TERMINATION, SETTLEMENT, AND FORBEARANCE AGREEMENT
THIS
TERMINATION,
SETTLEMENT AND FORBEARNANCE AGREEMENT (the "Agreement")
is made and entered into effective as of October 16, 2006,
between IN VERITAS
MEDICAL DIAGNOSTICS,
INC., a Colorado
corporation (the "Company"), MONTGOMERY
EQUITY PARTNERS, LTD.
(the "Montgomery")
and CORNELL CAPITAL
PARTNERS, L.P.
("Cornell").
Montgomery and Cornell are collectively referred to herein as the
"Buyers". All terms not otherwise defined herein shall have the
meaning ascribed
to the in the Securities Purchase Agreement (as defined below).
WHEREAS, on September
7, 2005, the Company and Montgomery entered into a
Securities Purchase Agreement ("Securities Purchase Agreement").
In connection
with the Securities
Purchase Agreement and
contemporaneously
therewith,
the
Company and Montgomery also entered in an Investor Registration
Rights Agreement
(the "Registration
Rights Agreement"),
Irrevocable Transfer Agent Instructions
along with Corporate
Stock Transfer (the
"Transfer Agent
Instructions"),
an
Escrow Agreement along
with David Gonzalez,
Esq. (the "Escrow
Agreement"), a
Pledge and
Escrow Agreement along with David Gonzalez, Esq. (the "Pledge
Agreement"), and a Security Agreement (the "Security Agreement").
The Securities
Purchase Agreement,
Registration Rights Agreement, Transfer Agent Instructions,
Escrow Agreement,
Pledge Agreement,
Security Agreement,
Debenture (as defined
below) and all other agreements entered into between the Company
and Montgomery
in connection therewith are collectively referred to herein as the
"Transaction
Documents".
WHEREAS, on
September 7, 2005, the Company and Cornell
entered into a
Standby Equity Distribution Agreement ("SEDA"). In connection
with the SEDA and
contemporaneously therewith, the Company and Cornell entered into a
Registration
Rights Agreement (the "SEDA Registration Rights Agreement"), a Placement Agent
Agreement along with Monitor Capital, Inc. (the "Placement Agent
Agreement") and
an Escrow Agreement along with David Gonzalez, Esq. (the "SEDA Escrow
Agreement"). The
SEDA, SEDA Registration Rights Agreement, SEDA Escrow
Agreement, and
Placement Agent Agreement are collectively referred to herein
as
the "SEDA Transaction Documents".
WHEREAS, the Company
wishes to repay all
principal and accrued and unpaid
interest due to
Montgomery as of the
date hereof under that
certain Secured
Convertible Debenture
(the "Debenture") which the Company issued to the
Montgomery on
September 7, 2005 under the terms and
conditions
as set forth
herein.
WHEREAS, the Company
acknowledges
that an event of
default has
occurred
under the Debenture
as a result of (i) the
Registration
Statement not being
declared effective within 120 days after filing thereof,
and (ii) the
Company's
breach of its
obligations to make
payments of principal and interest under the
Debenture (collectively, the "Existing Defaults").
NOW,
THEREFORE,
in consideration
of the mutual
promises, conditions
and
covenants contained herein and other good and valuable
consideration, receipt of
which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. In
consideration for the
accommodations made by
Montgomery to the Company
set
forth herein,
a.
Repayment
of the Debenture. The Company shall pay Montgomery an
aggregate of $348,000.00 (the "Funds") which represents all amounts
owed by the Company to
Montgomery under the
Debenture as of the date
hereof including outstanding principal and interest. The Company
shall
pay the Funds to Montgomery monthly at the rate of $29,000.00
("Monthly Payment")
per calendar month,
with the first payment being
due and payable on November 15, 2006 and each subsequent payment
being
due and payable on the first business day of each subsequent month
until the Funds are repaid in full. The parties agree that the
Redemption Premium shall not be applied to the payment of the Funds
by
the Company.
b.
All amounts
owed, together with interest accrued and accruing thereon,
and fees, costs,
expenses and other charges (including, without
limitation, the
Funds) (collectively, the "Obligations") now or
hereafter payable by the Company to Montgomery under the Debenture
and
the Transaction
Documents are unconditionally owing by the Company to
Montgomery, without
offset, setoff, defense or counterclaim of any
kind, nature or description whatsoever. All terms of the Transaction
Documents not modified
by this Agreement
shall remain in full
force
and effect.
An event of default on
any Transaction
Document shall
constitute an Event of Default on all other Transaction
Documents.
c.
The Company
hereby acknowledges,
confirms and agrees
that Montgomery
has and shall
continue to have valid, enforceable and perfected
first-priority liens
upon and security interests in the Pledged
Property and the Pledged Shares (each as defined in the
Transaction
Documents) heretofore
granted pursuant to any and all security
agreements, pledge
agreements,
or otherwise granted to or held by
Montgomery.
d.
In reliance upon
the representations,
warranties and covenants of the
Company contained
in this Agreement, and subject to the terms and
conditions set forth
herein, Montgomery
hereby waives on a
one-time
basis only the
Existing Defaults
and further
agree to forbear
from
exercising its rights and remedies under the Transaction
Documents or
applicable law in respect of or arising out of the Existing
Defaults,
subject to the
conditions, amendments
and modifications contained
herein for the
period (the
"Forbearance Period")
commencing
on the
date hereof
and continuing for so long as the -------------------
following conditions
are met: (i) the Company strictly complies with
the terms of this
Agreement (including
the covenants of the
Company
set forth in Section 1.a. hereof), and (ii) there is no occurrence
or
existence of any event
of default, other than
the Existing
Default
under the Transaction Documents.
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