LOAN AGREEMENT
This Loan Agreement (the "Agreement") is entered into as of May 21, 2004
---------
between Positron Corporation, a Texas corporation (the "Borrower"), and IMAGIN
--------
Diagnostic Centres, Inc., an Ontario, Canada corporation whose address is 0000
Xxxxx Xx., Xxxxx 000, Xxxxxxx, Xxxxxxx, Xxxxxx M4S 1XB ("Lender"). All numbers
------
expressed herein as "$" or "dollars" are in United States dollars.
SECTION 1 LOANS AND NOTE
1.1 Loans and Issue of Notes. Subject to the terms and conditions of this
------------------------
Agreement and in reliance upon the representations and warranties of the
Borrower set forth herein, Lender hereby agrees to make advances of immediately
available funds to Borrower up to an aggregate principal amount of One Million
Three Hundred Thousand Dollars ($1,300,000) from time to time, between the date
hereof and December 31, 2004 as requested by Borrower (the "Loans" and each a
-----
"Loan"). The Loans will be evidenced by Borrower's secured convertible
----
promissory note in the form attached hereto as Exhibit A (the "Note"). The
--------- ----
Loans shall be made in accordance with the terms and provisions of this
Agreement and shall bear interest and be payable as set forth herein and in the
Note. The Loans shall be secured by a security interest as set forth in the
Security Agreement between Lender and Borrower attached hereto as Exhibit B (the
---------
"Security Agreement"). This Agreement, the Note and the Security Agreement are
-------------------
collectively referred to herein as the "Loan Documents."
---------------
1.2 Interest Rate on Loans. All Loans shall accrue interest until paid in
----------------------
full at the interest rate of 10% per annum simple interest or, if less, the
maximum rate allowed by applicable law ("Interest Rate"). Interest is computed
-------------
on a 365 day year for the actual number of days elapsed.
1.3 Maturity Date. All outstanding amounts with respect to the Loans are
--------------
due and payable in full, and the term of the Loans shall expire two years from
the date of origination.
1.4 Funding of Loans. All Loans shall be in a minimum principal amount of
----------------
$100,000. Lender shall not be obligated to fund more than $200,000 in any 30
day period. Lender shall have at least three business days after Borrower
requests a Loan to fund the same.
1.5 Prepayment of Loans. Subject to applicable notice set forth in the
---------------------
Note, Borrower shall have the right at any time and from time to time to prepay
any Loan, in whole or in part.
SECTION 2 CONDITIONS OF LENDING
2.1 Conditions Precedent to Initial Loan. The obligation of Lender to
----------------------------------------
make the initial Loan, if any, is subject to the conditions precedent that
Lender shall have received in form and substance satisfactory to Lender all of
the following:
2.1.1 A certified copy of the resolutions of the Board of
Directors of the Borrower in a form satisfactory to Lender, approving or
ratifying each of the Loan Documents and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
each of the Loan Documents;
2.1.2 A certificate of the chief executive officer and chief
financial officer of the Borrower, dated as of even date with the Note,
certifying to Lender that the representations and warranties made by the
Borrower in Section 3 herein are true and correct;
2.1.3 The Note, duly executed by the Borrower;
2.1.4 The Security Agreement and such UCC-1 financing statements
and other documents required by Lender to perfect its Lien in the collateral
covered thereby, each duly executed by the Borrower;
2.1.5 Conversion. The outstanding principal amount of the Note
----------
shall be convertible in accordance with the terms set forth in Section 4 of the
Note. Accrued but unpaid interest shall be payable in cash at the time of
conversion.
2.1.6 Conditions Precedent to All Loans. The obligations of
-------------------------------------
Lender to make each Loan (including the initial Loan) shall be subject to the
further conditions precedent that no Event of Default has occurred and no event
has occurred and is continuing, or would result from such Loan or from the
application of the proceeds therefrom, which constitutes an Event of Default.
2.1.7 Lender shall have received such other approvals, opinions or
documents as Lender shall have reasonably requested.
SECTION 3 REPRESENTATIONS AND WARRANTIES
Except as set forth in the Schedule of Exceptions (as noted herein)
attached hereto as Schedule 1, Borrower hereby represents and warrants the
-----------
following as of the date hereof:
3.1 Organization and Qualification. Borrower is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Texas. Borrower is qualified to do business and is in good standing in all
jurisdictions that it is operating in. Borrower has all requisite power and
authority to conduct its business and own its property.
3.2 Authorization of Transaction; No Violation. The borrowing of the
----------------------------------------------
principal amount of the Loans, the issuance of the Note, the execution, delivery
and performance by Borrower of this Agreement, the Note and the Security
Agreement (including, without limitation, the issuance or reservation for
issuance of shares of Borrower's Series D Preferred Stock upon conversion) (i)
are within the corporate powers of Borrower, (ii) have been duly authorized by
all necessary corporate action of Borrower, its officers, directors and
stockholders, and (iii) will not violate, conflict with, result in any breach of
any of the provisions of, constitute (with or without the passage of time or
giving of notice or both a default under, or result in the creation of any Lien
upon any Property of Borrower or any Subsidiary (except pursuant to the terms of
the Security Agreement) under the provisions of, any law, rule, regulation,
judgment, order, decree, instrument, agreement, charter instrument, bylaw or
other instrument to which Borrower or any Subsidiary is a party or by which the
Borrower or any Subsidiary or any Property of Borrower or any Subsidiary may be
bound.
3.3 Binding Obligation. This Agreement, the Note, and the Security
-------------------
Agreement are valid and legally binding obligations of Borrower, enforceable in
accordance with their terms.
-2-
3.4 Valid Issuance of Note and Series D Preferred Stock. The Note has
-------------------------------------------------------
been issued in compliance with all applicable federal and state securities laws.
Except as set forth in Schedule 3.4 of the Schedule of Exceptions, the shares of
------------
Series D Preferred Stock issuable upon conversion of the Note (and Common Stock
issuable upon conversion thereof) have been duly and validly reserved for
issuance, and upon issuance in accordance with the terms thereof and Borrower's
charter instruments, shall be duly and validly issued, fully paid and
nonassessable and not subject to any preemptive or similar rights.
3.5 Governmental Consent. Except as set forth in Schedule 3.5 of the
--------------------- ------------
Schedule of Exceptions, neither the nature of Borrower nor any Subsidiary or of
the business or Properties of Borrower or any Subsidiary nor any relationship
between Borrower or any Subsidiary and any other Person, nor any circumstance in
connection with the making of the Loans or the offer, issue, sale, delivery or
exercise of the Note, is such as to require a consent, approval or authorization
of, or filing, registration or qualification with, any governmental authority on
the part of Borrower in connection with or on account of the execution and
delivery of this Agreement or the Security Agreement, the borrowing of the
principal amount of the Loans or the offer, issue, sale, execution, delivery or
exercise of the Note.
3.6 Ownership of Property. Borrower owns all of its Property, except for
----------------------
Permitted Liens to which any such Property is subject.
3.7 Use of Proceeds. The Borrower agrees to use the proceeds of the Loans
---------------
for (i) payment of expenses related to the transactions contemplated by this
Agreement and certain related transactions with Lender, (ii) payment of
outstanding accounts payable, and (iii) current operating expenses.
3.8 Litigation. Except as set forth in Schedule 3.8 of the Schedule of
---------- ------------
Exceptions, there are no claims, actions, suits or other proceedings pending, or
to the knowledge of Borrower, threatened, at law or in equity, by or before any
governmental agency or any arbitrator against Borrower which could reasonably be
expected to have a Material Adverse Effect on the ability of Borrower to perform
its obligations under this Agreement.
3.9 Compliance with Laws and Agreements. Neither Borrower nor any of its
------------------------------------
Subsidiaries is in violation of any law, statute, regulation, ordinance,
judgment, order or decree applicable to it which violation could reasonably be
expected to have a Material Adverse Effect on Borrower. Neither Borrower nor
any of its Subsidiaries is in default with respect to any note, mortgage, lease,
agreement to which Borrower or such Subsidiary is a party or by which it is
bound, which default could reasonably be expected to have a Material Adverse
Effect on Borrower.
3.10 Taxes. Except as set forth in Schedule 3.10 of the Schedule of
----- --------------
Exceptions, Borrower and its Subsidiaries have filed all federal and other tax
returns and reports required to be filed, and have paid all federal and other
taxes, assessments, fees and other governmental charges levied or imposed upon
them or their Property, which are due and payable.
3.11 Survival of Representations and Warranties. So long as any amounts
--------------------------------------------
are available for borrowing and until all obligations of Borrower under this
Agreement and under the
-3-
Note are satisfied in full, the representations and warranties contained in this
Agreement shall have a continuing effect as having been true when made.
SECTION 4 BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants that until all obligations of Borrower under this
Agreement, the Security Agreement and the Note are satisfied in full, Borrower:
4.1 Borrower Governmental Documents. Shall prepare and timely file all
---------------------------------
reports and other filings required under all applicable U.S. federal and state
laws in accordance with all relevant statutory requirements.
4.2 Compliance with Law. Borrower shall comply in all material respects
---------------------
with the requirement of all applicable laws, rules, regulations and orders of
any governmental authority, and shall comply with all provisions of Borrower's
articles of incorporation and bylaws.
4.3 Taxes and Other Liabilities. Shall pay and discharge when due any and
---------------------------
all indebtedness, obligations, assessments and taxes, including federal and
state income taxes, except such as Borrower may in good faith contest or as to
which a bona fide dispute may arise; provided that provision is made to the
satisfaction of Lender for eventual payment thereof in the event that it is
found that the same is an obligation of Borrower.
4.4 Litigation. Shall promptly give notice in writing to Lender of any
----------
litigation pending or threatened by or against Borrower with a potential
liability in excess of $100,000.
4.5 Notice to Lender. Shall promptly give notice in writing to Lender of
-----------------
(i) the occurrence of any Event of Default, or (ii) any change in name, identity
or corporate structure of Borrower, regardless of whether such event is a breach
of this Agreement or any of the other Loan Documents.
4.6 Legal Existence and Good Standing. Shall, and shall cause each of its
---------------------------------
Subsidiaries to maintain its legal existence and its qualification and good
standing in all jurisdictions in which the failure to maintain such existence
and qualification or good standing could reasonably be expected to have a
Material Adverse Effect on Borrower.
4.7 Maintenance of Property; Inspection of Property.
----------------------------------------------------
4.7.1 Shall, and shall cause each of its Subsidiaries to, maintain
all of its Property necessary and useful in the conduct of its business, in good
operating condition and repair, ordinary wear and tear excepted.
4.7.2 Shall permit representatives and independent contractors of
Lender to visit and inspect any of its Properties, to examine its corporate,
financial and operating records, and make copies thereof or abstracts therefrom
and to discuss its affairs, finances and accounts with its directors, officers
and independent public accountants, at such reasonable times during normal
business hours and as soon as may be reasonably desired.
-4-
4.8 Insurance. Shall maintain, and shall cause each of its Subsidiaries
---------
to maintain insurance against loss or damage by fire with extended coverage,
public liability and third party property damage.
4.9 Transaction Fee. In consideration for this Agreement, the Borrower
----------------
shall pay to Lender a transaction fee equal to $200,000, payable out of the last
$200,000 available for advances hereunder (the "Transaction Fee"). The
----------------
Transaction Fee shall be reduced by an amount equal to $0.02 multiplied by the
number of warrants issued to Borrower pursuant to Section 7.14 of that certain
Note Purchase Agreement dated as of the date hereof between Lender and Borrower.
SECTION 5 BORROWER'S NEGATIVE COVENANTS
Borrower further covenants that until payment in full of the Note and all
other amounts duo hereunder, Borrower will not without the prior written consent
of Lender:
5.1 Guarantees. Guarantee or become liable in any way as surety, endorser
----------
(other than as endorser of negotiable instruments in the ordinary course of
business) or accommodation endorser or otherwise for the debts or obligations of
any other person or entity.
5.2 Loans or Advances. Make or permit to exist any loans or advances to,
------------------
or investments in, any person or entity other than Lender.
5.3 Distributions. Except as required under or effected in accordance
-------------
with the Borrower's Articles of Incorporation (including all statements of
designation establishing and designating the rights of preferred stock), declare
or pay any dividends or any other distributions on account of any shares of any
class of capital stock of Borrower, either in cash or any other property, to any
stockholder or equity interest holder of or in Borrower or any Subsidiary, nor
redeem, retire, repurchase or otherwise acquire any shares of capital stock of
Borrower.
5.4 Pledge Of Assets. Mortgage, pledge, grant or permit to exist a
------------------
security interest in, or Lien upon, all or any portion of Borrower's or any
Subsidiary's assets now owned or hereafter acquired, except:
(a) the Lien created under the Security Agreement;
(b) Liens existing as of the date hereof and described on
Schedule 3.6 of the Schedule of Exceptions;
-------------
(c) other Permitted Liens.
5.5 Conduct of Business. Change the nature of the business heretofore
---------------------
conducted by Borrower in the usual, regular and ordinary course.
SECTION 6 DEFAULT
6.1 Events of Default. The following events are "Events of Default" under
----------------- -----------------
the Loan Documents:
-5-
6.1.1 Default shall be made by Borrower in the payment of
principal of or any interest on the Note when and as the same shall become due
and payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise;
6.1.2 Default shall be made in the due performance or observance
of any other covenant, agreement or provision herein or in any of the other Loan
Documents to be performed or observed by Borrower, or a breach shall exist in
any representation or warranty herein contained or in any of the other Loan
Documents;
6.1.3 Borrower shall be involved in financial difficulties as
evidenced by:
(a) Borrower filing a petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the Bankruptcy Code
(as now or in the future amended) or an admission seeking the relief therein
provided;
(b) Borrower making a general assignment for the benefit of its
creditors;
(c) Borrower consenting to the appointment of a receiver or
trustee for all or a substantial part of the property of Borrower or approving
as filed in good faith a petition filed against Borrower under said Bankruptcy
Code (in both cases without the consent of Borrower);
(d) the assumption of custody or sequestration by a court of
competent jurisdiction of all or substantially all the Property of Borrower; or
(e) an attachment being made on any substantial part of the
Property or assets of Borrower which shall not be discharged within 90 days from
the making thereof.
6.1.4 Borrower terminates or suspends its business, or there is
filed by or against Borrower any petition seeking the liquidation or dissolution
of Borrower or the commencement of any other procedure to liquidate or dissolve
Borrower, or there occurs any event, condition or circumstances which causes the
liquidation or dissolution of Borrower.
6.1.5 Borrower or any person acting for Borrower makes any
material misrepresentation or material misstatement now or in the future in any
warranty or representation in this Agreement or in any writing delivered to
Lender to induce Lender to enter this Agreement or any of the Loan Documents.
6.1.6 The closing of (i) a merger, consolidation, reorganization,
transaction or series of transactions which results in the stockholders of
Borrower as constituted immediately prior to such event holding less than a
majority of the voting power of Borrower or the surviving entity in such
transaction(s), or (ii) a sale, transfer or other disposition of substantially
all of the assets of Borrower (each a "Change of Control").
-------------------
6.2 Remedies Upon Default.
-----------------------
6.2.1 Upon the occurrence and during the continuation of any of
the above Events of Default, Lender may, by notice to Borrower, terminate its
commitment to make any
-6-
further Loans and declare the unpaid principal and all accrued interest on the
Loans and the Note, and all other amounts payable under the Loan Documents, to
be immediately due and payable, whereupon all such principal, interest and other
amounts shall be forthwith due and payable, without presentment, demand, protest
or further notice of any kind; and provided that, in the case of occurrence of
an Event of Default under 6.1.3 or 6.1.6, Borrower's commitment to make any
further Loans shall be automatically terminated and all such principal, interest
and other amounts shall be automatically due and payable, without presentment,
demand, protest or further notice of any kind.
6.2.2 Upon the occurrence and during the continuation of any of
the above Events of Default, Lender shall have, in addition to all other rights
and remedies provided herein or by applicable law, all of the rights and
remedies of a secured party under the Uniform Commercial Code of the State of
Texas, including, but not limited to, the right to take possession of the
Collateral, and for that purpose Lender may, and Borrower hereby authorizes
Lender to, enter upon any premises on which Collateral may be located or
situated and remove the same therefrom or without removal render the same
unusable and may use or dispose of the Collateral on such premises without any
liability for rent, storage, utilities or other sums, and upon request Borrower
shall, to the extent practicable, assemble and make the Collateral available to
Lender at a place to be designated by Lender, which is reasonably convenient to
Borrower and Lender. Borrower agrees that, to the extent notice of sale shall
be required by law, at least five days' notice to Borrower of the time and place
of any public sale or the time after which any private sale or any other
intended disposition is to be made shall constitute reasonable notification of
such sale or disposition. Lender shall also have the right to apply for and
have a receiver appointed by a court of competent jurisdiction in any action
taken by Lender to enforce its rights and remedies hereunder, to manage, protect
and preserve the Collateral or continue the operation of the business of
Borrower, and Lender shall be entitled to collect all revenues and profits
thereof and apply the same to the payment of all expenses and other charges of
such receivership, including the compensation of the receiver, and to the
payment of the Note until a sale or other disposition of such Collateral shall
be finally made and consummated. In the event of any disposition or collection
of or any other realization upon all or any part of the Collateral, Lender shall
apply the proceeds of such disposition, collection or other realization as
follows:
(a) First, to the payment of the reasonable costs and expenses
of Lender in exercising or enforcing its rights hereunder, including, but not
limited to, costs and expenses incurred in retaking, holding and/or preparing
the Collateral for sale, lease or other disposition, and to the payment of all
Lender Expenses;
(b) Second, to the payment of the Note and all other Obligations
(as that term is defined in the Security Agreement); and
(c) Third, the surplus, if any, shall be paid to Borrower or to
whoever may be lawfully entitled to receive such surplus.
SECTION 7 MISCELLANEOUS
7.1 Amendment. No amendment or waiver of any provision of this Agreement
---------
or the other Loan Documents, nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Lender and then such waiver or
-7-
consent shall be effective only in the specific instance and for the specific
purpose for which given.
7.2 Notices. All notices, requests, demands and other communications
-------
under this Agreement or the other Loan Documents shall be in writing and shall
be deemed to have been duly given on the date of delivery, if delivered
personally or by telegram or telecopy to the party to whom notice is to be
given, or on the third business day after mailing if mailed by first class mail,
registered or certified, postage prepaid and properly addressed as follows:
If to the Borrower: Positron Corporation
0000 Xxxxxxx Xxxxx Xxxxx, #000
Xxxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Attn: Chief Executive Officer
If to the Lender: IMAGIN Diagnostic Centres, Inc.
0000 Xxxxx Xx., Xxxxx 000
Xxxxxxx, Xxxxxxx, Xxxxxx M4S 1XB
Attn: President
Either party may change its address for purposes of this Section by giving
the other party written notice of the new address in the manner set forth above.
7.3 No Waiver; Remedies. No failure on the part of the Lender to
---------------------
exercise, and no delay on the part of Lender in exercising any right hereunder
or under the other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder or under the other Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
7.4 Accounting Terms. All accounting terms not specifically defined
-----------------
herein shall be construed in accordance with generally accepted accounting
principles consistently applied, except as otherwise stated herein.
7.5 Binding Effect; Governing Law. This Agreement and the other Loan
--------------------------------
Documents shall be binding upon and inure to the benefit of Borrower and Lender
and their respective successors and assigns. This Agreement and the other Loan
Documents shall be governed by, and construed in accordance with, the internal
laws of the State of Texas, excluding conflict of laws principles that would
cause the application of laws of any other jurisdiction.
7.6 JURISDICTION AND VENUE. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
------------------------
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE TEXAS
SUPERIOR COURT OR THE UNITED STATES DISTRICT COURT LOCATED IN THE CITY OF
HOUSTON, TEXAS. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND AGREES THAT SERVICE OF SUMMONS AND COMPLAINT OR OTHER PROCESS OR
PAPERS MAY BE MADE BY REGISTERED OR
-8-
CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE
SENT PURSUANT TO THIS AGREEMENT. BORROWER WAIVES ANY CLAIM THAT HOUSTON, TEXAS
IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD
BORROWER AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED
FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM
FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER PERMITTED FORUM OR
THE TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY
ATTACK ANY SUCH JUDGMENT OR ACTION.
7.7 WAIVER OF RIGHT TO JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND
--------------------------------
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND
THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE
PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL
BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
7.8 Investment Representation. Lender represents and warrants to Borrower
-------------------------
that it is acquiring the Note for its own account for investment and not with a
view to, or for a sale in connection with, any distribution thereof.
7.9 Assignment. Borrower shall not assign its rights or delegate any of
----------
its duties under any of the Loan Documents without Lender's prior written
consent. Lender may freely assign its rights and obligations under the Loan
Documents.
7.10 Conversion of Stock. Lender agrees that it will not convert to Common
-------------------
Stock any of the shares of Series D Preferred Stock obtained upon conversion of
a Note, until lender shall have purchased at least two PET scanners from
Borrower pursuant to the terms of that certain Equipment Purchase Agreement
dated as of the date hereof.
7.11 Ownership Change Under Section 382 of the Internal Revenue Code;
---------------------------------------------------------------------
Special Restrictions Upon Transfer.
--------------------------------
7.11.1 Special Restrictions Upon Transfer. The following
-------------------------------------
restrictions shall apply to the transfer of shares of Common Stock, issuable
directly or indirectly upon the conversion of any Note.
7.11.2 Definitions. For purposes of this Section 7.11 the
-----------
following terms shall have the following meanings:
-9-
"BOARD" means the Borrower's Board of Directors.
"COMMON STOCK" shall mean the Common Stock of Borrower, par value
$0.01 per share.
"SECTION 382" means Section 382 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder.
"SPECIAL BOARD APPROVAL" shall mean the approval by the Board of
Directors of Borrower acting in accordance with applicable law.
7.11.3 Purported Transfers Not Effective. Unless such transfer
------------------------------------
shall have been preceded by Special Board Approval, any purported transfer of
Common Stock into which any Note is directly or indirectly convertible in excess
of the number of shares that can be transferred without increasing the
transferee's ownership interest percentage above 4.5% is not effective to
transfer ownership of such excess shares (the "Prohibited Shares") from the
-----------------
transferor (the "Initial Transferor") to the purported acquiror (the "Purported
------------------ ---------
Acquiror"). For this purpose a transferee's ownership interest percentage shall
--------
be calculated pursuant to Section 382. By way of explanation, a transferees
ownership interest is generally the sum of the transferee's direct ownership
interest percentage as calculated pursuant to Section 382 and the transferee's
indirect ownership interest as calculated pursuant to Section 382, with
adjustments made to include ownership interests that, under ordinary
circumstances, are not included in measuring ownership interests. In the event
a Initial Transferor seeks a Special Board Approval, to the extent that the
transaction reflected in the proposed request for a Special Board Approval does
not result in an "ownership shift" in excess of 40% and does not result in an
"ownership change" as those terms are used in Section 382, the approval of the
Board will not be unreasonably withheld. Moreover, to the extent that the
proceeds of any "ownership shift" of up to 40% results directly or indirectly in
the receipt of cash by Borrower, the transaction will be presumed to be in the
interest of Borrower unless it results in an "ownership change".
7.11.4 Transfer to Agent of Prohibited Shares; Sale by Agent;
------------------------------------------------------------
Payment of Proceeds. On demand by Borrower (which demand must be made within 30
-------------------
days of the time Borrower learns of the transfer of Prohibited Shares), a
Purported Acquiror must transfer any certificate or other evidence of ownership
of the Prohibited Shares within the Purported Acquiror's possession or control,
together with any dividends or other distributions that were received by the
Purported Acquiror from Borrower with respect to the Prohibited Shares
("Prohibited Distributions"), to an agent designated by Borrower (the "Agent").
------------------------- -----
The Agent will sell the Prohibited Shares in an arms-length transaction (over a
public exchange, if reasonable possible), and the Purported Acquiror will
receive an amount of sales proceeds not in excess of the price paid or
consideration surrendered by the Purported Acquiror for the Prohibited Shares
(or the fair market value of the Prohibited Shares at the time of an attempted
transfer to the Purported Acquiror by gift, inheritance, or a similar transfer).
If the Purported Acquiror has resold the Prohibited Shares prior to receiving
the Borrower's demand to surrender the Prohibited Shares to the Agent, the
Purported Acquiror shall be deemed to have sold the Prohibited Shares as agent
for the Initial Transferor and shall be required to transfer to the Agent any
Prohibited Distributions and the proceeds of such sale, except to the extent
that the Agent grants written permission to the Purported Acquiror to retain a
portion of such sales proceeds not exceeding the amount that the Purported
Acquiror would have received from the Agent if the Agent rather than
-10-
the Purported Acquiror had resold the Prohibited Shares. If the Initial
Transferor can be identified, the Agent will pay to the Initial Transferor any
sales proceeds in excess of those due to the Purported Acquiror, together with
any amounts received by the Agent from the Purported Acquiror that are
attributable to Prohibited Distributions. If the Initial Transferor cannot be
identified within 90 days, the Agent may pay any amounts due to the Initial
Transferor into a court or governmental agency, if applicable law permits, and
otherwise must transfer such amounts to a charity designated by Borrower. In no
event shall amounts due to the Initial Transferor pursuant to Article inure to
the benefit of Borrower or the Agent, but such amounts may be used to cover
expenses incurred by Agent in attempting to identify the initial Transferor. If
the Purported Acquiror fails to surrender the Prohibited Shares within the next
30 business days from demand by Borrower, then the Borrower will institute legal
proceedings to compel the surrender.
7.11.5 Legend. Lender understands and agrees that each certificate
------
held by Lender representing a Note, and Series D Preferred Stock and Common
Stock issuable upon conversion thereof, or any other securities issued in
respect of a Note, and Series D Preferred Stock and Common Stock issuable upon
conversion thereof upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall bear the following legend (in
addition to any legend required by this Agreement, the other Agreements or under
applicable federal or state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE
TERMS OF, AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND RIGHTS OF
SALE AS PROVIDED IN A LOAN AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER HEREOF, OR ITS SUCCESSOR, A COPY OF WHICH IS AVAILABLE FROM THE
COMPANY."
SECTION 8 DEFINITIONS
As used in this Agreement and the other Loan Documents, the following terms
have the respective meanings set forth below or in the indicated part of this
Agreement:
8.1 "ACT" shall mean the Securities Act of 1933, as amended from time to
time.
8.2 "BANKRUPTCY CODE" shall mean the federal bankruptcy law of the United
States as from time to time in effect, currently as Title 11 of the United
States Code. Section references to current sections of the Bankruptcy Code
shall refer to comparable sections of any revised version thereof if section
numbering is changed.
8.3 "COLLATERAL" has the meaning ascribed in the Security Agreement.
8.4 "LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien, or other
type of preferential arrangement.
8.5 "MATERIAL ADVERSE EFFECT" shall mean any change, event or effect that
is materially adverse to the general affairs, business, operations, assets,
condition (financial or otherwise) or results of operations of the Borrower and
its Subsidiaries taken as a whole.
-11-
8.6 "OBLIGATIONS" shall have the meaning ascribed in the Security
Agreement.
8.7 "PERMITTED LIENS" has the meaning ascribed in the Security Agreement.
8.8 "PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"Properties" shall mean all Property held by an entity or any other person.
----------
8.9 "SERIES D PREFERRED STOCK" shall mean the Series D Preferred Stock of
Positron Corporation having all rights and terms of other preferred shares and a
priority and preference over all other issued and outstanding (or to be issued
and outstanding) capital stock of Positron Corporation.
8.10 "SUBSIDIARY" shall mean any corporation, partnership or other entity,
more than 50% of whose equity interests (measured by virtue of voting rights) in
the aggregate is owned by the Borrower
[Remainder of page intentionally left blank.]
-12-
SIGNATURE PAGE TO LOAN AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER: LENDER:
Positron Corporation, IMAGIN Diagnostic Centres, Inc.,
a Texas corporation an Ontario, Canada corporation
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxxxxx X. Xxxxxx
------------------- -----------------------
Xxxx X. Xxxxxx, President Name: Xxxxxxx X. Xxxxxx
Its: Chief Executive Officer
Address: 0000 Xxxxxxx Xxxxx Xxxxx, #000,
Xxxxxxx, Xxxxx 00000 Address: 0000 Xxxxx Xx., Xxxxx 000
Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0XX
-13-
SCHEDULE 1
----------
SCHEDULE OF EXCEPTIONS
TO
LOAN AGREEMENT
BY AND BETWEEN
POSITRON CORPORATION
AND
IMAGIN DIAGNOSTIC CENTRES, INC.
DATED AS OF MAY 21, 2004
CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE THE SAME
MEANING AS IN THE AGREEMENT TO WHICH THESE SCHEDULES ARE ATTACHED AND
INCORPORATED BY REFERENCE.
SCHEDULE 3.4
Valid Issuance of Note and Series D Preferred Stock.
---------------------------------------------------
As of the date of this Agreement, there are insufficient shares of Common Stock
to allow for the exercise of all outstanding options and warrants, and
conversion of all outstanding convertible securities, including the Borrower's
Series C Preferred Stock and Series D Preferred Stock, to Common Stock. The
Borrower will use its reasonable efforts to obtain stockholder approval to amend
its Articles of Incorporation to increase the number of shares of authorized
Common Stock to account for conversion of the Series D Preferred Stock.
Pursuant to that certain Statement of Designation Establishing Series D
Preferred Stock of Positron Corporation filed with the Texas Secretary of State
on May 21, 2004, the Series D Preferred Stock is junior to the Borrower's Series
A Preferred Stock and Series C Preferred Stock, both as to dividends and as to
distributions of assets upon liquidation or winding up of the Borrower.
1
SCHEDULE 3.5
Governmental Consent.
--------------------
In connection with the transactions contemplated by the Agreement, the Borrower
filed a Statement of Designation Establishing Series D Preferred Stock of
Positron Corporation with the Texas Secretary of State on May 21, 2004 and will
file (i) a registration statement on an applicable form to register the shares
of Series D Preferred Stock (and Common Stock issuable upon conversation
thereof) issuable upon conversion of the Note, (ii) a proxy statement on
Schedule 14A to approve an amendment to its Articles of Incorporation to
increase the number of its authorized shares of Common Stock, and (iii)
appropriate UCC-1 financing statements with applicable jurisdictions pursuant to
the Security Agreement.
2
SCHEDULE 3.8
Litigation.
----------
The Company received a warning letter ("Warning Letter") dated April 26, 2004
from the Department of Health and Human Services regarding various alleged
deficiencies under the Current Good Manufacturing Practice requirements of the
Quality System regulations for medical devices, a copy of which has been
provided to Investor.
The Borrower is subject to the following legal proceedings:
PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures") filed
a complaint against the Borrower in Colorado state court for declaratory relief
and breach of contract (the "Complaint"). The Complaint alleged that the
Borrower breached four stock purchase warrants issued to ProFutures on the basis
that the Borrower failed to notify ProFutures of dilutive events and failed to
register the full number of shares ProFutures was allegedly entitled to purchase
under the warrants when, on February 14, 2000, the Borrower registered 1,500,000
shares of stock underlying ProFutures' warrants instead of 4,867,571. The
Complaint further alleged that the Borrower's issuance of shares of common stock
to Imatron, Inc. on or about January 22, 1999, (the "Imatron Transaction") was a
dilutive event pursuant to the anti-dilution provisions contained in the four
stock purchase warrants. The Complaint sought declarations that the
consideration received by the Borrower in the Imatron Transaction increased the
number of shares issuable under the warrants, the Borrower breached the warrants
by failing to notify ProFutures of the Imatron Transaction and its effect on
ProFutures' warrants at the time of the Imatron Transaction and that the
Borrower further breached the warrants by failing to register the number of
shares ProFutures alleged were purchasable under its warrants. The Complaint
sought an unspecified amount of monetary damages.
The Colorado State level case of ProFutures v. Positron, District Court, City
and County of Denver, Colorado, Case No. 00CV7146, was tried before the Court in
June 2002. The Court issued its Findings of Fact, Conclusions of Law and
Judgment on November 13, 2002. The Court agreed with the Borrower's
determination of the value of the consideration paid for the shares issued to
Imatron and that there was no evidence of fraud by the Borrower. The Court
agreed with ProFutures that the Borrower breached the 1996 stock purchase
warrant with ProFutures by failing to give ProFutures written notice stating the
adjusted exercise price and the new number of shares deliverable as a result of
the Imatron Transaction and by failing to register the shares to which
ProFutures was entitled under the warrant as a result of the Imatron
Transaction. Nevertheless, the Court also found that ProFutures' alleged
damages were uncertain and speculative and that ProFutures was not entitled to
recover actual damages. Therefore ProFutures was awarded $1 in nominal damages.
ProFutures has appealed the trial Court's findings and the Borrower has
cross-appealed. Those appeals are presently pending before the Court of
Appeals, State of Colorado.
In the federal case of ProFutures v. Positron, et al., United States District
Court for the District of Colorado, Case No. 02-N-0154, the Complaint alleged
two causes of action against the Borrower: fraudulent transfer and injunctive
relief. The allegations arose out of a June 2001 loan agreement between the
Borrower and Imatron. The action was dismissed in 2002 without prejudice.
3
SCHEDULE 3.8 CONTINUED
10P10, L.P.
In December 2001, 10P10, L.P., the Borrower's previous landlord for its premises
located at 00000 Xxxx Xxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx, filed a complaint
(Cause No. 2001-65534 in the 000xx Xxxxxxxx Xxxxxxxx Xxxxx xx Xxxxxx Xxxxxx,
Xxxxx) against the Borrower alleging breach of lease agreement. The Borrower
disputes the amount of lease commissions and construction costs charged by
10P10, L.P. in conjunction with the subleasing of the premises. Although 10P10,
L.P. asserted a claim in excess of $150,000, a subsequent analysis of the
transactions under the lease has resulted in the reduction of the lease
obligation alleged by 10P10, L.P. to approximately $97,000. Although the
Borrower disputes the amount of the claim, due to the pending lawsuit,
approximately $97,000 is recorded as an accrued liability as of December 31,
2003. The case is set for trial on a two week docket beginning in September
2004.
RADIOLOGY CORPORATION OF AMERICA, INC.
A judgment in the amount of $75,000 has been entered against the Borrower in
Texas state court in favor of Radiology Corporation of America, Inc., a vendor
to the Borrower. In satisfaction of the judgment the Borrower and the creditor
have agreed that the judgment may be satisfied by five monthly payments of
$15,000 each commencing March 10, 2004.
4
SCHEDULE 3.9
Compliance with Laws and Agreements.
-----------------------------------
See Warning Letter on Schedule 3.8.
5
SCHEDULE 3.10
Taxes.
-----
The following taxes are due and payable:
Sales Tax:
New York $94,881.78
Florida $7,875.00
Alabama $31,250.00
Texas $2,894.81
Property Tax: $321,884.17
6
EXHIBIT A
---------
NOTE
-1-
EXHIBIT B
---------
SECURITY AGREEMENT
-1-
