EXHIBIT 10.69
FIFTH PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
IMAGING DIAGNOSTIC SYSTEMS, INC.
AND
CHARLTON AVENUE LLC
Dated
March 21, 2006
THIS FIFTH PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the
21st day of March 2006 (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 and Regulation D,
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, for any Trading Day, the closing bid price of
the Common Stock on the Principal Market for such Trading Day.
"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.
"CLOSING DATE" shall mean, as applicable, an Interim Closing Date or a
Remainder Closing Date.
2
"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 of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FAST" shall have the meaning specified in Section 2.3.
"FLOOR PRICE" shall have the meaning specified in Section 2.1(c).
"INDEMNIFIED PARTY" shall have the meaning specified in Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).
3
"INITIAL REGISTRABLE SECURITIES" shall have the meaning specified in
the Registration Rights Agreement.
"INITIAL REGISTRATION STATEMENT" shall have the meaning specified in
the Registration Rights Agreement.
"INTERIM CLOSING DATE" shall mean, with respect to a Closing, the fifth
(5th) Trading Day following the Put Date related to a Closing provided all
conditions to a Closing have been satisfied on or before such Trading Day.
"INTERIM INVESTMENT AMOUNT" shall mean fifty percent (50%) of the
INVESTMENT AMOUNT with respect to each Put Notice.
"INTERIM MARKET PRICE" on any given Put shall mean the average of the
closing Bid Prices, other than Low Bid Prices for the first three (3) Trading
Days during the Valuation Period.
"INTERIM PURCHASE PRICE" shall mean, with respect to Interim Put
Shares, the Interim Market Price less the product of the Discount and the
Interim Market Price.
"INTERIM PUT SHARES" shall be the number of Put Shares deliverable on
an Interim Closing Date equal to the Interim Investment Amount divided by the
Interim Purchase Price.
"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, other than Low Bid Prices (not necessarily consecutive) for any
three (3) Trading Days during the ten (10) trading day period immediately
following the Put Date.
"LOW BID PRICE" shall have the same meaning specified in Section 2.1
(c).
"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, the lesser of
(a) Five Hundred Thousand Dollars ($500,000), or (b)Five Hundred (500%) percent
of the Weighted Average Volume for the twenty (20) Trading Days immediately
preceding the Put Date.
4
"MINIMUM COMMITMENT AMOUNT" shall mean One Million Dollars
($1,000,000).
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Fifty
Thousand Dollars ($50,000).
"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 Section 2.6.
"OLD BID PRICE" shall have the meaning specified in Section 2.6.
"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.
"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
Small Cap 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 Interim Put Shares, the
Interim Market Price less the product of the Discount and the Interim Market
Price, and with respect to Remainder Put Shares, the Remainder Market Price less
the product of the Discount and the Remainder 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 the Interim Put Shares and the Remainder Put
Shares.
"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
5
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-1 (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 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.
"REMAINDER CLOSING DATE" shall mean, with respect to a Closing, the
eleventh (11h) Trading Day following the Put Date related to a Closing, provided
all conditions to a Closing have been satisfied on or before such Trading Day.
"REMAINDER INVESTMENT AMOUNT" shall mean the Investment Amount less the
Interim Investment Amount.
"REMAINDER MARKET PRICE" on any given Put shall mean the average of the
lowest closing Bid Prices, other than Low Bid Prices (not necessarily
consecutive) for any three (3) Trading Days during the Valuation Period.
"REMAINDER PURCHASE PRICE" shall mean with respect to Remainder Put
Shares, the Remainder Market Price less the product of the Discount and the
Remainder Market Price.
"REMAINDER PUT SHARES" shall be the number of Put Shares deliverable on
a Remainder Closing Date equal to the Investment Amount divided by the Remainder
Purchase Price minus the Interim Put Shares.
"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.
6
"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 filed 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, 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).
"TRANSFER AGENT INSTRUCTIONS" shall mean the instructions for the
Transfer Agent attached hereto as Exhibit E.
"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:
(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;
7
(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.
"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.
(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. In the event that, during a Valuation Period, the Bid
Price on any Trading Day falls more than eighteen percent (18%) below the
closing trade price on the trading day immediately prior to the date of the
8
Company's Put Notice (a "Low Bid Price"), for each such Trading Day the parties
shall have no right and shall be under no obligation to purchase and sell one
tenth (1/10th) of the Investment Amount specified in the Put Notice, and the
Investment Amount shall accordingly be deemed reduced by such amount. In the
event that during a Valuation Period there exists a Low Bid Price for any three
(3) Trading Days--not necessarily consecutive--then the balance of each party's
right and obligation to purchase and sell the Investment Amount under such Put
Notice shall terminate on such third Trading Day ("Termination Day"), and the
Investment Amount shall be adjusted to include only one-tenth of the initial
Investment Amount for each Trading Day during the Valuation Period prior to the
Termination Day that the Bid Price equals or exceeds the Low Bid Price.
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.
Section 2.3 CLOSINGS. On or prior to each Interim Closing Date, or
Remainder Closing Date, for a Put, (a) the Company shall deliver to the Investor
one or more certificates representing the Interim Put Shares or Remainder Put
Shares, as applicable, to be purchased by Investor pursuant to Section 2.1
herein, registered in the name of Investor and (b) provided all conditions to
Closing have been satisfied by the Company, Investor shall deliver to the
Company the Interim Investment Amount, or Remainder Investment Amount, as
applicable, by wire transfer of immediately available funds within 24 hours
after each Interim Closing Date, or Remainder Closing Date, as applicable. 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 Investor's prime broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system, and provide proof
satisfactory to the Investor of such delivery. In addition, on or prior to such
Closing Date, each of the Company and Investor shall deliver 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.
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
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
9
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, or (b) 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 that were issued on the most
recent Closing Date.
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 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 amount specified in such Section bears a reasonable proportion and is 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.
10
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.
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 and
shall and has provided to the Company such financial and other information that
the Company has requested to demonstrate such capacity.
11
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 is duly qualified as a domestic 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 March 21, 2006, the authorized
capital stock of the Company consisted of 300,000,000 shares of Common Stock, of
which 228,819,129 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 16,053,654 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. Common stock, no par value, 300,000,000 shares
authorized, 228,819,129 shares issued and outstanding at March 21, 2006.
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 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 on file as of March
21, 2006. To the best of Company's knowledge, the Company has not provided to
12
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 an exemption from
registration pursuant to the Securities Act 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 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
13
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 NO MATERIAL ADVERSE CHANGE. Since December 31, 2005, no
event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents on file on the date hereof.
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 on file on the date hereof or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's businesses since December 31, 2005 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 December 31,
2005, 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 on file on the
date hereof.
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 be set
forth in the SEC Documents on file on the date hereof, there are no lawsuits or
14
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 on file on the date hereof, 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.
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.
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. Not later than March 21, 2006,
the Company shall have 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 calculated based upon a minimum Purchase Price of $.15 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, if applicable, 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
15
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 the Company.
Section 6.7 [INTENTIONALLY OMITTED]
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 [INTENTIONALLY OMITTED]
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time
16
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 (or shall
otherwise be exempt from the registration requirements of the Securities Act)
and any applicable state law.
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 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
17
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 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
18
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
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 material 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.
19
(i) [INTENTIONALLY OMITTED]
(j) FIVE PERCENT LIMITATION. Notwithstanding anything to the contrary
contained herein, if, on any Closing Date, the number of Put Shares then to be
purchased pursuant to a Put Notice by Investor would, when aggregated with all
other shares of Common Stock then held by Investor (including, for the purposes
of this Section 7.2(j), Common Stock issuable upon conversion, exercise or
exchange, as applicable, of Common Stock Equivalents then held by Investor),
cause Investor to beneficially own in excess of 4.999% of the total number of
issued and outstanding shares of Common Stock after giving effect to the Put
(the "Percentage Cap"), then the number of Put Shares shall be reduced to the
extent necessary for Investor's beneficial ownership of Common Stock, after
giving effect to the Put, not to exceed the Percentage Cap. For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. In the event
the number of Put Shares with respect to any Put are required to be reduced
pursuant to this Section 7.2(j), Investor shall provide, via facsimile, as soon
as possible on the Closing Date, and in no event later than 12:00 p.m. EST, a
notice to the Company setting forth the maximum number of shares issuable
pursuant to such Put which would not result in Investor's beneficial ownership
exceeding the Percentage Cap.
(k) 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.
(l) 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.
(m) 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), and
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.
20
(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.
(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. (a) Except as 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."
(b) As soon as practicable after the execution and delivery hereof, the
Company shall issue to the Transfer Agent the Transfer Agent Instructions. 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
21
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 (c) 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
22
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 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.
Xxxxxx & Xxxx LLP
0000 Xxxxx xx Xxxx Xxxx., Xxxxx 000
Xxxxx Xxxxxx, 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.
23
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.
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 this Article (an "INDEMNIFIED
PARTY") might seek indemnity under this Article 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 this Article 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 this
Article and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim.(i)If
24
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 this Article). 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 this Article 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 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 this Article
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 this Article 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 this
Article 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 this Article specifying the nature of and basis for such claim,
25
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 this Article 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.
(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.
Section 9.4 REIMBURSEMENT. If (i) any 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 stockholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Agreements, or if such Investor is
impleaded in any such action, proceeding or investigation by any Person, or (ii)
any 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 Agreements, or if such Investor is
impleaded in any such action, proceeding or investigation by any Person, then in
any such case, the Company will reimburse such 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 such Investor is a named party,
the Company will pay such Investor the charges, as reasonably determined by such
Investor, for the time of any officers or employees of such 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 paragraph
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 the
Investor who 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 the 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, the Investor and any such Affiliate and any such
Person. The Company also agrees that neither any Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Agreements except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the gross
negligence or willful misconduct of such Investor.
26
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 Florida
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 Florida 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. Neither this Agreement nor any rights of
Investor or the Company hereunder may be assigned by either party to any other
person.
Section 10.5 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the Company and Investor, and is not for the benefit of, nor may
any provision hereof be enforced by, any other person.
Section 10.6 TERMINATION. This Agreement shall terminate at the end of
the 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, IX and Sections 10.2, 10.3 and 10.4 shall survive the
termination of this Agreement.
Section 10.7 ENTIRE AGREEMENT. This Agreement together with Exhibit A,
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.
Section 10.8 FEES AND EXPENSES. Except as otherwise provided in this
Agreement or any of the Exhibits thereto, 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. 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.
27
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 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 10.15 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.
Section 10.16 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
28
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.
29
IN WITNESS WHEREOF, the parties hereto have caused this Fifth 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/ Xxxxxxx X. Xxxxxx
---------------------
Name: Xxxxxxx X Xxxxxx
Title: Chief Executive Officer
CHARLTON AVENUE LLC
By: /s/ Xxxxx X. Xxxx
-----------------
Name: Navigator management Ltd.
Title: Director
Signed by: Xxxxx X. Xxxx
30
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
31
EXHIBIT A [TO FIFTH PRIVATE EQUITY CREDIT AGREEMENT]
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of March 21,
2006, is made by and between IMAGING DIAGNOSTIC SYSTEMS, INC., a Florida
corporation ("Company"), and CHARLTON AVENUE LLC, a Cayman Islands LLC (the
"Investor").
RECITALS
WHEREAS, upon the terms and subject to the conditions of the Fifth
Private Equity Credit Agreement ("Purchase Agreement"), between the Investor and
the Company, the Company has agreed to issue and sell to the Investor up to
Fifteen Million dollars ($15,000,000) of the common stock of the Company
("Subscribed Shares"), no par value per share (the "Common Stock"), and
WHEREAS, to induce the Investor to execute and deliver the Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, "Securities Act"),
and applicable state securities laws with respect to the Subscribed Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for
disclosure in a Registration Statement, which shall be evidenced
by determinations in good faith by the Board of Directors of the
Company that disclosure of such information in the Registration
Statement would be detrimental to the business and affairs of the
Company, or (b) any material engagement or activity by the
Company which would, in the good faith determination of the Board
of Directors of the Company, be adversely affected by disclosure
in a Registration Statement at such time, which determination
shall be accompanied by a good faith determination by the Board
of Directors of the Company that the Registration Statement would
be materially misleading absent the inclusion of such
information.
(ii) "Subscription Date" shall have the same meaning as set forth in
the Purchase Agreement.
(iii) "Investor", has the meaning set forth in the preamble to this
Agreement.
(iv) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor
rule providing for offering securities on a delayed or continuous
basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(v) "Registrable Securities" shall have the same meaning as set forth
in the Purchase Agreement.
(vi) "Registration Statement" shall have the same meaning as set forth
in the Purchase Agreement.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than forty-five (45) business days after the Subscription Date, a
Registration Statement on Form S-1 ("Registration Statement"), or such other
appropriate Registration Statement, pursuant to Rule 457(o) of the Securities
Act, no less than (a) 112% of the Minimum Commitment Amount. Such Registration
Statement shall state that, in accordance with the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable to prevent dilution resulting from stock splits, or stock
dividends. If at any time the number of Subscribed Shares exceeds the aggregate
number of shares of Common Stock then registered, the Company shall, within ten
(10) business days after receipt of written notice from the Investor, file with
the SEC an additional Registration Statement on Form S-1 or any other applicable
registration statement, to register the Subscribed Shares that exceed the
aggregate number of shares of Common Stock already registered.
(b) Termination. If the Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
2
is not declared effective within one hundred and eighty (180) days from the
Subscription Date, then the commitment contained in the Common Stock Purchase
Agreement and in this Agreement (the "Commitment") shall, at the option of the
Investor, terminate and the Investor shall be entitled to the sums set forth in
Section 2.1(b) of the Private Equity Credit Agreement.
The Company acknowledges that its failure to have the Registration
Statement declared effective within one hundred eighty (180) days from the
Subscription Date (for any reason other than the requirement by the SEC of
modifications to the structure of the transactions contemplated hereby that are
unacceptable to the Company or the Investor) shall cause the Investor to suffer
damages in an amount that shall be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in the Private Equity Credit
Agreement a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement, the Purchase Agreement and the
Subscribed Shares.
3. Obligation of the Company. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within forty-five (45) days
of the Subscription Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a) above, and,
thereafter, use all diligent efforts to cause the Registration Statement
relating to the Registrable Securities to become effective the earlier of (a)
five (5) business days after notice from the Securities and Exchange Commission
that the Registration Statement may be declared effective, or (b) one hundred
eighty(180) days after the Subscription Date, and keep the Registration
Statement effective at all times until the earliest of (i) the date that is one
year after the completion of the last Closing Date under the Purchase Agreement,
(ii) the date when the Investor may sell all Registrable Securities under Rule
144 without volume limitations, or (iii) the date the Investor no longer owns
any of the Registrable Securities (collectively, the "Registration Period"),
which Registration Statement (including any amendments or supplements, thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, and to comply with the
3
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the expiration of the Registration Period.
(c) Permit a single firm of counsel designated by Investor to review
the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) Business Day) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects.
(d) Notify Investor and Investor's legal counsel identified to the
Company (which, until further notice, shall be deemed to be Xxxxxxx & Xxxxxx,
LLP, ATTN: Xxxxxx Xxxxxxx, Esq.; "Investor's Counsel") (and, in the case of
(i)(A) below, not less than one (1) Business Day prior to such filing) and (if
requested by any such person) confirm such notice in writing no later than one
(1) Business Day following the day (i): (A) when a prospectus or any prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the SEC notifies the Company whether there will be a
"review" of such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, written or oral summaries of such comments shall be
promptly furnished by the Company to Investor's Counsel); and (D) with respect
to the Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or the prospectus or for additional information; (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any proceedings for that purpose; (iv) if at any time any of the representations
or warranties of the Company contained in any agreement (including any
securities purchase agreement) contemplated hereby ceases to be true and correct
in all material respects; (v) of the receipt by the Company 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; and (vi) of
the occurrence of any event that to the knowledge of the Company makes any
statement made in the Registration Statement or the prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
the prospectus or other documents so that, in the case of the Registration
Statement or the prospectus, as the case may be, 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. In addition, the
Company shall furnish Investor's Counsel with copies of all intended written
responses to the comments contemplated in clause (C) of this Section not later
than one (1) Business Day in advance of the filing of such responses with the
SEC so that Investor shall have the opportunity to comment thereon.
4
(e) Furnish to Investor, (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and the
prospectus, and each amendment or supplement thereto, and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents, as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor;
(f) Use all diligent efforts to (i) register and/or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investor may reasonably
request and in which significant volumes of shares of Common Stock are traded,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualification in effect at all
times during the Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions: provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (A) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(f), (B) subject itself to general taxation in any such
jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Company or (E) make any change in its charter or by-laws or any
then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(g) As promptly as practicable after becoming aware of such event,
notify the Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes any untrue statement of a material fact
or omits to state a 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 ("Registration Default"), and uses all diligent
efforts to promptly prepare a supplement or amendment to the Registration
Statement or other appropriate filing with the SEC to correct such untrue
statement or omission, and any other necessary steps to cure the Registration
Default, and deliver a number of copies of such supplement or amendment to the
Investor as the Investor may reasonably request. Failure to cure the
Registration Default within ten (10) business days shall result in the Company
including liquidated damages of 2% of the cost of all common stock then held by
the investor for each10 day period or portion thereof, beginning on the date of
suspension.
(h) As promptly as practicable after becoming aware of such event,
notify the Investor (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any notice of effectiveness or any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
5
(i) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies Investor in writing of the existence of a Potential Material Event
("Blackout Notice"), Investor shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until Investor receives written notice from the Company
that such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that (a) the
Company may not so suspend the right to such holders of Registrable Securities
for more than two ten (10) day periods in the aggregate during any 12-month
period ("Blackout Period") with at least a ten (10) Business Day interval
between such periods, during the periods the Registration Statement is required
to be in effect, or (b) that if such Blackout Period exceeds the permitted ten
(10) day periods, the Company shall pay damages of 2% of the cost of all common
stock then held by the Investor for each ten (10) day period or portion thereof,
beginning on the date of the suspension.
(j) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("Nasdaq) "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the Nasdaq Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities; provided, however, that the Investor
acknowledges that the Company does not currently meet the requirements for
listing on a national securities exchange or the Nasdaq Small Cap Market
pursuant to (i) or (ii) and that nothing in this section shall be construed to
require the Company to pursue such qualification until such time as the Company
satisfies such requirements for a period of not less than forty-five (45) days:
(k) Provide a transfer agent for the Registrable Securities not later
than the Subscription Date of the Registration Statement;
(l) Cooperate with the Investor to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts as the case may
6
be, as the Investor may reasonably request and registration in such names as the
Investor may request; and, within five (5) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
the Investor) an appropriate instruction and opinion of such counsel, if so
required by the Company's transfer agent; and
(m) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. Obligations of the Investor. In connection with the registration of
the Registrable Securities, the Investor shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Investor that the Investor shall timely furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall timely execute such documents in connection
with such registration as the Company may reasonably request.
(b) The Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder; and
(c) The Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
3(h) above, the Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Investor receives the copies of the supplemented or amended
prospectus contemplated by Section 3(g) or 3(h) and, if so directed by the
Company, the Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. (a) All reasonable expenses incurred in
connection with Registrations, filings or qualifications pursuant to Section 3,
including, without limitation, all Registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. A fee for a single counsel for
Investor for the initial Registration Statement and for each Additional
Registration Statement covering the Registrable Securities shall be borne by the
Investor. (The investor is the same as the Investor)
7
(b) Except as otherwise provided for in Schedule 5(b) attached hereto,
the Company nor any of its subsidiaries has, as of the date hereof, and the
Company shall not on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to Investor in this Agreement or otherwise conflicts with the provisions
hereof. Except as otherwise provided for in Schedule 5(b), the Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any person. Except as otherwise provided for
in this Section 5, and without limiting the generality of the foregoing, without
the written consent of Investor, the Company shall not grant to any person the
right to request the Company to Register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of Investor set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement and the other
Transaction Documents.
6. Indemnification. After Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless, the Investor, the directors, if any, of such Investor, the officers,
if any, of such Investor, each person, if any, who controls the Investor within
the meaning of the Securities Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities or expenses (joint or
several) incurred (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the Subscription Date of such Registration Statement, or contained
in the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in the light of the circumstances under which the statements
therein were made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being
collectively referred to as "Violations"). The Company shall reimburse the
Investor, promptly as such expenses are incurred and are due and payable, for
any reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (i) apply to any Claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
8
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (ii) with respect to any preliminary prospectus, inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(b) hereof; (iii) be
available to the extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by the Company;
or (iv) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. The Investor will indemnify the Company, its
officers, directors and agents (including legal counsel) against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions set forth in
the previous sentence. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
or Indemnified Party.
(b) Promptly after receipt by an Indemnified Person under this Section
6 of notice of the commencement of any action (including any governmental
action), such Indemnified Person shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person, as
the case may be; provided, however, that an Indemnified Person shall have the
right to retain its own counsel with the reasonable fees and expenses to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by such counsel in such proceeding. In such event, the Company
shall pay for only one separate legal counsel for the Investor selected by the
Investor. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
9
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investor the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investor to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act;
(c) furnish to the Investor so long as the Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company
solely if unavailable by XXXXX, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration; and
(d) at the request of any Investor of Registrable Securities, give its
Transfer Agent irrevocable instructions (supported by an opinion of Company
counsel, if required or requested by the Transfer Agent) to the effect that,
upon the Transfer Agent's receipt from such Investor of:
(i) a certificate (a "Rule 144 Certificate") certifying (A)
that such Investor has held the shares of Registrable
Securities which the Investor proposes to sell (the
"Securities Being Sold") for a period of not less than (1)
year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii) an opinion of counsel acceptable to the Company (for
which purposes it is agreed that the initial Investor's
Counsel shall be deemed acceptable if such opinion is not
given by Company Counsel) that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to the
10
provisions of Rule 144, even in the absence of an effective
Registration Statement,
the Transfer Agent is to effect the transfer of the Securities Being
Sold and issue to the buyer(s) or transferee(s) thereof one or more stock
certificates representing the transferred Securities Being Sold without any
restrictive legend and without recording any restrictions on the transferability
of such shares on the Transfer Agent's books and records (except to the extent
any such legend or restriction results from facts other than the identity of the
Investor, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Investor). If the Transfer Agent requires any additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.
9. Miscellaneous.
(a) Registered Owners. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Rights Cumulative; Waivers. The rights of each of the parties under
this Agreement are cumulative. The rights of each of the parties hereunder shall
not be capable of being waived or varied other than by an express waiver or
variation in writing. Any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or any other such
right. Any defective or partial exercise of any of such rights shall not
preclude any other or further exercise of that or any other such right. No act
or course of conduct or negotiation on the part of any party shall in any way
preclude such party from exercising any such right or constitute a suspension or
any variation of any such right.
(c) Benefit; Successors Bound. This Agreement and the terms, covenants,
conditions, provisions, obligations, undertakings, rights, and benefits hereof,
shall be binding upon, and shall inure to the benefit of, the undersigned
parties and their heirs, executors, administrators, representatives, successors,
and permitted assigns.
(d) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof. There are no
promises, agreements, conditions, undertakings, understandings, warranties,
covenants or representations, oral or written, express or implied, between them
with respect to this Agreement or the matters described in this Agreement,
except as set forth in this Agreement and in the other documentation relating to
11
the transactions contemplated by this Agreement. Any such negotiations,
promises, or understandings shall not be used to interpret or constitute this
Agreement.
(e) [INTENTIONALLY OMITTED]
(f) Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investor. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon the Company and any subsequent Transferees.
(g) Severability. Each part of this Agreement is intended to be
severable. In the event that any provision of this Agreement is found by any
court or other authority of competent jurisdiction to be illegal or
unenforceable, such provision shall be severed or modified to the extent
necessary to render it enforceable and as so severed or modified, this Agreement
shall continue in full force and effect.
(h) Notices. Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at its executive office and (ii) if to the Investor, at the address set
forth under its name in the Purchase Agreement, with a copy to its designated
attorney, or at such other address as each such party furnishes by notice given
in accordance with this Section 9(a), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, five (5) business
days after deposit with the United States Postal Service.
(i) Governing Law. This Agreement shall be governed by the interpreted
in accordance with the laws of the State of Florida without reference to its
conflicts of laws rules or principles. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the State of Florida in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions.
(j) Consents. The person signing this Agreement on behalf of each party
hereby represents and warrants that he has the necessary power, consent and
authority to execute and deliver this Agreement on behalf of that party.
(k) Further Assurances. In addition to the instruments and documents to
be made, executed and delivered pursuant to this Agreement, the parties hereto
agree to make, execute and deliver or cause to be made, executed and delivered,
to the requesting party such other instruments and to take such other actions as
12
the requesting party may reasonably require to carry out the terms of this
Agreement and the transactions contemplated hereby.
(l) Section Headings. The Section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(m) Construction. Unless the context otherwise requires, when used
herein, the singular shall be deemed to include the plural, the plural shall be
deemed to include each of the singular, and pronouns of one or no gender shall
be deemed to include the equivalent pronoun of the other or no gender.
(n) Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
13
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
INVESTOR:
CHARLTON AVENUE LLC
By: /s/ Xxxxx X. Xxxx
-----------------
Name: Navigator Management Ltd.
Title: Director
Signed by: Xxxxx X. Xxxx
14
EXHIBIT B
PUT NOTICE
----------
TO: CHARLTON AVENUE LLC
We refer to the Fifth Private Equity Credit Agreement dated March 21,
2006 (the "Agreement") made between ourselves as the Company, and you as the
Investor. Expressions defined or to which a meaning is assigned in the Fifth
Private Equity Credit 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
the floor price for purposes of determining a Low Bid Price
pursuant to the formula set forth in Article II Section
2.1(c) is $_________ before discount; and
2. certify that, to the best of our knowledge, the conditions
stipulated in Section 7.2 of the Fifth Private Equity Credit
Agreement have been fulfilled and satisfied.
For and on behalf of IMAGING DIAGNOSTIC SYSTEMS, INC.
Date:______________
By:_____________________________________
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
===============================================================================
TO: IMAGING DIAGNOSTIC SYSTEMS, INC.
We refer to your notice dated __________________. In compliance with the
provisions of Section 2.1 (c) of the Agreement, the purchase price per share may
not be below the floor 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-1 (the "Registration Statement") under the
Securities Act of 1933, as amended. The Registration Statement relates to an
aggregate of 27,000,000 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 March 21, 2006, Fifth 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, Xxxxxxx 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 Fifth Private Equity Credit Agreement, dated March
21, 2006 by and between the Company and the 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 the 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: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
EXHIBIT E
TRANSFER AGENT INSTRUCTIONS
_________________, 2006
Ladies and Gentlemen:
Reference is made to the Fifth Private Equity Credit Agreement (the
"Agreement"), dated as of March 21, 2006, 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: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
