DOBI MEDICAL INTERNATIONAL, INC.
0000 XxxXxxxxx Xxxxxxxxx
Xxxxxx, Xxx Xxxxxx 00000
December 9, 2003
To each Stockholder of DOBI Medical Systems, Inc.
Ladies and Gentlemen:
Reference is made to the Agreement of Merger and Plan of
Reorganization, dated as of December 8, 2003 (the "Merger Agreement"), by and
among Lions Gate Investment Limited, a publicly-traded Nevada corporation
("Parent"), DOBI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Acquisition"), and DOBI Medical Systems, Inc., a Delaware
corporation (the "Company"), pursuant to which the Company's stockholders will
receive shares of common stock, par value $.001 per share (the "Common Stock"),
of Parent in connection with the merger of the Company with Acquisition (the
"Merger") resulting in the Company becoming a wholly-owned subsidiary of Parent.
As previously communicated to you by the Company, Parent hereby
confirms the following:
1. (a) Parent shall file a registration statement (the "Registration
Statement") with the U.S. Securities and Exchange Commission (the "SEC")
covering the resale of the shares of Common Stock on or around, but not before
April 1, 2004. Parent shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as possible after the initial
filing. Parent will maintain the effectiveness of the Registration Statement for
two (2) years after the date of closing of the Merger; provided that, if at any
time or from time to time after the date of effectiveness of the Registration
Statement, Parent notifies you in writing of the existence of a Potential
Material Event (as defined below), you shall not offer or sell any shares of
Common Stock, or engage in any other transaction involving or relating to such
shares, from the time of the giving of notice with respect to a Potential
Material Event until Parent notifies you that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, further that, Parent may not suspend your right
pursuant to this Section 1(a) for more than 90 days in the aggregate. "Potential
Material Event" means the possession by Parent of material information regarding
a potential transaction beneficial to Parent or its stockholders not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of Parent that disclosure
of such information in the registration statement would be detrimental to the
business and affairs of Parent.
(b) If Parent fails to (i) file the Registration Statement
with the SEC prior to May 1, 2004, or (ii) subject to Section 1(a) and Section
1(c), maintain the effectiveness of the Registration Statement for two (2) years
after the date of the closing of the Merger, Parent shall be obligated to issue
to you additional shares of Common Stock computed as follows: on the first day
that Parent has failed to file, or to maintain the effectiveness of, the
Registration Statement, as the case may be (the "First Determination Date"),
Parent shall determine the number of shares of Common Stock entitled to the
benefit of the registration rights set forth in this Section 1(b) that are held
by you (the "Subject Shares"). Within fifteen (15) days following the First
Determination Date, Parent shall issue to the undersigned shares of Common Stock
equal to 2% of the Subject Shares (the "Penalty Shares"). Penalty Shares shall
also be issuable upon the expiration of each 30-day period following the First
Determination Date during which Parent has continued to fail to obtain
effectiveness of, or maintain effectiveness of, the Registration Statement, as
the case may be (the expiration date of each such 30-day period being a
"Subsequent
Determination Date"). The number of Penalty Shares issuable following each
Subsequent Determination Date shall be determined and issued in accordance with
this Section on the same basis applicable to the First Determination Date;
provided, however, that Penalty Shares previously issued to you shall be
excluded from the calculation of Subject Shares. Notwithstanding the foregoing,
Parent shall not be obligated to issue to you in respect of the Penalty Shares
an aggregate number of shares of Common Stock greater than 12% of the Subject
Shares held by you as of the first day of the last month in which payments in
respect of the Penalty Shares are required to be made.
(c) The Company shall notify you at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of 1933,
as amended (the "Securities Act"), upon discovery that, or upon the happening of
any event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. At your request, Parent shall also prepare, file and furnish to you a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include 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 not misleading in light of
the circumstances then existing. You agree not to offer or sell any shares
covered by the Registration Statement after receipt of such notification until
the receipt of such supplement or amendment.
(d) Parent may request you to furnish Parent such information
with respect to yourself and your proposed distribution of shares of Common
Stock pursuant to the Registration Statement as Parent may from time to time
reasonably request in writing or as shall be required by law or by the SEC in
connection therewith, and you agree to furnish Parent with such information.
2. Until the Registration Statement has become effective under the
Securities Act, each certificate representing the shares of Common Stock issued
and all certificates and instruments issued in transfer thereof, shall be
endorsed with the following restrictive legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE
DISTRIBUTION THEREOF, AND NEITHER SUCH SHARES NOR
ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED,
ASSIGNED OR PLEDGED EXCEPT IF REGISTERED UNDER
APPLICABLE STATE BLUE SKY OR SECURITIES LAWS OR
ANY EXEMPTIONS FROM SUCH REGISTRATION OR
QUALIFICATION REQUIREMENTS ARE AVAILABLE."
Upon the effectiveness of the Registration Statement, Parent shall,
upon your request, issue to you a replacement certificate without such legend in
exchange for any such legended certificate.
3. (a) The provisions of Sections 3 through 8 hereof are applicable
only with respect to (i) former holders of the Company's Series 1 Notes, Series
2 Notes and Class A Preferred Stock whose shares or notes were converted into
Common Stock in the Merger, and (ii) 570,588 shares of Common Stock received by
Lake Worth Ventures, Inc. in the Merger.
(b) Subject to subsection (d) below, if Parent shall,
following the date of this letter, sell shares of Common Stock for a price per
share less than $1.00 (the "Per Share Price"), then the Per
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Share Price shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Per Share Price by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the sale of such additional shares and the number of shares
of Common Stock which the aggregate consideration received for the issuance of
such additional shares would purchase at the Per Share Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the sale of such additional shares. Whenever any adjustment is
made pursuant to this Section 3(b), the number of shares of Common Stock
issuable pursuant to the Merger Agreement shall be adjusted pursuant to Section
5 hereof, and such additional shares shall be delivered to you pursuant to
Section 7 hereof.
(c) Adjustments to the Per Share Price pursuant to this
Section 3 shall be made successively (but not cumulatively) whenever an issuance
of shares triggering such an adjustment is made, subject to Section 8 hereof.
(d) Notwithstanding anything to the contrary in this Section
3, no adjustment to the Per Share Price shall be made pursuant to this Section 3
in the case of shares of Common Stock issued: (i) in connection with any
dividend or distribution on, or subdivision, reclassification or combination of,
the outstanding shares of Common Stock of Parent; (ii) upon the exercise of
options granted to Parent's officers, directors, employees and consultants under
a plan or plans adopted by Parent's Board of Directors and approved by its
stockholders, if such shares would otherwise be included in this Section 3;
(iii) upon the exercise of stock options, warrants, convertible securities and
convertible debentures outstanding as of the date hereof; (iv) to shareholders
of any corporation which merges into Parent in proportion to their stock
holdings of such corporation immediately prior to such merger, upon such merger;
or (v) pursuant to any other anti-dilution provision affecting Parent
securities.
4. (a) Subject to Section 4(c), if Parent shall, following the date of
this letter, issue any equity or debt securities convertible or exercisable into
or exchangeable for Common Stock for a price per share of Common Stock initially
deliverable upon conversion, exercise or exchange of such securities (determined
as provided in Section 6 below) less than the Per Share Price, then the Per
Share Price shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Per Share Price by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received for such securities
would purchase at the Per Share Price, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding immediately prior to
such issuance and the maximum number of shares of Common Stock of Parent
deliverable upon conversion or exercise of or in exchange for such securities at
the initial conversion or exchange price or rate. Whenever any adjustment is
made pursuant to this Section 4(a), the number of shares of Common Stock
issuable pursuant to the Merger Agreement shall be adjusted pursuant to Section
5 hereof, and such additional shares shall be delivered to you pursuant to
Section 7 hereof.
(b) Adjustments to the Per Share Price pursuant to this
Section 4 shall be made successively (but not cumulatively) whenever an issuance
of shares triggering such an adjustment is made, subject to Section 8 hereof.
(c) Notwithstanding anything to the contrary in this Section
4, no adjustment to the Per Share Price shall be made pursuant to this Section 4
in the case of Parent securities issued: (i) in transactions where Parent has
fixed a record date for the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price (or having a conversion
price per share) less than the Per Share Price on such record dates; (ii) in
transactions where Parent has distributed to the holders of its Common
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Stock evidences of its indebtedness or assets (excluding cash dividends or
distributions and dividends or distributions or subscription rights or
warrants); or (iii) any of the transactions described in Section 3(c) hereof
(with any reference in Section 3(c) to price or quantity of shares issued being
understood, for purposes of this Section 4(c), to refer to the aggregate price
or quantity, as applicable, of the shares of Common Stock into which such
securities are convertible or exchangeable).
5. Whenever the Per Share Price is adjusted pursuant to Sections 3 and
4 above, the number of shares of Common Stock issuable to you pursuant to the
Merger Agreement shall simultaneously be adjusted by multiplying the number of
shares of Common Stock issuable thereunder by the Per Share Price and dividing
the product so obtained by the Per Share Price, as adjusted. The difference
between the number of shares of Common Stock theretofore issued to you under the
Merger Agreement and the number of shares issuable to you thereunder as so
adjusted shall constitute additional shares of Common Stock which shall be
issued to you hereunder.
6. For purposes of any computation with respect to the consideration
received pursuant to Sections 3 and 4 above, the following shall apply:
(a) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by Parent for any underwriting of the issue or otherwise in
connection therewith;
(b) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined in
good faith by the Board of Directors of Parent (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(c) in the case of the issuance of securities convertible or
exercisable into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration received
by Parent for the issuance of such securities plus the additional minimum
consideration, if any, to be received by Parent upon the conversion or exchange
thereof (the consideration in each case to be determined in the same manner as
provided in paragraphs (a) and (b) of this Section 6).
7. Whenever the Per Share Price is adjusted as herein provided, Parent
shall promptly, but no later than 10 days after any request for such an
adjustment by you, cause a notice setting forth the adjusted Per Share Price,
the adjusted number of shares of Common Stock issuable to you under the Merger
Agreement, and the number of additional shares of Common Stock issuable to you
hereunder, and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to you at your last addresses appearing
in the share register, and shall cause a certified copy thereof to be mailed to
the Parent's transfer agent. Parent may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by Parent) to make any computation required hereunder, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustment. Parent shall, within thirty (30) days after any
anti-dilution adjustment hereunder, issue and deliver to you certificates
evidencing the additional shares of Common Stock to be issued hereunder. All
such shares shall be entitled to the registration rights provided in Sections 1
and 2 hereof.
8. The provisions of Sections 3 through 8 hereof, shall terminate and
be of no further force or effect on the date which is the earlier to occur of:
(i) June 9, 2005, which is eighteen (18) months following the completion of the
Merger, or (ii) the completion of an equity financing subsequent to the
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date hereof in which the gross proceeds received by Parent are not less than
Five Million Dollars ($5,000,000).
The Company confirms, by its execution hereof, that this letter has
been duly authorized by its Board of Directors.
DOBI MEDICAL INTERNATIONAL, INC.
(Operating initially as Lions Gate Investment Limited)
By: /s/ Xxxxx X. Xxxxx
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Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer, Treasurer and
Secretary
