-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AM5tljwg/WlaaQvzaN/i2tNfFb1HIaJAcHe1vhk153sqf0zBo5B4OcpCcjuRm6+u GzVkb+MENUEa3NMtS5Gi2w== 0000355019-02-000026.txt : 20021023 0000355019-02-000026.hdr.sgml : 20021023 20021022175322 ACCESSION NUMBER: 0000355019-02-000026 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20021023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FONAR CORP CENTRAL INDEX KEY: 0000355019 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 112464137 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-100677 FILM NUMBER: 02795426 BUSINESS ADDRESS: STREET 1: 110 MARCUS DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5166942929 MAIL ADDRESS: STREET 1: 110 MARCUS DRIVE CITY: MELVILLE STATE: NY ZIP: 11747 S-3 1 s3.txt As filed with the Securities and Exchange Commission On October 22, 2002 Registration No. SECURITIES AND EXCHANGE COMMISSION FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FONAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 3845 11-2464137 - ---------------- ---------------- -------------- (State or other Primary Standard (I.R.S. jurisdiction of Industrial Employer incorporation or Classification Identification organization) Code Number No.) 110 Marcus Drive Melville, New York 11747 (631) 694-2929 ----------------------------------------------------- (Address, including zip code, and telephone number of registrant's principal executive offices) Raymond V. Damadian, M.D. FONAR CORPORATION 110 Marcus Drive Melville, New York 11747 (631) 694-2929 - -------------------------------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) Please send copies of all communications to: Henry T. Meyer, Esq. FONAR Corporation 110 Marcus Drive Melville, New York 11747 (631) 694-2929 ------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [ X ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] CALCULATION OF REGISTRATION FEE Proposed Proposed Title of each maximum maximum Amount class of Amount offering aggregate of securities to to be price offering registration be registered registered per unit price fee - ----------------- ---------- -------- ---------- ------------ Common Stock (1) 2,000,000 $1.09 $2,180,000 $ 200.56 Par value $0.0001 per share - ----------------- ---------- -------- ---------- ------------ 1) Pursuant to Rule 457, subsections (c) and (g): Specified date: October 21, 2002 The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8 (a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8 (a), may determine. PROSPECTUS 2,000,000 Shares FONAR CORPORATION Common Stock This is a prospectus for the resale, from time to time, of up to 2,000,000 shares of our common stock which may be issued to the selling stockholders listed in this prospectus, or by the pledgees or donees of the selling stockholders or by other transferees who may receive the shares of common stock in transfers other than public sales. We will not receive any of the proceeds from the sale of these shares. The selling stockholders may sell the shares in open market transactions from time to time at market prices through brokers, dealers or agents. See "PLAN OF DISTRIBUTION" at page 15 of this prospectus for a more detailed discussion of the manner in which the shares may be sold. Our common stock is traded on the Nasdaq Small Cap Market under the symbol "FONR." On October 21, 2002, the last reported sales price for our common stock was $1.09 per share. Investing in our common stock involves a high degree of risk. You should consider carefully the risk factors described in this prospectus before making a decision to purchase our stock. See "RISK FACTORS" at page 7 of this prospectus. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Date of this Prospectus is October __, 2002. You may rely only on the information contained in this prospectus. We have not authorized anyone to provide information or to make representations not contained in this prospectus. This prospectus is neither an offer to sell nor a solicitation of an offer to buy any securities other than those registered by this prospectus, nor is it an offer to sell or a solicitation of an offer to buy securities where an offer or solicitation would be unlawful. Neither the delivery of this prospectus, nor any sale made under this prospectus, means that the information contained in this prospectus is correct as of any time after the date of this prospectus. TABLE OF CONTENTS ABOUT THIS PROSPECTUS.......................................................4 ABOUT FONAR.................................................................4 ABOUT THIS OFFERING.........................................................6 RISK FACTORS................................................................7 FORWARD LOOKING STATEMENTS.................................................12 USE OF PROCEEDS............................................................12 SELLING STOCKHOLDERS.......................................................12 PLAN OF DISTRIBUTION ......................................................15 LEGAL MATTERS..............................................................18 EXPERTS....................................................................18 INDEMNIFICATION ...........................................................18 WHERE YOU CAN FIND MORE INFORMATION........................................18 INCORPORATION OF INFORMATION WE FILE WITH THE SEC..........................18 ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. Under this registration statement the selling stockholders may sell from time to time up to 2,000,000 shares of common stock issuable upon the exercise of our callable warrants. Periodically, we expect to provide a prospectus supplement that will add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with the additional information described below under the heading "Where You Can Find More Information." The registration statement that contains this prospectus, including the exhibits to the registration statement and the information incorporated by reference, contains additional information about the common stock offered under this prospectus. The registration statement can be read at the Securities and Exchange Commission's web site or at the Securities and Exchange Commission offices mentioned below under the heading "Where You Can Find More Information." ABOUT FONAR CORPORATION At Fonar we design, manufacture and market magnetic resonance imaging (MRI) scanners. MRI scanners use magnetic fields to generate images of organs, bones and tissue inside the human body. The MRI scanner uses a magnetic field which causes the hydrogen atoms in tissue to align. When the magnetic force is withdrawn, the atoms fall out of alignment emitting radio signals as they do. The speed at which the atoms fall out of alignment, or "relaxation time" and radio signals vary depending on the type of tissue and whether any pathology is present. The radio signals provide the data from which the scanner's computers generate an image of the body part being scanned. Our address is 110 Marcus Drive, Melville, New York 11747, our telephone number there is (631) 694-2929 and our Internet address is http://www.fonar.com. Fonar offers the following MRI scanners: the Stand-Up(TM), also called Indomitable(TM) , QUAD(TM), Fonar-360(TM) and Echo(TM). The QUAD-S(TM) MRI, a work-in-progress, also has received FDA clearance to market. The Stand-Up allows patients to be scanned while standing, sitting or reclining. This means that an abnormality or injury, such as a slipped disc, will be able to be scanned under full weight-bearing conditions, or, more often than not, in the position in which the patient experiences pain. An elevator built into the floor brings the patient to the desired height in the scanner. An adjustable bed allows the patients to stand, sit or lie on their backs, sides or stomachs, at any angle. In the future, the Stand-Up may also be useful for MRI directed surgical procedures. The Fonar 360 is an enlarged room sized magnet in which the floor, ceiling and walls of the room are part of the magnet frame. Consequently, this scanner allows 360 degree access to the patient. The Fonar 360 is presently marketed as a diagnostic scanner and is sometimes referred to as the Open Sky MRI. In the future, we may also further develop the Fonar 360 to function as an operating room. We sometimes refer to this contemplated version of the Fonar 360 as the OR-360. The QUAD scanner is supported by four posts and is open on four sides, thereby allowing access to the scanning area from four sides. The QUAD-S is a superconductive version of our open iron frame magnet. Fonar also offers a low cost, low field open MRI scanner, the Echo. In addition to manufacturing MRI scanning systems, we formed a subsidiary in 1997, Health Management Corporation of America, which we sometimes call HMCA, to engage in the business of managing MRI imaging facilities and medical practices. HMCA provides and supervises the non-medical personnel for the clients at their sites. At HMCA we also provide our clients centralized billing, collection, marketing, advertising, accounting and financial services. We also provide office equipment and furnishing, consumable supplies and in some cases the office space used by our clients. Almost all of HMCA's client professional corporations are owned by Fonar's founder, President and Chairman of the Board, Dr. Raymond V. Damadian. HMCA currently manages 13 MRI facilities, seven physical therapy and rehabilitation practices and four primary care medical practices. For the 2002 fiscal year, the revenues HMCA recognized from the MRI facilities were $15,514,294, the revenues recognized from the physical therapy and rehabilitation practices were $11,493,680 and the revenues recognized from the primary care medical practices were $1,517,465. HMCA's address is at 6 Corporate Center Drive, Melville, New York 11747, its telephone number there is (631) 694-2816 and its internet address is www.hmca.com. Approximately 64% of our consolidated revenues for the fiscal year ended June 30, 2002 and 75% for the fiscal year ended June 30, 2001 were from HMCA's management services. Approximately 99% of HMCA's revenues and 64% of our consolidated revenues for the fiscal year ended June 30, 2002 and 98% of HMCA's revenues and 75% of our consolidated revenues for the fiscal year ended June 30, 2001 were derived from professional corporations owned by Dr. Raymond V. Damadian. ABOUT THIS OFFERING The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of sales of the shares. They may sell them in the open market at market prices through brokers, dealers or agents, or in private transactions on negotiated terms. See "PLAN OF DISTRIBUTION" for a more detailed discussion of the ways in which the selling stockholders might sell their shares. Our common stock is traded on the Nasdaq Small Cap Market. NASDAQ Symbol..............FONR RISK FACTORS An investment in our stock is high risk. You should carefully consider the risk factors in this prospectus before deciding whether to purchase the shares offered. See "RISK FACTORS." RISK FACTORS An investment in Fonar is highly speculative and subject to a high degree of risk. Therefore, you should carefully consider the risks discussed below and other information contained in this prospectus before deciding to invest in shares of our common stock. 1. We have and continue to experience significant losses. For the fiscal years ended June 30, 2002 and June 30, 2001, we experienced net losses of $22.9 million and $15.2 million respectively and net operating losses of $19.7 million and $16.2 million, respectively. We have been able to fund our losses to date from the $7,125,000 in funding received from The Tail Wind Fund Ltd. between May, 2001 and August, 2002 and the $128.7 million judgment, net $77.2 million after attorney's fees, received from General Electric Company in 1997 for patent infringement and the settlement proceeds from other patent litigation settlements with other competitors. The terms of these settlement agreements are required to be kept confidential. As of June 30, 2002, however, our balance sheet reflected approximately $7.5 million in cash and cash equivalents and $5.6 million in marketable securities out of total current assets of $41.5 million as compared to approximately $14.0 million in cash or cash equivalents and $6.1 million in marketable securities out of total current assets of $40.9 million as at June 30, 2001. We believe that we will be able to reverse our operating losses with the introduction into the marketplace of our new MRI scanners, particularly our Stand-Up(TM) MRI scanners. HMCA operating income has declined however from $2.5 million in fiscal 2000, to $1.0 million for fiscal 2001 and to an operating loss of $4.3 million for fiscal 2002. Of the HMCA and consolidated operating losses, $4.7 million was an impairment loss taken with respect to management agreements for the primary care medical practices as a result of losses recognized by that division of HMCA's business. Contributing to the net loss was an additional non-cash expense of $2.4 million in financing costs incurred in connection with the discounts received on the stock issued to The Tail Wind Fund. There can be no assurance, however, that we can reverse our operating losses. 2. Fonar is dependant on the success of its new products to become profitable. Our ability to generate future operating profits will depend on our ability to market and sell our new lines of MRI products. The Stand-Up MRI, Fonar 360 and Echo scanners have all been recently introduced into the market. Although we are optimistic that these scanners' features will make them competitive, there can be no assurance as to the degree or timing of market acceptance of these products. Nevertheless, we received orders for 20 Stand-Up MRI scanners in fiscal 2002. Revenues from the sales of QUAD scanners, introduced in 1995, had not been sufficient to date to generate operating profits. The product we now are currently promoting most vigorously is the Stand-Up MRI. We believe the Stand-Up MRI is the most promising because it enables scans to be performed on patients in weight bearing positions, such as sitting, standing or lying at an angle. The market for the Stand-Up MRI, shows strong initial promise. The following chart shows the revenues attributable to each model during fiscal 2001 and fiscal 2002. Please note that we recognize the revenue on scanner sales on a percentage of completion basis. This means we book revenue not as cash is received or sales are made, but as the scanner is built. Consequently, the revenues for a fiscal period do not necessarily relate to the orders placed in that period. Model Revenues Recognized 2001 2002 Stand-Up $ 1,625,615 $ 11,089,675 Fonar 360 0 0 QUAD $ 3,043,308 0 Echo $ 1,052,182 0 Beta (used) 0 361,000 3. We must compete in a highly competitive market against competitors with greater financial resources than we have. The medical equipment industry is highly competitive and characterized by rapidly changing technology and extensive research and development. The market demand for a continuing supply of new and improved products requires that we be engaged continuously in research and development. New products also require continuous retooling or at least modifications to our manufacturing facilities, and our sales and marketing force must continuously adjust to new products and product features. This is highly expensive and companies with substantially greater financial resources than we have engage in the marketing of magnetic resonance imaging scanners which compete with the Company's scanners. Competitors include large, multinational companies or their affiliates such as General Electric Company, Siemens A.G., Marconi International, Philips N.V., Toshiba Corporation and Hitachi Corporation. There can be no assurance that Fonar's products will be able to successfully compete with products of its competitors. 4. The success of some of the businesses purchased by HMCA depends on the continued employment of the former owners of those businesses. The businesses acquired by HMCA are essentially service organizations whose continued success depends on retaining and developing existing business relationships. These relationships are often heavily dependent on the personal efforts of key persons in the acquired company or medical practices managed by the acquired company. HMCA has retained certain of these key people through employment agreements which include both noncompetition covenants and financial incentives. Nevertheless, there can be no assurance that these key people will remain as employees or produce results sufficient to make the acquired companies profitable. 5. The decline in profitability of the primary care medical practices managed by HMCA resulted in an impairment loss of $4.7 million in fiscal 2002. HMCA manages 13 MRI facilities, seven physical therapy and rehabilitation practices and four primary care medical practices. During 2002 fiscal year, the primary care medical practices, which are managed by the Company's subsidiary A&A Services, Inc. experienced a significant overall decline in patient volume and related operating cash flows which led to the inability of the medical practices to fully and timely pay management fees. The business of managing these practices had been acquired by HMCA in fiscal 1998. As a result of the continued negative trend, HMCA incurred an impairment loss of $4.7 million in fiscal 2002 related to those management agreements which reduced the carrying value of such agreements to approximately $3.5 million at June 30, 2002. We presently do not expect any further impairment, but there can be no assurance that we will be able to prevent further declines in the management fees received from the primary care medical practices. 6. HMCA'S profitability depends on its ability to successfully perform billing and collection services for its clients. HMCA performs billing and collection services for the medical practices and MRI facilities it manages. The viability of HMCA's clients and their ability to remit management fees to HMCA depends on HMCA's ability to collect the clients' receivables. Collectibility of these receivables can be adversely affected by the longer payment cycles and rigorous informational requirements of some insurance companies or other third party payors. Proper authorizations, referrals and confirmation of coverage for patients, as well as issues of medical necessity, need to be addressed prior to the rendering of service to assure prompt payment of claims. HMCA believes it is properly addressing billing and collection requirements and issues for its clients and that its collection rates are good. Nevertheless, the regulations and requirements applicable to medical billing and collections could change in the future and result in reduced or delayed collections. Approximately 99% of the receivables billed and collected by HMCA are from professional corporations owned by Raymond V. Damadian. 7. Capitated insurance programs could adversely affect HMCA's clients by shifting a part of the financial responsibility for patient care to the medical providers. Certain HMO's and insurers have instituted managed care programs where the physician or physician group is paid on a capitated basis. Under these plans, the physician is not paid according to the services provided, but is paid a fixed monthly fee per patient, which in HMCA's experience is based on age and gender. In fiscal 2002 and fiscal 2001, respectively, 2.5% and 2.2% of HMCA's clients' revenues were from capitated programs. All of these were attributable to primary medical care practices managed by A&A Services, Inc., representing 46% and 26% of their revenues in fiscal 2002 and fiscal 2001, respectively. Under capitated insurance programs, the physician or physician practice in effect bears some of the risk in the event a patient requires extensive treatment. In the event that HMCA's client primary care practices experience a shortfall between the capitated payments and the cost of providing services, the ability of those practices to pay for HMCA's services may be impaired. 8. The profitability of HMCA could be adversely affected if medical insurance reimbursement rates change. HMCA receives substantially all of its revenue from medical practices and providers of MRI services. Consequently, HMCA would be indirectly affected by changes in medical insurance reimbursement policies, HMO policies, referral patterns, no-fault and workers compensation reimbursement levels and other factors affecting the profitability of a medical practice or MRI facility. The types of medical providers served by HMCA are (a) MRI facilities, (b) primary care practices and (c) physical therapy and rehabilitation practices. There are approximately 13 MRI facilities served by HMCA located in New York, Florida and Georgia. The primary care practices served by HMCA consist of four offices in New York and the physical therapy and rehabilitation practices consist of seven offices located in New York. Approximately 52% of HMCA's clients' revenues in fiscal 2002 as compared to approximately 56% of HMCA's clients' in fiscal 2001 were generated from the no-fault and personal injury protection claims. Although we do not know of any pending adverse development affecting these types of facilities, future changes in the reimbursement levels for MRI, primary care, workers compensation or no fault reimbursement, or changes in utilization policies for MRI or physical rehabilitation therapy could adversely affect the ability of HMCA's clients to pay HMCA's fees. In addition, HMCA depends on the ability of the medical practices and providers to attract and retain physicians and other professional staff. 9. The amortization of the management agreements on our balance sheet will reduce future profits. HMCA acquired businesses which were essentially service businesses for purchase prices based on earnings multiples rather than net tangible assets. As the fair value of the tangible assets was small relative to the purchase price, the consolidated balance sheet of Fonar and its subsidiaries reflects an allocation of the purchase price in excess of the fair value of the tangible assets exclusively to management agreements, an intangible asset with a net carrying value of approximately $20.4 million at June 30, 2001 and $14.5 million as at June 30, 2002. The initial amount allocated to management agreements attributable to the acquisitions, was approximately $23.4 million. Prior to the write down of the value of the management agreements for the primary care medical practices of $4.7 million in fiscal 2002, amortization of management agreements, which is over a period of twenty (20) years, reduced net profits by approximately $1.2 million annually. This is a non-cash expense. It is expected that the amortization of management agreements after the write-down for the impairment loss will be $983,700 annually. 10. Professional liability claims against HMCA or its clients may exceed insurance coverage levels. Although HMCA does not provide medical services, it is possible that a patient suing one of HMCA's client medical practices or MRI facilities would also sue HMCA. Neither HMCA nor its clients carry professional liability insurance but physicians working for HMCA's clients or for HMCA's subsidiaries are required to maintain professional liability insurance in the minimum amount of $1,000,000/$3,000,000. Such insurance would not cover HMCA or a client professional corporation, however, in the event a claim were made which was not covered by the physician's insurance. Claims in excess of insurance coverage might also have to be satisfied by HMCA or its clients if they were named as defendants. 11. We do not carry product liability insurance and would have to pay any claims from our revenues and capital resources. Fonar does not carry product liability insurance but is self-insured. Consequently, Fonar would have to pay from its own resources any valid products liability claim. To date, Fonar has not had to pay any such claims. 12. We are dependent upon the services of Dr. Damadian. Our success is greatly dependent upon the continued participation of Dr. Raymond V. Damadian, Fonar's founder, Chairman of the Board and President. Dr. Damadian has acted as our CEO since 1978 and will continue to do so for the foreseeable future. In addition to providing general supervision and direction, he provides active direction, supervision and management of our sales, marketing and research and development efforts. In connection with the physician and diagnostic management services business conducted by HMCA, Dr. Damadian owns most of the professional corporations which are HMCA clients. With the exception of four professional corporations which provided management fees to HMCA of approximately $422,500 in the aggregate for fiscal 2002, all of the professional corporations are owned by Dr. Damadian. Loss of the services of Dr. Damadian would have a material adverse effect on our business. We do not have an employment or noncompetition agreement with Dr. Damadian. We do not currently carry "key man" life insurance on Dr. Damadian. 13. Dr. Raymond V. Damadian has voting control of Fonar; the management cannot be changed or the company sold without his agreement. Dr. Raymond V. Damadian, the President, Chairman of the Board and principal stockholder of Fonar is and will continue to be in control of Fonar and in a position to elect all of the directors of Fonar. As of September 19, 2002, there were outstanding 73,569,791 shares of common stock, having one vote per share, 4,211 shares of Class B common stock, having ten votes per share and 9,562,824 shares of Class C common stock, having 25 votes per share. Of these totals Dr. Damadian owned 2,488,274 shares of common stock and 9,561,174 shares of Class C common stock, giving him over 80% of the voting power of Fonar's voting stock. This means that the holders of the common stock will not be able to control decisions concerning any merger or sale of Fonar, the election of directors or the determination of business and management policy. 14. The provisions of our warrants provide for reductions in the exercise price if we issue common stock at prices below market or below the warrant exercise prices. In addition to provisions providing for proportionate adjustments in the event of stock splits, stock dividends, reverse stock splits and similar events, the warrants provide for a reduction of the exercise price if Fonar issues shares of common stock at prices lower than the exercise price or lower than the then prevailing market price. The number of shares issuable under the warrants would change in this case in inverse proportion, but we would receive the same amount of proceeds if the warrants were subsequently exercised in full. FORWARD-LOOKING STATEMENTS We make statements in this prospectus and the documents incorporated by reference that are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 contains the safe harbor provisions that cover these forward-looking statements. We are including this statement for purposes of complying with these safe harbor provisions. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions including, among other things: - continued losses and cash flow deficits; - the continued availability of financing in the amounts, at the times and on the terms required to support our future business; - uncertain market acceptance of our products; and - reliance on key personnel. Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate" and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Because of these risks, uncertainties and assumptions, the forward-looking events discussed or incorporated by reference in this document may not occur. USE OF PROCEEDS We will not receive any proceeds from the sale by the selling stockholders of the common stock they receive upon the exercise of the warrants. If the warrants are exercised, however, we will receive the exercise price of the underlying shares purchased. We can not, however, guarantee the amount of the proceeds we may receive from the exercise of warrants. We intend to use the net proceeds, if any, from the exercise of warrants for general corporate purposes, including working capital to fund operating losses, expenses and capital expenditures. As of the date of this prospectus, we cannot specify with certainty the particular uses for any net proceeds we may receive upon the exercise of the warrants. Accordingly, our management will have broad discretion in the application of any net proceeds received. Pending such uses, we intend to invest the net proceeds, if any, from the exercise of the warrants in short-term, interest-bearing, investment grade securities. SELLING STOCKHOLDERS Pursuant to a securities purchase agreement dated May 24, 2001 between us and The Tail Wind Fund Ltd. stockholders, we issued and sold, for an aggregate purchase price of $4.5 million: 4% convertible debentures due June 30, 2002 in the aggregate principal amount of $4.5 million, convertible into shares of our common stock at a conversion price of $2.047 per share, subject to adjustment; purchase warrants to purchase an aggregate of 959,501 (includes 300,000 issuable to the placement agent) shares of our common stock at an initial exercise price of $1.801 per share, subject to adjustment; and callable warrants to purchase an aggregate of 2,000,000 shares of our common stock at a fluctuating exercise price which will vary depending on the market price for our common stock In connection with the issuance of the debentures, purchase warrants and callable purchase warrants to The Tail Wind Fund Ltd. we paid a placement fee to Roan Meyers, Inc. in the amount of $157,500. The 300,000 purchase warrants to have been issued to Roan Meyers, Inc. will be issued to designees of Roan Meyers, Inc. instead. The debentures were convertible at the option of the holder at a price of $2.047 per share. The Tail Wind Fund Ltd did not elect to convert, but we still had the right to pay the debentures in shares of our common stock and did so. The stock was valued, in accordance with the terms of the debentures, at the lesser of a) 90% of the average of the four lowest closing bid prices during the preceding month or b) the average of the four lowest closing bid prices during the preceding calendar month less $0.125. We issued a aggregate amount of 4,931,576 shares to pay the debentures (with interest of $132,022) in full. The purchase warrants cover 959,501 shares of common stock and have an exercise price of $1.801 per share, subject to adjustment. The exercise period extends to May 24, 2006. If all of the purchase warrants are exercised at such price, we would receive proceeds in the approximate amount of $1.7 million. The Tail Wind Fund Ltd. has not exercised any of the purchase warrants. All of the purchase warrants are still outstanding. The original callable warrants covered 2,000,000 shares of common stock and had a variable exercise price. Subject to a maximum price of $6.00 per share and a minimum price of $2.00 per share, which was subject to adjustment pursuant to the terms of the warrants, the exercise price was to be calculated to be equal to the average closing bid price of Fonar's common stock for the full calendar month preceding the date of exercise. The exercise period extended to May 24, 2004. In order to induce The Tail Wind Fund Ltd. to exercise the callable warrants we agreed to lower the exercise price to $1.50 per share for the period from June 24, 2002 through July 31, 2002. At the same time we agreed not to exercise our right to redeem any callable warrants during the months of July, 2002 and August, 2002. Prior to June 30, 2002, The Tail Wind Fund Ltd. then exercised callable warrants for 1,000,000 shares of common stock for an aggregate exercise price of $1,500,000. On August 16, 2002 we agreed to a further reduction of the exercise price to $1.125 per share for the period ended on August 22, 2002. The Tail Wind Fund Ltd. then exercised on the same day the remaining callable warrants for a total of 1,000,000 shares at an aggregate exercise price of $1,125,000. As part of the agreement under which we reduced the exercise price of the original callable warrants, we have now issued to The Tail Wind Fund Ltd. replacement callable warrants for 2,000,000 shares of our common stock on the same terms as the original callable warrants. Since the exercise price varies, the amount of proceeds, if any, which we may receive cannot be predicted. At the minimum exercise price of $2.00 per share we would receive proceeds of $4 million. At the maximum exercise price of $6.00 per share we would receive proceeds of $12 million. The replacement callable warrants will be exercisable until August 30, 2005. We do have the option, however, of redeeming up to 200,000 callable warrants per month at a price of $0.01 per underlying warrant share, if the average closing bid price of Fonar's common stock is greater than 115% of the warrant price in effect for five consecutive trading days in any calendar month. We also have the option of reducing the exercise price under the callable warrants to any lower exercise price that was previously in effect. No proceeds can be expected to be received from the exercise of the warrants unless the market price of our common stock is higher than the applicable exercise prices since otherwise the holders are unlikely to exercise. The warrants provide for proportionate adjustments in the event of stock splits, stock dividends and reverse stock splits. In addition, the exercise prices will be reduced, with certain specified exceptions, if we issue shares at lower prices then the warrant exercise prices, or less than market price for our common stock. The shares now being registered are the shares underlying the new replacement callable warrants. The shares underlying the outstanding purchase warrants were previously registered. The table below presents information regarding the selling stockholders and the shares that they may offer and sell from time to time under this prospectus. The table assumes that the selling stockholders sell all of the shares they receive upon the exercise of the warrants. However, no assurances can be given as to the actual number of shares that will be sold by the selling stockholders or that will be held by the selling stockholders after completion of the sales. Information concerning the selling stockholders may change from time to time and any changed information will be presented in a supplement to this prospectus if and when necessary and required. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned by any person who has voting or investment power with respect to the shares. Common stock issuable upon conversion of the debentures or exercise of warrants that are currently convertible, exercisable or exercisable within 60 days are considered to be outstanding and to be beneficially owned by the person holding the debentures and warrants for the purpose of computing beneficiary ownership. Assuming that the selling stockholders sell all of the shares offered under this prospectus, the selling stockholders will beneficially own less than one percent of our outstanding shares of common stock after the completion of this offering. Shares Shares Shares Beneficially Offered Beneficially Owned Prior By This Owned After Selling Stockholders to Offering Prospectus Offering - -------------------- ------------ ---------- ------------ The Tail Wind Fund, 3,832,461 2,000,000 1,832,461 Ltd. or assigns (1) (1) Includes 1,172,960 shares of common stock held by The Tail Wind Fund Ltd. as at August 31, 2002 and 2,659,501 shares of common stock issuable upon the exercise of the purchase warrants and replacement callable warrants. Neither the selling stockholders nor any of their affiliates, officers, directors or principal equity holders has held any position or office or has had any material relationship with us within the past three years. PLAN OF DISTRIBUTION We will not receive any of the proceeds of the sales of these shares. WHO MAY SELL AND APPLICABLE RESTRICTIONS. Shares may be offered and sold directly by the selling stockholders and those persons' pledgees, donees, transferees or other successors in interest from time to time. The selling stockholders could transfer, devise or gift shares by other means. The selling stockholders may also resell all or a portion of their shares in open market transactions in reliance upon available exemptions under the Securities Act, such as Rule 144, provided they meet the requirements of these exemptions. Alternatively, the selling stockholders may from time to time offer shares through brokers, dealers or agents. Brokers, dealers, agents or underwriters participating in transactions may receive compensation in the form of discounts, concessions or commissions from the selling stockholders (and, if they act as agent for the purchaser of the shares, from that purchaser). The discounts, concessions or commissions might be in excess of those customary in the type of transaction involved. The selling stockholders will purchase their shares in the ordinary course of business upon the exercise of warrants. The selling stockholders do not have any agreements or understandings, directly or indirectly, with any person to distribute the securities. Nevertheless, the selling stockholders and any brokers, dealers or agents who participate in the distribution of the shares may be deemed to be underwriters, and any profits on the sale of shares by them and any discounts, commissions or concessions received by any broker, dealer or agent might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent a selling stockholder may be deemed to be an underwriter, the selling stockholder may be subject to statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act. These provisions of the securities laws provide, in general terms, for liability for fraud, untrue statements contained in a prospectus or otherwise made in connection with the sale of securities, and the failure to disclose significant information which is necessary to prevent information disclosed from being misleading. To comply with certain states' securities laws, if applicable, the shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the shares may not be sold unless the shares have been registered or qualified for sale in that state or an exemption from registration or qualification is available and is complied with. MANNER OF SALES. The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. The shares may be sold at then prevailing market prices, at prices related to prevailing market prices, at fixed prices or at other negotiated prices. The shares may be sold according to one or more of the following methods. o A block trade in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction. o Purchases by a broker or dealer as principal and resale by the broker or dealer for its account as allowed under this prospectus. o Ordinary brokerage transactions and transactions in which the broker solicits purchasers. o Pledges of shares to a broker-dealer or other person, who may, in the event of default, purchase or sell the pledged shares. o An exchange distribution under the rules of the exchange. o In private transactions between sellers and purchasers without a broker-dealer. o By writing options. o Any combination of the foregoing, or any other available means allowable under law. HEDGING OR SHORT TRANSACTIONS. In addition, the selling stockholders may enter into option, derivative, hedging or short transactions with respect to the shares, and any related offers or sales of shares may be made under this prospectus. For example, the selling stockholders may: o enter into transactions involving short sales of the shares by broker-dealers in the course of hedging the positions they assume with the selling stockholders; o sell shares short itself and deliver the shares registered hereby to settle such short sales or to close out stock loans incurred in connection with its short positions; o write call options, put options or other derivative instruments (including exchange-traded options or privately negotiated options) with respect to the shares, or which it settles through delivery of the shares; o enter into option transactions or other types of transactions that require the selling stockholder to deliver shares to a broker, dealer or other financial institution, who may then resell or transfer the shares under this prospectus; or o loan the shares to a broker, dealer or other financial institution, who may sell the loaned shares. These option, derivative, hedging and short transactions may require the delivery to a broker, dealer or other financial institution of shares offered under this prospectus, and that broker, dealer or other financial institution may resell those shares under this prospectus. EXPENSES ASSOCIATED WITH REGISTRATION. We have agreed to pay the expenses of registering the shares under the Securities Act, including registration and filing fees, printing expenses, administrative expenses, legal fees and accounting fees. If the shares are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts, underwriting commissions and agent commissions. INDEMNIFICATION AND CONTRIBUTION. In the registration rights agreement that we entered into with the selling stockholders, we and the selling stockholders agreed to indemnify or provide contribution to each other and specified other persons against some liabilities in connection with the offering of the shares, including liabilities arising under the Securities Act. The selling stockholders may also agree to indemnify any broker-dealer or agent that participates in transactions involving sales of the shares against some liabilities, including liabilities arising under the Securities Act. SUSPENSION OF THIS OFFERING. We may suspend the use of this prospectus if we learn of any event that causes this prospectus to include an untrue statement of material fact or omit to state a material fact required to be stated in the prospectus or necessary to make the statements in the prospectus not misleading in light of the circumstances then existing. If this type of event occurs, a prospectus supplement or post-effective amendment, if required, will be distributed to the selling stockholder. Any material changes in this plan of distribution will be reflected in a post-effective amendment. Computershare Trust Company, Inc., formerly called American Securities Transfer & Trust, Inc., located at 350 Indiana Street, Suite 800, Golden, Colorado, 80401 is the transfer agent and registrar for our common stock. LEGAL MATTERS Certain legal matters with respect to the validity of the shares being offered by the prospectus will be passed upon by Henry T. Meyer, Esq., 110 Marcus Drive, Melville, New York 11747. Mr. Meyer is Fonar's General Counsel. Experts The consolidated financial statements and supplemental financial schedules contained in Fonar's latest annual report on Form 10-K, incorporated by reference into this prospectus, have been audited by Marcum & Kliegman, LLP, to the extent set forth in their report. Such consolidated financial statements and schedules were included therein in reliance upon their reports, given on their authority as experts in accounting and auditing. INDEMNIFICATION The Delaware General Corporation Law and Fonar's by-laws provide for the indemnification of an officer or director under certain circumstances against reasonable expenses incurred in connection with the defense of any action brought against him by reason of his being a director or officer. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or other persons under Fonar's by-laws or the Delaware General Corporation Law, Fonar has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. WHERE YOU CAN FIND MORE INFORMATION We file reports, proxy statements and other information with the Securities and Exchange Commission. Our Securities and Exchange Commission filings are also available over the Internet at the Securities and Exchange Commission's web site at http://www.sec.gov. You may also read and copy any document we file at the Securities and Exchange Commission's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information on the public reference rooms. Our Commission File No. is 0-10248. INCORPORATION OF INFORMATION WE FILE WITH THE SEC The Securities and Exchange Commission allows us to "incorporate by reference" the information we file with them, which means: - incorporated documents are considered part of this prospectus; - we can disclose important information to you by referring you to those documents; and - information that we file with the Securities and Exchange Commission will automatically update and supersede this prospectus. We are incorporating by reference the documents listed below which were filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934: - Annual Report on Form 10-K for the year ended June 30, 2002, which was filed on October 7, 2002; We also incorporate by reference each of the following documents that we will file with the Securities and Exchange Commission after the date of this prospectus but before the end of the offering: - Reports filed under Sections 13(a) and (c) of the Securities Exchange Act of 1934; - Definitive proxy or information statements filed under Section 14 of the Securities Exchange Act of 1934 in connection with any subsequent stockholders' meeting; and - Any reports filed under Section 15(d) of the Securities Exchange Act of 1934. You may request a copy of these filings, at no cost, by contacting us at the following address or phone number: Fonar Corporation 110 Marcus Drive Melville, New York 11747 Attention: Investor Relations PArt II Information Not Required in prospectus ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of the common stock being registered. All amounts are estimates except the registration fee. AMOUNT TO BE PAID SEC Registration Fee $ 200.56 Printing 1,000.00 Legal Fees and Expenses 1,000.00 Accounting Fees and Expenses 5,000.00 Blue Sky Fees and Expenses 5,000.00 Transfer Agent and Registrar Fees 5,000.00 Miscellaneous 1,000.00 ----------- Total.........................................................$ 18,200.56 =========== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102(b)(7) of the General Corporation Law of the State of Delaware (the "Delaware Law") grants corporations the right to limit or eliminate the personal liability of their directors in certain circumstances in accordance with provisions therein set forth. Our Certificate of Incorporation contains a provision eliminating director liability to us and our stockholders for monetary damages for breach of fiduciary duty as a director. The provision does not, however, eliminate or limit the personal liability of a director: (i) for any breach of such director's duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under the Delaware statutory provision making directors personally liable, for improper payment of dividends or improper stock purchases or redemptions; or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on our Board of Directors protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, our ability or a stockholder's ability to successfully prosecute an action against a director for a breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The SEC has taken the position that the provision will have no effect on claims arising under federal securities laws. Section 145 of the Delaware Law grants corporations the right to indemnify their directors, officers, employees and agents in accordance with the provisions therein set forth. Our By-laws provide that the corporation shall, subject to limited exceptions, indemnify its directors and executive officers to the fullest extent not prohibited by the Delaware Law. Our By-laws provide further that the corporation shall have the power to indemnify its other officers, employees and her agents as set forth in the Delaware Law. Such indemnification rights permit reimbursement for expenses incurred by such director, executive officer, other officer, employee or agent in advance of the final disposition of such proceeding in accordance with the applicable provisions of the Delaware Law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of us pursuant to these provisions, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. Item 16. Exhibits and Financial Statement Schedules Exhibits 4.1 * Specimen Common Stock Certificate incorporated herein by reference to Exhibit 4.1 to the Registrant's registration statement on Form S-1, Commission File No. 33-13365. 4.2 * Article Fourth of the Certificate of Incorporation, as amended, of the Registrant incorporated by reference to Exhibit 4.1 to the Registrant's registration statement on Form S-8, Commission File No. 33-62099. 4.3 * Section A of Article FOURTH of the Certificate of Incorporation, as amended, of the Registrant incorporated by reference to Exhibit 4.3 to the Registrant's registration statement on Form S-3, Commission File No. 333-63782. 4.4 * Form of 4% Convertible Debentures due June 30, 2002 incorporated herein by reference to Exhibit 4.1 of the Registrant's current report on Form 8-K filed on June 11, 2001. Commission File No. 0-10248. 4.5 * Form of Purchase Warrants incorporated herein by reference to Exhibit 4.2 of the Registrant's current report on Form 8-K filed on June 11, 2001. Commission File No. 0-10248. 4.6 * Form of Callable Warrants incorporated herein by reference to Exhibit 4.3 of the Registrant's current reports on Form 8-K filed on June 11, 2001. Commission File No. 0-10248. 4.7 Form of Replacement Callable Warrants. See Exhibits. 5 Opinion of Counsel re: Legality. See Exhibits. 10.1* License Agreement between Fonar and Raymond V. Damadian incorporated herein by reference to Exhibit 10 (e) to Form 10-K for the fiscal year ended June 30, 1983, Commission File No. 0-10248 10.2* 1993 Incentive Stock Option Plan incorporated herein by reference to Exhibit 28.1 to the Registrant's registration statement on Form S-8, Commission File No. 33-60154. 10.3* 1997 Non-Statutory Stock Option Plan incorporated herein by reference to Exhibit 28.1 to the Registrant's registration statement on Form S-8, Commission File No. 333-27411. 10.4* 1997 Stock Bonus Plan incorporated herein by reference to Exhibit 28.2 to the Registrant's registration statement on Form S-8, Commission File No. 333-27411 10.5* 2000 Stock Bonus Plan incorporated herein by reference to Exhibit 99.1 to the Registrant's registration statement on Form S-8, Commission File No. 333- 66760. 10.6* 2002 Stock Bonus Plan incorporated herein by reference to Exhibit 99.1 to the Registrant's registration statement on Form S-8, Commission File No. 333-89578. 10.7* 2002 Incentive Stock Option Plan incorporated herein by reference to Exhibit 99.1 to the Registrant's registration statement on Form S-8, Commission File No. 333-96557. 10.8* Stock Purchase Agreement, dated July 31, 1997 by and between U.S. Health Management Corporation , Raymond V. Damadian, M.D. MR Scanning Centers Management Company and Raymond V. Damadian, incorporated herein by reference to Exhibit 2.1 to the Registrant's Form 8-K, July 31, 1997, Commission File No: 0-10248. 10.9* Merger Agreement and Supplemental Agreement dated June 17, 1997 and Letter of Amendment dated June 27, 1997 by and among U.S. Health Management Corporation and Affordable Diagnostics Inc. et al., incorporated herein by reference to Exhibit 2.1 to the Registrant's 8-K, June 30, 1997, Commission File No: 0-10248. 10.10* Stock Purchase Agreement dated March 20, 1998 by and among Health Management Corporation of America, Fonar Corporation, Giovanni Marciano, Glenn Muraca et al., incorporated herein by reference to Exhibit 2.1 to the Registrant's 8-K, March 20, 1998, Commission File No: 0-10248. 10.11* Stock Purchase Agreement dated August 20, 1998 by and among Health Management Corporation of America, Fonar Corporation, Stuart Blumberg and Steven Jonas, incorporated herein by reference to Exhibit 2 to the Registrant's 8-K, September 3, 1998, Commission File No. 0-10248. 10.12* Purchase Agreement dated May 24, 2001 by and between Fonar and The Tail Wind Fund Ltd. incorporated herein by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed June 11, 2001. Commission File No. 0-10248. 10.13* Registration Rights Agreement dated May 24, 2001 by and among Fonar, The Tail Wind Fund Ltd. and Roan Meyers, Inc. incorporated herein by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed June 11, 2001. Commission File No. 0-10248. 10.14* Callable Purchase Warrant. 23.1 Consent of Marcum & Kliegman LLP, Certified Public Accountants. (See Exhibits). 23.2 (Consent of Counsel is included in Exhibit 5). * Exhibits incorporated by reference. Financial Statement Schedules None Item 17. Undertakings The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13 (a) or section 15 (d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on October 22, 2002. Dated: October 22, 2002 FONAR CORPORATION By: /s/ Raymond V. Damadian Raymond V. Damadian, President, Acting Chief Financial Officer and Acting Principal Accounting Officer Signing in his capacities as Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Act of 1933, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Raymond V. Damadian Chairman of the Board - ------------------------ of Directors, President Raymond V. Damadian and a Director (Principal October 22, 2002 Executive Officer, Principal Financial Officer and Principal Accounting Officer) /s/ Claudette J.V. Chan Director October 22, 2002 - ------------------------ Claudette J.V. Chan /s/ Robert J. Janoff Director October 22, 2002 - -------------------- Robert J. Janoff /s/ Charles N. O'Data Director October 22, 2002 - ---------------------- Charles N. O'Data /s/ Robert Djerejian Director October 22, 2002 Robert Djerejian EX-4 3 x047.txt Exhibit 4.7 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION FOR NON-PUBLIC OFFERINGS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED UNLESS IT IS REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS FONAR RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE (UNLESS WAIVED). VOID AFTER 5:00 P.M. EASTERN TIME ON AUGUST 30, 2005 ("EXPIRATION DATE"). FONAR CORPORATION CALLABLE WARRANT WARRANT ("WARRANT") TO PURCHASE SHARES OF COMMON STOCK, $0.0001 PAR VALUE PER SHARE This is to certify that, for VALUE RECEIVED, The Tail Wind Fund, Ltd. ("Warrantholder"), is entitled to purchase, subject to the provisions of this Warrant, from Fonar Corporation, a corporation organized under the laws of Delaware ("Company"), at any time after the issuance hereof, but not later than 5:00 P.M., Eastern time, on the third (3rd) anniversary of such issuance date ("Expiration Date"), 2,000,000 shares ("Warrant Shares") of Common Stock, $0.0001 par value ("Common Stock"), of the Company, at an exercise price per share equal to the average closing bid price of the Common Stock on the Principal Market for the full calendar month immediately preceding the date of exercise, provided that such exercise price shall be no less than $2.00 and no more than $6.00 (as such figures, shall be appropriately and equitably adjusted as provided herein) (the exercise price in effect from time to time hereafter being herein called the "Warrant Price"). The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein. This Warrant has been issued pursuant to the terms of the First Amendment to Callable Warrant ("Amendment") dated as of June 21, 2002 and the Second Amendment to Callable Warrant dated as of August 15, 2002, each between the Company and Warrantholder. Capitalized terms used herein and not defined shall have the meaning specified in the Purchase Agreement ("Purchase Agreement") dated as of May 24, 2002 between the Company and the Warrantholder. Section 1. Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of the Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder. Section 2. Transfers. As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended ("Securities Act") or an exemption from registration thereunder. Subject to such restrictions, the Company shall transfer this Warrant from time to time, upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer upon any such transfer, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company. Section 3. (a) Exercise of Warrant. Subject to the provisions hereof, the Warrantholder may exercise this Warrant in whole or in part, at any time and from time to time after the issuance hereof, upon delivery of the duly executed Warrant exercise form attached hereto (the "Exercise Agreement") to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and upon payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company of the Warrant Price for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant (or evidence of loss, theft or destruction thereof) shall have been surrendered, the completed Exercise Agreement shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. Book-Entry. Notwithstanding anything to the contrary set forth herein, upon exercise or redemption of any portion of this Warrant in accordance with the terms hereof, the Warrantholder shall not be required to physically surrender this Warrant to the Company unless such holder is purchasing the full amount of Warrant Shares represented by this Warrant. The Warrantholder and the Company shall maintain records showing the number of Warrant Shares so purchased or redeemed hereunder and the dates of such purchases or shall use such other method, reasonably satisfactory to the Warrantholder and the Company, so as not to require physical surrender of this Warrant upon each such exercise or redemption. The Warrantholder and any assignee, by acceptance of this Warrant or a new Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares which may be purchased upon exercise of this Warrant may be less than the number of Warrant Shares set forth on the face hereof. (b) Redemption of Warrant. Subject to the Purchase Agreement, in the event that the average closing bid price of the Company's Common Stock (as reported by the Nasdaq Stock Market) is greater than 115% of the then applicable Warrant Price hereunder for a five (5) consecutive trading day period in any calendar month (i.e., June 1 to June 30, July 1 to July 31, etc.) ("Pre-Call Period"), the Company shall have the right, upon at least five (5) trading days' prior written notice to the Warrantholder ("Redemption Notice"), to redeem up to 200,000 shares underlying this Warrant (not previously exercised), at a redemption price equal to $.01 per Warrant Share issuable hereunder for the portion hereof being redeemed, provided that (1) the Company may not exercise such redemption right more than once in any calendar month, and (2) the Company may reduce the then applicable Warrant Price to any lower Warrant Price hereunder which was previously in effect hereunder, by delivering to the Warrantholder an irrevocable written notice ("Reduction Notice") at least five (5) days prior to any such reduction. Any such Reduction Notice shall specify a reduction date which is on or prior to the twentieth day of such calendar month (but at least 5 days after such notice) and shall specify the new reduced Warrant Price hereunder. For clarification purposes, (a) the Pre-Call Period (or the new Pre-Call Period if there was a prior redemption during such calendar month) shall commence as of the date of such reduction, (b) the aggregate number of shares that may be redeemed in any calendar month shall not exceed 200,000 shares regardless of any such reduction, (c) any Warrant Price so reduced by the Company shall remain at such reduced Warrant Price for the remainder of such calendar month for all purposes hereunder, including without limitation for purchases of shares of Common Stock hereunder by the Warrantholder upon exercise hereof, and (d) the Company may deliver a Redemption Notice following a Warrant Price reduction hereunder only after the applicable Pre-Call Period has expired with the average closing bid price of the Company's Common Stock for such Pre-Call Period exceeding 115% of the new reduced Warrant Price. Any redemption hereunder shall occur on the date specified in the Redemption Notice ("Redemption Date"), provided that such Redemption Date may not occur until at least five (5) trading days following the date on which the Warrantholder received the Redemption Notice (the "Redemption Notice Date"). The Company may not deliver the Redemption Notice unless and until the average closing bid price of the Company's Common Stock (as reported by the Nasdaq Stock Market) is greater than 115% of the applicable Warrant Price (as may be reduced hereunder) over a five (5) consecutive trading day period occurring in any one calendar month. The period from the Redemption Notice Date to the Redemption Date shall be referred to herein as the "Post-Call Period". The Warrantholder may exercise this Warrant, including any portion subject to a Redemption Notice, at any time and from time to time during the period from the Redemption Notice Date through the date on which the redemption price for such Warrants is paid by the Company (and thereafter if such redemption price is not paid), and the Company shall honor all tendered Exercise Agreements during such period. Any Redemption Notice under this Section shall be irrevocable. If the Company intends (or is only permitted) to redeem less than all of the then outstanding Warrants issued to Purchasers under the Purchase Agreement, it shall do so on a pro rata basis among such holders in accordance with this Section. Failure by the Company to redeem this Warrant on a timely basis after delivering a Redemption Notice shall result in the Company being prohibited from exercising such right pursuant to this Section again. Notwithstanding anything to the contrary herein, the Company shall be prohibited from exercising its right to redeem this Warrant pursuant to this Section unless at all times during the Pre-Call Period and Post-Call Period (i) all the Warrant Shares with respect to this Warrant are covered by an effective registration statement under the Securities Act and a deliverable prospectus, (ii) the Warrant Shares with respect to this Warrant are listed and traded on the Nasdaq Stock Market, (iii) the Company is not in breach of any provisions of this Warrant or the other Agreements, and (iv) the average closing bid price of the Company's Common Stock (as reported by the Nasdaq Stock Market) is greater than 115% of the applicable Warrant Price (as may be reduced hereunder). Section 4. Compliance with the Securities Act of 1933. Neither this Warrant nor the Common Stock issued upon exercise hereof nor any other security issued or issuable upon exercise of this Warrant may be offered or sold except as provided in this agreement and in conformity with the Securities Act of 1933, as amended, and then only against receipt of an agreement of such person to whom such offer of sale is made to comply with the provisions of this Section 4 with respect to any resale or other disposition of such security. The Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant until the Warrant Shares have been registered for resale under the Registration Rights Agreement or until Rule 144 is available, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary. Section 5. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. The holder shall be responsible for income taxes due under federal or state law, if any such tax is due. Section 6. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company. Section 7. Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved, out of the authorized and unissued Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by the Warrant, and the transfer agent for the Common Stock ("Transfer Agent"), and every subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of any of the right of purchase aforesaid, shall be irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares of Common Stock as shall be requisite for such purpose. The Company agrees that all Warrant Shares issued upon exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company. The Company will keep a conformed copy of this Warrant on file with the Transfer Agent and with every subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant. The Company will supply from time to time the Transfer Agent with duly executed stock certificates required to honor the outstanding Warrant. Section 8. Warrant Price. The Warrant Price, subject to adjustment as provided in Section 9, shall, if payment is made in cash or by certified check, be payable in lawful money of the United States of America. Section 9. Adjustments. Subject and pursuant to the provisions of this Section 9, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter. For purposes hereof, the term Warrant Price shall include the $2.00 minimum and $6.00 maximum exercise prices and the closing bid prices used in determining the Warrant Price which occurred prior to the applicable event. (a) If the Company shall at any time or from time to time while the Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event. Such adjustment shall be made successively whenever any event listed above shall occur. (b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitations, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Company, the obligation to deliver to the holder of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions. (c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 9(a)), or subscription rights or warrants, the Warrant Price to be in effect after such record date shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Fair Market Value per share of Common Stock (as defined below), less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current Fair Market Value per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. For this purpose, the "Fair Market Value" of the Common Stock shall be the closing price of the Common Stock as reported by the Nasdaq Stock Market for the thirty (30) trading days immediately preceding the date of the Exercise Agreement. (d) For the duration of the term of this Warrant, if the Company shall at any time or from time to time issue or sell securities for a Per Share Selling Price (as such term is defined in the Debentures) less than the Warrant Price (other than issuances of Underlying Shares pursuant to Debentures and Warrants under the Purchase Agreement, issuances described in and permitted under Section 7.2(b)(iii) of the Purchase Agreement and other than issuances of Common Stock under the Company's duly adopted stock option and bonus plans for employees and directors), then the Warrant Price shall be automatically reset (if it would result in a reduction of such price) to a price equal to such Per Share Selling Price. For clarification purposes, the foregoing reset only applies to adjustment of the $2.00 minimum Warrant Price and the $6.00 maximum Warrant Price (as such figures may have been previously adjusted hereunder). The number of Warrant Shares shall be proportionally increased in the event of any adjustments pursuant to this paragraph. Such adjustments shall be made successively whenever such sales are made. If an adjustment (the "Adjustment") of the Warrant Price is required pursuant hereto, the Company shall deliver to the Warrantholder, within eight business days of the closing of the transaction giving rise to the Adjustment ("Delivery Date"), a notice ("Adjustment Notice") stating that such Warrant Price has been automatically adjusted as of the Delivery Date, and such notice shall constitute an amendment to this Warrant. In the event the Company fails to deliver the Adjustment Notice by the applicable Delivery Date, the Company shall be liable to the Warrantholder for a delay payment, as liquidated damages, equal to 2% of (x) the number of Warrant Shares issuable hereunder times (y) the Fair Market Value per share, per month payable in Common Stock or cash, at the Warrantholder's election (provided, that such failure to notify shall not affect automatic adjustment of the Warrant Price). The Company shall give to the Warrantholder written notice of any such sale of Common Stock within 24 hours of the closing of any such sale and shall within such 24 hour period issue a press release announcing such sale. (e) An adjustment shall become effective immediately after the record date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. (f) In the event that, as a result of an adjustment made pursuant to Section 9, the holder of this Warrant shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant. (g) In the event of any adjustment in the number of Warrant Shares issuable hereunder upon exercise, the Warrant Price shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. Similarly, in the event of any adjustment in the Warrant Price, the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. Section 10. Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of the Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon the exercise of the Warrant (or specified portions thereof), the Company shall round such calculation to the nearest whole number and disregard the fraction. Section 11. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder. Section 12. Notices to Warrantholder. Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall forthwith give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In the event of a dispute with respect to any such calculation, the certificate of the Company's independent certified public accountants shall be conclusive evidence of the correctness of any computation made, absent manifest error. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment. At the Warrantholder's request, the Company shall deliver to the Warrantholder as of a requested date a notice specifying the Warrant Price and the number of Warrant Shares into which this Warrant is exercisable as of such date. Section 13. Identity of Transfer Agent. The Transfer Agent for the Common Stock is: Computershare (f/k/a Securities Transfer Trust, Inc.) 12039 W. Alameda Parkway Lakewood, Colorado 80228 Forthwith upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will fax to the Warrantholder a statement setting forth the name and address of such transfer agent. Section 14. Notices. Any notice pursuant hereto to be given or made by the Warrantholder to or on the Company shall be sufficiently given or made personally or if sent by an internationally recognized courier by next day or two day delivery service, addressed as follows: Fonar Corporation 110 Marcus Drive Melville, New York 11747 Telephone: (631) 694-2929 Fax: (631) 249-3734 Attention: President or such other address as the Company may specify in writing by notice to the Warrantholder complying as to delivery with the terms of this Section 14. Any notice pursuant hereto to be given or made by the Company to or on the Warrantholder shall be sufficiently given or made if personally delivered or if sent by an internationally recognized courier service by overnight or two-day service, to the address set forth on the books of the Company or, as to each of the Company and the Warrantholder, at such other address as shall be designated by such party by written notice to the other party complying as to delivery with the terms of this Section 14. All such notices, requests, demands, directions and other communications shall, when sent by courier, be effective two (2) days after delivery to such courier as provided and addressed as aforesaid. Section 15. Registration Rights. The initial holder of this Warrant is entitled to the benefit of certain registration rights in respect of the Warrant Shares as provided in the Amendment, which references the Registration Rights Agreement. Section 16. Successors. All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder. Section 17. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of New York, without giving effect to its conflict of law principles, and for all purposes shall be construed in accordance with the laws of said State. Section 18. 9.9% and 19.9% Limitations. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the holder upon exercise pursuant to the terms hereof shall not exceed a number that, when added to the total number of shares of Common Stock deemed beneficially owned by such holder (other than by virtue of the ownership of securities or rights to acquire securities (including the Warrant Shares) that have limitations on the holder's right to convert, exercise or purchase similar to the limitation set forth herein), together with all shares of Common Stock deemed beneficially owned (other than by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) by the holder's "affiliates" (as defined in Rule 144 of the Act) ("Aggregation Parties") that would be aggregated for purposes of determining whether a group under Section 13(d) of the Securities Exchange Act of 1934 as amended, exists, would exceed 9.9% of the total issued and outstanding shares of the Common Stock (the "Restricted Ownership Percentage"). Each holder shall have the right (w) at any time and from time to time to reduce its Restricted Ownership Percentage immediately upon notice to the Corporation and (x) (subject to waiver) 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 a change of control transaction (including without limitation a transaction that would result in a transfer of more than 50% of the Company's voting power or equity, or a transaction that would result in a person or "group" being deemed the beneficial owner of 50% or more of the Company's voting power or equity). (b) Notwithstanding anything contained herein, in the event that the Warrantholder has timely exercised this Warrant and the issuance of all or a portion of the Warrant Shares to be issued pursuant to such exercise 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"), then the Company shall not be obligated to issue any such Warrant Shares to the extent such shares are in excess of the maximum permissible amount under such Cap Regulations ("Excess Shares"). Within five (5) days following any occurrence of Excess Shares, the Company shall promptly pay to the Purchaser, in lieu of the Purchaser's right to receive such Excess Shares, an amount equal to 120% of the difference between (a) the number of Excess Shares multiplied by the closing sale price per share of Common Stock on the Principal Market on the trading day immediately preceding the date of the exercise of this Warrant, and (b) the aggregate exercise price for such Excess Shares. Only shares of Common Stock acquired pursuant to this Warrant and the Purchase Agreement (including Underlying Shares and Warrant Shares as defined therein) will be included in determining whether the limitation contained herein would be exceeded for purposes of this Section 18(b). Section 19. Replacement Warrants. The Company agrees that within ten (10) business days after any request from time to time of the Warrantholder, it shall deliver to such holder a new Warrant in substitution of this Warrant which is identical in all respects except that the then Warrant Price shall be appropriately specified in the Warrant, and the Warrant shall specify the fixed number of Warrant Shares into which the Warrants are then exercisable. Such changes are intended not as amendments to the Warrant but only as clarification of the foregoing numbers for convenience purposes, and such changes shall not affect any provisions concerning adjustments to the Warrant Price or number of Warrant Shares contained herein. Section 20. Absolute Obligation to Issue Warrant Shares. The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the holder hereof to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the holder hereof or any other Person of any obligation to the Company or any violation or alleged violation of law by the holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the holder hereof in connection with the issuance of Warrant Shares. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant. Section 21. Assignment, Etc. The Warrantholder may assign or transfer this Warrant to any transferee only with the prior written consent of the Company, which may not be unreasonably withheld or delayed, provided that the Warrantholder may assign or transfer this Warrant to any of such Warrantholder's affiliates without the consent of the Company. The Warrantholder shall notify the Company of any such assignment or transfer promptly. This Warrant shall be binding upon the Company and its successors and shall inure to the benefit of the Warrantholder and its successors and permitted assigns. [Signature Page Follows] IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of August 30, 2002. FONAR CORPORATION By:/s/Raymond V. Damadian Name: Raymond V. Damadian Title: President Attest: Sign: /s/ Henry T. Meyer Print Name: Henry T. Meyer FONAR CORPORATION WARRANT EXERCISE FORM Fonar Corporation 110 Marcus Drive Melville, New York 11747 Telephone: (631) 694-2929 Fax: (631) 249-3734 Attention: President This undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder payment by cash, wire transfer or certified check, _______________ shares of Common Stock* ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows: ------------------------------- Name ------------------------------- Address =============================== and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares (subject to book-entry). In lieu of delivering physical certificates representing the Warrant Shares purchasable upon exercise of this Warrant, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon conversion or exercise to the undersigned, by crediting the account of the undersigned's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. Dated:_______________________ Signature: ------------------------------- Name (please print) ------------------------------- Address * NOTE: If exercise of the Warrant is made by surrender of the Warrant and the number of shares indicated exceeds the maximum number of shares to which a holder is entitled, the Company will issue such maximum number of shares purchasable upon exercise of the Warrant registered in the name of the undersigned Warrantholder or the undersigned's Assignee as below indicated and deliver same to the address stated below. EX-5 4 x051.txt EXHIBIT 5.1 October 22, 2002 Fonar Corporation 110 Marcus Drive Melville, New York 11747 Re: Fonar Corporation Registration Statement on Form S-3 Gentlemen: I have represented Fonar Corporation, a Delaware corporation (the "Company"), in connection with the preparation of the registration statement filed with the Securities and Exchange Commission on Form S-3 (the "Registration Statement") relating to the proposed issuance of up to 2,000,000 shares (the "Shares") of the Company's common stock, par value $.0001 per share (the "Common Stock") upon the exercise of the Callable Warrants. In this connection, I have examined originals or copies of the Callable Warrants dated August 30, 2002. I have also examined originals or copies of such other documents, corporate records, certificates of public officials and other documents as I deemed necessary to examine for purposes of this opinion. I am of the opinion that when the shares of Common Stock covered by the Registration Statement have been issued in accordance with the terms of the Warrants, such shares of Common Stock will be duly authorized, validly issued, fully paid and nonassessable. I hereby consent to the filing of this Opinion as an Exhibit to the Registration Statement. Very truly yours, /s/ Henry T. Meyer Henry T. Meyer, Esq. EX-23 5 x231.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated September 30, 2002, which appears on page 38 of the annual report on Form 10-K of Fonar Corporation and Subsidiaries for the year ended June 30, 2002 and to the reference to our Firm under the caption "Experts" in the Prospectus, which is part of this Registration Statement. /s/Marcum & Kliegman LLP Marcum & Kliegman LLP New York, New York October 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----