Exhibit 10.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 24th day of May,
2001 by and among fonar corporation, a Delaware corporation (the "Company"), and
the Purchasers set forth on the signature page affixed hereto (each a
"Purchaser" and collectively the "Purchasers").
Recitals
A. The Company and the Purchasers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended;
B. The Purchasers wish to purchase, and the Company wishes to sell and issue
to the Purchasers, upon the terms and subject to the conditions stated in
this Agreement, (i) an aggregate of $4.5 million in principal amount of the
Company's 4% Convertible Debentures in the form attached hereto as Exhibit
A (the "Debentures"), which Debentures shall be convertible into shares of
common stock of the Company, $0.0001 par value per share (the "Common
Stock"), in accordance with the terms of the Debentures, (ii) 3-year
callable warrants ("Callable Warrants") to purchase an aggregate of up to
2,000,000 shares of Common Stock, in the form attached hereto as Exhibit B,
and (iii) 5-year warrants ("Purchase Warrants") to purchase an aggregate of
up to such aggregate number of shares of Common Stock as is equal 30% of
the Purchase Price divided by the Conversion Price (as defined in the
Debenture) as of the Closing Date, in the form attached hereto as Exhibit
C, in each case as are set forth on the signature page attached hereto and
executed by each such Purchaser for an aggregate purchase price of $4.5
million; and
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit D (the "Registration
Rights Agreement"), pursuant to which the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, and applicable state
securities laws;
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by, or is under common
control with, such Person.
1.2 "Agreements" means this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants.
1.3 "Callable Warrants" shall have meaning set forth in the recitals to this
Agreement.
1.4 The "Company" shall refer to the Company (as defined in the first paragraph
hereof) together with its subsidiaries wherever applicable (including
without limitation with respect to all representations of the Company
unless the context otherwise requires).
1.5 "Closing" means the consummation of the transactions contemplated by this
Agreement, and "Closing Date" means the date of such Closing.
1.6 "Control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
1.7 "Debentures" shall have meaning set forth in the recitals to this
Agreement.
1.8 "Market Price" shall have the meaning set forth in the Debentures.
1.9 "Material Adverse Effect" means a material adverse effect on the (i)
condition (financial or otherwise), business, assets, prospects or results
of operations of the Company; (ii) ability of the Company to perform any of
its material obligations under the terms of the Agreements; or (iii) rights
and remedies of a Purchaser under the terms of the Agreements.
1.10 "MFN Transaction" means a transaction in which the Company issues or sells
any securities in a capital raising transaction or series of related
transactions (the "New Offering") which grants to the investor (the "New
Investor") the right to receive additional securities based upon future
capital raising transactions of the Company on terms more favorable than
those granted to the New Investor in the New Offering.
1.11 "Person" means an individual, corporation, partnership, limited liability
company trust, business trust, association, joint stock company, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.
1.12 "Purchase Warrants" shall have meaning set forth in the recitals to this
Agreement.
1.13 "SEC" means the U.S. Securities and Exchange Commission.
1.14 "SEC Filings" means the Company's Annual Report on Form 10-K/A for the
fiscal year ended June 30, 2000 and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the Annual Report on Form
10-K/A for the fiscal year ended June 30, 2000.
1.15 "Securities" means the Debentures, Underlying Shares, Warrants and Warrant
Shares.
1.16 "Underlying Shares" means the shares of Common Stock issued or issuable
upon conversion of, as payment for interest or repayment of principal
under, or otherwise pursuant to, the Debentures.
1.17 "Variable Rate Transaction" means a transaction in which the Company issues
or sells (a) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (x) at a conversion, exercise or exchange
rate or other price that is based upon and/or varies with the trading
prices of or quotations for the Common Stock at any time after the initial
issuance of such debt or equity securities, or (y) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (b) any
securities of the Company pursuant to an "equity line" structure which
provides for the sale, from time to time, of securities of the Company
which are registered for sale or resale pursuant to the 0000 Xxx.
1.18 "Warrants" means collectively the Callable Warrants and Purchase Warrants.
1.19 "Warrant Shares" means the shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants.
1.20 "1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
1.21 "1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
2. Purchase and Sale of the Debentures and Warrants. Subject to the terms and
conditions of this Agreement, each of the Purchasers hereby severally, and
not jointly, agrees to purchase, and the Company hereby agrees to sell and
issue to each of the Purchasers, the principal amount of Debentures and
Warrants to purchase the number of shares of Common Stock set forth on such
Purchaser's signature page attached hereto and as indicated herein. Each
Purchaser's aggregate purchase price (the "Purchase Price") for the
Debentures and Warrants to be purchased hereunder is set forth on such
Purchaser's signature page attached hereto.
3. Closing.
3.1 Initial Closing. The Company shall promptly deliver to Purchasers' counsel,
in trust, Debentures and Warrants, registered in the names of the
Purchasers as indicated on the signature pages to this Agreement,
representing all of the Debentures and all of the Warrants, with
instructions that such Debentures and Warrants are to be held in escrow for
release to the Purchasers only upon payment of the Purchase Price to the
Company and confirmation of receipt by the Company or its counsel. Upon
receipt by counsel to the Purchasers of the Debentures and Warrants,
subject to the execution and/or delivery of such other documents
contemplated hereby on or prior to the Closing, Purchaser shall promptly
cause a wire transfer in same day funds to be sent to the account of the
Company as instructed in writing by the Company, in an amount representing
the Purchase Price. On the date the Company receives such funds, the
Debentures and the Warrants shall be released to the Purchasers (and such
date shall be deemed the "Closing Date").
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers that:
4.1 Organization, Good Standing and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power
and authority to carry on its business as now conducted and own its
properties. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property makes such
qualification or licensing necessary unless the failure to so qualify would
not be reasonably likely to result in a Material Adverse Effect. All of the
Company's subsidiaries are listed by name and jurisdiction on Schedule 4.1
attached hereto.
4.2 Authorization. The Company has full corporate power and authority and has
taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution
and delivery of the Agreements, (ii) authorization of the performance of
all obligations of the Company hereunder and thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities. The Agreements constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the authorized
capital stock of the Company on the date hereof; (b) the number of shares
of capital stock issued and outstanding on the date hereof; (c) the number
of shares of capital stock issuable pursuant to the Company's stock plans;
and (d) the number of shares of capital stock issuable and reserved for
issuance pursuant to securities (other than the Debentures and the
Warrants) exercisable for, or convertible into or exchangeable for any
shares of capital stock. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. Except as set
forth on Schedule 4.3, no Person is entitled to preemptive or similar
statutory or contractual rights with respect to any securities of the
Company. Except as set forth on Schedule 4.3, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind and except as
contemplated by this Agreement or set forth on Schedule 4.3, the Company is
not currently in negotiations for the issuance of any equity securities of
any kind. Except as set forth on Schedule 4.3, the Company has no knowledge
of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities of the Company
held by them. Except as set forth on Schedule 4.3, the Company has not
granted any Person the right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or
in connection with the registration of securities of the Company for its
own account or for the account of any other Person.
4.4 Valid Issuance. As of the Closing, the Company has reserved a sufficient
number of shares of Common Stock for the issuance upon conversion of, as
payment for interest on or repayment of principal of, and otherwise
pursuant to, the Debentures, and upon exercise of the Warrants. The
Debentures and Warrants are duly authorized, and such Securities, along
with the Underlying Shares and Warrant Shares issuable upon conversion of
or payment of interest or repayment of principal on the Debentures and upon
exercise of the Warrants, respectively, when issued in accordance herewith
and with the terms of the Debentures and Warrants, will be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
encumbrances and restrictions, except for restrictions on transfer imposed
by applicable securities laws. The number of shares to be reserved
hereunder shall be determined without regard to any restrictions on
beneficial ownership contained in the Agreements.
4.5 Consents. The execution, delivery and performance by the Company of the
Agreements and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that will have
been made pursuant to applicable state securities laws and post-sale
filings pursuant to applicable state and federal securities laws and the
additional listing application requirements of the Nasdaq Stock Market,
which the Company undertakes to file within the applicable time periods.
4.6 Delivery of SEC Filings; Business. The SEC Filings represent all filings
required of the Company pursuant to the 1934 Act since June 30, 2000. The
SEC Filings complied as to form in all material respects with the
requirements of the 1934 Act and did 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 the light of the circumstances under which
they were made, not misleading. The Company is engaged only in the business
described in the SEC Filings and the SEC Filings contain a complete and
accurate description of the business of the Company in all material
respects. The Company has not provided to any Purchaser (i) any information
required to be filed under the 1934 Act that has not been so filed or (ii)
any non-public information.
4.7 Use of Proceeds. The proceeds of the sale of the Debentures and the
Warrants hereunder shall be used by the Company only for legally
permissible working capital and general corporate purposes.
4.8 No Material Adverse Change. Since the filing of the Company's most recent
Annual Report on Form 10-K/A or as otherwise identified and described in
the Company's Form 10-Q filed with the SEC for the fiscal quarter ending
March 31, 2001 or any other reports filed by the Company subsequent to such
Form 10-K/A pursuant to the 1934 Act and filed at least ten (10) days prior
to the date hereof, there has not been:
(i) any material adverse change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected
in the financial statements included in the Company's most recent Quarterly
Report on Form 10-Q, except changes in the ordinary course of business
which have not had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company (other than
required dividends on non-voting preferred stock of the Company up to
$400,000);
(iii)any material damage, destruction or loss, whether or not covered by
insurance, to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company of a material right or of a material debt owed to
it;
(v) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company, except in the ordinary course of business
and which is not material to the assets, properties, prospects financial
condition, operating results or business of the Company taken as a whole
(as such business is presently conducted and as it is proposed to be
conducted);
(vi) any material change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(vii)any material labor difficulties or labor union organizing activities with
respect to employees of the Company;
(viii) any transaction entered into by the Company other than in the ordinary
course of business; or
(ix) any other event or condition of any character that may have a Material
Adverse Effect.
4.9 Registration Statements; Material Contracts.
(a) During the preceding two years, each registration statement and any
amendment thereto filed by the Company pursuant to the 1933 Act, as of the
date such statement or amendment became effective, complied as to form in
all material respects with the 1933 Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; and each prospectus filed pursuant to Rule 424(b) under the
1933 Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(b) Except as set forth on Schedule 4.3 hereto, there are no agreements or
instruments currently in force and effect that constitute a warrant,
option, convertible security or other right, agreement or arrangement of
any character under which the Company is or may be obligated to issue any
material amounts of any equity security of any kind, or to transfer any
material amounts of any equity security of any kind.
4.10 Form S-3 Eligibility. The Company is currently eligible to register the
resale of its Common Stock on a registration statement on Form S-3 under
the 1933 Act.
4.11 No Conflict, Breach, Violation or Default. (a) The execution, delivery and
performance of the Agreements by the Company and the issuance and sale of
the Securities will not conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under (i) the
Company's Certificate of Incorporation (including any certificates of
designation) or the Company's Bylaws, both as in effect on the date hereof
(copies of which have been provided to the Purchasers before the date
hereof) and the date of issuance of such securities, or (ii) except where
it would not have a Material Adverse Effect, (A) any statute, rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any of its
properties, or (B) any agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the properties of
the Company is subject.
(b) Except where it would not have a Material Adverse Effect, the Company (i)
is not in violation of any statute, rule or regulation applicable to the
Company or its assets, (ii) is not in violation of any judgment, order or
decree applicable to the Company or its assets, and (iii) is not in breach
or violation of any agreement, note or instrument to which it or its assets
are a party or are bound or subject. The Company has not received notice
from any Person of any claim or investigation that, if adversely
determined, would render the preceding sentence untrue or incomplete.
4.12 Tax Matters. The Company has timely prepared and filed all tax returns
required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes owed by it. The charges,
accruals and reserves on the books of the Company in respect of taxes for
all fiscal periods are adequate in all material respects, and there are no
material unpaid assessments against the Company nor, to the knowledge of
the Company, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state
or local taxing authority except such as which are not material and except
as set forth on Schedule 4.12 hereto. All material taxes and other
assessments and levies that the Company is required to withhold or to
collect for payment have been duly withheld and collected and paid to the
proper governmental entity or third party when due. There are no tax liens
or claims pending or threatened against the Company or any of its
respective assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company and any other
corporation or entity.
4.13 Title to Properties. Except as disclosed in the SEC Filings, the Company
has good and marketable title to all real properties and all other
properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company
holds any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or currently planned to be made thereof by them.
4.14 Certificates, Authorities and Permits. The Company possesses adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by it and
has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company, would individually or in the aggregate
have a Material Adverse Effect.
4.15 No Labor Disputes. No material labor dispute with the employees of the
Company exists or, to the knowledge of the Company, is imminent.
4.16 Intellectual Property. The Company owns or possesses adequate rights or
licenses to the inventions, know-how, patents, copyrights, trademarks,
trade names, confidential information and other intellectual property
(collectively, "Intellectual Property Rights"), free and clear of all
liens, security interests, charges, encumbrances, equities and other
adverse claims, necessary to conduct the business now operated by it, or
presently employed by it, and presently contemplated to be operated by it,
and the Company has not received any notice of infringement of or conflict
with asserted rights of others with respect to any Intellectual Property
Rights except as disclosed in the SEC Filings. To the knowledge of the
Company, the Company's patents and other Intellectual Property Rights and
the present activities of the Company do not infringe any patent,
copyright, trademark, trade name or other proprietary rights of any third
party where such infringement may cause a Material Adverse Effect on the
Company.
4.17 Environmental Matters. The Company is not in violation of any statute,
rule, regulation, decision or order of any governmental agency or body or
any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), does not own or operate any real
property contaminated with any substance that is subject to any
Environmental Laws, is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and is not subject to any
claim relating to any Environmental Laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
that might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings, there are no pending
actions, suits or proceedings against or affecting the Company or any of
its properties that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect or would
materially and adversely affect the ability of the Company to perform its
obligations under the Agreements, or which are otherwise material in the
context of the sale of the Securities; and to the Company's knowledge, no
such actions, suits or proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in each SEC Filing
present fairly and accurately in all material respects the consolidated
financial position of the Company as of the dates shown and its
consolidated results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
Except as set forth in the financial statements of the Company included in
the SEC Filings filed prior to the date hereof, the Company has no
liabilities, contingent or otherwise, except those which individually or in
the aggregate are not material to the financial condition or operating
results of the Company.
4.20 Insurance Coverage. The Company maintains in full force and effect
insurance coverage that the Company reasonably believes such insurance
coverage to be adequate against all liabilities, claims and risks against
which it is customary for comparably situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The Company is in
compliance with all applicable Nasdaq Small-Cap Market continued listing
requirements and is in good standing on such exchange. There are no
proceedings pending or to the Company's knowledge threatened against the
Company relating to the continued listing of the Company's Common Stock on
the Nasdaq Small-Cap Market and the Company has not received any notice of,
nor to the knowledge of the Company is there any basis for, the delisting
of the Common Stock from the Nasdaq Small-Cap Market.
4.22 Acknowledgement of Dilution. The number of shares of Common Stock issuable
pursuant to the Debentures and Warrants may increase substantially. The
Company's executive officers and directors have studied and fully
understand the nature of the transactions being contemplated hereunder and
recognize that they have a potential dilutive effect.
4.23 Brokers and Finders. The Purchasers shall have no liability or
responsibility for the payment of any commission or finder's fee to any
third party in connection with or resulting from this agreement or the
transactions contemplated by this Agreement by reason of any agreement of
or action taken by the Company.
4.24 No General Solicitation. Neither the Company nor any Person acting on its
behalf has conducted any general solicitation or general advertising (as
those terms are used in Regulation D) in connection with the offer or sale
of any of the Securities.
4.25 No Integrated Offering. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) of the 1933 Act for the exemption from registration
for the transactions contemplated hereby or would require registration of
the Securities under the 1933 Act; or would require the integration of this
offering with any other offering of securities for purposes of determining
the need to obtain stockholder approval of the transactions contemplated
hereby under the rules of the Nasdaq Stock Market.
4.26 Disclosures. For purposes of this Agreement and the transactions
contemplated hereby, none of the representations or warranties made by the
Company under any of the Agreements and no information furnished by the
Company pursuant hereto, or in any other document, certificate or statement
furnished by the Company to the Purchaser or any authorized representative
of the Purchaser, pursuant to the Agreements or in connection therewith,
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading.
5. Representations and Warranties of the Purchaser. Each of the Purchasers
hereby severally, and not jointly, represents and warrants to the Company
as to itself only that:
5.1 Organization and Existence. The Purchaser is a validly existing
corporation, partnership or limited liability company and has all requisite
corporate, partnership or limited liability company power and authority to
invest in the Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the Purchaser of
this Agreement and the Registration Rights Agreement have been duly
authorized and this Agreement and the Registration Rights Agreement will
each constitute the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability, relating to or affecting
creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be received by the
Purchaser hereunder will be acquired for the Purchaser's own account, not
as nominee or agent, and not with a view to the resale or distribution of
any part thereof in violation of securities laws, and the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same in violation of securities laws.
5.4 Investment Experience. The Purchaser acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the purchase contemplated
hereby and has been represented by counsel in the negotiation of the
Agreements.
5.5 Disclosure of Information. The Purchaser has had an opportunity to receive
documents related to the Company and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms
and conditions of the offering of the Securities. Neither such inquiries
nor any other due diligence investigation conducted by the Purchaser shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in this Agreement or made pursuant
to this Agreement.
5.6 Restricted Securities. The Purchaser understands that the Securities are
characterized as "restricted securities" under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction
not involving a public offering and that under such laws, applicable state
laws and applicable regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale pursuant to
the Registration Rights Agreement or until sales under Rule 144 are
permitted, certificates evidencing the Securities may bear one or all of
the following legends or legends substantially similar thereto:
(a) "The shares represented by this certificate may not be transferred without
(i) the opinion of counsel reasonably satisfactory to the corporation (if
reasonably requested) that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under
applicable state securities laws; or (ii) such registration or
qualification."
(b) If required by the authorities of any state in connection with the issuance
of sale of the Securities, the legend required by such state authority.
Upon registration for resale pursuant to the Registration Rights Agreement
or upon Rule 144(k) under the 1933 Act becoming available, the Company shall
promptly cause certificates evidencing the Underlying Shares and Warrant Shares
previously issued to be replaced with certificates which do not bear such
restrictive legends, and all Underlying Shares and Warrant Shares subsequently
issued shall not bear such restrictive legends.
5.8 Accredited Investor. The Purchaser is an "accredited investor" as defined
in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. The Purchaser did not learn of the investment in
the Securities as a result of any public advertising or general
solicitation.
5.10 Residency of Purchaser. The Purchaser is a resident of the state or other
jurisdiction indicated next to the Purchaser's name on the signature page
hereto.
6. Registration Rights Agreement and Certificate.
6.1 Registration Rights Agreement. The parties acknowledge and agree that part
of the inducement for the Purchasers to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution
hereof, the Registration Rights Agreement is being duly executed and
delivered by the parties thereto.
7. Covenants and Agreements of the Company.
7.1 19.9% Cap; Rule 144.
(a) 19.9% Cap. In the event that at any time the Company would be obligated to
issue an amount of shares of Common Stock upon conversion of, or in payment
of interest or repayment of principal on, the Debentures, or upon exercise
of the Warrants, which, when aggregated with all shares of Common Stock
issued to the Purchaser(s), would constitute a breach of the Company's
obligations under the rules or regulations of the Nasdaq Stock Market as
they apply to the Company, or any other principal securities exchange or
market ("Principal Market") upon which the Common Stock is or becomes
traded (the "Cap Regulations"), the Company shall not be obligated to issue
any such shares of Common Stock to the extent such shares are in excess of
the maximum permissible amount under such Cap Regulations ("Excess
Shares"). In such case, the provisions relating to Cap Regulations in the
Debentures and Warrants shall apply. Only shares of Common Stock acquired
pursuant to this Agreement (including Underlying Shares and Warrant Shares)
will be included in determining whether the limitation contained herein
would be exceeded for purposes of this Section 7.1(a).
(b) Rule 144. The Company agrees to take the position that, for purposes of
determining the holding period under Rule 144 of the 1933 Act for
Underlying Shares issued upon conversion of, or in payment of interest or
repayment of principal on, the Debentures, the holding period of such
Underlying Shares shall be tacked to the holding period of the Debentures.
7.2 Limitation on Transactions.
(a) [INTENTIONALLY OMITTED]
(b) So long as at least 30% of the original principal amount of the Debentures
remains outstanding, without the prior written consent of the holders of a
majority-in-interest of Debentures (which consent may be withheld in such
holders' discretion), the Company shall not (i) issue or sell or agree to
issue or sell any securities in a MFN Transaction, or (ii) issue or sell,
or agree to issue or sell, any securities in a Variable Rate Transaction.
So long as any Debentures remain outstanding, without the prior written
consent of the holders of a majority-in-interest of Debentures (which
consent may be withheld in such holders' discretion), the Company shall not
(iii) issue any securities in payment or satisfaction of, or in exchange
for, any outstanding debt, except for up to 2,000,000 shares (as such
number may be adjusted for stock splits, reverse splits, and stock
dividends) of Common Stock registered under the 1933 Act in the aggregate;
provided that: (A) no more than 133, 333 of such shares (as such number may
be adjusted for stock splits, reverse splits and stock dividends) may be
sold during a calendar month, if the average closing bid price of the
Common Stock for the prior calendar month is at least $1.50 (as such price
may be adjusted to reflect stock splits, reverse splits and stock
dividends) and (B) no more than 104,167 of such shares (as such number may
be adjusted for stock splits, reverse splits and stock dividends) may be
sold during a calendar month, if the average closing bid price for the
Common Stock for the prior calendar month is less than $1.50 (as such price
may be adjusted to reflect stock splits, reverse splits and stock
dividends).
(c) Subject to any consent or approval rights of the Purchasers hereunder, in
the event the Company contemplates an offering of its equity or debt
securities within six months of the date hereof, the Company agrees that,
upon the reasonable request of the Purchasers, the Company shall first
disclose the terms and conditions and other relevant facts of such proposed
transaction to Nasdaq and obtain from Nasdaq its assurance that such
transaction will not be integrated with the offering which is the subject
of this Agreement for purposes of the Nasdaq rules requiring shareholder
approval of the issuance of 20% or more of an issuer's outstanding common
stock. In the event the Company fails to seek or obtain such assurances,
then, at the election of a Purchaser, the Company shall redeem within five
(5) days the Debentures purchased by such Purchaser at 120% of the original
per share Purchase Price paid by the Purchaser for all such Debentures then
held by such Purchaser.
7.3 Right of the Purchasers to Participate in Future Transactions.
(a) Until December 31, 2002, the Purchasers will have a right to participate in
any sales of any of the Company's securities in a capital raising
transaction on the terms and conditions set forth in this Section 7.3.
During such period, the Company shall give ten (10) business days advance
written notice to the Purchaser prior to any non-public offer or sale of
any of the Company's equity securities or any securities convertible into
or exchangeable or exercisable for such securities in a capital raising
transaction by providing to the Purchasers a comprehensive term sheet
containing all significant business terms of such a proposed transaction.
The Purchasers shall have the right (pro rata in accordance with the
Purchasers' participation in this offering, or together with other
investors selected by the Purchasers and reasonably acceptable to the
Company) to purchase, within twenty (20) days following the consummation of
such transaction, an amount of the identical securities issued in such
transaction equal to 50% of the amount purchased by such other investors
(or 100% of such transaction if it is a Variable Rate Transaction or MFN
Transaction) for the same consideration and on the same terms and
conditions as such third-party sale. The Purchaser(s)' rights hereunder
must be exercised in writing by the Purchaser(s) within ten (10) business
days following the consummation of such transaction. If, subsequent to the
Company giving notice to a Purchaser hereunder but prior to the Purchaser
exercising its rights hereunder, the terms and conditions of the
third-party sale are changed from that disclosed in the comprehensive term
sheet provided to such Purchaser, the Company shall be required to provide
a new notice to the Purchaser hereunder and the Purchasers shall have the
right to exercise their rights to purchase the identical securities
following consummation of such transaction on such changed terms and
conditions as provided hereunder. The rights and obligations of this
Section 7.3 shall in no way diminish the other rights of the Purchaser
pursuant to this Section 7.
(b) Limitation on Right of First Refusal.
(i) Notwithstanding anything to the contrary contained herein, the number of
shares of Common Stock that may be acquired by any Purchaser pursuant to
any capital raising transaction as described in subsection (a) above shall
not exceed a number that, when added to the total number of shares of
Common Stock deemed beneficially owned by such Purchaser (other than by
virtue of the ownership of securities or rights to acquire securities
(including the Debentures and Warrants) that have limitations on the
Purchaser's right to convert, exercise or purchase similar to the
limitation set forth herein (the "Excluded Shares")), together with all
shares of Common Stock deemed beneficially owned (not counting such
affiliate's Excluded Shares) by the Purchaser's "affiliates" (as defined
Rule 144 of the 1933 Act) ("Aggregation Parties") that would be aggregated
for purposes of determining whether a group under Section 13(d) of the 1934
Act, exists, would exceed 9.9% of the total issued and outstanding shares
of the Company's Common Stock (the "Restricted Ownership Percentage"). Each
holder shall have the right (x) at any time and from time to time to reduce
its Restricted Ownership Percentage immediately upon notice to the Company
and (y) at any time and from time to time, to increase its Restricted
Ownership Percentage immediately in the event of the announcement as
pending or planned of any Change in Control Transaction (as defined in the
Debentures).
(ii) The Purchaser covenants at all times on each day (each such day being
referred to as a "Covenant Day") as follows: During the balance of such
Covenant Day and the succeeding sixty-one (61) days (the balance of such
Covenant Day and the succeeding 61 days being referred to as the "Covenant
Period") such Purchaser will not acquire shares of Common Stock pursuant to
any capital raising transaction as described in subsection (a) (including
convertible securities which are convertible or exchangeable into or
exercisable for Common Stock within 61 days only if such securities do not
contain the limitations on beneficial ownership similar to those contained
herein) existing at the commencement of the Covenant Period to the extent
the number of shares so acquired by such holder and its Aggregation Parties
(ignoring all dispositions) would exceed:
(1) the Restricted Ownership Percentage of the total number of shares of Common
Stock outstanding at the commencement of the Covenant Period,
minus
(2) the number of shares of Common Stock owned by such Purchaser and its
Aggregation Parties at the commencement of the Covenant Period.
A new and independent covenant will be deemed to be given by the Purchaser
as of each moment of each Covenant Day. No covenant will terminate, diminish or
modify any other covenant. The Purchaser agrees to comply with each such
covenant. This Section 7.3(b) controls in the case of any conflict with any
other provision of the Agreements.
The Company's obligation to issue securities under subsection (a) above
which would exceed such limits referred to in this Section 7.3(b) shall be
suspended to the extent necessary until such time, if any, as shares of Common
Stock may be issued in compliance with such restrictions.
7.4 Opinion of Counsel. On or prior to the Closing Date, the Company will
deliver to the Purchasers the opinion of legal counsel to the Company, in
form and substance reasonably acceptable to the Purchasers, addressing
those legal matters set forth in Schedule 7.4 hereto.
7.5 Reservation of Common Stock issuable upon Conversion of Debentures and
Exercise of Warrants. The Company hereby agrees at all times to reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the full conversion of Debentures
(including payment and repayment of interest and principal thereon) and the
exercise of the Warrants, such number of shares of Common Stock as shall
from time to time equal 200% of the number of shares sufficient to permit
the full conversion of Debentures (including payment and repayment of
interest and principal thereon) and 100% of the number of shares necessary
to permit the full exercise of the Warrants in accordance with the terms of
the Warrants. All calculations pursuant to this paragraph shall be made
without regard to restrictions on beneficial ownership.
7.6 Reports. For so long as the Purchasers beneficially own any of the
Securities, the Company will furnish to the Purchasers the following
reports, each of which shall be provided to the Purchasers by air mail or
reputable international courier (within one week of filing with the SEC, in
the case of SEC filings):
(a) Quarterly Reports. The Company's quarterly report on Form 10-Q or, in the
absence of such report, consolidated balance sheets of the Company as at
the end of such period and the related consolidated statements of
operations, stockholders' equity and cash flows for such period and for the
portion of the Company's fiscal year ended on the last day of such quarter,
all in reasonable detail and certified by the Company to have been prepared
in accordance with generally accepted accounting principles, subject to
year-end and audit adjustments.
(b) Annual Reports. The Company's Form 10-K or, in the absence of a Form 10-K,
consolidated balance sheets of the Company as at the end of such fiscal
year and the related consolidated statements of earnings, stockholders'
equity and cash flows for such year, all in reasonable detail and
accompanied by the report on such consolidated financial statements of an
independent certified public accountant selected by the Company and
reasonably satisfactory to the Purchaser.
(c) Securities Filings. Copies of (i) all notices, proxy statements, financial
statements, reports and documents as the Company shall send or make
available generally to its stockholders or to financial analysts, promptly
after providing same to the stockholders and (ii) all periodic and special
reports, documents and registration statements (other than on Form S-8)
which the Company furnishes or files, or any officer or director of the
Company (in such person's capacity as such) furnishes or files with the
SEC.
(d) Other Information. Such other information relating to the Company as from
time to time may reasonably be requested by any Purchaser provided the
Company produces such information in its ordinary course of business, and
further provided that the Company, solely in its own discretion, determines
that such information is not confidential in nature and disclosure to the
Purchaser would not be harmful to the Company.
(e) Rule 144. The Company agrees to make publicly available on a timely basis
the information necessary to enable Rule 144 under the 1933 Act to be
available for resale.
7.7 Press Releases. Any press release or other publicity concerning this
Agreement or the transactions contemplated by this Agreement shall be
submitted to the Purchasers for comment at least two (2) business days
prior to issuance, unless the release is required to be issued within a
shorter period of time by law or pursuant to the rules of the NASDAQ Stock
Market or a national securities exchange. The Company shall issue a press
release concerning the fact and material terms of this Agreement within one
business day of the Closing.
7.8 No Conflicting Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in
any material respect with the obligations to the Purchasers under the
Agreements.
7.9 Insurance. For so long as any Purchaser beneficially owns any of the
Securities, the Company shall, and shall cause each active subsidiary to,
have in full force and effect (a) insurance reasonably believed by the
Company to be adequate on all assets and activities, covering property
damage and loss of income by fire or other casualty, and (b) insurance
reasonably believed to be adequate protection against all liabilities,
claims and risks against which it is customary for companies similarly
situated as the Company and the subsidiaries to insure.
7.10 Compliance with Laws. So long as the Purchasers beneficially own any
Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.11 Listing of Underlying Shares and Related Matters. The Company hereby
agrees, promptly following the Closing of the transactions contemplated by
this Agreement, to take such action to cause the Underlying Shares and the
Warrant Shares to be listed on the Nasdaq Small-Cap Market as promptly as
possible but no later than the effective date of the registration
contemplated by the Registration Rights Agreement. The Company further
agrees that if the Company applies to have its Common Stock or other
securities traded on any other principal stock exchange or market, it will
include in such application the Underlying Shares and Warrant Shares and
will take such other action as is necessary to cause such Common Stock to
be so listed. For so long as any Debentures remain outstanding, the Company
will take all action necessary to continue the listing and trading of its
Common Stock on the Nasdaq Small-Cap Market or on the Nasdaq National
Market, the New York Stock Exchange or the American Stock Exchange
(collectively, "Approved Markets"), and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or
rules of such exchange or market, as applicable, to ensure the continued
eligibility for trading of the Underlying Shares and the Warrant Shares
thereon. Neither the Company nor any of its Affiliates, nor any Person
acting on its or their behalf, shall directly or indirectly make any offers
or sales of any security or solicit any offers to buy any security which
may cause the integration of the offering hereunder with any other offering
of securities for purposes of determining the need to obtain stockholder
approval of the transactions contemplated hereby under the rules of the
Nasdaq Stock Market. The Company shall notify the Purchasers in advance if
it intends to make any private placement of securities within the six month
period following the date hereof, and at the Purchasers' reasonable request
the Company shall request a ruling from the NASD in advance that such
private placement will not be integrated with the transactions contemplated
hereunder as described in the preceding sentence.
7.12 Corporate Existence. So long as any Debentures or Warrants remain
outstanding, the Company shall maintain its corporate existence, except in
the event of a merger, consolidation or sale of all or substantially all of
the Company's assets, as long as the surviving or successor entity in such
transaction (a) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith, regardless
of whether or not the Company would have had a sufficient number of shares
of Common Stock authorized and available for issuance in order to fulfill
its obligations hereunder and effect the conversion (including payment on)
and exercise in full of all Debentures and Warrants outstanding as of the
date of such transaction; (b) has no legal, contractual or other
restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in
connection herewith; and (c)(i) is a publicly traded corporation whose
common stock and the shares of capital stock issuable upon conversion and
exercise of the Debentures and Warrants are (or would be upon issuance
thereof) listed for trading on an Approved Market or (ii) if not such a
publicly traded corporation, then the buyer agrees that it will, at the
election of the Purchasers, purchase such Purchasers' Securities at a price
equal to the greater of (a) 120% of the Purchase Price of such Securities
or (b) the fair market value of such Securities on an as-converted and
as-exercised basis based on the closing price immediately preceding such
transaction or the redemption date, whichever is greater.
8. Survival. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements as of the date hereof and shall
survive the execution and delivery of this Agreement.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by a party
hereto without the prior written consent of the other party hereto which
consent may not be unreasonably withheld or delayed, except that without
the prior written consent of the Company, but after notice duly given, a
Purchaser may assign its rights and delegate its duties hereunder in whole
or in part to an affiliate or to any Purchaser of Securities from such
Purchaser. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
9.2 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively
given only upon delivery to each party to be notified by (i) personal
delivery, (ii) telex or telecopier, upon receipt of confirmation of
complete transmittal, or (iii) an internationally recognized overnight air
courier, addressed to the party to be notified at the address as follows,
or at such other address as such party may designate by ten days' advance
written notice to the other party:
If to the Company:
Fonar Corporation
000 Xxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attention: President
If to the Purchasers, to the addresses set forth on
the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay to Tail Wind, Inc. a
non-refundable sum equal to 1% of the Purchase Price paid by each Purchaser
as and for reimbursement for legal and due diligence expenses incurred in
connection herewith and such amount shall be paid at Closing from gross
proceeds of the offering. The Company shall pay all fees and expenses of
any placement agents or finders in connection with the transactions
contemplated by this Agreement pursuant to a separate agreement between
such parties. Without limiting the foregoing, a cash fee equal to 3.5% of
the gross proceeds received by the Company hereunder from Purchasers will
be paid by the Company to Xxxx Xxxxxx Inc. ("RMI") at Closing (to the
extent not already paid). Such amount may be paid on the Company's account
directly by the Purchasers out of proceeds to be received from the
Purchasers as an offset from the Purchase Price. The Company will also
issue to RMI a warrant (the "RMI Warrant") for the purchase of 300,000
shares of Common Stock in the identical form as Exhibit B to this
Agreement, with the same term and exercise price thereunder. The shares of
Common Stock underlying the RMI Warrant shall be included in the definition
of "Registrable Securities" under the Registration Rights Agreement and RMI
shall be made a party thereto.
9.6 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and a majority-in-interest of the
Purchasers, provided, however, that any such amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
Securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.
9.7 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with
its terms.
9.8 Entire Agreement. This Agreement, including the Exhibits and Schedules
hereto, and the Registration Rights Agreement, the Debentures and Warrants
and other documents contemplated hereby constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter hereof
and thereof.
9.9 Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably
be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.10 Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to
principles of conflicts of laws.
9.11 Remedies.
(i) The Purchasers shall be entitled to specific performance of the Company's
obligations under the Agreements.
(ii) The Company on the one hand, and each Purchaser severally and not jointly
on the other hand, shall indemnify the other and hold it harmless from any
loss, cost, expense or fees (including attorneys' fees and expenses)
arising out of any breach of any representation, warranty, covenant or
agreement in any of the Agreements, or arising out of the enforcement of
this Section 9.11.
9.12 Jurisdiction. The parties hereby agree that all actions or proceedings
arising directly or indirectly from or in connection with this Agreement or
the other Agreements shall be litigated only in the Supreme Court of the
State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. The parties
consent to the jurisdiction and venue of the foregoing courts and consent
that any process or notice of motion or other application to either of said
courts or a judge thereof may be served inside or outside the State of New
York or the Southern District of New York by registered mail, return
receipt requested, directed to the party being served at its address set
forth in this Agreement (and service so made shall be deemed complete three
(3) days after the same has been posted as aforesaid) or by personal
service or in such other manner as may be permissible under the rules of
said courts. The Company hereby waives any right to a jury trial in
connection with any litigation pursuant to this Agreement or the other
Agreements.
[This page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
The Company:
FONAR CORPORATION
By: /s/
----------------------------
Name:
----------------------------
Title:
----------------------------
The Purchasers
THE TAIL WIND FUND, LTD.
By: /s/
----------------------------
Name:
----------------------------
Title:
----------------------------
Aggregate Purchase Price: $4,500,000
Principal Amount: $4,500,000
No. of Purchase Warrants: 659,501
No. of Callable Warrants: 2,000,000
Initial Conversion Price of Debentures: $2.047
Address for Notices:
The Tail Wind Fund Ltd.
MeesPierson (Bahamas) Ltd.
Attn: Xxxxxx Xxxxx
Windemere House, 000 Xxxx Xxx Xxxxxx
P.O. Box SS 5539, Nassau, Bahamas
Tel: 242/000-0000 Fax: 242/000-0000
(Resident: Bahamas)
with a copy to:
Xxxxx Xxxxx, Esq.
x/x XXXX
0xx Xxxxx, No. 0 Xxxxxx Xxxxxx
Xxxxxx, XX0X 0XX XX
Telephone: 00-000-000-0000
Facsimile: 00-000-000-0000
with a copy to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
