EXHIBIT 10.61
FOURTH PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
IMAGING DIAGNOSTIC SYSTEMS, INC.
AND
CHARLTON AVENUE LLC
Dated as of
January 9, 2004
THIS FOURTH PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 9th
day of January, 2004 (this "AGREEMENT"), by and between CHARLTON AVENUE LLC, a
limited liability company organized and existing under the laws of The Cayman
Islands ("INVESTOR"), and IMAGING DIAGNOSTIC SYSTEMS, INC., a corporation
organized and existing under the laws of the State of Florida (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to Fifteen
Million Dollars ($15,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933, Regulation D and
Regulation S, and the rules and regulations promulgated thereunder (the
"SECURITIES ACT"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS as used in this Agreement, the following
terms shall have the following meanings specified or indicated (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined)
"AGREEMENT" shall have the meaning specified in the preamble
hereof.
"BID PRICE" shall mean the closing bid price of the Common
Stock on the Principal Market.
"BLACKOUT NOTICE" shall have the meaning specified in the
Registration Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in
Section 2.6
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning specified in Section
9.3(a).
"CLOSING" shall mean one of the closings of a purchase and
sale of shares of Common Stock pursuant to Section 2.3.
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"CLOSING DATE" shall mean, with respect to a Closing, the
eleventh (11th) Day following the Put Date related to such Closing, or such
earlier date as the Company and Investor shall agree, provided all conditions to
such Closing have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the
Effective Date, and ending on the earlier of (i) the date on which Investor
shall have purchased Put Shares pursuant to this Agreement for an aggregate
Purchase Price of the Maximum Commitment Amount, (ii) the date this Agreement is
terminated pursuant to Section 2.5, or (iii) the date occurring twenty four (24)
months from the date of commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, no par
value per share, and any shares of any other class of common stock whether now
or hereafter authorized, having the right to participate in the distribution of
dividends (as and when declared) and assets (upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are
convertible into or exchangeable for Common Stock or any options or other rights
to subscribe for or purchase Common Stock or any such convertible or
exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to
this Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified
in Section 7.2. "DAMAGES" shall mean any loss, claim, damage,
liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of expert witnesses and investigation).
"DISCOUNT" shall mean seven (7%) percent.
"DISPUTE PERIOD" shall have the meaning specified in
Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of1934
and the rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"FLOOR PRICE" shall have the meaning specified in Section 2.1
"INDEMNIFIED PARTY" shall have the meaning specified in
Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in
Section 9.3(a).
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"INDEMNITY NOTICE" shall have the meaning specified in Section
9.3(b).
"INVESTMENT AMOUNT" shall mean the dollar amount (within the
range specified in Section 2.2) to be invested by Investor to purchase Put
Shares with respect to any Put Date as notified by the Company to Investor in
accordance with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble to
this Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of
the lowest Bid Prices (not necessarily consecutive) for any three (3) Trading
Days during the ten (10) trading day period immediately following the Put Date.
"MINIMUM COMMITMENT AMOUNT" shall mean One Million Dollars
($1,000,000).
"MAXIMUM COMMITMENT AMOUNT" shall mean Fifteen Million Dollars
($15,000,000).
"MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to enter into and
perform its obligations under any of (a) this Agreement and (b) the Registration
Rights Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, Two
Hundred Fifty (250%) percent of the Weighted Average Volume for the twenty (20)
trading days immediately preceding the Put Date.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put,
Sixty Thousand Dollars ($60,000).
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean The NASDAQ Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in
Section2.6.
"OLD BID PRICE" shall have the meaning specified in
Section2.6.
"OUTSTANDING" shall mean, with respect to the Common Stock, at
any date as of which the number of shares of Common Stock is to be determined,
all issued and outstanding shares of Common Stock, including all shares of
Common Stock issuable in respect of outstanding convertible securities, scrip or
any certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
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"PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the Over the Counter Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
"PURCHASE PRICE" shall mean, with respect to a Put, the Market
Price on the applicable Put Date (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this Agreement)
less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to
exercise its right to tender a Put Notice requiring Investor to purchase shares
of Common Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice, substantially in the
form of Exhibit B hereto, to Investor setting forth the Investment Amount with
respect to which the Company intends to require Investor to purchase shares of
Common Stock pursuant to the terms of this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b)
the Blackout Shares and (c) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (i) a Registration Statement has been declared effective by the SEC and
such Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
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which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by Investor of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the
recitals of this Agreement.
"REGULATION S" shall have the meaning specified in the
recitals of this Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in
Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or any
similar provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the
recitals of this Agreement.
"SECURITIES ACT" shall have the meaning specified in the
recitals of this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all
reports and other documents file by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the beginning of the Company's then most
recently completed fiscal year as of the time in question (provided that if the
date in question is within ninety days of the beginning of the Company's fiscal
year, the term shall include all documents filed since the beginning of the
second preceding fiscal year).
"SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by
the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in
Section 9.3(a).
"TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
"TRANSACTION DOCUMENTS" means the Private Equity Credit
Agreement, the Registration Rights Agreement, the Warrant, Closing Certificate,
and the Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common
Stock (and to any substitute or replacement transfer agent for the Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to a
Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company at
any time during a Valuation Period takes any of the following actions:
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(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any
other distribution of shares of Common Stock, except
for dividends paid with respect to the Preferred Stock;
(c) issues any options or other rights to subscribe for or
purchase shares of Common Stock and the price per share
for which shares of Common Stock may at any time
thereafter be issuable pursuant to such options or
other rights shall be less than the Bid Price in effect
immediately prior to such issuance;
(d) issues any securities convertible into or exchangeable
for shares of Common Stock and the consideration per
share for which shares of Common Stock may at any time
thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less
than the Bid Price in effect immediately prior to such
issuance;
(e) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (a) through (d),
at a price per share less, or for other consideration
lower, than the Bid Price in effect immediately prior
to such issuance, or without consideration;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a
dividend in liquidation or by way of return of capital
or other than as a dividend payable out of earnings or
surplus legally available for dividends under
applicable law or any distribution to such holders made
in respect of the sale of all or substantially all of
the Company's assets (other than under the
circumstances provided for in the foregoing subsections
(a) through (e); or
(g) takes any action affecting the number of Outstanding
Common Stock, other than an action described in any of
the foregoing subsections (a) through (f) hereof,
inclusive, which in the opinion of the Company's Board
of Directors, determined in good faith, would have a
materially adverse effect upon the rights of Investor
at the time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days immediately
following the date on which the applicable Put Notice is deemed to be delivered
and during which the Purchase Price of the Common Stock is valued; provided,
however, that if a Valuation Event occurs during any Valuation Period, a new
Valuation Period shall begin on the Trading Day immediately after the occurrence
of such Valuation Event and end on the tenth (10th) Trading Day thereafter.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the Weighted Volume for the
relevant days.
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"WEIGHTED VOLUME" shall mean the product of (a) the Closing Bid Price times (b)
the volume on the Principal Market.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII), on any Put Date the Company may
exercise a Put by the delivery of a Put Notice. The number of Put Shares that
Investor shall receive pursuant to such Put shall be determined by dividing the
Investment Amount specified in the Put Notice by the Purchase Price with respect
to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in accordance with Section
2.2(a), deliver to Investor during the Commitment Period, Put Notices with an
aggregate Investment Amount at least equal to the Minimum Commitment Amount. If
the Company for any reason fails to issue and deliver such Put Shares during the
Commitment Period, on the first Trading Day after the expiration of the
Commitment Period, the Company shall wire to Investor a sum in immediately
available funds equal to the product of (i) the Minimum Commitment Amount minus
the aggregate Investment Amounts of the Put Notices delivered to Investor
hereunder, and (ii) the Discount.
(c) FLOOR PRICE. The Company may, at its option, specify in each such Put Notice
a Floor Price. In the event that during a Valuation Period, the Bid Price on a
Trading Day is below the Floor Price, the Company shall be under no obligation
to sell, and the Investor shall be under no obligation to purchase, one tenth of
the Put Amount for each such Trading Day and the Put Amount shall be adjusted
accordingly, unless the Company confirms in writing by the close of business on
the following Trading Day its desire to sell the full Put Amount. In the event
that, during a Valuation Period, the Bid Price on any three Trading Days -- not
necessarily consecutive -- is below the Floor Price, the parties' obligations to
buy and sell the Put Amount shall terminate on the last of such Trading Days,
unless the Company confirms in writing by the close of business on the following
Trading Day its desire to sell the full Put Amount by waiving the floor price;
provided, however, that in the event that prior to such termination the parties
have consummated a partial settlement(s) of the Put Amount, the termination
shall not affect such settlement(s).
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company may
deliver a Put Notice to Investor, subject to the conditions set forth in Section
7.2; provided, however, the Investment Amount for each Put as designated by the
Company in the applicable Put Notice shall be neither less than the Minimum Put
Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on
(i) the Trading Day it is received by facsimile or otherwise by Investor if such
notice is received on or prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 noon New York time on a Trading Day or at anytime on a day which is
not a Trading Day.
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Section 2.3 CLOSINGS. On or prior to each Closing Date for a Put, (a) the
Company shall deliver to Escrow Agent one or more certificates, at Investor's
option, representing the Put Shares to be purchased by Investor pursuant to
Section 2.1 herein, registered in the name of Investor and (b) Investor shall
deliver to the Escrow Agent the Investment Amount specified in the Put Notice by
wire transfer of immediately available funds to an account designated by the
Escrow Agent on or before the Closing Date. In lieu of delivering physical
certificates representing the Common Stock issuable in accordance with clause
(a) of this Section 2.3, and provided that the Transfer Agent then is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of Investor, the Company shall use its
commercially reasonable efforts to cause the Transfer Agent to electronically
transmit, prior to the Closing Date, the Put Shares by crediting the account of
the holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system, and provide proof satisfactory to the Escrow Agent
of such delivery. In addition, on or prior to such Closing Date, each of the
Company and Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. On the Closing Date and provided all
conditions to Closing have been satisfied by the Company, the Escrow agent shall
wire transfer to the Company, the Investment Amount, less any applicable fees
and expenses.
Section 2.4 [INTENTIONALLY OMITTED]
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The obligation of Investor
pursuant to this Agreement to purchase shares of Common Stock shall, at
Investor's option, terminate permanently (including with respect to a Closing
Date that has not yet occurred) in the event that (a) there shall occur any stop
order or suspension of the effectiveness of any Registration Statement for an
aggregate of thirty (30)Trading Days during the Commitment Period, for any
reason other than deferrals or suspension during a Blackout Period in accordance
with the Registration Rights Agreement, as a result of corporate developments
subsequent to the Subscription Date that would require such Registration
Statement to be amended to reflect such event in order to maintain its
compliance with the disclosure requirements of the Securities Act, (b) as
provided in Section 2 (b) of the Registration Rights Agreement or (c) the
Company shall at any time fail to comply with the requirements of Section 6.3,
6.4, or 6.6 and such failure shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within fifteen (15) Trading
Days following any Closing Date, the Company gives a Blackout Notice to Investor
of a Blackout Period in accordance with the Registration Rights Agreement, and
(b) the Bid Price on the Trading Day immediately preceding such Blackout Period
("OLD BID PRICE") is greater than the Bid Price on the first Trading Day
following such Blackout Period that Investor may sell its Registrable Securities
pursuant to an effective Registration Statement ("NEW BID PRICE"), then the
Company shall issue to Investor the number of additional shares of Registrable
Securities (the "BLACKOUT SHARES") equal to the difference between (i) the
product of the number of Put Shares held by Investor immediately prior to the
Blackout Period that were issued on the most recent Closing Date(the "REMAINING
PUT SHARES") multiplied by the Old Bid Price, divided by the New Bid Price, and
(ii) the Remaining Put Shares.
Section 2.7 [INTENTIONALLY LEFT BLANK]
Section 2.8 LIQUIDATED DAMAGES. Each of the Company and Investor acknowledge and
agree that the requirement to issue Blackout Shares under Section 2.6 shall give
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rise to liquidated damages and not penalties. Each of the Company and Investor
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with the failure by the Company to make Puts with aggregate Purchase
Prices totaling at least the Minimum Commitment Amount or in connection with a
Blackout Period under the Registration Rights Agreement, and (c) each of the
Company and Investor are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its own account
and Investor has no present arrangement (whether or not legally binding) at any
time to sell the Common Stock to or through any person or entity; provided,
however, Investor reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power and authority to
enter into and perform its obligations under this Agreement and the transactions
contemplated hereby in accordance with its terms; (b) the execution and delivery
of this Agreement and the Registration Rights Agreement, and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized
by all necessary action and no further consent or authorization of Investor or
its partners is required; and (c) this Agreement has been duly authorized and
validly executed and delivered by Investor and is a valid and binding agreement
of Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited liability company
duly organized, validly existing and in good standing under the laws of the
Cayman Islands, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
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Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this Agreement
and any other document or instrument contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof, will not (a) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, (b)
violate any provision of any indenture, instrument or agreement to which
Investor is a party or is subject, or by which Investor or any of its assets is
bound, or conflict with or constitute a material default thereunder, (c) result
in the creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party, or (d) require the approval of any
third-party (that has not been obtained) pursuant to any material contract,
instrument, agreement, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that has been requested by Investor. Investor has
reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the financial capacity
and the necessary capital to perform its obligations hereunder.
Section 3.10 (a) OFFSHORE TRANSACTION.
(i) Investor is not a U.S. person as that term is defined
under Regulation S of the Rules and Regulations of the
Securities Exchange Act.
(ii) Investor is outside the United States as of the date of
the execution and delivery of this Agreement.
(iii) Investor is purchasing the Put Shares for its own
account and not on behalf of any U.S. person, and has
not pre-arranged any sale with purchaser in the United
States.
(iv) Investor represents and warrants and hereby agrees that
all offers and sales of the Common Stock prior to the
expiration of a period commencing on the date of the
transaction and ending after the Distribution
Compliance Period shall only be made in compliance with
the safe harbor contained in Regulation S, pursuant to
registration of securities under the Securities Act of
1933 or pursuant to an exemption from registration, and
all offers and sales after the expiration of the
Distribution Compliance Period shall be made only
pursuant to such registration or to such exemption from
registration.
(v) Investor understands that in the view of the SEC the
statutory basis for the exemption claimed for this
transaction would not be present if the offering of
Securities, although in technical compliance with
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Regulation S, is part of a plan or scheme to evade the
registration provisions of the 1933 Act. Investor is
acquiring the Securities for investment purposes and
has no present intention to sell the Shares in the
United States or to a U.S. Person or for the account or
benefit of a U.S. Person either now or after the
expiration of the Distribution Compliance Period.
(vi) Investor is not an underwriter of, or dealer in, the
Securities, and Investor is not participating, pursuant
to a contractual agreement, in the distribution of
Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that, except as disclosed in the
SEC Documents:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Florida, and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Company
does not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and the
Registration Rights Agreement and to issue the Put Shares and the Blackout
Shares, if any; (b) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (c) each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 4.3 CAPITALIZATION. As of January 8, 2004, the authorized capital stock
of the Company consisted of 200,000,000 shares of Common Stock, of which
168,260,764 shares were issued and outstanding, and 2,000,000 shares of
Preferred stock, none of which are issued and outstanding. Except for (a)
options to purchase approximately 9,217,232 shares of Common Stock with
exercises prices ranging between $ .11and $ 2.77 per share; (b) all outstanding
warrants expired on November 2, 2003 as set forth in Schedule 4.3, there were no
options, warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act and is in full compliance with all
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reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing or quotation of the Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date of this Agreement, the Principal Market is the OTC Bulletin Board.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available to
Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). To the best of
Company's knowledge, the Company has not provided to Investor any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. To the best of
Company's knowledge, the sale and issuance of the Put Shares and the Blackout
Shares, if any, in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued by the Company to Investor pursuant to Section 4(2), Regulation
D and/or any applicable state law. When issued and paid for as herein provided,
the Put Shares, and the Blackout Shares, if any, shall be duly and validly
issued, fully paid, and nonassessable. Neither the sales of the Put Shares or
the Blackout Shares, if any, pursuant to, nor the Company's performance of its
obligations under, this Agreement or the Registration Rights Agreement shall (a)
result in the creation or imposition of any liens, charges, claims or other
encumbrances upon the Put Shares or the Blackout Shares, if any, or any of the
assets of the Company, or (b) entitle the holders of Outstanding Common Stock to
preemptive or other rights to subscribe to or acquire the Common Stock or other
securities of the Company. The Put Shares and the Blackout Shares, if any, shall
not subject Investor to personal liability by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares or the Blackout Shares, if
any, or (b) made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of the
Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made available to
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and in effect on the date hereof (the "CERTIFICATE"), and the
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Company's By-Laws, as amended and in effect on the date hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put Shares
and the Blackout Shares, if any, do not and will not (a) result in a violation
of the Certificate or By-Laws or (b) conflict with, or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party, or (c) result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations)applicable to the
Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided, however, that
for purposes of the Company's representations and warranties as to violations of
foreign law, rule or regulation referenced in clause (c), such representations
and warranties are made only to the best of the Company's knowledge insofar as
the execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby are or may
be affected by the status of Investor under or pursuant to any such foreign law,
rule or regulation. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Common Stock in accordance with the
terms hereof (other than any SEC, NASD or state securities filings that may be
required to be made by the Company subsequent to any Closing, any registration
statement that may be filed pursuant hereto, and any shareholder approval
required by the rules applicable to companies whose common stock trades on the
Over The Counter Bulletin Board); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of Investor herein.
Section 4.10 N Section 4.10 NO MATERIAL ADVERSE CHANGE. Since July 1, 2003, no
event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since July 1,
2003 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since July 1, 2003, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
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Section 4.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may beset forth in the
SEC Documents, there are no lawsuits or proceedings pending or to the best
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares or the Blackout Shares, if any, in
connection with the transactions contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not in possession
of, nor has the Company or its agents disclosed to Investor, any material
non-public information that (a) if disclosed, would reasonably be expected to
have a materially adverse effect on the price of the Common Stock or(b)
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 4.17.
a. OFFSHORE TRANSACTION. The Company has not offered these securities to any
person in the United States or to any U.S. person as that term is defined in
Regulation S.
b. NO DIRECTED SELLING EFFORTS. In regard to this transaction, the Company has
not conducted any "direct selling efforts" as that term is defined in Rule 902
of Regulation S nor has Company conducted any general solicitation relating to
the offer and the sale of the within securities to persons resident within the
United States or elsewhere.
c. FILINGS. The Company undertakes and agrees pursuant to the sale of its
securities under Regulation S to make all necessary filings in connection with
the sale of its securities as required by the laws and regulations of all
appropriate jurisdictions.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with respect to
shares of the Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and the rules and regulations of
the NASD and the Principal Market on which the Common stock is listed.
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Section 5.2 TRADING IN SECURITIES. The Company specifically acknowledges that,
except to the extent specifically provided herein or in any of the other
Transaction Agreements (but limited in each instance to the extent so
specified), the Lender retains the right (but is not otherwise obligated) to
buy, sell, engage in hedging transactions or otherwise trade in the securities
of the Company, including, but not necessarily limited to, the Securities, at
any time before, contemporaneous with or after the execution of this Agreement
or from time to time and in any manner whatsoever permitted by applicable
federal and state securities laws.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all
respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Put Shares and the Blackout
Shares, if any; such amount of shares of Common Stock to be reserved shall be
1,500,000 for the Put Shares under the terms and conditions of this Agreement
and a good faith estimate by the Company in consultation with Investor of the
number of Blackout Shares, if any, that will need to be issued. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall maintain the listing of
the Common Stock on a Principal Market, and will cause the Put Shares and the
Blackout Shares, if any, to be listed on the Principal Market. The Company
further shall, if the Company applies to have the Common Stock traded on any
other Principal Market, include in such application the Put Shares and the
Blackout Shares, if any, and shall take such other action as is necessary or
desirable in the reasonable opinion of Investor to cause the Common Stock to be
listed on such other Principal Market as promptly as possible. The Company shall
use its commercially reasonable efforts to continue the listing and trading of
the Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all commercially
reasonable steps to cause the Common Stock to continue to be registered under
Section 12(g) or 12(b) of the Exchange Act, will use its commercially reasonable
efforts to comply in all material respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put Shares and the Blackout
Shares, if any, shall be free of legends, except as provided for in Article
VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
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the Company.
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to Investor,
promptly after the originals thereof are submitted to the SEC for filing, copies
of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities: (a) receipt of
any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or related
prospectus; (b) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(c) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days after the
commencement of each calendar quarter occurring subsequent to the commencement
of the Commitment Period, the Company undertakes to notify Investor as to its
reasonable expectations as to the dollar amount it intends to raise during such
calendar quarter, if any, through the issuance of Put Notices. Such notification
shall constitute only the Company's good faith estimate with respect to such
calendar quarter and shall in no way obligate the Company to raise such amount
during such calendar quarter or otherwise limit its ability to deliver Put
Notices during such calendar quarter. The failure by the Company to comply with
this provision can be cured by the Company's notifying Investor at any time as
to its reasonable expectations with respect to the current calendar quarter.
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to Investor such shares
of Common Stock and/or securities as Investor is entitled to receive pursuant to
this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The sale of the Put
Shares and the issuance of the Blackout Shares, if any, shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state law.
17
Section 6.12 REIMBURSEMENT. If (i) Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
Section 6.13 DILUTION. The number of shares of Common Stock issuable as Put
Shares may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Commitment Period. The Company's executive officers and directors have studied
and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Put Shares is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
Section 6.14 USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Common Stock) for internal
working capital purposes, and, unless specifically consented to in advance in
each instance by the Investor, the Company shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person or for the repayment of any outstanding
loan by the Company to any other party.
Section 6.15 CERTAIN AGREEMENTS. (a) (i) The Company covenants and agrees that
it will not, without the prior written consent of the Investor, enter into any
subsequent or further offer or sale of Common Stock or Common Stock Equivalents
(collectively, "New Common Stock") with any third party pursuant to a
transaction which in any manner permits the sale of the New Common Stock on any
date which is thirty (30) days prior or subsequent to any Additional Closing
Date.
(ii) The provisions of subparagraph 6.15(i) will not apply to (w) Common Stock
issued pursuant to an exemption from registration under the Securities Act of
18
1933; (x) an underwritten public offering of shares of Common Stock or Preferred
Stock; (y) an offering of convertible Preferred Stock at market or above; or (z)
the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition or the exchange
of the capital stock for assets, stock or other joint venture interests.
(iii) In the event the Company breaches the provisions of this Section , the
Discount (as defined in shall be amended to be equal to (x)110% of the Discount
set forth herein and the Investor may terminate its obligations under this
Agreement and demand such amounts as may be owing under Section 2.1.
(b) The Company covenants and agrees that it will not, without the prior written
consent of the Investor, enter into any subsequent or further equity credit line
agreement (however denominated) with any third party during the Commitment
Period.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell the
Put Shares to Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such Closing as though
made at each such time, except for changes which have not had a Material Adverse
Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by Investor at or
prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT
NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of the
Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As set forth in the
Registration Rights Agreement, the Company shall have filed with the SEC the
Initial Registration Statement with respect to the resale of the Initial
Registrable Securities by Investor and such Registration Statement shall have
been declared effective by the SEC prior to the first Put Date. For the purposes
of any Put Notice with respect to the Registrable Securities other than the
Initial Registrable Securities, the Company shall have filed with the SEC a
19
Registration Statement with respect to the resale of such Registrable Securities
by Investor which shall have been declared effective by the SEC prior to the Put
Date therefore.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the Registration Rights
Agreement, a Registration Statement shall have previously become effective for
the resale by Investor of the Registrable Securities subject to such Put Notice
and such Registration Statement shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor Investor shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
such Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and Investor is reasonably satisfied that the SEC no longer
is considering or intends to take such action),and (ii) no other suspension of
the use or withdrawal of the effectiveness of such Registration Statement or
related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or adopted by any
court or governmental authority of competent jurisdiction that prohibits or
directly and materially adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a Material Adverse
Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the
Common Stock shall not have been suspended by the SEC, the Principal Market or
the NASD and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market.
(h) LEGAL OPINION. The Company shall have caused to be delivered to Investor,
within five (5) Trading Days of the effective date of the Initial Registration
Statement and each subsequent Registration Statement, an opinion of the
Company's legal counsel in the form of Exhibit C hereto, addressed to Investor.
(i) [INTENTIONALLY OMITTED]
(j) FIVE PERCENT LIMITATION. On each Closing Date, the number of Put Shares then
to be purchased by Investor shall not exceed the number of such shares that,
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when aggregated with all other shares of Registrable Securities then owned by
Investor beneficially or deemed beneficially owned by Investor, would result in
Investor owning no more than 4.99% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 7.2(j), in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether Investor, when aggregating all purchases of Common Stock made pursuant
to this Agreement and Blackout Shares, if any, would own more than 4.99% of the
Common Stock following such Closing Date.
(k) [INTENTIONALLY OMITTED]
(l) NO KNOWLEDGE. The Company shall have no knowledge of any event more likely
than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on which such Notice
is deemed delivered).
(m) [INTENTIONALLY OMITTED]
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(o) NO VALUATION EVENT. No Valuation Event shall have occurred since the Put
Date.
(p) OTHER. On each Condition Satisfaction Date, Investor shall have received and
been reasonably satisfied with such other certificates and documents as shall
have been reasonably requested by Investor in order for Investor to confirm the
Company's satisfaction of the conditions set forth in this Section 7.2.,
including, without limitation, a certificate in substantially the form and
substance of Exhibit D hereto, executed by an executive officer of the Company
and to the effect that all the conditions to such Closing shall have been
satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall make available for inspection and review by Investor,
advisors to and representatives of Investor (who may or may not be affiliated
with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by Investor or any such representative,
advisor or Underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration. This is subject to SEC
Regulation FD.
(b) Each of the Company, its officers, directors, employees and agents shall in
no event disclose non-public information to Investor, advisors to or
representatives of Investor.
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(c) Nothing herein shall require the Company to disclose non-public information
to Investor or its advisors or representatives, and the Company represents that
it does not disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts; provided, however, that notwithstanding anything herein to the
contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance(without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than Investor (without the written consent of Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms and
conditions of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, any Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in such Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"LEGEND"):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933 (the "Securities Act") or qualified under applicable
state securities laws. These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except pursuant to (I) an
effective registration statement and qualification in effect with respect
thereto under the Securities Act and under any applicable state securities law,
(ii) to the extent applicable, Rule 144 under the Securities Act, or (iii) an
opinion of counsel reasonably acceptable to the Company that such registration
and qualification is not required under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent Instructions in substantially the form of
Exhibit E hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or Investor; provided that (a) a Registration
Statement shall then be effective, (b) Investor confirms to the Transfer Agent
and the Company that it has or intends to sell such Common Stock to a third
party which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to the
Transfer Agent to add the Legend in the event the Common Stock is not sold, and
22
(c) if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other than
the one specified in Section 8.1 has been or shall be placed on the share
certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 COVER. If the Company fails for any reason to deliver the Put Shares
on such Closing Date and the holder of the Put Shares (a "Investor") purchases,
in an open market transaction or otherwise, shares of Common Stock (the
"Covering Shares") in order to make delivery in satisfaction of a sale of Common
Stock by such Investor (the "Sold Shares"), which delivery such Investor
anticipated to make using the Put Shares (a "Buy-In"), then the Company shall
pay to such Investor, in addition to all other amounts contemplated in other
provisions of the Transaction Documents, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) such Investor's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by such Investor
from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment
Amount to such Investor in immediately available funds immediately upon demand
by such Investor. By way of illustration and not in limitation of the foregoing,
if such Investor purchases Covering Shares having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock that it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount that the Company will be required to pay to such Investor will
be $1,000.
Section 8.4 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall affect in
any way Investor's obligations under any agreement to comply with all applicable
securities laws upon resale of the Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (a) personally served,(b) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(c) delivered by reputable air courier service with charges prepaid, or (d)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
23
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company: Imaging Diagnostic Systems, Inc.
0000 XX 00xx Xxxxx
Xxxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxx X. Xxxxxxxx, Esq.
Mitrani, Rynor, Xxxxxxx & Macaulay P.A.
2200 Suntrust Int'l Center
Xxx Xxxxxxxxx Xxxxx Xxxxxx
Xxxxx, XX 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
If to Investor: Charlton Avenue LLC
x/x Xxxxx Xxxxxxxx (Xxxxxx) Limited
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
British West Indies
with a copy (which shall not constitute notice) to: Xxxxxxx & Xxxxxx, LLP
Xxxxx 0000
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION. The Company agrees to indemnify and hold harmless
Investor and its officers, directors, employees, and agents, and each Person or
entity, if any, who controls Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the Controlling
Persons (as defined in the Registration Rights Agreement) from and against any
Damages, joint or several, and any action in respect thereof to which Investor,
its partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
officer's, director's, employee's, agent's or Controlling Person's negligence,
recklessness or bad faith in performing its obligations under this Agreement.
24
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person claiming
indemnification under any provision of Section 9.2 (an "INDEMNIFIED PARTY")
might seek indemnity under Section 9.2 is asserted against or sought to be
collected from such Indemnified Party by a person other than a party hereto or
an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of Section 9.2 against any person (the "INDEMNIFYING PARTY"), together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim (a "CLAIM NOTICE") with
reasonable promptness to the Indemnifying Party. If the Indemnified Party fails
to provide the Claim Notice with reasonable promptness after the Indemnified
Party receives notice of such Third Party Claim, the Indemnifying Party shall
not be obligated to indemnify the Indemnified Party with respect to such Third
Party Claim to the extent that the Indemnifying Party's ability to defend has
been prejudiced by such failure of the Indemnified Party. The Indemnifying Party
shall notify the Indemnified Party as soon as practicable within the period
ending thirty (30) calendar days following receipt by the Indemnifying Party of
either a Claim Notice or an Indemnity Notice (as defined below) (the "DISPUTE
PERIOD") whether the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party under Section 9.2 and whether the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.(i)If the Indemnifying Party
notifies the Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Indemnified Party with respect to the Third Party
Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have
the right to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings shall be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or will be
settled at the discretion of the Indemnifying Party (but only with the consent
of the Indemnified Party in the case of any settlement that provides for any
relief other than the payment of monetary damages or that provides for the
payment of monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have
full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may takeover
the control of the defense or settlement of a Third Party Claim at any time if
it irrevocably waives its right to indemnity under Section 9.2 with respect to
such Third Party Claim. (ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
25
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified
Party(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in
clause(iii) below, the Indemnifying Party will not be required to bear the costs
and expenses of the Indemnified Party's defense pursuant to this clause (ii) or
of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation. (iii) If the Indemnifying
Party notifies the Indemnified Party that it does not dispute its liability or
the amount of its liability to the Indemnified Party with respect to the Third
Party Claim under Section 9.2 or fails to notify the Indemnified Party within
the Dispute Period whether the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with respect to such Third
Party Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under Section 9.2
against the Indemnifying Party that does not involve a Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for indemnity
under Section 9.2 specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "INDEMNITY NOTICE") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
26
(c) The indemnity agreements contained herein shall be in addition to (i) any
cause of action or similar rights of the Indemnified Party against the
Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party
may be subject to.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of law. Each of the Company and Investor
hereby submit to the exclusive jurisdiction of the United States Federal and
state courts located in Delaware with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
Section 10.2 JURY TRIAL WAIVER. The Company and the Investor hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents.
Section 10.3 SPECIFIC ENFORCEMENT. The Company and the Investor acknowledge and
agree that irreparable damage would occur to the Investor in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Investor shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 10.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by Investor hereunder with respect to the Common
Stock held by such person, and (b) Investor's interest in this Agreement may be
assigned at any time, in whole but not in part, to any affiliate of Investor.
Section 10.5 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
Section 10.6 TERMINATION; PRIOR AGREEMENTS TERMINATED. This Agreement shall
terminate at the end of Commitment Period or as otherwise provided herein
(unless extended by the agreement of the Company and Investor); provided,
however, that the provisions of Article VI, VIII, and Sections 9.2,10.2, 10.3
and 10.4 shall survive the termination of this Agreement. Effective on the
execution hereof, the parties mutually agree that all prior private equity
agreements between the parties, except for the Third Private Equity Credit
Agreement dated as of October 29, 2002 (the "Third Agreement") are hereby
terminated, and that except with respect to any outstanding Put Notices, the
obligations of the parties under the Third Agreement shall terminate upon the
later of (a) effectiveness of a registration statement filed pursuant to this
Agreement or (b) issuance of all Common Stock subject to the currently effective
registration statement under the Third Agreement.
27
Section 10.7 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the
instruments referenced herein contain the entire understanding of the Company
and Investor with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
Section 10.8 FEES AND EXPENSES. Each of the Company and Investor agrees to pay
its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder, except that the Company shall pay
Xxxxxxx & Prager, LLP a fee of $5,000 for this transaction. In addition, the
Company shall pay all reasonable fees and expenses incurred by the Investor in
connection with any amendments, modifications or waivers of this Agreement or
the Registration Rights Agreement or incurred in connection with the enforcement
of this Agreement and the Registration Rights Agreement, including, without
limitation, all reasonable attorneys fees and expenses. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 10.9 NO BROKERS. Each of the Company and Investor represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company, agrees to indemnify the Investor against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the Company and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 10.11 SURVIVAL; SEVERABILITY. The representations, warranties, covenants
and agreements of the Company hereto shall survive each Closing hereunder for a
period of one (1) year thereafter. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.12 FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.13 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 10.14 EQUITABLE RELIEF. The Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under this
28
Agreement, any remedy at law may prove to be inadequate relief to Investor. The
Company therefore agrees that Investor shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages . Section 10.15 TITLE AND SUBTITLES. The titles and subtitles
used in this Agreement are used for the convenience of reference and are not to
be considered in construing or interpreting this Agreement.
Section 10.16 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg L.P. or any
successor thereto. The written mutual consent of Investor and the Company shall
be required to employ any other reporting entity.
Section 10.17 PUBLICITY. The Company and Investor shall consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Investor without
the prior written consent of such Investor, except to the extent required by
law. Investor acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the Securities Act or the Exchange Act. Investor further
agrees that the status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation with its counsel.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxx
-------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
CHARLTON AVENUE LLC
By: /s/ Xxxxx Xxxx
--------------
Name: Xxxxx Xxxx
Title: Director
Navigator Management Ltd.
30
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Schedule 4.3
31
EXHIBIT A
Registration Rights Agreement
Filed as Exhibit 10.62
EXHIBIT B
PUT NOTICE
TO: CHARLTON AVENUE LLC
We refer to the Private Equity Credit Agreement dated January 9, 2004
(the "Agreement") made between ourselves as the Company, and you as the
Investor. Expressions defined or to which a meaning is assigned in the Private
Equity Agreement shall, unless the context otherwise requires, bear the same
meaning when used herein.
We hereby:
1. give you notice that we require you to purchase $______________
(the "Investment Amount") in Put Shares and we set a market price
before discount of no less than $___________; and
2. certify that, to the best of our knowledge, the conditions
stipulated in Section 7.2 of the Private Equity Credit Agreement have
been fulfilled and satisfied.
For and on behalf of IMAGING DIAGNOSTIC SYSTEMS, INC.
Date:______________
By:_____________________________________
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
================================================================================
TO: IMAGING DIAGNOSTIC SYSTEMS, INC.
We refer to your notice dated __________________. In compliance with the
provisions of Section 7.2 (j) of the Agreement, the purchase price per share may
not be below the set market price before discount as stated in this Put Notice.
CHARLTON AVENUE LLC
Date:_____________ By:______________________________
EXHIBIT C
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
WITHIN FIVE TRADING DAYS FOLLOWING EFFECTIVE DATE OF
REGISTRATION STATEMENT
Ladies and Gentlemen:
We have acted as counsel to Imaging Diagnostic Systems, Inc., a Florida
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of the above-captioned
Registration Statement on Form S-2 (the "Registration Statement") under the
Securities Act of 1933, as amended. The Registration Statement relates to an
aggregate of 5,000,000 shares of the Company's common stock, no par value, which
are issuable upon exercise of the Company's put option (the "Option") pursuant
to its January 9, 2004, Fourth Private Equity Credit Agreement (the "Private
Equity Agreement") with Charlton Avenue, LLC (the "Shares").
We have examined original, photostatic or certified copies of such
records of the Company, including the Articles of Incorporation, as amended, the
Private Equity Agreement, the Bylaws and minutes, the Registration Statement and
other documents as we have deemed relevant and necessary for purposes of the
opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents and instruments
submitted to us as originals and the conformity to authentic originals of all
documents and instruments submitted to us as certified or photostatic copies. As
to various questions of fact material to our opinions we have relied upon
representations made to us by various officers and directors of the Company and
we have not conducted or received independent verification of those facts.
Based on the foregoing, we are of the opinion that (i) the Shares have
been duly and validly authorized and (ii) when the Option is exercised and the
Shares are issued against payment in accordance with the terms of the Option,
the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Securities Act or the Commission's
rules and regulations thereunder.
Sincerely,
EXHIBIT D
CLOSING CERTIFICATE
The undersigned, Xxxxx X. Xxxxxx, hereby certifies, with respect to the
shares of Common Stock of Imaging Diagnostic Systems, Inc. (the "Company")
issuable in connection with the Purchase Notice, dated (the "Notice"), delivered
pursuant to Article 2 of the Private Equity Line of Credit Agreement, dated
January 9, 2004 by and among the Company and certain Investor (the "Agreement"),
as follows:
1. The undersigned is the duly elected Chief Executive Officer of the
Company.
2. The representations and warranties of the Company set forth in the
Agreement are true and correct in all material respects as though made on and as
of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The amount of Common Stock remaining registered in an effective
registration statement on behalf of each Investor as of this date is set forth
on the schedule hereto.
The undersigned has executed this Certificate this ____ day of ____________.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By:_____________________________________
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
EXHIBIT E
TRANSFER AGENT INSTRUCTIONS
_________________, 2004
Ladies and Gentlemen:
Reference is made to the Private Equity Line Agreement (the
"Agreement"), dated as of January 9, 2004, between Charlton Avenue LLC (the
"Investor") and Imaging Diagnostic Systems, Inc. (the "Company"). Pursuant to
the Agreement, and subject to the terms and conditions set forth in the
Agreement, the Investor has agreed to purchase from the Company and the Company
has agreed to sell to the Investor from time to time during the term of the
Agreement, shares of Common Stock of the Company, no par value per share (the
"Common Stock"). As a condition to the effectiveness of the Agreement, the
Company has agreed to issue to you, as the transfer agent for the Common Stock
(the "Transfer Agent"), these instructions relating to the Common Stock to be
issued to the Investor (or a permitted assignee) pursuant to the Agreement. All
terms used herein and not otherwise defined shall have the meaning set forth in
the Agreement. The shares of Common Stock issuable to the Investor pursuant to
the Agreement are referred to herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent of the Company at such time) to
issue shares of Common Stock upon a request from the Company for the issuance of
certificates.
So long as you have previously received an opinion of the Company's
outside counsel substantially in the form of Exhibit C attached hereto (which
the Company shall direct be delivered to you by such outside counsel upon the
effectiveness of the registration statement covering Underlying Shares) stating
that a registration statement covering resales of Underlying Shares has been
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and that Underlying Shares may be resold
without any restrictive legend (the "Opinion"), certificates representing
Underlying Shares shall not bear a legend provided that:
(a) in connection with such event, the Investor (or its permitted
assignee) shall confirm in writing to the Transfer Agent that (i) the Investor
confirms to the transfer agent that it has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common Stock in
a bona fide transaction to a transferee that is not an affiliate of the Company;
and (ii) the Investor confirms to the transfer agent that the Investor has
complied, or will comply with the prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act.
Provided, however, that if you have not previously received a copy of the
Opinion, then the certificates for Underlying Shares shall bear the following
legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for Underlying Shares in
the event a registration statement covering Underlying Shares is subject to
amendment for events then current.
If the Company then is participating in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer ("FAST") program, upon request of Investor,
the Transfer Agent shall use its commercially reasonable efforts to
electronically transmit, prior to the Closing Date, the Put Shares by crediting
the account of the holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system, and provide proof satisfactory to the Investor
or the Escrow Agent of such delivery
Please be advised that the Investors have relied upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, the Investor
is a third party beneficiary to these instructions.
Should you have any questions concerning this matter, please contact me
at (000) 000-0000.
Very truly yours,
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: ______________________________
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
EXHIBIT F
SCHEDULE 4.3
Imaging Diagnostic Systems, Inc.
Warrants Outstanding f/y 6-30-03
Date of Term Warrant Warrant Date of
Warrant of Warrant Series Holder Shares Price Expiration
------- ---------- ------ ------ ------ ----- ----------
11/2/98 5 Year Series H (A) Austost 25,000 $ 1.000 11/2/03
11/2/98 5 Year Series H (A) Balmore 25,000 $ 1.000 11/2/03
11/2/98 5 Year Series H (A) Settondown 25,000 $ 1.000 11/2/03
11/2/98 5 Year Series H (B) Austost 25,000 $ 1.500 11/2/03
11/2/98 5 Year Series H (B) Balmore 25,000 $ 1.500 11/2/03
Total 125,000
