-8, unless such stockholders are
eligible to participate on a filed Form S-8), subject to pro rata underwriter
cutbacks; and (b) demand registration rights to include their shares in a shelf
registration on Form S-3 (or equivalent) upon the written request of holders of
at least 25% of the shares subject to options, warrants and convertible notes
(the "Initial Shares"). The Company agreed it will not grant new piggyback,
demand or other registration rights to any stockholders unless the holders of
existing piggyback and demand registration rights can participate in any
registration involving such new rights. Also, the Company agreed it would not
grant more favorable registration rights to any person unless it also conferred
comparable rights upon holders of shares then covered by the Registration Rights
Agreement and holders of Initial Shares. The Company also agreed that any new
grant of registration rights inconsistent with the rights of holders of shares
covered by the Registration Rights Agreement would be subject to the prior
written consent of the holders of a majority of shares covered by the
Registration Rights Agreement and the holders of a majority of the Initial
Shares.
Pursuant to a separate registration rights agreement, the Company granted
to investors ("Convertible Note Investors") who purchased the September
Convertible Notes, registration rights covering the shares underlying such
notes, comparable to the rights granted to purchasers of the Initial Shares.
Pursuant to separate registration rights agreements, the Company granted to
purchasers of Common Stock in the 1994/1995 Offering registration rights
comparable to the registration rights granted to the Convertible Note Investors.
In addition, the Company agreed to use its best efforts to include in any Form
S-1 registration statement for the Company's initial public offering all of the
3,000,000 shares sold in the 1994/1995 Offering for resale on a delayed basis.
The Company's obligation to use its best efforts to register such shares was
waived in connection with the Company's initial public offering by the holders
of such registrable shares. In consideration of such waiver, the Company agreed
to register such registrable shares on Form S-3 twelve months from the date of
consummation of the Company's initial public offering. In accordance with this
agreement, the Company filed a registration statement on Form S-3 registering
5,880,724 shares, effective May 14, 1997 (the "May 1997 Registration
Statement"). Holders of all other shares of Common Stock outstanding prior to
the Company's initial public offering or issuable upon the exercise of warrants
or stock options granted or issuable under the Company's stock option plans were
eligible to include such shares in the May 1997 Registration Statement. On May
22, 1998 the Company terminated the May 1997 Registration Statement by filing a
post-effective amendment to the May 1997 Registration Statement, which became
effective on May 29, 1998.
In connection with the Private Placement, the Company entered into a
registration rights agreement with JNC (the "JNC Rights Agreement") pursuant to
which the Company agreed to prepare and file a registration statement on Form
S-3 covering the sale of the shares underlying the Debentures and Warrants (the
"Underlying Shares") by JNC, Wharton and Elizabeth D'Angelis (collectively, the
"Rights Holders") and to use its best efforts to keep such registration
statement in effect until the date which is three years after the date that such
registration statement is declared effective. Pursuant to the JNC Rights
Agreement, the Company also (a) granted to the Rights Holders piggyback
registration rights to include the Underlying Shares in a Company registration
statement under the Securities Act (other than on Form S-4 or Form S-8) and (b)
agreed that it would not, without the written consent of a majority of the
holders of the Underlying Shares, on or after the date of the JNC Rights
Agreement, grant any registration rights covering the Company's securities
unless such rights are subject to the rights of the Rights Holders under the JNC
Rights Agreement or are not otherwise inconsistent with the terms of such
agreement. Also in connection with the Private Placement, the Company's
Chairman, Chief Executive Officer and President, Mr. Fitzmorris, the Company's
Vice President - Product Development, Mr. Espenhahn, and a Company shareholder,
Mr. R. Wayne Fritzsche, agreed to waive their rights under the above-described
registration rights agreements to include shares owned by them in the JNC Rights
Agreement.
This registration statement complies with the Company's obligations to
register securities pursuant to the above-described registration rights
agreements.
PLAN OF DISTRIBUTION
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
Shares in privately negotiated transactions or otherwise, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The Shares may be sold by
the Selling Stockholders by one or more of the following methods, without
limitation: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus, (c) an exchange distribution in accordance with the rules of
the applicable exchange, (d) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, (e) privately negotiated transactions, (f)
short sales, (g) a combination of any such methods of sale and (h) any other
method permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers may
agree with the Selling Stockholders to sell a specified number of such Shares at
a stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including certain fees and disbursements of counsel
to the Selling Stockholders, but excluding any underwriter fees, disbursements,
commissions or discounts. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"IMII".
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by Edwards & Angell, Palm Beach, Florida.
EXPERTS
The financial statements of Intelligent Medical Imaging, Inc. appearing in
Intelligent Medical Imaging, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1997, have been audited by Ernst & Young LLP, independent certified
public accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The statement in this Prospectus under the caption "Risk Factors -
Dependence on Trade Secrets and Proprietary Technology" set forth in the fifth
sentence of the second paragraph under the caption "Risk Factors - Dependence on
Trade Secrets and Proprietary Technology" has been reviewed and approved by
Malin, Haley, DiMaggio & Crosby, P.A., Fort Lauderdale, Florida, serving as
patent counsel for the Company, and as an expert on such matters, and is
included herein in reliance upon that review and approval.
<PAGE>
________________________________________________________________________________
No dealer, sales representative or
any other person has been authorized to
give any information or to make any
representations in
connection with this offering other than
those contained in this Prospectus, and,
if given or made, such information or 4,596,315 Shares
representations must not be relied upon
as having been authorized by the Company
or any of the Selling Stockholders. This INTELLIGENT MEDICAL IMAGING, INC.
Prospectus does not constitute an offer
to sell, or a solicitation of an offer
to buy, any securities other than the
registered securities to which it
relates or an offer to, or a Common Stock
solicitation of, any person in any
jurisdiction where such offer or
solicitation would be unlawful. Neither _________________________________
the delivery of this prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication Prospectus
that there has been no change in the
affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time July ____, 1998
subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Available Information.................2
Incorporation of Certain Information
by Reference.........................3
Prospectus Summary....................4
Risk Factors..........................5
Use of Proceeds......................12
Dilution.............................12
Selling Stockholders.................14
Registration Rights..................15
Plan of Distribution.................16
Legal Matters........................17
Experts..............................17
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than sales commissions)
expected to be incurred in connection with the offerings described in this
Registration Statement. All amounts except the registration fee are estimated.
Registration Fee..........................................$ 2,691
Printing..................................................$ 2,000
Accounting Fees and Expenses..............................$ 10,000
Legal Fees and Expenses...................................$ 50,000
Miscellaneous.............................................$ 8,000
TOTAL............................................$72,691
The Registrant will bear all of the expenses of the registration of the
securities being offered.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended, provides
in regard to indemnification of directors and officers as follows:
"145. Indemnification of Officers, Directors, Employees and Agents;
Insurance.
(a) A corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee, or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plans; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested and has exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
The Company's By-laws contain the foregoing provisions with regard to
indemnification of officers, directors, employees and agents.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the Delaware General
Corporation Law as in effect at the time such liability is determined.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company.
Reference is made to Section 5 of the JNC Rights Agreement and Section 4 of
the Registration Rights Agreement filed as Exhibits 1.2 and 1.3, respectively,
to the Registration Statement for the Company's and Selling Stockholders'
respective agreements to indemnify each other and to provide contribution in
circumstances where indemnification is unavailable.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description of Document
1.1* Convertible Debenture Purchase Agreement dated June 30, 1998
between Intelligent Medical Imaging, Inc. and JNC Opportunity
Fund Ltd.
1.2* Registration Rights Agreement dated June 30, 1998 between
Intelligent Medical Imaging, Inc. and JNC Opportunity Fund Ltd.
1.3 Form of Registration Rights Agreement (incorporated by reference
to Exhibit 10.17 to Registration Statement No. 333-636).
4.1* Form of Debenture dated June 30, 1998
4.2* Form of Warrant dated June 30,1998
4.3 Form of Stock Certificate (incorporated by reference to Exhibit
4.1 to Registration Statement No. 333-636).
5.1* Opinion of Edwards & Angell regarding legality of the Common
Stock.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Edwards & Angell (included in Exhibit 5.1).
23.3* Consent of Malin, Haley, DiMaggio & Crosby, P.A.
24.1* Power of Attorney (see page II-6 of Registration Statement).
* Filed herewith
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 of 1933;
(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; and
(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; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 and are incorporated by reference in this Registration
Statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus 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.
(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.
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 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 bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, 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 or 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 Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Intelligent
Medical Imaging, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Palm
Beach Gardens, State of Florida, on this 30th day of July, 1998.
INTELLIGENT MEDICAL IMAGING, INC.
By: /s/TYCE M. FITZMORRIS
---------------------------------
Tyce M. Fitzmorris
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Tyce M. Fitzmorris and Gene Cochran, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead in any
and all capacities, to sign any or all amendments to this Registration Statement
on Form S-3 (including post-effective amendments), and to file the same, with
all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 30, 1998.
Signature Title Date
/s/ TYCE M. FITZMORRIS President and Chief Executive Officer, July 30, 1998
- -------------------------- Chairman of the Board of Directors
Tyce M. Fitzmorris
/s/ GENE COCHRAN Chief Financial Officer and July 30, 1998
- -------------------------- Principal Accounting Officer, Director
Gene Cochran
/s/ WILLIAM D. WHITTAKER Director July 30, 1998
- --------------------------
William D. Whittaker
/s/ GEORGE MASTERS Director July 30, 1998
- --------------------------
George Masters
/s/ JAMES E. DAVIS Director July 30, 1998
- --------------------------
James E. Davis
Exhibit 1.1
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Between
INTELLIGENT MEDICAL IMAGING, INC.
and
JNC OPPORTUNITY FUND LTD.
Dated as of June 30, 1998
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
June 30, 1998, between Intelligent Medical Imaging, Inc., a Delaware corporation
(the "COMPANY"), and JNC Opportunity Fund Ltd., a Cayman Islands corporation
(the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase from the Company, an aggregate principal amount of $3,000,000 of the
Company's 6% Convertible Debentures, due June 30, 2001 (the "DEBENTURES"), which
are convertible into shares of the Company's common stock, $.01 par value per
share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy are hereby
acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
1.1 THE CLOSING
(a) The Closing. (i) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchaser and the Purchaser
shall purchase the Debentures for an aggregate purchase price of $3,000,000. The
closing of the purchase and sale of the Debentures (the "Closing") shall take
place at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP (the
"ESCROW AGENT"), 1290 Avenue of the Americas, New York, New York 10104, or other
place as mutually agreed immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is hereinafter
referred to as the "CLOSING DATE."
(ii) Prior to the Closing, the parties shall deliver or shall cause to be
delivered to the Escrow Agent such items as are required to be delivered by them
in accordance with and subject to the terms and conditions of the Escrow
Agreement, dated as of the date hereof, by and among the Company, the Purchaser
and the Escrow Agent, in the form of EXHIBIT E (the "ESCROW AGREEMENT"),
including the following: (A) the Company shall deliver (1) the Debentures
registered in the name of the Purchaser, (2) a common stock purchase warrant, in
the form of EXHIBIT D, registered in the name of the Purchaser, pursuant to
which the Purchaser shall have the right at any time and from time to time
thereafter through the fifth anniversary date of the Original Issue Date to
acquire 120,000 shares of Common Stock at an exercise price per share of $3.923
(the "WARRANT"), (3) the legal opinion of Edwards & Angell, LLP outside counsel
to the Company, substantially in the form of EXHIBIT C, and (4) all other
documents, instruments and writings required to have been delivered at or prior
to the Closing Date by the Company pursuant to this Agreement, including an
executed Registration Rights Agreement, dated the date hereof, between the
Company and the Purchaser, in the form of EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"), and the Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT F, delivered to and acknowledged by the Company's transfer agent (the
"TRANSFER AGENT INSTRUCTIONS"); and (B) the Purchaser shall deliver (1)
$3,000,000 in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose,
and (2) all documents, instruments and writings required to have been delivered
at or prior to the Closing Date by the Purchaser pursuant to this Agreement,
including, without limitation, an executed Registration Rights Agreement; and
(C) each party hereto shall deliver all other executed instruments, agreements
and certificates as are required to be delivered hereunder by or on their behalf
at the Closing.
1.2 FORM OF DEBENTURES. The Debentures shall be in the form of EXHIBIT A.
.2 FORM OF DEBENTURES. The Debentures shall be in the form of EXHIBIT A.
1.3 CERTAIN DEFINED TERMS. For purposes of this Agreement, "CONVERSION
PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall have the meanings set
forth in Exhibit A; "BUSINESS DAY" shall mean any day except Saturday, Sunday
and any day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
ARTICLE II REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in SCHEDULE 2.1(A)
(collectively the "SUBSIDIARIES"). Each of the Subsidiaries is an entity, duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of this
Agreement, the Debentures, the Registration Rights Agreement, the Warrant or the
Escrow Agreement (collectively, the "TRANSACTION DOCUMENTS"), (y) have or result
in a material adverse effect on the results of operations, assets, prospects, or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (z) adversely impair the Company's ability to perform fully on a
timely basis its obligations under any of the Transaction Documents (any of (x),
(y) or (z), a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The number of authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(C). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in SCHEDULE 2.1(C), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures and the Warrant, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents (as defined
below) or SCHEDULE 2.1(C), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF THE DEBENTURES AND THE WARRANT. The Debentures and the
Warrant are duly authorized, and, when issued and paid for in accordance with
the terms hereof, shall have been validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "LIENS"). The Company has on the date hereof and will, at
all times while the Debentures and the Warrant are outstanding, maintain an
adequate reserve of duly authorized shares of Common Stock, reserved for
issuance to the holders of the Debentures and the Warrant, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Debentures and the Warrant. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date or the Filing Date
(as defined in the Registration Rights Agreement), whichever yields a lower
Conversion Price, (ii) the number of shares of Common Stock issuable upon
exercise of the Warrant, and (iii) the number of shares Common Stock which would
be issuable upon payment of interest on the Debentures, assuming each Debenture
is outstanding for three years and all interest is paid in shares of Common
Stock (such number of shares, the "INITIAL MINIMUM"). All such authorized shares
of Common Stock shall be duly reserved for issuance to the holders of such
Debentures and Warrant. The shares of Common Stock issuable upon conversion of
the Debentures, as payment of interest thereon and upon exercise of the Warrant
are collectively referred to herein as the "UNDERLYING SHARES." The Debentures,
the Warrant and the Underlying Shares are, collectively, the "SECURITIES." When
issued in accordance with the Debentures and the Warrant, in accordance with
their respective terms, the Underlying Shares shall have been duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other Federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filings required pursuant to Section 3.12, (ii)
the filing of the Underlying Securities Registration Statement with the
Securities and Exchange Commission (the "COMMISSION") meeting the requirements
set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by the Purchaser, (iii) the application(s) to the Nasdaq
National Market (the "NASDAQ") for the listing of the Underlying Shares with the
NASDAQ (and with any other national securities exchange or market on which the
Common Stock is then listed), (iv) applicable Blue Sky filings and, and (v) in
all other cases where the failure to obtain such consent, waiver, authorization
or order, or to give such notice or make such filing or registration could not
have or result in, individually or in the aggregate, a Material Adverse Effect
(the consents, waivers, authorizations, orders, notices and filings referred to
in (i)-(v) of this Section are, collectively, the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the SEC
Documents, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLTATION. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred which has not
been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Sections 2.2(b)-(h), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Neither the Company nor any Person acting on its
behalf has taken any action could subject the offering, issuance or sale of the
Securities to the registration requirements of the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all reports
required to be filed by it under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the three years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials being collectively referred to herein as the "SEC DOCUMENTS"
and, together with the Schedules to this Agreement the "DISCLOSURE MATERIALS")
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Documents prior to the expiration of any such extension.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and none of
the SEC Documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements to which the
Company is a party or to which the property or assets of the Company are subject
have been filed as exhibits to the SEC Documents as required. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting ("GAAP") principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since December 31, 1997, except as specifically
disclosed in the SEC Documents, (a) there has been no event, occurrence or
development that has had or that could have or result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d) the
Company has not declared or made any payment or distribution of cash or other
property to its stockholders or officers or directors (other than in compliance
with existing Company stock option plans or salary paid in accordance with
existing employment agreements or otherwise made in the ordinary course
consistent with prior practice) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock. The Company last filed audited financial statements with the
Commission on March 31, 1998, and has not received any comments from the
Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not an Affiliate (as
defined in Rule 405 under the Securities Act) ) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable by the Company to Wharton
Capital Partners, Ltd., no fees or commissions will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, or bank with respect to the transactions contemplated by this Agreement.
The Purchaser shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold harmless
the Purchaser, its employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as such fees and expenses are
incurred.
(m) SOLICITATION MATERIALS. Neither the Company nor any Person acting on
the Company's behalf has (i) distributed any offering materials in connection
with the offering and sale of the Securities, or (ii) solicited any offer to buy
or sell the Securities by means of any form of general solicitation or
advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register securities
for resale with the Commission under Form S-3 promulgated under the Securities
Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the Debentures to any
Person other than the Purchaser other than with the specific prior written
consent of the Purchaser.
(p) SENIORITY. Except with respect to or in connection with private label
vendor financing and/or other financing arrangements between the Company and
Prime Leasing, Inc., no indebtedness of the Company is senior to the Debentures
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution, or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has not,
in the two years preceding the date hereof, received notice (written or oral)
from the NASDAQ or any other stock exchange, market or trading facility on which
the Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is in compliance with all
such maintenance requirements.
(r) PATENTS AND TRADEMARKS. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and rights (collectively, the "INTELLECTUAL
PROPERTY RIGHTS") which are necessary or material for use in connection with its
business, and which the failure to so have would have a Material Adverse Effect.
To the best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as set forth on
SCHEDULE 6(B) to the Registration Rights Agreement, (i) the Company has not
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied and
(ii) no Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(u) TITLE. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property and personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and facilities held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.
(v) DISCLOSURE. The Company confirms that it has not provided the Purchaser
or its agents or counsel with any information that constitutes or might
constitute material non-public information. The Company understands and confirms
that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation with the requisite corporate power and authority, to enter into
and to consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The purchase by the Purchaser
of the Securities hereunder has been duly authorized by all necessary action on
the part of the Purchaser. Each of this Agreement, the Registration Rights
Agreement and the Escrow Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities for its
own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the Debentures
and the Warrant, it was, and at the date hereof it is, and at each exercise date
under the Warrant, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. The Purchaser is
able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. The Purchaser is not purchasing the Debentures as
a result of or subsequent to any advertisement, article, notice or other
communication regarding the Debentures published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar.
(h) RELIANCE. The Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, provided the Company receives
such an opinion, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by the Purchaser to an Affiliate of the
Purchaser or to a fund under common management with the Purchaser, and any
transfer among any such Affiliates or funds, provided that transferee certifies
to the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and that it is acquiring the Securities solely for
investment purposes. Any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Debentures, the payment of interest thereon,
and exercise of the Warrant or other issuances of Underlying Shares as
contemplated hereby, by the Debentures or the Warrant occurs at any time while
an Underlying Securities Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Securities
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Securities Registration Statement is declared
effective by the Commission. The Company agrees that it will provide the
Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the issuance
of the Underlying Shares upon (i) conversion of the Debentures and payment of
interest thereon in accordance with the terms of the Debentures, and (ii)
exercise of the Warrant in accordance with its terms, may result in dilution of
the outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares upon (x) conversion of the Debentures and payment of
interest thereon in accordance with the terms of the Debentures, and (y)
exercise of the Warrant in accordance with its terms, is unconditional and
absolute, subject to the limitations set forth herein, in the Debentures or
pursuant to the Warrant, regardless of the effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchaser and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall qualify or exempt the issuance and sale of the Underlying
Shares under the securities or Blue Sky laws of such jurisdictions in the United
States as the Purchaser may reasonably request and shall continue such
qualification or exemption at all times until the Purchaser notifies the Company
in writing that it no longer owns Securities; PROVIDED, HOWEVER, that neither
the Company nor its Subsidiaries shall be required in connection therewith to
qualify as a foreign corporation where they are not now so qualified or to take
any action that would subject the Company to general service of process in any
such jurisdiction where it is not then subject.
3.5 INTEGRATION. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
3.6 INCREASE IN AUTHORIZED SHARES. At such times as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the principal amount of
Debentures and as payment of any accrued and unpaid interest in respect thereof
in shares of Common Stock, or (b) honoring the exercise in full of the Warrant,
in either case, due to the unavailability of a sufficient number of shares of
authorized but unissued or reserved Common Stock, the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue to
at least such number of shares as reasonably requested by the Purchaser in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its conversion exercise and reservation of
shares obligations as set forth in this Agreement, the Debentures and the
Warrant (the sum of (x) the number of shares of Common Stock then authorized,
(y) the number of shares of Common Stock then outstanding plus all shares of
Common Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments, and (z) the sum of (i) 200% of the number of Underlying
Shares as are then issuable upon a conversion in full of the principal amount of
Debentures and as payment of interest thereon, and (ii) the number of Underlying
Shares as are issuable upon exercise in full of the Warrant, shall be a
reasonable number). In connection therewith, the Board of Directors shall (a)
adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder approval
to carry out such resolutions (and hold a special meeting of the stockholders no
later than the 60th day after delivery of the proxy materials relating to such
meeting) and (c) within five (5) Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's Certificate of
Incorporation to evidence such increase.
3.7 LISTING AND RESERVATION OF UNDERLYING SHARES. (a) The Company shall (i)
not later than the fifth Business Day following the Closing Date hereunder
prepare and file with the NASDAQ (or such other national securities exchange or
market or trading or quotation facility on which the Common Stock is then
listed) an additional shares listing application covering a number of shares of
Common Stock which is at least equal to the number of shares required to be
reserved pursuant to Section 2.1(d), (ii) take all steps necessary to cause such
shares to be approved for listing in the NASDAQ (as well as on any such other
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares as are issuable upon conversion in full of the then outstanding principal
amount of Debentures, as payment of interest thereon, and upon exercise of the
then unexercised portion of the Warrant exceeds 85% of the number of Underlying
Shares previously listed on account thereof with NASDAQ (and such other required
exchanges), the Company shall take the necessary actions to immediately list a
number of Underlying Shares as equals the sum of (x) 200% of the number of
Underlying Shares then issuable upon conversion of the principal amount of the
Debentures and as payment of interest thereon and (y) the number of Underlying
Shares as are then issuable upon exercise of the Warrant.
(b) The Company shall maintain a reserve of Common Stock for issuance upon
conversion of the Debentures and for payment of interest thereupon in shares of
Common Stock pursuant to the terms of the Debentures and upon exercise of the
Warrant in accordance with its terms, in such amount as may be required to
fulfill obligations in full under the Transaction Documents, which reserve shall
include a number of shares of Common Stock equal to no less than the Initial
Minimum.
3.8 CONVERSION PROCEDURES. The Transfer Agent Instructions, Conversion
Notice (as defined in EXHIBIT A) and Notice of Exercise under the Warrant set
forth the totality of the procedures with respect to the conversion of the
Debentures and exercise of the Warrant, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to convert its Debentures and exercise the Warrant as contemplated in
the Debentures and the Warrant (as applicable).
3.9 NOTICE OF BREACHES. (a) Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document. However, no disclosure by either party pursuant to this Section shall
be deemed to cure any breach of any representation, warranty or other agreement
contained in any Transaction Document.
(b) Notwithstanding the generality of Section 3.9(a), the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Securities a copy of any written statement in support of or relating to such
claim or notice.
3.10 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company shall
honor conversions of the Debentures and exercises of the Warrant and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the respective Debentures and the Warrant.
3.11 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchaser, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities in a transaction intended to be exempt or not subject to registration
under the Securities Act (a "SUBSEQUENT PLACEMENT") for a period of 180 days
after the Closing Date, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares of Common Stock issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in SCHEDULE
2.1(C), (iii) shares of Common Stock issued upon conversion of Debentures and as
payment of interest thereon and upon exercise of the Warrant in accordance with
the Debentures or the Warrant, respectively, and (iv) securities which may be
issued in connection with a joint venture or strategic alliance unless (A) the
Company delivers to the Purchaser a written notice (the "SUBSEQUENT PLACEMENT
NOTICE") of its intention to effect such Subsequent Placement, which Subsequent
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be affected, and attached
to which shall be a term sheet or similar document relating thereto and (B) the
Purchaser shall not have notified the Company by 5:00 p.m. (New York City time)
on the fifth (5th) Trading Day after its receipt of the Subsequent Placement
Notice of its willingness to cause the Purchaser to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation (which, if the Purchaser shall have indicated willingness to
provide such financing, the Purchaser shall use its reasonable and good faith
effort to complete prior to twenty (20) Trading Days from the date of its notice
to the Company to provide such financing), financing to the Company on
substantially the terms set forth in the Subsequent Placement Notice. If the
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice; PROVIDED, that the
Company shall provide the Purchaser with a second Subsequent Placement Notice,
and the Purchaser shall again have the right of first refusal set forth above in
this paragraph (a), if the Subsequent Placement subject to the initial
Subsequent Placement Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Placement Notice within thirty (30)
Trading Days after the date of the initial Subsequent Placement Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Placement
Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered,
and securities of the Company permitted pursuant to Schedule 6(b) of the
Registration's Rights Agreement to be registered in the Underlying Securities
Registration in accordance with the Registration Rights Agreement, and (z)
Common Stock to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) and (iv) of Section 3.11(a), the Company shall not,
without the prior written consent of the Purchaser (i) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for resale
any securities of the Company for a period of not less than 90 Trading Days
after the date that the Underlying Securities Registration Statement is declared
effective by the Commission. Any days that a Purchaser is unable to sell
Underlying Securities under the Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
3.12 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall: (i)
issue a press release acceptable to the Purchaser disclosing the transactions
contemplated hereby on the Closing Date, (ii) file with the Commission a Report
on Form 8-K disclosing the transactions contemplated hereby within ten (10)
Business Days after the Closing Date, and (iii) timely file with the Commission
a Form D promulgated under the Securities Act as required under Regulation D
promulgated under the Securities Act and provide a copy thereof to the Purchaser
promptly after the filing thereof. The Company shall, no less than two (2)
Business Days prior to the filing of any disclosure required by clauses (ii) and
(iii) above, provide a copy thereof to Encore Capital Management, L.L.C.
("ENCORE"). No such filing or disclosure may be made that mentions the Purchaser
or Encore by name without the prior consent of Encore.
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt or to redeem any Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.14 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of any Intellectual Property
Rights, or allow any of the Intellectual Property Rights to become subject to
any Liens, or fail to renew such Intellectual Property Rights (if renewable and
it would otherwise lapse if not renewed), without the prior written consent of
the Purchaser.
3.15 REIMBURSEMENT. If the Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchaser or entity in connection with the
transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall (i) pay $15,000 to
the Escrow Agent in connection with the preparation and negotiation of the
Transaction Documents, and (ii) pay to $5,000 to Encore for its due diligence
expenses and disbursements in connection with the transactions contemplated
hereby. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Debentures, the Transfer Agent Instructions, the Warrant and the Escrow
Agreement contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
4.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Intelligent Medical Imaging, Inc.
4360 Northlake Boulevard, Suite 214
Palm Beach Gardens,FL 33410
Facsimile No.: (561) 627-0409
Attn: Chief Financial Officer
With copies to: Edwards & Angell, LLP
250 Royal Palm Way
Palm Beach, FL 33480
Facsimile No.: (561) 655-8719
Attn: John G. Igoe
If to the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder (other than to an Affiliate of the Purchaser) without
the consent of the Company, except that the Purchaser may assign its rights
hereunder and under the Transaction Documents without the consent of the Company
as long as such assignee demonstrates to the reasonable satisfaction of the
Company its satisfaction of the representations and warranties set forth in
Section 2.2. This provision shall not limit the Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and, other with respect to Encore who is an intended beneficiary of, and
entitled to enforce, Sections 3.12, 4.1 and 4.11, is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Debentures and the Warrant.
4.10 EXECUTION. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 PUBLICITY. The Company and the Purchaser shall consult with each other
in issuing any press releases or otherwise making public statements or filings
and other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser or Encore, or include the name of the Purchaser or Encore in
any filing with the Commission, or any regulatory agency, trading facility or
stock market without the prior written consent of Encore, except to the extent
such disclosure (but not any disclosure as to the controlling Persons thereof)
is required by law, in which case the Company shall provide the Purchaser and
Encore with prior notice of such disclosure.
4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
INTELLIGENT MEDICAL IMAGING, INC.
By: /s/ GENE COCHRAN
----------------------------------
Name: Gene Cochran
Title: CFO
JNC OPPORTUNITY FUND LTD.
By: /s/ NEIL T. CHAU
----------------------------------
Name: Neil T. Chau
Title:
<PAGE>
SCHEDULE 2.1(A) to
Convertible Debenture Purchase Agreement
Subsidiaries: None
<PAGE>
SCHEDULE 2.1(C) to
Convertible Debenture Purchase Agreement
Authorized, issued and outstanding capital stock of the Company:
AUTHORIZED: 30,000,000 Shares Common Stock $.01 par value
2,000,000 Shares Preferred Stock $.01 par value
ISSUED AND OUTSTANDING 11,583,333 Shares Common Stock $.01 par value
AS OF JUNE 25, 1998:
-0- Shares Preferred Stock $.01 par value
Outstanding options, warrants, script rights, calls, commitments, rights or
obligations convertible into or exchangeable for or rights to acquire or
subscribe for Common Stock:
Options Reserved under Plans -
Employee Plan - 2,686,500
Non-Employee Director Plan - 268,650
----------------------------------------------------------------------
GRANTED EXERCISED IN RESERVE
Employee 2,274,511 767,625 411,989
NON EMPLOYEE 42,900 -0- 225,750
--------------------------------------------------------------------
WARRANTS OUTSTANDING AT JUNE 25, 1998
22,800 at $2 per share
205,989 at $1.09 per share
200,000 at $1.00 per share
45,714 at $.035 per share
474,503 TOTAL
for an aggregate
total purchase price
of $486,814.47
DOES NOT INCLUDE WARRANTS ISSUABLE TO PRIME LEASING CO. FOR UP TO 100,000
WARRANTS AT AVERAGE PER SHARE TRADING PRICE FOR QUARTER IN WHICH WARRANTS ARE
ISSUED. TERM OF WARRANTS IS 36 MONTHS FROM DATE OF ISSUANCE.
<PAGE>
Persons of Groups of Related Persons who beneficially own or have the right to
acquire in excess of 5% of the Common stock:
1) The TCW Group, Inc., as parent holding company, holds 5% or more
indirectly through its subsidiaries.
2) Tyce M. Fitzmorris, CEO and President of IMI, holds 5% or more which
includes 10,000 shares held of record by Denee Shipley, Mr.
Fitzmorris' daughter, who has granted Mr. Fitzmorris a voting proxy
and right of first refusal with respect to the foregoing securities,
and (ii) 1,245,000 shares held of record by Fitzmorris Family
Investments Limited Partnership, the sole general partner of which is
Fitzmorris Holdings, Inc. ("FHI"). Mr. Fitzmorris is the sole
director, President and a majority shareholder of FHI.
3) Eric Espenhahn, Vice President of IMI, holds 5% or more in his own
name, that of shares held by Mr. Espenhahn's wife, Karen Espenhahn,
and shares held by Mr. Espenhahn as custodian for his son, John H.
Espenhahn.
4) R. Wayne Fritzshe, formerly a director of IMI, holds 5% or more,
including shares held by his wife, Diana Fritzsche.
5) T. Rowe Price holds 5% or more, as an investment adviser.
<PAGE>
EXHIBIT A
See Exhibit Number 4.1 to this Registration Statement.
<PAGE>
EXHIBIT B
See Exhibit Number 1.2 to this Registration Statement
<PAGE>
EXHIBIT C
Edwards & Angell, LLP
Counsellors at Law Since 1894 750 Lexington Avenue
New York, NY 10022-1200
(212) 308-4411
FAX (212) 308-4844
June 30, 1998
JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Ladies and Gentlemen:
We have acted as counsel to Intelligent Medical Imaging, Inc. (the
"Company") in connection with the execution and delivery of 6% Convertible
Debentures in the aggregate principal amount of $3,000,000 of even date herewith
(the "Debenture") of the Company payable to JNC Opportunity Fund Ltd. (the
"Purchaser") and a Convertible Debenture Purchase Agreement (the "Purchase
Agreement") each between the Company and the Purchaser of even date herewith,
and in connection with the consummation of the transactions contemplated
thereby. Capitalized terms used herein without definition are used as defined in
the Purchase Agreement.
This opinion is delivered to the Purchaser at the closing of the
transactions contemplated by the Purchase Agreement.
In our capacity as counsel to the Company, we have examined originals, or
copies identified to our satisfaction as being true copies, of such corporate
records, agreements, instruments and other documents of the Company as in our
judgment are necessary or appropriate to enable us to render the opinions
expressed below.
In connection with our opinions expressed herein we have, in addition to
the records, agreements, instruments and documents referred to in the preceding
paragraph, reviewed the following (collectively, the "Transaction Documents"
and, individually, a "Transaction Document"):
(a) the Purchase Agreement;
(b) the Debenture;
(c) the Common Stock Purchase Warrant (the "Warrant");
(d) the Registration Rights Agreement; and
(e) Escrow Agreement
We have also examined such other documents and matters of law which we
deemed relevant or necessary as a basis for the opinions expressed herein. As to
questions of fact material to such opinions, we have, when relevant facts were
not independently verified by us, relied without verification upon the Officer's
Certificate attached hereto (the "officer's Certificate"), and representations
and warranties of the Company as set forth in the Purchase Agreement, or
certificates of public officials or upon the accuracy and completeness of the
representations as to factual matters set forth in the Transaction Documents.
Whenever our opinion with respect to the existence or absence of facts is
stated to be based on our knowledge or awareness, it is intended to signify that
during the course of our representation of the Company, no information has come
to the attention of attorneys in this Firm who have worked on the transactions
contemplated by the Transaction Documents which would give such attorneys
knowledge of the existence or absence of such facts. However, except to the
extent expressly set forth herein, we have not undertaken any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from our representation of the Company.
In our examination, we have assumed (a) the genuineness of all signatures,
(b) the completeness and authenticity of all documents and records submitted to
us as originals, (c) the conformity to original documents and records of all
documents and records submitted to us as certified photostatic or conformed
copies, (d) the due execution and delivery of the Transaction Documents by all
parties to such documents other than the Company, (e) the validity of all
applicable statutes, ordinances, rules and regulations, (f) the legal capacity
of all natural persons executing documents, and (g) the proper indexing and
accuracy of all public records and documents.
The opinions contained herein are as of the closing on the date hereof, and
we assume no responsibility to update or supplement this opinion to reflect any
facts or circumstances which may hereafter come to our attention or any changes
in law which may hereafter occur.
You have not asked us to pass upon the power and authority of any parties
to the Transaction Documents (other than the Company) to enter into the
Transaction Documents or to effect the transactions contemplated thereby, and
for purposes of this opinion we are assuming that all parties (other than the
Company) have the requisite power and authority to enter into and perform all
their respective obligations thereunder, have taken all necessary corporate
action to enter into the Transaction Documents and to effect such transactions,
have duly executed and delivered such documents, and such documents constitute
valid and binding obligations of such entities (other than the Company),
enforceable against them in accordance with their terms.
We have investigated such questions of law as we have deemed necessary for
the purpose of rendering this opinion. Our opinions expressed herein are limited
to the laws of the State of New York, the Corporation Law of the State of
Delaware and the federal law of the United States, and we do not express any
opinion herein concerning any other law.
We render no opinion on matters except as specifically stated.
We are not expressing any opinion as to, and hereby assume that all actions
have been taken to effect, the Purchaser's compliance with any state or federal
laws (or regulations of any political subdivision thereof) applicable to the
transactions described in the Transaction Documents (including without
limitation the enforcement of any rights granted thereby) because of the nature
of the business of the Purchaser or facts relating specifically to any of them,
or as to the effect of any such non-compliance as a result thereof on the
opinions set forth below.
The opinions hereinafter expressed are qualified to the extent that (a) the
enforceability of any right or remedy granted in the Transaction Documents may
be subject to or affected by any bankruptcy, reorganization, insolvency,
avoidance, equitable subordination, fraudulent conveyance, arrangement,
moratorium, marshaling or other similar laws relating to or affecting the rights
of creditors generally, including, without limitation, the Federal Bankruptcy
Code and similar state and federal laws, (b) the remedy of injunctive relief,
specific performance and any other equitable remedies may be unavailable in any
jurisdiction or may be withheld as a matter of judicial discretion; (c) the
enforceability of any right or remedy granted in the Transaction Documents may
be subject to general principles of equity, including without limitation
concepts of materiality, reasonableness, good faith and fair dealing (regardless
of whether enforceability is considered in a proceeding in equity or in law) and
to the discretion of the court before which proceedings thereof may be brought;
(d) the enforceability of any agreement or instrument or any right granted
thereunder may be subject to public policy considerations or court decisions
which may limit rights to obtain indemnification; (e) the enforceability of any
agreement or instrument, any right granted thereunder or provisions thereof
expressly or by implication waiving broadly or vaguely stated rights, unknown
future rights, defenses to obligations or rights granted by law, where such
waivers are against public policy or prohibited by law, may be subject to the
unenforceability under certain circumstances under applicable law or court
decisions but, for the purposes of this clause (e), the application of any such
law or decision would not, in our opinion, render the Transaction Documents
invalid as a whole, or render the remedies provided for therein, taken as a
whole, inadequate for the practical realization of the benefits intended to be
provided thereby (except for the economic consequences of procedural or other
delay, and (f) the enforceability of any right or remedy granted in the
Transaction Documents may be subject to or affected by any usury or other
similar laws relating to the setting of interest rates, or the payment of
interest.
On the basis of the foregoing and in reliance thereon, and subject to the
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. To our
knowledge, the Company has no subsidiaries. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
3. Based solely on our review of the Company's Certificate of
Incorporation on file with the Delaware Secretary of State, the Company's
Bylaws, the Company's minute book, the Company's stock records, the SEC
Documents (as defined in paragraph 8 below) and the Officer's Certificate
attached hereto (the "Officer's Certificate"), (i) no shares of common stock of
the Company, par value $.01 per share ("Common Stock"), are entitled to
preemptive or similar rights, nor (ii) except as specifically disclosed in
Schedule 2.1(c) to the Purchase Agreement, are there any outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and the Warrant, securities, rights or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or acquire
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.
4. The Debentures and the Warrant have been duly authorized and, when
paid for and issued in accordance with the terms of the Purchase Agreement,
shall have been validly issued and fully paid.
5. The Company has duly authorized and reserved for issuance such
number of Underlying Shares (such number being not less than 200% of the number
of shares of Common Stock which would be issuable upon conversion of the
Debentures, assuming such conversion occurred as of the date hereof) as are
issuable upon conversion of the Debentures, as payment of interest thereon, and
upon exercise of the Warrant as required pursuant to the terms of the Purchase
Agreement, the Debentures and the Warrant. When issued by the Company in
accordance with the terms of the Purchase Agreement, the Debentures and the
Warrant (as the case may be), and assuming the payment in full of the purchase
price of the Debentures and payment in full of the exercise price of the
Warrants (as the case may be) the Underlying Shares will be validly issued,
fully paid and nonassessable.
6. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not (i) conflict with or violate
any provision of its Certificate of Incorporation or Bylaws, (ii) to our
knowledge (except with respect to exhibits listed in the SEC Documents as to
which this opinion is given without a knowledge qualification) and subject to
Required Approvals, conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or other written instrument relating to indebtedness of
the Company or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject, or by which any property or asset of the Company is bound or affected,
except where such violation or restriction would not have, or result in, a
Material Adverse Effect, and except that we express no opinion with respect to
usury laws. To our knowledge, the business of the Company is not being conducted
in violation of any law, ordinance or regulation of any governmental authority.
7. Other than the Required Approvals, the Company is not required to
obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other Federal, state, local or other
governmental authority in connection with the execution, delivery and
performance by the Company of the Transaction Documents.
8. To our knowledge, the Company has filed all reports required to be
filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (collectively, the "SEC Documents") on a timely
basis, or has received a valid extension of such time of filing and made such
filing within the applicable grace period. As of their respective dates, the SEC
Documents complied in all material respects as to form with the requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
9. Assuming the accuracy of the representations and warranties of the
Company set forth in Section 2.1 of the Purchase Agreement and of the Purchaser
set forth in Section 2.2 of the Purchase Agreement, the offer, issuance and sale
of the Debentures and the Warrant and the offer, issuance and sale of the
Underlying Shares to the Purchaser pursuant to the Purchase Agreement, the
Debentures and the Warrant are exempt from the registration requirements of the
Securities Act.
The opinions contained herein are as of the date hereof, and we assume no
responsibility to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in law
which may hereafter occur.
The above opinions are limited solely to matters expressly set forth above.
No other opinions are intended, nor should they be inferred herefrom. This
opinion is rendered solely for the benefit of the Purchaser, and solely in
connection with the transactions described above and, except for its counsel,
may not be relied upon by you or any other person or entity for any other
purpose.
Very truly yours,
/s/ Edwards & Angell, LLP
-------------------------
EDWARDS & ANGELL, LLP
<PAGE>
CERTIFICATE OF OFFICER
INTELLIGENT MEDICAL IMAGING, INC.
The undersigned being the duly elected and acting Chief Financial Officer
of Intelligent Medical Imaging, Inc., a Delaware corporation (the "Company"), in
connection with the opinion of Edwards & Angell (the "Opinion"), to JNC
Opportunity Fund Ltd., a Cayman Islands corporation, to which this Certificate
is attached, hereby certify as follows:
1. The Company has no subsidiaries.
2. No shares of common stock of the Company, par value $.01 per share
("Common Stock"), are entitled to preemptive or similar rights. Except as
specifically disclosed in Schedule 2.1(c) to the Purchase Agreement, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Debentures and the Warrant, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock
3. All of the factual representations of the Company set forth in the
Purchase Agreement are true and correct as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this consent as of this
30th day of June, 1998.
/S/ GENE COCHRAN
--------------------
<PAGE>
EXHIBIT D
See Exhibit Number 4.2 to this Registration Statement.
Exhibit 1.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of June 30, 1998, between Intelligent Medical Imaging, Inc., a Delaware
corporation (the "COMPANY"), and JNC Opportunity Fund Ltd., a Cayman Islands
corporation (the "PURCHASER ").
This Agreement is made pursuant to the Convertible Debenture Purchase
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "PURCHASE AGREEMENT").
The Company and the Purchaser hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"ADVICE" shall have meaning set forth in Section 3(o).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "CONTROL," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"CLOSING DATE" shall have the meaning set forth in the Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $.01 per share.
"DEBENTURES" means the Company's 6% Convertible Debentures due June 2001,
issued pursuant to the Purchase Agreement.
"EFFECTIVENESS DATE" means the 90th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means the 30th day following the Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock issuable (i) upon
conversion in full of the Debentures, (ii) as payment of interest in respect of
the Debentures, assuming all such interest is paid in shares of Common Stock and
that the Debentures remain outstanding for three years, and (iii) upon exercise
of the Warrants; PROVIDED, HOWEVER that in order to account for the fact that
the number of shares of Common Stock issuable upon conversion of the Debentures
(together with the payment of interest thereon) is determined in part upon the
market price of the Common Stock prior to the time of conversion, Registrable
Securities contemplated by clauses (i) and (ii) above shall include (but not be
limited to) a number of shares of Common Stock equal to no less than 200% of the
number of shares of Common Stock into which the Debentures (together with the
payment of interest thereon) are convertible, assuming such conversion occurred
on the Closing Date or the Filing Date, whichever yields a lower Conversion
Price (as defined in the Debentures). The Company shall be required to file
additional Registration Statements to the extent the sum of (i) the number of
the shares of Common Stock into which the Debentures are convertible (together
with the payment of interest thereon), and (ii) the number of shares of Common
Stock issuable upon exercise in full of the Warrants, exceeds the number of
shares of Common Stock initially registered in accordance with the immediately
prior sentence. The Company shall have fifteen (15) days to file such additional
Registration Statements after notice of the requirement thereof, which the
Holders may give at such time when the number of shares of Common Stock as are
issuable upon conversion of Debentures (together with the payment of interest
thereon) and upon exercise of the Warrants, exceeds 85% of the number of shares
of Common Stock to be initially registered in a Registration Statement
hereunder.
"REGISTRATION STATEMENT" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
"WARRANTS" means collectively (i) the common stock purchase warrant issued
to the Purchaser pursuant to the Purchase Agreement, and (ii) the common stock
purchase warrants issued to Wharton Capital Partners, Ltd. and Elizabeth Di
Angelis in connection with the transactions contemplated by the Purchase
Agreement.
2. SHELF REGISTRATION
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a "Shelf" Registration Statement covering all Registrable
Securities described in the first sentence of the definition of "Registrable
Securities" for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (except if otherwise
directed by the Holders of a majority in interest of the applicable Registrable
Securities in accordance herewith or if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith). The
Registration Statement shall state, to the extent permitted by Rule 416 under
the Securities Act, that it also covers such indeterminate number of shares of
Common Stock as may be required to effect conversion of the Debentures (and
payment of interest thereon) or exercise of the Warrants, in each case to
prevent dilution resulting from stock splits, stock dividends or similar events,
or by reason of changes in the Conversion Price in accordance with the terms of
the Debentures or by reason of changes in the Exercise Price (as defined in the
Warrants) in accordance with the terms of the Warrants. The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "EFFECTIVENESS
PERIOD"), PROVIDED, HOWEVER, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) If the Holders of a majority of the Registrable Securities so elect, an
offering of Registrable Securities pursuant to the Registration Statement may be
effected in the form of an Underwritten Offering. In such event, and, if the
managing underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of such
managing underwriters can be sold, and such amount shall be allocated pro rata
among the Holders proposing to sell Registrable Securities in such Underwritten
Offering.
(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering, upon reasonable approval by the Company. No Holder
may participate in any Underwritten Offering hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form S-3 (or if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3 such registration
shall be on another appropriate form in accordance herewith, or, in connection
with an Underwritten Offering hereunder, such other form agreed to by the
Company and by the Holders of a majority of the Registrable Securities) which
shall contain the "Plan of Distribution" attached hereto as ANNEX A (except if
otherwise directed by the Holders), and cause the Registration Statement to
become effective and remain effective as provided herein; PROVIDED, HOWEVER,
that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holders true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their Special
Counsel and any managing underwriters as promptly as reasonably possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing)
and (if requested by any such Person) confirm such notice in writing no later
than one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a majority
of the Registrable Securities to be sold in connection with an Underwritten
Offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment to the Registration Statement such information as such managing
underwriters and such Holders reasonably agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; PROVIDED, HOWEVER, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by applicable law, of
all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters or
Holders may request at least two Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the Nasdaq National Market
("NASDAQ") and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement..
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings, subject to
reasonable approval by the Company) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested, subject to reasonable
approval by the Company; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to each Holder and the managing underwriters, if any, of
opinions of counsel to the Company and updates thereof addressed to each Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
best reasonable efforts to obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; PROVIDED, HOWEVER, that any information that is
determined in good faith by the Company to be of a confidential nature need not
be disclosed in the absence of a customary confidentiality agreement.
(n) Comply with all applicable rules and regulations of the Commission.
(o) The Company may require each selling Holder to furnish to the Company
such information regarding the distribution of such Registrable Securities and
the beneficial ownership of Common Stock held by such Holder as is required by
law to be disclosed in the Registration Statement, and the Company may exclude
from such registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "ADVICE")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company, except as and to the extent specified in Section
4(b), shall be borne by the Company whether or not pursuant to an Underwritten
Offering and whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ and any subsequent market on which the
Common Stock is then listed for trading, and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the terms
hereof, the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants. By way of illustration which is not intended to diminish from
the provisions of Section 4(a), the Holders shall not be responsible for, and
the Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; PROVIDED, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Except as and to the extent specified in
SCHEDULE 6(B) hereto, neither the Company nor any of its subsidiaries has, as of
the date hereof, nor shall the Company or any of its subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except as and to
the extent specified in SCHEDULE 6(B) hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not,
after the date hereof, grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent specified in
SCHEDULE 6(B) hereto, neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not after the date hereof enter into any agreement providing
any such right to any of its security holders.
(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an effective
Registration Statement covering all of the Registrable Securities and the
Underlying Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; PROVIDED, HOWEVER,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities; PROVIDED,
HOWEVER, that, for the purposes of this sentence, Registrable Securities that
are owned, directly or indirectly, by the Company, or an Affiliate of the
Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(f) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Intelligent Medical Imaging, Inc.
4360 Northlake Boulevard, Suite 214
Palm Beach Gardens, FL 33410
Facsimile No.: (561) 627-0409
Attn: Chief Financial Officer
With copies to: Edwards & Angell, LLP
250 Royal Palm Way
Palm Beach, FL 33480
Facsimile No.: (561) 655-8719
Attn: John G. Igoe
If to the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. The rights to assignment
shall apply to the Holders (and to subsequent) successors and assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
INTELLIGENT MEDICAL IMAGING, INC.
By: /s/ GENE COCHRAN
----------------------------------
Name: Gene Cochran
Title: CFO
JNC OPPORTUNITY FUND LTD.
By: /s/ NEIL T. CHAU
----------------------------------
Name: Neil T. Chau
Title:
<PAGE>
ANNEX A
PLAN OF DISTRIBUTION
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
(c) an exchange distribution in accordance with the rules of the applicable
exchange, (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (e) privately negotiated transactions, (f) short
sales, (g) a combination of any such methods of sale and (h) any other method
permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers may
agree with the Selling Stockholders to sell a specified number of such Shares at
a stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
<PAGE>
SCHEDULE 6(B) to
Registration Rights Agreement
1. Pursuant to an Amended and Restated Registration Rights Agreement
("Registration Rights Agreement") dated as of January 3, 1995 between
the Company and R. Wayne Fritzsche, Mr. Fritzsche, certain transferees
of Mr. Fritzsche and certain stockholders of the Company hold: (a)
piggyback registration rights to include their shares in a Company
registration under the Securities Act (other than on Form S-4 or Form
S-8, unless such stockholders are eligible to participate on a filed
Form S-8), subject to pro rata underwriter cutbacks; and (b) demand
registration rights to include their shares in a shelf registration on
Form S-3 (or equivalent) upon the written request of holders of at
least 25% of the shares covered under the Registration Rights
Agreement and the outstanding shares as of June 29, 1994 and subject
to options, warrants and convertible notes (the "Initial Shares").
2. Pursuant to a separate registration rights agreement dated December 1,
1994, the Company granted to certain investors ("Convertible Note
Investors") who purchased Convertible Promissory Notes during
September and October, 1994, registration rights covering the shares
underlying such notes, comparable to the rights granted to purchasers
of the Initial Shares.
3. Pursuant to separate registration agreements, the Company granted to
purchasers of Common Stock in a private offering prior to the
Company's IPO ("1994/1995 Offering"), registration rights comparable
to the registration rights granted to the Convertible Note Investors.
The Company agreed to and did register such registerable shares on
Form S-3 after 12 months from the date of the initial public offering
Prospectus (March 21, 1996).
4. Holders of all other shares of Common Stock outstanding prior to the
Company's initial public offering or issuable upon the exercise of
warrants or stock options granted or issuable under the Company's
stock option plans were eligible and many did include such shares in
the registration statement filed on Form S-3 after 12 months from the
date of the initial public offering Prospectus (March 21, 1996).
5. The Company may grant the registration rights to the Purchaser as
contemplated in the Transaction Documents; provided that all existing
holders of registration rights shall have piggyback rights to
participate in the registration and to the extent the registration
rights granted to the Purchaser are more favorable than existing
rights, those new rights shall be conferred in favor of existing
shareholders.
Exhibit 4.1
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. A-1 $1,000,000
INTELLIGENT MEDICAL IMAGING, INC.
6% CONVERTIBLE DEBENTURE DUE JUNE 30, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Intelligent Medical Imaging, Inc., a Delaware corporation, having a principal
place of business at 4360 Northlake Boulevard, Suite 214, Palm Beach Gardens, FL
33410 (the "COMPANY"), designated as its 6% Convertible Debentures, due June 30,
2001 (the "DEBENTURES"), in an aggregate principal amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Opportunity Fund
Ltd., or registered assigns (the "HOLDER"), the principal sum of One Million
Dollars ($1,000,000), on or prior to June 30, 2001 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "MATURITY DATE")
and to pay interest to the Holder on the principal sum at the rate of 6% per
annum, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year during the term hereof, commencing on September 30,
1998, but in no event later than the earlier to occur of a Conversion Date (as
defined in Section 4(a)(i)) for such principal amount or the Maturity Date.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Interest shall be calculated on the basis of a 360-day year and for the
actual number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"DEBENTURE REGISTER"). All overdue, accrued and unpaid interest and other
amounts due hereunder shall bear interest at the rate of 18% per annum (to
accrue daily) from the date such interest is due hereunder through and including
the date of payment. The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts, at the
address of the Holder last appearing on the Debenture Register, except that
interest due on the principal amount (but not overdue interest) may, at the
Company's option, be paid in shares of Common Stock (as defined in Section 6)
calculated based upon the Conversion Price (as defined below) on the date such
interest was due. All amounts due hereunder other than such interest shall be
paid in cash. Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of interest on the
principal amount if: (i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay interest hereunder in shares of Common Stock; (ii) such
shares of Common Stock are not either registered for resale pursuant to an
Underlying Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), as
determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; (iii) such shares of Common Stock are not then listed or
quoted on the Nasdaq National Market ("NASDAQ") or on the New York Stock
Exchange, American Stock Exchange or the Nasdaq SmallCap Market (each, a
"SUBSEQUENT MARKET"); (iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or (v) the issuance of such shares would
result in the recipient thereof beneficially owning more than 4.999% of the
issued and outstanding shares of Common Stock as determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Payment of
interest on the principal amount in shares of Common Stock is further subject to
the provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same but shall not be issuable in denominations of less
than integral multiplies of Fifty Thousand Dollars ($50,000) unless such amount
represents the full principal balance of Debentures outstanding to such Holder.
No service charge will be made for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is overdue,
and neither the Company nor any such agent shall be affected by notice to the
contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of this Debenture (free of any claim
of subordination), as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise,
including if by reason of enforcement of any subordination
provisions);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been
remedied within 10 days after the date on which notice of such failure
or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be listed for trading on the
NASDAQ or on a Subsequent Market or the Common Stock shall be
suspended from trading on the NASDAQ or on a Subsequent Market, in
either case, for more than three (3) days (which need not be
consecutive days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose
all or in excess of 33% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem more than a de minimis number of shares
of Common Stock or other equity securities of the Company (other than
redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "COMMISSION") on or prior to the 180th day after the Original
Issue Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the Effective Date (as defined in the
Registration Rights Agreement);
(ix) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after the
Conversion Date pursuant to Section 4(b) or the Company shall provide
notice to the Holder, including by way of public announcement, at any
time, of its intention not to comply with requests for conversions of
any Debentures in accordance with the terms hereof; or
(x) the Company shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined below) within ten (10) days
after notice is deemed delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full principal
amount of this Debenture (and, at the Holder's option, all other Debentures then
held by such Holder), together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, immediately due and payable
in cash. The aggregate amount payable upon an Event of Default shall be equal to
the sum of (i) the Mandatory Prepayment Amount (as defined below) plus (ii) the
product of (A) the number of Underlying Shares issued in respect of conversions
hereunder or as payment of interest hereunder, in either case, within thirty
(30) days of the date of a declaration of an Event of Default and then held by
the Holder and (B) the Per Share Market Value on the date prepayment is due or
the date the full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after such amount
is due (being the date of an Event of Default) through the date of payment in
full thereof at the rate of 18% per annum. All Debentures and Underlying Shares
for which the full repayment price hereunder shall have been paid in accordance
herewith shall be promptly surrendered to or as directed by the Company. The
Holder need not provide and the Company hereby waives any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
SECTION 4. CONVERSION.
(a) (i) This Debenture shall be convertible into shares of Common Stock
(subject to the limitations set forth in Section 4(a)(iii) hereof) at the option
of the Holder, in whole or in part at any time and from time to time, after the
90th day following the Original Issue Date (the "INITIAL CONVERSION DATE"),
PROVIDED, HOWEVER, (1) on and after the Initial Conversion Date, the Holder
shall be entitled to convert up to 25% of the aggregate principal amount of
Debentures originally issued on the Original Issue Date; (2) on and after the
first month anniversary of the Initial Conversion Date, the Holder shall be
entitled to convert up to 50% of the aggregate principal amount of Debentures
originally issued on the Original Issue Date; (3) on and after the second month
anniversary of the Initial Conversion Date, the Holder shall be entitled to
convert up to 75% of the aggregate principal amount of Debentures originally
issued on the Original Issue Date; (4) on and after the third month anniversary
of the Initial Conversion Date, the Holder shall be entitled to convert all of
the aggregate principal amount of Debentures originally issued on the Original
Issue Date. Notwithstanding the foregoing, the conversion limitations set forth
in this Section shall cease to apply, and all Debentures may be converted in
whole or in part at the option of the Holder, if the average of the closing
sales prices of the Common Stock on the NASDAQ or such Subsequent Market on
which the Common Stock is then listed or quoted for any twenty (20) consecutive
Trading Days shall be equal to or greater than 175% of the average of the Per
Share Market Values for the five (5) Trading Days immediately preceding the
Original Issue Date. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon (only to the extent that the Company has elected and is permitted to pay
such interest in shares of Common Stock), by the Conversion Price, each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as EXHIBIT A (a
"CONVERSION NOTICE") to the Company. Each Conversion Notice shall specify the
principal amount of Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "CONVERSION
DATE"). If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 5(b) hereof, each Conversion Notice,
once given, shall be irrevocable. If the Holder is converting less than all of
the principal amount represented by the Debenture(s) tendered by the Holder with
the Conversion Notice, or if a conversion hereunder cannot be effected in full
for any reason, the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to such Holder (in the manner
and within the time set forth in Section 5(b)) a new Debenture for such
principal amount as has not been converted.
(ii) AUTOMATIC CONVERSION. Subject to the provisions in this
paragraph, the principal amount of Debentures for which conversion notices have
not previously been received or for which prepayment has not been made or
required hereunder shall be automatically converted on the third anniversary of
the Original Issue Date at the Conversion Price on such date. The conversion
contemplated by this paragraph shall not occur if (a) (1) an Underlying
Securities Registration Statement is not then effective that names the Holder as
a selling stockholder thereunder or (2) the Holder is not permitted to resell
Underlying Shares pursuant to Rule 144(k) promulgated under the Securities Act,
without volume restrictions, as evidenced by an opinion letter of counsel
acceptable to the Holder and the transfer agent for the Common Stock; (b) there
are not sufficient shares of Common Stock authorized and reserved for issuance
upon such conversion; and (c) the Company shall not have defaulted on its
covenants and obligations hereunder or under the Purchase Agreement or
Registration Rights Agreement. Notwithstanding anything herein to the contrary,
the three-year period for conversion under this Section shall be extended (on a
day-for-day basis) for any Trading Days that the Holder is unable to resell
Underlying Shares under an Underlying Securities Registration Statement due to
(a) the Common Stock not being listed for trading on the NASDAQ or any
Subsequent Market, (b) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission by the Effectiveness Date
(as defined in the Registration Rights Agreement), or (c) if an Underlying
Securities Registration Statement shall have been declared effective by the
Commission, (x) the failure of such Underlying Securities Registration Statement
to remain effective at all times thereafter as to all Underlying Shares, or (y)
the suspension of the Holder's ability to resell Underlying Shares thereunder.
Notwithstanding anything to the contrary contained herein, a conversion pursuant
to this Section shall not be subject to the provisions of Section 4(a)(iii)(A).
(iii) CERTAIN CONVERSION RESTRICTIONS.
(A) The Holder agrees not to convert Debentures to the extent such
conversion would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Debentures held by such Holder
after application of this Section. To the extent that the limitation contained
in this Section applies, the determination of whether Debentures are convertible
(in relation to other securities owned by a Holder) and of which portion of the
principal amount of such Debentures are convertible shall be in the sole
discretion of the Holder, and the submission of Debentures for conversion shall
be deemed to be the Holder's determination of whether such Debentures are
convertible (in relation to other securities owned by the Holder) and of which
portion of such Debentures are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained herein
shall be deemed to restrict the right of the Holder to convert Debentures at
such time as such conversion will not violate the provisions of this Section.
The provisions of this Section will not apply to any conversion pursuant to
Section 4(a)(ii) of this Debenture, and may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than 75 days prior notice
to the Company (in which case, the Holder shall make such filings with the
Commission, including under Rule 13D or 13G, as are required by applicable law),
and the provisions of this Section shall continue to apply until such 75th day
(or later, if stated in the notice of waiver). Other Holders shall be unaffected
by any such waiver.
(B) If on any Conversion Date (A) the Common Stock is listed for
trading on the NASDAQ or the Nasdaq National Market, (B) the Conversion Price
then in effect is such that the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding
Debentures and as payment of interest thereon in shares of Common Stock,
together with any shares of the Common Stock previously issued upon conversion
of Debentures and as payment of interest thereon, would equal or exceed 20% of
the number of shares of the Common Stock outstanding on the Original Issue Date
(such number of shares as would not equal or exceed such 20% limit, the
"ISSUABLE MAXIMUM"), and (C) the Company shall not have previously obtained the
vote of shareholders (the "SHAREHOLDER APPROVAL"), if any, as may be required by
the applicable rules and regulations of The Nasdaq Stock Market (or any success
entity) applicable to approve the issuance of shares of Common Stock in excess
of the Issuable Maximum in a private placement whereby shares of Common Stock
are deemed to have been issued at a price that is less than the greater of book
or fair market value of the Common Stock, then the Company shall issue to the
Holder so requesting a conversion a number of shares of Common Stock equal to
the Issuable Maximum and, with respect to the remainder of the aggregate
principal amount of Debentures then held by such Holder for which a conversion
in accordance with the Conversion Price would result in an issuance of Common
Stock in excess of the Issuable Maximum (the "EXCESS PRINCIPAL"), the converting
Holder shall have the option to require the Company to either (1) use its best
efforts to obtain the Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 60th day after such request,
or (2)(i) issue and deliver to such Holder a number of shares of Common Stock as
equals (x) the Excess Principal, plus accrued interest on all Debentures being
converted, divided by (y) the Initial Conversion Price , and (ii) cash in an
amount equal to the product of (x) the Per Share Market Value on the Conversion
Date and (y) the number of shares of Common Stock in excess of such Holder's pro
rata portion of the Issuable Maximum that would have otherwise been issuable to
the Holder in respect of such conversion but for the provisions of this Section
(such amount of cash being hereinafter referred to as the "DISCOUNT
EQUIVALENT"), or (3) pay cash to the converting Holder in an amount equal to the
Mandatory Prepayment Amount for the Excess Principal. If the Company fails to
pay the Discount Equivalent or the Mandatory Prepayment Amount, as the case may
be, in full pursuant to this Section within seven (7) days after the date
payable, the Company will pay interest thereon at a rate of 18% per annum to the
converting Holder, accruing daily from the Conversion Date until such amount,
plus all such interest thereon, is paid in full.
(b) (i) Not later than three Trading Days after the Conversion Date, the
Company will deliver or cause to be delivered to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 3.1(b) of the Purchase Agreement)
representing the number of shares of the Common Stock being acquired upon the
conversion of Debentures (subject to the limitations set forth in Section
4(a)(iii) hereof), (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted; (iii) a bank check in the amount of all
accrued and unpaid interest (if the Company has elected to pay accrued interest
in cash), together with all other amounts then due and payable in accordance
with the terms hereof, in respect of Debentures tendered for conversion, and
(iv) if the Company has elected and is permitted hereunder to pay accrued
interest in shares of the Common Stock, certificates, which shall be free of
restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement), representing such number of shares of
the Common Stock as equals such interest divided by the Conversion Price
calculated on the Conversion Date; PROVIDED, HOWEVER, that the Company shall not
be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. If in the case of any Conversion Notice such certificate
or certificates, including for purposes hereof, any shares of the Common Stock
to be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, are not delivered to or as directed by the Holder by the third (3rd)
Trading Day after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion in which event the
Company shall immediately return the Debentures tendered for conversion. If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to this Section, including for purposes hereof, any shares of the Common Stock
to be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the third (3rd) Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $2,500 for each day thereafter until the Company delivers such
certificates (such amount shall be also be due for each Trading Day after the
date that the Holder may rescind such conversion until such date as the Holder
shall have received the return of the principal amount of Debentures relating to
such rescission).
(ii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(b)(i), including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the third (3rd) Trading Day after the Conversion Date, and
if after such the third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
pay in cash to the Holder (in addition to any remedies available to or elected
by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the aggregate principal amount of Debentures for which
such conversion was not timely honored. For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate principal
amount of Debentures, the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect on any
Conversion Date shall be the lesser of (a) 120% of the average of the Per Share
Market Values for the five (5) Trading Days immediately preceding the Original
Issue Date (the "INITIAL CONVERSION PRICE") and (b) 86% (the "DISCOUNT RATE")
multiplied by the average of the five (5) lowest Per Share Market Values during
the twenty five (25) Trading Day period immediately preceding the applicable
Conversion Date PROVIDED, HOWEVER, that such twenty five (25) Trading Day period
shall be extended for the number of Trading Days during such period in which (A)
trading in the Common Stock was suspended on the NASDAQ or on such Subsequent
Market on which the Common Stock is then listed, or (B) after the date declared
effective by the Commission, the Underlying Securities Registration Statement is
not effective, or (C) after the date declared effective by the Commission, the
Prospectus included in the Underlying Securities Registration Statement may not
be used by the Holder for the resale of Underlying Shares. If: (a) an Underlying
Securities Registration Statement is not filed on or prior to the Filing Date
(as defined in the Registration Rights Agreement) (if the Company files such
Underlying Securities Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)), or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed," or not subject to further review, or (c) the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date, or (d) such Underlying Securities Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities (as defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as defined in the Registration Rights Agreement),
without being succeeded within ten (10) days by an amendment to such Underlying
Securities Registration Statement or a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission, or
(e) trading in the Common Stock shall be suspended from the NASDAQ or a
Subsequent Market for more than three (3) Business Days (which need not be
consecutive days), (f) the conversion rights of the Holders are suspended for
any reason or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (any such failure or breach being referred to as an "EVENT," and for
purposes of clauses (a), (c), (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clauses (d) and (g) the date which such 10 day-period is
exceeded, or for purposes of clause (e) the date on which such three (3)
Business Day-period is exceeded, being referred to as "EVENT DATE"), then each
of the Initial Conversion Price and the Discount Rate shall be decreased by 2.0%
on the Event Date and each monthly anniversary thereof until the earlier to
occur of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Discount Rate would be lowered to 84% as of
the Event Date and 82% as of the one month anniversary of such Event Date).
Commencing on the second month anniversary after the Event Date, the Holder
shall have the option to either (x) require further cumulative 2.0% discounts to
continue or (y) require the Company to pay to the Holder 2.0% of the aggregate
principal amount of Debentures then held by such Holder, in cash, as liquidated
damages and not as a penalty, on the first day of each monthly anniversary of
the Event Date, until such time as the applicable Event is cured. Any decrease
in the Initial Conversion Price and the Discount Rate pursuant to this Section
shall remain in effect notwithstanding the fact that the Event causing such
decrease has been subsequently cured and further monthly decreases have ceased.
The provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of the Common Stock, (b) subdivide outstanding
shares of the Common Stock into a larger number of shares, (c) combine
outstanding shares of the Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Company, the Initial Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to Holders of Debentures) entitling them to subscribe for or purchase
shares of the Common Stock at a price per share less than the Per Share Market
Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Conversion Price made pursuant
to the provisions of this Section 4 after the issuance of such rights or
warrants) had the adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
Debentures are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that is convertible into or
exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS") entitling
any Person to acquire shares of Common Stock at a price per share less than the
Conversion Price, then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents would purchase at
the Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable, provided, that
for purposes hereof, all shares of Common Stock that are issuable upon exercise
or exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such shares of Common Stock or Common Stock Equivalents are
issued.
(v) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of the Common Stock (and not to Holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; PROVIDED, HOWEVER, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "APPRAISER") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and PROVIDED, FURTHER, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(viii) Whenever the Initial Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail to each Holder of
Debentures a notice setting forth the Initial Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) If (A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, and in each case, the Company shall cause to be filed at
each office or agency maintained for the purpose of conversion of the
Debentures, and shall cause to be mailed to the Holders of Debentures at their
last addresses as they shall appear upon the stock books of the Company, at
least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert Debentures during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Securities Registration
Statement.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of the Common Stock, but may
if otherwise permitted, make a cash payment in respect of any final fraction of
a share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
4360 Northlake Boulevard, Suite 214, Palm Beach Gardens, FL 33410 (facsimile
number (561) 627-0409, attention President, or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 8:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if send by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right to prepay, exercisable at any time
upon twenty (20) days prior written notice to the Holders of the Debentures to
be prepaid (the "OPTIONAL PREPAYMENT NOTICE"), from funds legally available
therefor at the time of such prepayment, all or any portion of the outstanding
principal amount of the Debentures which have not previously been repaid or for
which Conversion Notices have not previously been delivered hereunder, at a
price equal to the Optional Prepayment Price (as defined below). Any such
prepayment by the Company shall be in cash and shall be free of any claim of
subordination. The Holders shall have the right to tender, and the Company shall
honor, Conversion Notices delivered prior to the expiration of the twentieth
(20th) Trading Day after receipt by the Holders of an Optional Prepayment Notice
for such Debentures (such date, the "OPTIONAL PREPAYMENT DATE").
(b) If any portion of the Optional Prepayment Price shall not be paid by
the Company by the Optional Prepayment Date, the Optional Prepayment Price shall
be increased by 18% per annum (to accrue daily) until paid (which amount shall
be paid as liquidated damages and not as a penalty). In addition, if any portion
of the optional Prepayment Price remains unpaid through the expiration of the
Optional Prepayment Date, the Holder subject to such prepayment may elect by
written notice to the Company to either (i) demand conversion in accordance with
the formula and the time period therefor set forth in Section 4 of any portion
of the principal amount of Debentures for which the Optional Prepayment Price,
plus accrued liquidated damages thereof, has not been paid in full (the "UNPAID
PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable Per Share Market
Value shall be the lower of the Per Share Market Value calculated on the
Optional Prepayment Date and the Per Share Market Value as of the Holder's
written demand for conversion, or (ii) invalidate AB INITIO such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (i) above, the Company shall within three (3) Trading Days
such election is deemed delivered hereunder to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Prepayment Principal Amount subject
to such conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (ii) above, the Company shall
promptly, and in any event not later than three Trading Days from receipt of
notice of such election, return to the Holder new Debentures for the full Unpaid
Prepayment Principal Amount. If, upon an election under option (i) above, the
Company fails to deliver the shares of Common Stock issuable upon conversion of
the Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $2,500 per day until the Company delivers such Common Stock to
the Holder.
(c) The "OPTIONAL PREPAYMENT PRICE" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is less, multiplied by the Per Share Market Value on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
SECTION 6. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 40% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"COMMON STOCK" means the common stock, $.01 par value, of the Company and
stock of any other class into which such shares may hereafter have been
reclassified or changed.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum of (i)
the principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Average
Price on (x) the date the Mandatory Prepayment Amount is demanded or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the NASDAQ or on such
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on which the Common Stock is then listed or quoted on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on the NASDAQ or on a Subsequent Market, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority interest of the principal amount of Debentures.
"PERSON" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"TRADING DAY" means (a) a day on which the Common Stock is traded on the
NASDAQ or on such Subsequent Market on which the Common Stock is then listed or
quoted, as the case may be, or (b) if the Common Stock is not listed on the
NASDAQ or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
SECTION 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
SECTION 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof. As long as there are Debentures outstanding, the Company
shall not and shall cause it subsidiaries not to, without the consent of the
Holders, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holders; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Underlying Shares
to the extent permitted or required under the Transaction Documents; or (iii)
enter into any agreement with respect to any of the foregoing
SECTION 9. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
SECTION 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company and the Holders hereby irrevocably submit to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
SECTION 13. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the appropriate calendar
month).
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
INTELLIGENT MEDICAL IMAGING, INC.
By: /s/ GENE COCHRAN
----------------------------------
Name: Gene Cochran
Title: CFO
Attest:
By: /s/ TYCE FITZMORRIS
- ----------------------------
Name: Tyce Fitzmorris
Title: CEO
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-[ ] into shares of
common stock, $.01 par value (the "Common Stock"), of Intelligent Medical
Imaging, Inc. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
_____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Debentures to be Converted
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
Exhibit 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
INTELLIGENT MEDICAL IMAGING, INC.
WARRANT
Dated: June 30, 1998
Intelligent Medical Imaging, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, JNC Opportunity Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 120,000 shares of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $3.923 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including June 30, 2003 (the
"Expiration Date"), and subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Transfer Agent or
to the Company at the office specified in or pursuant to Section 3(b). Upon any
such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company specified in or pursuant to Section 3(b) for one or
more New Warrants, evidencing in the aggregate the right to purchase the number
of Warrant Shares which may then be purchased hereunder. Any such New Warrant
will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., Eastern time, at any time and from time to time
on or after the date hereof to and including the Expiration Date. At 5:30 P.M.,
Eastern time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value. Prior to the Expiration
Date, the Company may not call or otherwise redeem this Warrant without the
prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 12 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise, free of
restrictive legends other than as required by applicable law. Any person so
designated by the Holder to receive Warrant Shares shall be deemed to have
become holder of record of such Warrant Shares as of the Date of Exercise of
this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the term of this Warrant, the
Company may not file any registration statement with the Securities and Exchange
Commission (other than registration statements of the Company filed on Form S-8
or Form S-4, each as promulgated under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), pursuant to which the Company is registering securities
pursuant to a Company employee benefit plan or pursuant to a merger, acquisition
or similar transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice of its intention
to file such registration statement and provides the Holder the option to
include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. DEMAND REGISTRATION RIGHTS. At any time during the term of this Warrant
when the Warrant Shares are not registered pursuant to an effective registration
statement, the Holder may make a written request for the registration under the
Securities Act (a "Demand Registration"), of all of the Warrant Shares (the
"Registrable Securities"), and the Company shall use its best efforts to effect
such Demand Registration as promptly as possible, but in any case within 90 days
thereafter. Any request for a Demand Registration shall specify the aggregate
number of Registrable Securities proposed to be sold and shall also specify the
intended method of disposition thereof. The right to cause a registration of the
Registrable Securities under this Section 5 shall be limited to one such
registration. In any registration initiated as a Demand Registration, the
Company will pay all of its registration expenses in connection therewith. A
Demand Registration shall not be counted as a Demand Registration hereunder
until the registration statement filed pursuant to the Demand Registration has
been declared effective by the Securities and Exchange Commission and maintained
continuously effective for a period of at least 360 days or such shorter period
when all Registrable Securities included therein have been sold in accordance
with such registration statement, provided, however that any days on which such
registration statement is not effective or on which the Holder is not permitted
by the Company or any governmental authority to sell Warrant Shares under such
registration statement shall not count towards such 360 day period.
6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. RESERVATION OF WARRANT SHARES. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock (as
defined below) or on any other class of capital stock and not the Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock into a larger number of shares, or (iii) combine outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, then the Holder shall have the right thereafter to exercise
this Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property equal to the amount of Warrant Shares such Holder would
have been entitled to had such Holder exercised this Warrant immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 9(b) upon
any exercise following any such reclassification, consolidation, merger, sale,
transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 9(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the Company shall
issue or cause to be issued rights or warrants to acquire or otherwise sell or
distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issuance, and (ii) the number of shares of Common
Stock which the aggregate consideration received (or to be received, assuming
exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(e) For the purposes of this Section 9, the following clauses shall also be
applicable:
(i) RECORD DATE. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) TREASURY SHARES. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to Section 9(c) above,
the Holder, after receipt of the determination by the Appraiser, shall have the
right to select an additional appraiser (which shall be a nationally recognized
accounting firm), in which case the adjustment shall be equal to the average of
the adjustments recommended by each of the Appraiser and such appraiser. The
Holder shall promptly mail or cause to be mailed to the Company, a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such adjustment shall become
effective immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(iv) the approval of any stockholders of the Company shall
be required in connection with any reclassification of
the Common Stock of the Company, any consolidation or
merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities,
cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price in one
of the following manners:
(a) CASH EXERCISE. The Holder shall deliver immediately available funds; or
(b) CASHLESS EXERCISE. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the closing sale prices of
the Common Stock for the five (5) trading days
immediately prior to (but not including) the
Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. FRACTIONAL SHARES. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (Eastern time) on a business day, (ii) the business
day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Section later
than 8:00 p.m. (Eastern time) on any date and earlier than 11:59 p.m. (Eastern
time) on such date, (iii) the business day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The addresses
for such communications shall be: (i) if to the Company, to 4360 Northlake
Boulevard, Suite 214, Palm Beach Gardens, FL 33410, Attention: Chief Financial
Officer, or to facsimile no. (561) 627-0409, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 12.
13. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
14. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
INTELLIGENT MEDICAL IMAGING, INC.
By: /S/ GENE COCHRAN
---------------------------------
Name: Gene Cochran
Title: CFO
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Intelligent Medical Imaging, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of
Intelligent Medical Imaging, Inc. and , if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_________________________________
_______________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
Dated:____________, _____ Name of Holder:
(Print)_________________________________
(By:)___________________________________
(Name:)_________________________________
(Title:)________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Intelligent Medical
Imaging, Inc. to which the within Warrant relates and appoints ________________
attorney to transfer said right on the books of Intelligent Medical Imaging,
Inc. with full power of substitution in the premises.
Dated:
_______________, _____
_________________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
_________________________________________________
Address of Transferee
_________________________________________________
_________________________________________________
In the presence of:
________________________________
Exhibit 5.1
Edwards & Angell, LLP
Counsellors at Law Since 1894 250 Royal Palm Way
Palm Beach, FL 33480-4309
(561) 833-7700
FAX (561) 655-8719
July 30, 1998
Intelligent Medical Imaging, Inc.
4360 Northlake Boulevard
Suite 214
Palm Beach Gardens, FL 33410
Ladies and Gentlemen:
We have acted as counsel for Intelligent Medical Imaging, Inc., a Delaware
corporation (the "Company") in connection with the registration of 4,596,315
shares (the "Shares") of Common Stock, $.01 par value (the "Common Stock") for
sale by certain selling shareholders of the Company.
In connection with this opinion, we have examined the Registration
Statement on Form S-3 filed with the Securities and Exchange Commission ("SEC")
pursuant to the rules and regulations promulgated under the Securities Act of
1933, as amended, on the date hereof (the "Registration Statement"), relating to
the above-mentioned registration. In addition, we have examined such corporate
records, certificates and other documents, and reviewed such questions of law,
as we have deemed necessary or advisable in order to enable us to render the
opinion contained herein. All capitalized terms used herein, unless otherwise
specified, shall have the meanings assigned to them in the Registration
Statement.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to unsigned documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares, to register and qualify the Shares for sale under all
appropriate State "Blue Sky" and securities laws.
Based upon the foregoing, we are of the opinion that the Shares of Common
Stock (i) when issued and delivered upon the conversion of, and in accordance
with the terms of, the Debentures, (ii) when issued and delivered upon the
exercise of, and in accordance with the terms of, the Warrants, including full
payment to the Company of the applicable exercise price of the Warrants, and
(iii) when sold by the selling shareholders in the manner and for the
consideration stated in the Prospectus constituting a part of the Registration
Statement, as the case may be, will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus constituting a part of the Registration Statement. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required by Section 7 of the Act or the rules and regulations
promulgated thereunder.
Very truly yours,
/s/ Edwards & Angell, LLP
-------------------------
EDWARDS & ANGELL, LLP
Exhibit 23.1
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Intelligent Medical
Imaging, Inc. for the registration of 4,596,315 shares of its common stock and
to the incorporation by reference therein of our report dated February 9, 1998,
with respect to the financial statements and schedule of Intelligent Medical
Imaging, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
West Palm Beach, Florida /s/ Ernst & Young LLP
July 28, 1998 ----------------------
Exhibit 23.3
Consent of Patent Counsel
July 30, 1998
Intelligent Medical Imaging, Inc.
4360 Northlake Blvd.
Suite 214
Palm Beach Gardens, FL 33410
Att: Tyce M. Fitzmorris, President and Chief Executive Officer
Dear Mr. Fitzmorris:
We hereby consent to the use of our name, and the statement with respect to us,
under the caption entitled "EXPERTS" in the prospectus which is part of the
Registration Statement on Form S-3 filed by Intelligent Medical Imaging, Inc.
for the registration of 4,596,315 shares to be filed on July 30, 1998.
Very truly yours,
MALIN, HALEY, DiMAGGIO & CROSBY, P.A.
/S/ KEVIN P. CROSBY
- ---------------------
Kevin P. Crosby
