AMENDED PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
IMAGING DIAGNOSTIC SYSTEMS, INC.
AND
CHARLTON AVENUE LLC
Dated as of
November 30, 2000
THIS AMENDED PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the
30th day of November, 2000 (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")
and replaces and supersedes the PRIVATE EQUITY CREDIT AGREEMENT dated as of
August 17, 2000 between the INVESTOR and 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 Twenty-Five
Million Dollars ($25,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933, Regulation D and
Regulation S, and the rules and regulations promulgated thereunder (the
"SECURITIES ACT"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS as used in this Agreement, the following
terms shall have the following meanings specified or indicated (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined)
"ADDITIONAL CLOSING DATE" shall mean the date of the closing
of the purchase and sale of the Additional Common Stock, as the case may be.
"AGREEMENT" shall have the meaning specified in the preamble
hereof.
"BID PRICE" shall mean the closing bid price of the Common
Stock on the Principal Market.
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"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, with respect to a Closing, the
eleventh (11th) Day following the Put Date related to such Closing, or such
earlier date as the Company and Investor shall agree, provided all conditions to
such Closing have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the
Effective Date, and ending on the earlier of (i) the date on which Investor
shall have purchased Put Shares pursuant to this Agreement for an aggregate
Purchase Price of the Maximum Commitment Amount, (ii) the date this Agreement is
terminated pursuant to Section 2.5, or (iii) the date occurring twelve (12)
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).
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"DISCOUNT" shall mean nine percent (9%).
"DISPUTE PERIOD" shall have the meaning specified in Section
9.3(a).
"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of1934
and the rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"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).
"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.
"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
Bid Prices (not necessarily consecutive) for any three (3) Trading Days during
the ten (10) trading day period immediately following the Put Date.
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"MINIMUM COMMITMENT AMOUNT" shall mean Ten Million Dollars
($10,000,000).
"MAXIMUM COMMITMENT AMOUNT" shall mean Twenty-Five Million
Dollars ($25,000,000).
"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) One Million Dollars ($1,000,000), or (b)One Hundred Fifty (150%)
percent of the Weighted Average Volume for the fifteen (15) trading days
immediately preceding each of the Put Date and the Closing Date.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Two
Hundred Fifty Thousand Dollars ($250,000.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in
Section2.6.
"OLD BID PRICE" shall have the meaning specified in
Section2.6.
"OUTSTANDING" shall mean, with respect to the Common Stock, at
any date as of which the number of shares of Common Stock is to be determined,
all issued and outstanding shares of Common Stock, including all shares of
Common Stock issuable in respect of outstanding convertible securities, scrip or
any certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
"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.
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"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the Over the Counter Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
"PURCHASE PRICE" shall mean, with respect to a Put, the Market
Price on the applicable Put Date (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this Agreement)
less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to
exercise its right to tender a Put Notice requiring Investor to purchase shares
of Common Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice, substantially in the
form of Exhibit B hereto, to Investor setting forth the Investment Amount with
respect to which the Company intends to require Investor to purchase shares of
Common Stock pursuant to the terms of this Agreement. "PUT SHARES" shall mean
all shares of Common Stock issued or issuable pursuant to a Put that has been
exercised or may be exercised in accordance with the terms and conditions of
this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b)
the Blackout Shares and (c) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (i) a Registration Statement has been declared effective by the SEC and
such Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
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Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by Investor of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the
recitals of this Agreement.
"REGULATION S" shall have the meaning specified in the
recitals of this Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in
Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or any
similar provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the
recitals of this Agreement.
"SECURITIES ACT" shall have the meaning specified in the
recitals of this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all
reports and other documents file by the Company pursuant to Section 13(a) or
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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 CUSHION" shall mean a minimum of fifteen (15) Trading
Days between Put Dates.
"TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
"TRANSACTION DOCUMENTS" means the Private Equity Credit
Agreement, the Registration Rights Agreement, the Warrant, Closing Certificate,
and the Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common
Stock (and to any substitute or replacement transfer agent for the Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to a
Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company at
any time during a Valuation Period takes any of the following actions:
(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
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exchangeable for shares of Common Stock and
the consideration per share for which shares
of Common Stock may at any time thereafter
be issuable pursuant to the terms of such
convertible or exchangeable securities shall
be less than the Bid Price in effect
immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than
as provided in the foregoing subsections (a)
through (d), at a price per share less, or
for other consideration lower, than the Bid
Price in effect immediately prior to such
issuance, or without consideration;
(f) makes a distribution of its assets or
evidences of indebtedness to the holders of
Common Stock as a dividend in liquidation or
by way of return of capital or other than as
a dividend payable out of earnings or
surplus legally available for dividends
under applicable law or any distribution to
such holders made in respect of the sale of
all or substantially all of the Company's
assets (other than under the circumstances
provided for in the foregoing subsections
(a) through (e); or
(g) takes any action affecting the number of
Outstanding Common Stock, other than an
action described in any of the foregoing
subsections (a) through (f) hereof,
inclusive, which in the opinion of the
Company's Board of Directors, determined in
good faith, would have a materially adverse
effect upon the rights of Investor at the
time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading
Days immediately following the date on which the applicable Put Notice is deemed
to be delivered and during which the Purchase Price of the Common Stock is
valued; provided, however, that if a Valuation Event occurs during any Valuation
Period, a new Valuation Period shall begin on the Trading Day immediately after
the occurrence of such Valuation Event and end on the tenth (10th) Trading Day
thereafter.
`WEIGHTED AVERAGE VOLUME" shall mean the average of the
Weighted Volume for the relevant days.
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"WEIGHTED VOLUME" shall mean the product of (a) the Closing
Bid Price times (b) the volume on the Principal Market.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII), on any Put Date
the Company may exercise a Put by the delivery of a Put Notice. The number of
Put Shares that Investor shall receive pursuant to such Put shall be determined
by dividing the Investment Amount specified in the Put Notice by the Purchase
Price with respect to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in accordance
with Section 2.2(a), deliver to Investor during the Commitment Period, Put
Notices with an aggregate Investment Amount at least equal to the Minimum
Commitment Amount. If the Company for any reason fails to issue and deliver such
Put Shares during the Commitment Period, on the first Trading Day after the
expiration of the Commitment Period, the Company shall wire to Investor a sum in
immediately available funds equal to the product of (i) the Minimum Commitment
Amount minus the aggregate Investment Amounts of the Put Notices delivered to
Investor hereunder, and (ii) the Discount.
(c) MAXIMUM AMOUNT OF PUTS. If required by the Principal
Market, until the Company obtains the requisite approval of its shareholders in
accordance with the corporate laws of the State of Florida and the applicable
rules of the Principal Market, no more than 21,796,203 shares of Common Stock
(representing approximately 19.9% of the Outstanding Common Stock on the date
hereof) may be issued and sold to Investor pursuant to this Agreement.
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
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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 Closing Date for a Put, (a)
the Company shall deliver to Escrow Agent one or more certificates, at
Investor's option, representing the Put Shares to be purchased by Investor
pursuant to Section 2.1 herein, registered in the name of Investor and (b)
Investor shall deliver to the Escrow Agent the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to an account
designated by the Escrow Agent on or before the Closing Date. In lieu of
delivering physical certificates representing the Common Stock issuable in
accordance with clause (a) of this Section 2.3, and provided that the Transfer
Agent then is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of Investor, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit, prior to the Closing Date, the Put Shares by
crediting the account of the holder's prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system, and provide proof satisfactory to
the Escrow Agent of such delivery. In addition, on or prior to such Closing
Date, each of the Company and Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. On the Closing Date and provided
all conditions to Closing have been satisfied by the Company, the Escrow agent
shall wire transfer to the Company, the Investment Amount, less any applicable
fees and expenses.
Section 2.4 [INTENTIONALLY OMITTED]
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The obligation of
Investor pursuant to this Agreement to purchase shares of Common Stock shall
terminate permanently (including with respect to a Closing Date that has not yet
occurred) in the event that (a) there shall occur any stop order or suspension
of the effectiveness of any Registration Statement for an aggregate of thirty
(30)Trading Days during the Commitment Period, for any reason other than
deferrals or suspension during a Blackout Period in accordance with the
Registration Rights Agreement, as a result of corporate developments subsequent
to the Subscription Date that would require such Registration Statement to be
amended to reflect such event in order to maintain its compliance with the
10
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, 6.5 or 6.6 and
such failure shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within fifteen (15)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("OLD BID PRICE") is greater than the Bid Price on the first
Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("NEW BID
PRICE"), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the "BLACKOUT SHARES") equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing
Date(the "REMAINING PUT SHARES") multiplied by the Old Bid Price, divided by the
New Bid Price, and (ii) the Remaining Put Shares.
Section 2.7 [INTENTIONALLY LEFT BLANK]
Section 2.8 LIQUIDATED DAMAGES. Each of the Company and Investor acknowledge
and agree that the requirement to issue Blackout Shares under Section 2.6 shall
give rise to liquidated damages and not penalties. Each of the Company and
Investor further acknowledge that (a) the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, (b) the amounts
specified in such Sections bear a reasonable proportion and are not plainly or
grossly disproportionate to the probable loss likely to be incurred by Investor
in connection with the failure by the Company to make Puts with aggregate
Purchase Prices totaling at least the Minimum Commitment Amount or in connection
with a Blackout Period under the Registration Rights Agreement, and (c) each of
the Company and Investor are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its
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own account and Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, Investor reserves the right to dispose of the Common
Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Common Stock. Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement and the
transactions contemplated hereby in accordance with its terms; (b) the execution
and delivery of this Agreement and the Registration Rights Agreement, and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action and no further consent or authorization
of Investor or its partners is required; and (c) this Agreement has been duly
authorized and validly executed and delivered by Investor and is a valid and
binding agreement of Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited liability
company duly organized, validly existing and in good standing under the laws of
the Cayman Islands, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
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Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, and compliance
with the requirements hereof and thereof, will not (a) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investor, (b) violate any provision of any indenture, instrument or agreement to
which Investor is a party or is subject, or by which Investor or any of its
assets is bound, or conflict with or constitute a material default thereunder,
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party, or (d) require the approval
of any third-party (that has not been obtained) pursuant to any material
contract, instrument, agreement, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that has been requested by Investor. Investor has
reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the financial
capacity and the necessary capital to perform its obligations hereunder and
shall and has provided to the Company such financial and other information that
the Company has requested to demonstrate such capacity.
Section 3.10 (a) OFFSHORE TRANSACTION.
(i) Investor is not a U.S. person as that term
is defined under Regulation S of the Rules
and Regulations of the Securities Exchange
Act.
(ii) Investor is outside the United States as of
the date of the execution and delivery of
this Agreement.
(iii) Investor is purchasing the Put Shares for
its own account and not on behalf of any
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U.S. person, and has not pre-arranged any
sale with purchaser in the United States.
(iv) Investor represents and warrants and hereby
agrees that all offers and sales of the
Common Stock prior to the expiration of a
period commencing on the date of the
transaction and ending after the
Distribution Compliance Period shall only be
made in compliance with the safe harbor
contained in Regulation S, pursuant to
registration of securities under the
Securities Act of 1933 or pursuant to an
exemption from registration, and all offers
and sales after the expiration of the
Distribution Compliance Period shall be made
only pursuant to such registration or to
such exemption from registration.
(v) Investor understands that in the view of the
SEC the statutory basis for the exemption
claimed for this transaction would not be
present if the offering of Securities,
although in technical compliance with
Regulation S, is part of a plan or scheme to
evade the registration provisions of the
1933 Act. Investor is acquiring the
Securities for investment purposes and has
no present intention to sell the Shares in
the United States or to a U.S. Person or for
the account or benefit of a U.S. Person
either now or after the expiration of the
Distribution Compliance Period.
(vi) Investor is not an underwriter of, or dealer
in, the Securities, and Investor is not
participating, pursuant to a contractual
agreement, in the distribution of Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that, except as
disclosed in the SEC Documents:
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Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Florida, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company does not own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to issue the Put Shares and
the Blackout Shares, if any; (b) the execution and delivery of this Agreement
and the Registration Rights Agreement by the Company and the consummation by it
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (c) each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 4.3 CAPITALIZATION. As of November 30, 2000, the authorized
capital stock of the Company consisted of 150,000,000 shares of Common Stock, of
which 109,528,666 shares were issued and outstanding, and 2,000,000 shares of
Preferred stock, of which 500 shares designated as Series K Convertible
Preferred were issued and outstanding. Except for (a) options to purchase
approximately 7,925,708 shares of Common Stock with exercises prices ranging
between $.35 and $.65 per share; (b) warrants to purchase 393,125 shares of
Common Stock with an exercise price ranging between $.50 to $1.63 per share as
set forth in Schedule 4.3, and (c) 400 shares of Series K Convertible Preferred
Stock, 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
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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 [Nasdaq
National Market]. The Company meets the registration requirements for filing of
Form S-3.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available
to Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). To the best of
Company's knowledge, the Company has not provided to Investor any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. To the best
of Company's knowledge, the sale and issuance of the Put Shares and the Blackout
Shares, if any, in accordance with the terms and on the bases of the
16
representations and warranties set forth in this Agreement, may and shall be
properly issued by the Company to Investor pursuant to Section 4(2), Regulation
D and/or any applicable state law. When issued and paid for as herein provided,
the Put Shares, and the Blackout Shares, if any, shall be duly and validly
issued, fully paid, and nonassessable. Neither the sales of the Put Shares or
the Blackout Shares, if any, pursuant to, nor the Company's performance of its
obligations under, this Agreement or the Registration Rights Agreement shall (a)
result in the creation or imposition of any liens, charges, claims or other
encumbrances upon the Put Shares or the Blackout Shares, if any, or any of the
assets of the Company, or (b) entitle the holders of Outstanding Common Stock to
preemptive or other rights to subscribe to or acquire the Common Stock or other
securities of the Company. The Put Shares and the Blackout Shares, if any, shall
not subject Investor to personal liability by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares or the Blackout Shares, if
any, or (b) made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of the
Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to Investor true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the "CERTIFICATE"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares and the Blackout Shares, if any, do not and will not (a) result
in a violation of the Certificate or By-Laws or (b) conflict with, or constitute
a material default (or an event that with notice or lapse of time or both would
become a material default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (c) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations)applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided,
however, that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (c), such
17
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 May 19, 2000, no
event, except:
On May 1, 2000 the Company filed a civil lawsuit for defamation against DOE 1
a/k/a DEIGHTON and DOE 2 a/k/a docpatel in the Circuit Court of the 17th
Judicial Circuit in and for Broward County, Florida, Case no. CACE 00-006881
(04). A notice of final judgment against defendant ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ a/k/a
"docpatel" was ordered by the ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in and for the Circuit
Court of the 17th Judicial Circuit, Broward County, Florida on July 12, 2000.
The lawsuit against a/k/a Deighton is still pending.
18
On June 16, 2000 the Company filed a civil lawsuit for breach of contract and
covenant not to compete and intellectual property disclosure against ▇▇▇▇▇ ▇.
▇▇▇▇ (a former employee) and ART Advanced Research Technologies Inc. (his
current employer) in the Superior Court of the Province of Quebec, District of
Montreal, Case no. ▇▇▇-▇▇-▇▇▇▇▇▇-▇▇▇.
On August 25, 1999, we were served with a civil lawsuit by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ with regard to certain employment matters which we believe to be
without merit. The suit was resolved to the parties' mutual satisfaction and
dismissed by stipulation. The terms of the resolution are confidential.
has occurred that would have a Material Adverse Effect on the Company, except as
disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since March 1,
1999 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 November
2000, 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.
Section 4.13 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may beset
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
19
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Put Shares or the Blackout Shares, if
any, in connection with the transactions contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to Investor, any
material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the Common Stock
or(b) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.17.
a. OFFSHORE TRANSACTION. The Company has not offered these
securities to any person in the United States or to any U.S. person as that term
is defined in Regulation S.
b. NO DIRECTED SELLING EFFORTS. In regard to this transaction,
the Company has not conducted any "direct selling efforts" as that term is
defined in Rule 902 of Regulation S nor has Company conducted any general
solicitation relating to the offer and the sale of the within securities to
persons resident within the United States or elsewhere.
c. FILINGS. The Company undertakes and agrees pursuant to the
sale of its securities under Regulation S to make all necessary filings in
connection with the sale of its securities as required by the laws and
regulations of all appropriate jurisdictions.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with
respect to shares of the Common Stock will be in compliance with all applicable
20
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. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares and the
Blackout Shares, if any; such amount of shares of Common Stock to be reserved
shall be calculated based upon a minimum Purchase Price of $.93(50% of Current
Price) for the Put Shares under the terms and conditions of this Agreement and a
good faith estimate by the Company in consultation with Investor of the number
of Blackout Shares, if any, that will need to be issued. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall maintain the
listing of the Common Stock on a Principal Market, and will cause the Put Shares
and the Blackout Shares, if any, to be listed on the Principal Market. The
Company further shall, if the Company applies to have the Common Stock traded on
any other Principal Market, include in such application the Put Shares and the
Blackout Shares, if any, and shall take such other action as is necessary or
desirable in the reasonable opinion of Investor to cause the Common Stock to be
listed on such other Principal Market as promptly as possible. The Company shall
use its commercially reasonable efforts to continue the listing and trading of
the Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all
commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
21
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 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to
Investor, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO MAKE A PUT. The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (a)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
22
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten(10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify Investor
as to its reasonable expectations as to the dollar amount it intends to raise
during such calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying Investor at
any time as to its reasonable expectations with respect to the current calendar
quarter.
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to Investor
such shares of Common Stock and/or securities as Investor is entitled to receive
pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The sale of
the Put Shares and the issuance of the Blackout Shares, if any, shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state law.
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)
23
Investor, other than by reason of its gross negligence or willful misconduct or
by reason of its trading of the Common Stock in a manner that is illegal under
the federal securities laws, becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
Section 6.13 DILUTION. The number of shares of Common Stock issuable as
Put Shares may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines during the period between the Effective Date and the end
of the Commitment Period. The Company's executive officers and directors have
studied and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Put Shares is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
Section 6.14 USE OF PROCEEDS. The Company will use the proceeds received
24
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Common Stock) for internal
working capital purposes, and, unless specifically consented to in advance in
each instance by the Investor, the Company shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person or for the repayment of any outstanding
loan by the Company to any other party except the Series K Convertible Preferred
Stock offering.
Section 6.15 CERTAIN AGREEMENTS. (i) The Company covenants and agrees
that it will not, without the prior written consent of the Investor, enter into
any subsequent or further offer or sale of Common Stock or Common Stock
Equivalents (collectively, "New Common Stock") with any third party pursuant to
a transaction which in any manner permits the sale of the New Common Stock on
any date which is thirty (30) days prior or subsequent to any Additional Closing
Date.
(ii) The provisions of subparagraph 6.15(i) will not apply to
(w) Common Stock issued pursuant to an exemption from registration under the
Securities Act of 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.
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.
25
(a) ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time, except for changes which have not
had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER
A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of
the Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As
set forth in the Registration Rights Agreement, the Company shall have filed
with the SEC the Initial Registration Statement with respect to the resale of
the Initial Registrable Securities by Investor and such Registration Statement
shall have been declared effective by the SEC prior to the first Put Date. For
the purposes of any Put Notice with respect to the Registrable Securities other
than the Initial Registrable Securities, the Company shall have filed with the
SEC a 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
26
satisfied that the SEC no longer is considering or intends to take such
action),and (ii) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made at
each such time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits or directly and materially adversely affects any of
the transactions contemplated by this Agreement, and no proceeding shall have
been commenced that may have the effect of prohibiting or materially adversely
affecting any of the transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
The trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market.
(h) LEGAL OPINION. The Company shall have caused to be
delivered to Investor, within five (5) Trading Days of the effective date of the
Initial Registration Statement and each subsequent Registration Statement, an
27
opinion of the Company's legal counsel in the form of Exhibit C hereto,
addressed to Investor.
(i) [INTENTIONALLY OMITTED]
(j) TEN PERCENT LIMITATION. On each Closing Date, the number
of Put Shares then to be purchased by Investor shall not exceed the number of
such shares that, when aggregated with all other shares of Registrable
Securities then owned by Investor beneficially or deemed beneficially owned by
Investor, would result in Investor owning no more than [9.9%] of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated with such Closing
Date is given, the amount of Common Stock outstanding on such Closing Date shall
govern for purposes of determining whether Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and Blackout Shares,
if any, would own more than 9.9% of the Common Stock following such Closing
Date.
(k) MINIMUM BID PRICE AND WEIGHTED AVERAGE VOLUME. The average
of the Bid Prices and the Weighted Average Volume for the fifteen (15) Trading
Days immediately preceding each of the Put Notice and the Closing Date, shall
have equaled or exceeded $.50 and $100,000 respectively (as adjusted for stock
splits, stock dividends, reverse stock splits, and similar events).
(l) NO KNOWLEDGE. The Company shall have no knowledge of any
event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed
since the immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(o) NO VALUATION EVENT. No Valuation Event shall have occurred
since the Put Date.
28
(p) OTHER. On each Condition Satisfaction Date, Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by Investor in order for
Investor to confirm the Company's satisfaction of the conditions set forth in
this Section 7.2., including, without limitation, a certificate in substantially
the form and substance of Exhibit D hereto, executed by an executive officer of
the Company and to the effect that all the conditions to such Closing shall have
been satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.
(a) The Company shall make available for inspection and review
by Investor, advisors to and representatives of Investor (who may or may not be
affiliated with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by Investor or any such representative,
advisor or Underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration. This is subject to SEC
Rule FD.
(b) Each of the Company, its officers, directors, employees
and agents shall in no event disclose non-public information to Investor,
advisors to or representatives of Investor.
(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
29
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in a
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 7.3 shall be construed
to mean that such persons or entities other than Investor (without the written
consent of Investor prior to disclosure of such information) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms and conditions of this Agreement and nothing herein shall prevent
any such persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, any Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in such Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
(the "LEGEND"):
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Securities
Act") or qualified under applicable state securities laws.
These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except
pursuant to (I) an effective registration statement and
qualification in effect with respect thereto under the
Securities Act and under any applicable state securities law,
(ii) to the extent applicable, Rule 144 under the Securities
Act, or (iii) an opinion of counsel reasonably acceptable to
the Company that such registration and qualification is not
required under applicable federal and state securities laws."
30
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent Instructions in substantially the form of
Exhibit E hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or Investor; provided that (a) a Registration
Statement shall then be effective, (b) Investor confirms to the Transfer Agent
and the Company that it has or intends to sell such Common Stock to a third
party which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to the
Transfer Agent to add the Legend in the event the Common Stock is not sold, and
(c) if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 COVER. If the Company fails for any reason to deliver the
Put Shares on such Closing Date and the holder of the Put Shares (a "Investor")
purchases, in an open market transaction or otherwise, shares of Common Stock
(the "Covering Shares") in order to make delivery in satisfaction of a sale of
Common Stock by such Investor (the "Sold Shares"), which delivery such Investor
anticipated to make using the Put Shares (a "Buy-In"), then the Company shall
pay to such Investor, in addition to all other amounts contemplated in other
provisions of the Transaction Documents, and not in lieu thereof, the Buy-In
31
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.
Section 8.5 OFFSHORE TRANSACTIONS. Subject to the completeness and
accuracy of the Buyer's representations and warranties herein, upon request of
an investor who is a non-U.S. Person, and following the expiration of any
applicable Distribution Compliance Period (as those terms are defined in
Regulation S), the Company, shall, at its expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates without restrictive legend or stop
orders in the name of Investor (or its nominee (being a non-U.S. Person) or such
non-U.S. Persons as may be designated by Investor. Nothing in this Section,
however, shall affect in any way Investor's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (a) personally
served,(b) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (c) delivered by reputable air courier service with
charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice given in accordance herewith. Any
32
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.
▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Mitrani, Rynor, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ &
Zorrilla, P.A.
2200 Suntrust Int'l Center
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to Investor:
Charlton Avenue LLC
▇/▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (▇▇▇▇▇▇) Limited
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
British West Indies
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
33
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION.
The Company agrees to indemnify and hold harmless Investor and
its officers, directors, employees, and agents, and each Person or entity, if
any, who controls Investor within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
officer's, director's, employee's, agent's or Controlling Person's negligence,
recklessness or bad faith in performing its obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.2 (an
"INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than a
party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of Section 9.2 against any person (the
"INDEMNIFYING PARTY"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
34
Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.(i)If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant to this Section 9.3(a),
then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
clause (i), and except as provided in the preceding sentence, the Indemnified
35
Party shall bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may takeover the control of
the defense or settlement of a Third Party Claim at any time if it irrevocably
waives its right to indemnity under Section 9.2 with respect to such Third Party
Claim. (ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the Third
Party Claim, or if the Indemnifying Party fails to give any notice whatsoever
within the Dispute Period, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party(with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause(iii) below, the Indemnifying
Party will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
clause (ii), and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation. (iii) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its liability or the amount of its
liability to the Indemnified Party with respect to the Third Party Claim under
Section 9.2 or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes its liability or the amount of its
36
liability to the Indemnified Party with respect to such Third Party Claim, the
amount of Damages specified in the Claim Notice shall be conclusively deemed a
liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim
under Section 9.2 against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver a written notification of a
claim for indemnity under Section 9.2 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "INDEMNITY
NOTICE") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
(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.
37
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of Delaware
without regard to the principles of conflicts of law. Each of the Company and
Investor hereby submit to the exclusive jurisdiction of the United States
Federal and state courts located in Delaware with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
Section 10.2 JURY TRIAL WAIVER. The Company and the Investor hereby
waive a trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other in respect of any matter arising
out of or in connection with the Transaction Documents.
Section 10.3 SPECIFIC ENFORCEMENT. The Company and the Investor
acknowledge and agree that irreparable damage would occur to the Investor in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Investor shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity.
Section 10.4 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by Investor hereunder with respect to the Common
Stock held by such person, and (b) Investor's interest in this Agreement may be
assigned at any time, in whole but not in part, to any affiliate of Investor.
Section 10.5 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
Section 10.6 TERMINATION. This Agreement shall terminate twelve(12)
38
months after the commencement of the Commitment Period (unless extended by the
agreement of the Company and Investor); provided, however, that the provisions
of Article VI, VIII, and Sections [10.3 and 10.4] shall survive the termination
of this Agreement.
Section 10.7 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and
the instruments referenced herein contain the entire understanding of the
Company and Investor with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
Section 10.8 FEES AND EXPENSES. Each of the Company and Investor agrees
to pay its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder, except that Spinneret Financial
Systems, Inc. shall pay ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP the fee of $35,000 for this
transaction and the Bridge Financing Documents, and $2,000 at each subsequent
Closing. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Investor in connection with any amendments, modifications or
waivers of this Agreement or the Registration Rights Agreement or incurred in
connection with the enforcement of this Agreement and the Registration Rights
Agreement, including, without limitation, all reasonable attorneys fees and
expenses. The Company shall pay all stamp or other similar taxes and duties
levied in connection with issuance of the Shares pursuant hereto.
Section 10.9 NO BROKERS. Each of the Company and Investor represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other party,
except that the company agrees to pay the consultant, Spinneret Financial
Systems, Inc., a fee in the amount of 5% of the new money funded excluding the
first $4,950,000. The Company on the one hand, and Investor, on the other hand,
agree to indemnify the other 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
39
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 10.11 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the Company hereto shall survive each Closing
hereunder for a period of one (1) year thereafter. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.
Section 10.12 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.13 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 10.14 EQUITABLE RELIEF. The Company recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to Investor. The Company therefore agrees that Investor shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
Section 10.15 TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
Section 10.16 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
40
Bloomberg L.P. or any successor thereto. The written mutual consent of Investor
and the Company shall be required to employ any other reporting entity.
Section 10.17 PUBLICITY. The Company and Investor shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Investor without the prior written consent of such Investor, except to the
extent required by law. Investor acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the Exchange Act.
Investor further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
Section 10.18 Volume Restriction. The investor shall not on any Trading Day
sell shares of the Common Stock in excess of 15% of the daily volume of the
Common Stock on the prior Trading Day.
Section 10.19 REGISTRATION RIGHTS AGREEMENT The Parties' Registration Rights
Agreement dated August 17, 2000 is hereby amended to provide that all references
to the "Private Equity Agreement" shall be to this Amended Private Equity
Agreement.
41
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
CHARLTON AVENUE LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇
Name:▇▇▇▇▇ ▇▇▇▇
Title:Director
Navigator Management Ltd.
42
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Schedule 4.3
43
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
Filed as Exhibit 10.34 to Imaging Diagnostic Systems, Inc.'s Form 10-KSB for the
fiscal year ending June 30, 2000 filed on Septeember 14, 2000.
EXHIBIT B
PUT NOTICE
TO:
We refer to the Private Equity Credit Agreement dated ___________, 2000
(the "Agreement") made between ourselves as the issuer and you as the
subscriber. Expressions defined or to which a meaning is assigned in the 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 subscribe for _$
in__________ Common Stock of _________________(the "Investment
Amount"); and
2. certify that the conditions stipulated in Article VII of the
Private Equity Credit Agreement have been fulfilled and satisfied.
For and on behalf of
By:
____________________________________________
Name:
Title:
Date:
__________________________________________
Note:
The date of Closing must fall on the 11th Trading Day after the date of this
notice.
[TO BE DELIVERED AT INITIAL CLOSING]
EXHIBIT C TO PRIVATE
EQUITY CREDIT AGREEMENT
_________________, 2000
Purchasers of [Company] [Describe Securities]
c/o Krieger & ▇▇▇▇▇▇, LLP
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under the
laws of the State of (the "Company"), in connection with the proposed issuance
and sale of ______________ (the "Securities") pursuant to the Private Equity
Credit Agreement , dated ______________ between the Company and _____________
(the "Investor"), including all Exhibits and Appendices annexed thereto and all
documents and instruments executed and delivered as contemplated thereby
(collectively, the "Transaction Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Transaction Agreements, the Company's Certificate of
Incorporation, and its Bylaws, each as amended to date [other documents -
describe], the proceedings of the Company's Board of Directors taken in
connection with entering into the Transaction Agreements, and such other
documents, agreements and records as we deemed necessary to render the opinions
set forth below.
In conducting our examination, we have assumed the following: (i) that each
of the Transaction Agreements has been executed by each of the parties thereto
in the same form as the forms which we have examined, (ii) the genuineness of
all signatures, the legal capacity of natural persons, the authenticity and
accuracy of all documents submitted to us as originals, and the conformity to
originals of all documents submitted to us as copies, (iii) that each of the
Agreements has been duly and validly authorized, executed, and delivered by the
party or parties thereto other than the Company, and (iv) that each of the
Transaction Agreements constitutes the valid and binding agreement of the party
or parties thereto other than the Company, enforceable against such party or
parties in accordance with the Agreements' terms.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of _________, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of ___________
shares of Common Stock, par value per share, ("Common Stock") and ___________
shares of Preferred Stock, par value $______ per share; [describe classes if
applicable].
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof.
4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Transaction
Agreements, the Common Stock as described in the Transaction Agreements
represented thereby will be duly authorized and validly issued, fully paid and
nonassessable, free of any liens, encumbrances, stop transfer orders or
restrictive legends.
5. The Company has the requisite corporate power and authority to enter
into the Transaction Agreements and to sell and deliver the Securities and the
Common Stock to be issued upon the conversion of the Securities as described in
the Transaction Agreements; each of the Transaction Agreements has been duly and
validly authorized by all necessary corporate action by the Company to our
knowledge, no approval of any governmental or other body is required for the
execution and delivery of each of the Transaction Agreements by the Company or
the consummation of the transactions contemplated thereby; each of the
Transaction Agreements has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state, and foreign
securities laws, as to which no opinion is expressed.
6. To the best of our knowledge, after due inquiry, the execution, delivery
and performance of the Transaction Agreements by the Company and the performance
of its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a default under
or conflict with or violate any provision of (i) the Company's Certificate of
Incorporation or By-Laws, each as currently in effect, (ii) any indenture,
mortgage, deed of trust, agreement or other instrument to which the Company is a
party or by which it or any of its property is bound, (iii) any applicable
statute or regulation, or (iv) any judgment, decree or order of any court or
governmental body having jurisdiction over the Company or any of its property.
7. The issuance of Common Stock in accordance with the terms and conditions
of the Transaction Agreements, will not violate the applicable listing agreement
between the Company and any securities exchange or market on which the Company's
securities are listed.
8. The Registration Statement on Form ____ (File No. 333-______________) of
the Company (the "Registration Statement") was declared effective at
____________M. Eastern Time on ____________, 2000. No stop order or other
proceeding suspending the effectiveness of the Registration Statement covering
any Common Stock has been issued or initiated.
9. To the best of our knowledge, after due inquiry, there is no pending or
threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
To the extent any of the foregoing opinions is based on information or
representations of one or more specified individuals, organizations, agencies or
entities or is stated to be "to the best of our knowledge," we hereby confirm
that, after due inquiry which we consider to be appropriate for the issues
involved in rendering such opinion, we are aware of no information inconsistent
with such opinion there expressed.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of (state identified in governing law section(if you are admitted
there); otherwise the state where you are admitted,) as currently in effect, and
the (specify proper title of [General] Corporation Law) of the State of [where
Company incorporated] and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Transaction Agreements may be governed by the laws of
other states, we have assumed that such laws are identical in all respects to
the laws of the State of (identify the State where you are admitted named in the
first blank in this paragraph.)
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Agreements and
may not be relied upon by any other person or entity or for any other purpose
without our prior consent.
Very truly yours,
By: __________________________
EXHIBIT D
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
OF
_____________________________
The undersigned, the Chief Executive Officer of ____________________ hereby
certifies that:
1. The representations and warranties of ______________________ , set forth
in a certain Private Equity Credit Agreement (the "Agreement"), dated the ____
day of ____________, 2000, by and among ______________________________ (the
"Company"), and ("Investor") (and in any other agreements, documents or
instruments delivered by the Company to Investor contemporaneously therewith)
are each true and correct in all material respects on and as of the date hereof
with the same effect as if made on and as of the date hereof.
2. The Company has performed and complied with all the agreements,
obligations, and conditions required by the Agreement (and any other agreements,
documents or instruments delivered by the Company to Investor contemporaneously
therewith) to be performed and complied with by the Company, on or before the
date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the
___ day of ____________, 2000.
By: ____________________________________
Its _______________________________
EXHIBIT E
TRANSFER AGENT INSTRUCTIONS
__________________, 2000
Ladies & Gentlemen:
Reference is made to that Certain Private Equity Credit Agreement (the
"Agreement") between ___________________________, a ______________ corporation
(the "Company"), and the buyers named therein (the "Investors") pursuant to
which the Company is issuing to the Investor shares (the "Shares") of the
Company's common stock, $____ par value per share (the "Common Stock") and
certain Common Stock purchase warrants (the "Warrants") which shall be
exercisable into shares of Common Stock. The shares of Common Stock issuable
upon exercise of the Warrants are referred to herein as "Warrant Shares"). The
Shares and Warrant Shares are collectively referred to herein as "Underlying
Shares".
This letter shall serve as our irrevocable authorization and direction
to you (provided that ou are the transfer agent for the Company with respect to
its Common Stock at such time) to issue Underlying Shares from time to time upon
notice from the Company to issue such Underlying Shares. So long as you have
previously received (x) an opinion of the Company's outside counsel
substantially in the form of Exhibit I attached hereto (which the Company shall
direct be delivered to you by such outside counsel upon the effectiveness of the
registration statement covering resales of 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 issued (or reissued if they
have been issued at a time when there was not such an effective registration
statement) or resold without any restrictive legend (the "Opinion"), (y) a copy
of such registration statement and (z) an appropriate representation that the
resale prospectus contained in the registration statement has been delivered in
compliance with applicable rules and regulations, then certificates representing
Underlying Shares shall not bear any legend restricting transfer of Underlying
Shares thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received a copy of the
Opinion, such registration statement and such representation, t hen certificates
representing 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, but only in the event, a registration statement covering Underlying
Shares is subject to amendment for events then current.
Please be advised that the Investors have relied upon this instruction
letter as an inducement to enter into the Purchase Agreement and, accordingly,
the Investors, are a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at _______________________.
Very truly yours,
By: ________________________________
Name: ________________________
Title: _______________________
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
____________________________
By: ____________________________________
Name: _________________________
Title: ________________________
Tel.: _________________________
[FORM OF OUTSIDE COUNSEL OPINION]
[Addressee]
[Address]
TO WHOM IT MAY CONCERN:
The Registration Statement on Form ____ (File No. 333-______________)
of the Company (the "Registration Statement"), a copy of which is enclosed, was
declared effective at ____________M. Eastern Time on ____________, 2000. Upon
issuance of the Underlying Shares referred to in the Company's instruction
letter attached, and provided that you have received a copy of the
representation pursuant to item (z) in the second paragraph of such instruction
letter, you are authorized to issue certificates for the Company's common stock
without restrictive legends. No stop order suspending the effectiveness of the
Registration Statement covering any or ________________________________.
Very truly yours,
SCHEDULE 4.3 EXHIBIT F
Imaging Diagnostic Systems, Inc.
Warrants Outstanding as of 8/17/00
Cash Proceeds
Warrants Holder Shares Price to the Company
-------- ------ ------ ----- --------------
Series C Concorde 50,000 $1.562 $ 78,100.00
Series C Austost 17,500 $1.630 $ 28,525.00
Series C UFH End. 17,500 $1.630 $ 28,525.00
Series C ▇▇▇▇▇ ▇▇▇▇ 5,000 $1.630 $ 8,150.00
Series C Avalon 20,000 $1.630 $ 32,600.00
Series C Dominion 25,000 $1.630 $ 40,750.00
Series C Cuttyhunk 20,000 $1.630 $ 32,600.00
Series D Avalon 25,000 $1.220 $ 30,500.00
Series E Austost 12,500 $1.093 $ 13,662.50
Series E Balmore 12,500 $1.093 $ 13,662.50
Series G Guar. & Fin. 13,125 $0.500 $ 6,562.50
Series H (A) Austost 25,000 $1.000 $ 25,000.00
Series H (A) Balmore 25,000 $1.000 $ 25,000.00
Series H (A) Settondown 25,000 $1.000 $ 25,000.00
Series H (B) Austost 25,000 $1.500 $ 37,500.00
Series H (B) Balmore 25,000 $1.500 $ 37,500.00
GCA Global Advisors 50,000 $1.000 $ 50,000.00
Aspen International, Ltd. 50,000 $1.452 $ 72,600.00
------------ --------------
Total 443,125 $ 586,237.50