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EXHIBIT 10.104
 

    PRIVATE EQUITY CREDIT AGREEMENT

    BY AND BETWEEN
 
 
  IMAGING DIAGNOSTIC SYSTEMS, INC.
 
 
AND
 
 
SOUTHRIDGE PARTNERS II, LP

Dated
 
November 23, 2009
 

 
 

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THIS PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 23rd day of
November 2009 (this “AGREEMENT”), by and between SOUTHRIDGE PARTNERS II, LP, a
limited liability company organized and existing under the laws of Delaware
(“INVESTOR”), and IMAGING DIAGNOSTIC SYSTEMS, INC., a corporation organized and
existing under the laws of the State of Florida (the “COMPANY”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to Investor, from time to
time as provided herein, and Investor shall purchase, up to Fifteen Million
Dollars ($15,000,000) of the Common Stock (as defined below); and

WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) (“SECTION 4(2)”) of the Securities Act of 1933 and Regulation D,
and the rules and regulations promulgated thereunder (the “SECURITIES ACT”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in Common Stock to be made hereunder.

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.1 DEFINED TERMS as used in this Agreement, the following terms shall
have the following meanings specified or indicated (such meanings to be equally
applicable to both the singular and plural forms of the terms defined)

“AGREEMENT” shall have the meaning specified in the preamble hereof.

“BID PRICE” shall mean, for any Trading Day, the closing bid price of the Common
Stock on the Principal Market for such Trading Day.

“BLACKOUT NOTICE” shall have the meaning specified in the Registration Rights
Agreement.

“BLACKOUT SHARES” shall have the meaning specified in Section 2.6

“BY-LAWS” shall have the meaning specified in Section 4.8.

“CERTIFICATE” shall have the meaning specified in Section 4.8

“CLAIM NOTICE” shall have the meaning specified in Section 9.3(a).

“CLOSING” shall mean one of the closings of a purchase and sale of shares of
Common Stock pursuant to Section 2.3.

“CLOSING DATE” shall mean, as applicable, an Interim Closing Date or a Remainder
Closing Date.

 
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“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 (thirty-six) months from the date of
commencement of the Commitment Period.

“COMMON STOCK” shall mean the Company’s common stock, no par value per share,
and any shares of any other class of common stock whether now or hereafter
authorized, having the right to participate in the distribution of dividends (as
and when declared) and assets (upon liquidation of the Company).

“COMMON STOCK EQUIVALENTS” shall mean any securities that are convertible into
or exchangeable for Common Stock or any options or other rights to subscribe for
or purchase Common Stock or any such convertible or exchangeable securities.

 
“COMPANY” shall have the meaning specified in the preamble to this Agreement.

“CONDITION SATISFACTION DATE” shall have the meaning specified in Section 7.2.

“DAMAGES” shall mean any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorneys’ fees and disbursements and
costs and expenses of expert witnesses and investigation).

“DISCOUNT” shall mean seven (7%) percent.

“DISPUTE PERIOD” shall have the meaning specified in Section 9.3(a).

“DTC” shall the meaning specified in Section 2.3.

“DWAC” shall the meaning specified in Section 2.3.

“EFFECTIVE DATE” shall mean the date on which the SEC first declares effective a
Registration Statement registering resale of the Registrable Securities as set
forth in Section 7.2(a).

“EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

“FAST” shall have the meaning specified in Section 2.3.

“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).

 
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“INITIAL REGISTRABLE SECURITIES” shall have the meaning specified in the
Registration Rights Agreement.

“INITIAL REGISTRATION STATEMENT” shall have the meaning specified in the
Registration Rights Agreement.

“INTERIM CLOSING DATE” shall mean, with respect to a Closing, the fifth (5th)
Trading Day following the Put Date related to a Closing provided all conditions
to a Closing have been satisfied on or before such Trading Day.

“INTERIM INVESTMENT AMOUNT” shall mean fifty percent (50%) of the INVESTMENT
AMOUNT with respect to each Put Notice.

“INTERIM MARKET PRICE” on any given Put shall mean the average of the closing
Bid Prices, other than Low Bid Prices for the first three (3) Trading Days
during the Valuation Period.

"INTERIM PURCHASE PRICE" shall mean, with respect to Interim Put Shares, the
Interim Market Price less the product of the Discount and the Interim Market
Price.

“INTERIM PUT SHARES” shall be the number of Put Shares deliverable on an Interim
Closing Date equal to the Interim Investment Amount divided by the Interim
Purchase Price.

“INVESTMENT AMOUNT” shall mean the dollar amount (within the range specified in
Section 2.2) to be invested by Investor to purchase Put Shares with respect to
any Put Date as notified by the Company to Investor in accordance with Section
2.2.

“INVESTOR” shall have the meaning specified in the preamble to this Agreement.

“LEGEND” shall have the meaning specified in Section 8.1.

"MARKET PRICE" on any given date shall mean the average of the lowest Bid
Prices  (not necessarily consecutive) for any three (3) Trading Days during the
ten (10) trading day period immediately following the Put Date.

“MAXIMUM COMMITMENT AMOUNT” shall mean Fifteen Million Dollars ($15,000,000).

“MATERIAL ADVERSE EFFECT” shall mean any effect on the business, operations,
properties, prospects or financial condition of the Company that is material and
adverse to the Company or to the Company and such other entities controlling or
controlled by the Company, taken as a whole, and/or any condition, circumstance,
or situation that would prohibit or otherwise materially interfere with the
ability of the Company to enter into and perform its obligations under any of
(a) this Agreement and (b) the Registration Rights Agreement.

“MAXIMUM PUT AMOUNT” shall mean, with respect to any Put, the lesser of (a) Five
Hundred Thousand Dollars ($500,000), or (b)Five Hundred (500%) percent of the
Weighted Average Volume for the twenty (20) Trading Days immediately preceding
the Put Date.

“MINIMUM COMMITMENT AMOUNT” There shall be no minimum commitment amount.

 
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“FINRA” shall mean the Financial Industry Regulatory Authority.

“NASDAQ” shall mean The Nasdaq Stock Market, Inc.

“NEW BID PRICE” shall have the meaning specified in Section 2.6.

“OLD BID PRICE” shall have the meaning specified in Section 2.6.

“OUTSTANDING” shall mean, with respect to the Common Stock, at any date as of
which the number of shares of Common Stock is to be determined, all issued and
outstanding shares of Common Stock, including all shares of Common Stock
issuable in respect of outstanding convertible securities, scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.

“PERSON” shall mean an individual, a corporation, a partnership, an association,
a trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

“PRINCIPAL MARKET” shall mean the Nasdaq National Market, the Nasdaq Small Cap
Market, the Over the Counter Bulletin Board, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.

"PURCHASE PRICE" shall mean, with respect to Interim Put Shares, the Interim
Market Price less the product of the Discount and the Interim Market Price, and
with respect to Remainder Put Shares, the Remainder Market Price less the
product of the Discount and the Remainder Market Price.

“PUT” shall mean each occasion that the Company elects to exercise its right to
tender a Put Notice requiring Investor to purchase shares of Common Stock,
subject to the terms and conditions of this Agreement.

“PUT DATE” shall mean the Trading Day during the Commitment Period that a Put
Notice is deemed delivered pursuant to Section 2.2(b).

“PUT NOTICE” shall mean a written notice, substantially in the form of Exhibit B
hereto, to Investor setting forth the Investment Amount with respect to which
the Company intends to require Investor to purchase shares of Common Stock
pursuant to the terms of this Agreement.

"PUT SHARES" shall mean the Interim Put Shares and the Remainder Put Shares.

“REGISTRABLE SECURITIES” shall mean the (a) Put Shares, (b) the Blackout Shares
and (c) any securities issued or issuable with respect to any of the foregoing
by way of exchange, stock dividend or stock split or in connection 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

 
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who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.

“REGISTRATION RIGHTS AGREEMENT” shall mean the registration rights agreement in
the form of Exhibit A hereto.

“REGISTRATION STATEMENT” shall mean a registration statement on Form S-1 (if use
of such form is then available to the Company pursuant to the rules of the SEC
and, if not, on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
which form shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement and
the Registration Rights Agreement and in accordance with the intended method of
distribution of such securities), for the registration of the resale by Investor
of the Registrable Securities under the Securities Act.

“REGULATION D” shall have the meaning specified in the recitals of this
Agreement.

“REMAINDER CLOSING DATE” shall mean, with respect to a Closing, the eleventh
(11h) Trading Day following the Put Date related to a Closing, provided all
conditions to a Closing have been satisfied on or before such Trading Day.

“REMAINDER INVESTMENT AMOUNT” shall mean the Investment Amount less the Interim
Investment Amount.

"REMAINDER MARKET PRICE" on any given Put shall mean the average of the lowest
closing Bid Prices, other than Low Bid Prices (not necessarily consecutive) for
any three (3) Trading Days during the Valuation Period.

"REMAINDER PURCHASE PRICE" shall mean with respect to Remainder Put Shares, the
Remainder Market Price less the product of the Discount and the Remainder Market
Price.

“REMAINDER PUT SHARES” shall be the number of Put Shares deliverable on a
Remainder Closing Date equal to the Investment Amount divided by the Remainder
Purchase Price minus the Interim Put Shares.

“REMAINING PUT SHARES” shall have the meaning specified in Section 2.6.

“RULE 144” shall mean Rule 144 under the Securities Act or any similar provision
then in force under the Securities Act.

“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.

 
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“SEC DOCUMENTS” shall mean, as of a particular date, all reports and other
documents filed by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since the beginning of the Company’s then most recently completed
fiscal year as of the time in question (provided that if the date in question is
within ninety days of the beginning of the Company’s fiscal year, the term shall
include all documents filed since the beginning of the second preceding fiscal
year).

“SUBSCRIPTION DATE” shall mean the date on which this Agreement is executed and
delivered by the Company and Investor.

“THIRD PARTY CLAIM” shall have the meaning specified in Section 9.3(a).

“TRADING DAY” shall mean any day during which the Principal Market shall be open
for business.

“TRANSACTION DOCUMENTS” means the Private Equity Credit Agreement, the
Registration Rights Agreement, Closing Certificate, and the Transfer Agent
Instructions.

“TRANSFER AGENT” shall mean the transfer agent for the Common Stock (and to any
substitute or replacement transfer agent for the Common Stock upon the Company’s
appointment of any such substitute or replacement transfer agent).

“TRANSFER AGENT INSTRUCTIONS” shall mean the instructions for the Transfer Agent
attached hereto as Exhibit E.

“UNDERWRITER” shall mean any underwriter participating in any disposition of the
Registrable Securities on behalf of Investor pursuant to a Registration
Statement.

“VALUATION EVENT” shall mean an event in which the Company at any time during a
Valuation Period takes any of the following actions:

 
(a)
subdivides or combines the Common Stock;

 
(b)
pays a dividend in shares of Common Stock or makes any other distribution of
shares of Common Stock, except for dividends paid with respect to the Preferred
Stock;

 
(c)
issues any options or other rights to  subscribe for or purchase shares of
Common Stock and the price per share for which shares of Common Stock may at any
time thereafter be  issuable pursuant to such options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;

 
(d)
issues any securities convertible into or exchangeable for shares of Common
Stock and the consideration per share for which shares of Common Stock may at
any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be  less than the Bid Price in effect immediately
prior to such issuance;

 
(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;

 
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(f)
makes a distribution of its assets or evidences of indebtedness to the holders
of Common Stock as a dividend in liquidation or by way of return of capital or
other than as a dividend  payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made
in  respect of the sale of all or substantially all of the Company’s assets
(other than under the circumstances provided for in the foregoing  subsections
(a) through (e); or

 
(g)
takes any action affecting the number of Outstanding Common Stock, other than an
action described in any of the foregoing subsections (a) through (f) hereof,
inclusive, which in the opinion of the Company’s Board of Directors, determined
in good faith, would have a materially adverse effect upon the rights of
Investor at the time of a Put.

“VALUATION PERIOD” shall mean the period of ten (10) Trading Days immediately
following the date on which the applicable Put Notice is deemed to be delivered
and during which the Purchase Price of the Common Stock is valued; provided,
however, that if a Valuation Event occurs during any Valuation Period, a new
Valuation Period shall begin on the Trading Day immediately after the occurrence
of such Valuation Event and end on the tenth (10th) Trading Day thereafter.

“WEIGHTED AVERAGE VOLUME” shall mean the average of the Weighted Volume for the
relevant days.

“WEIGHTED VOLUME” shall mean the product of (a) the Closing Bid Price times (b)
the volume on the Principal Market.

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

Section 2.1  INVESTMENTS.

(a)  PUTS.  Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII), on any Put Date the Company may
exercise a Put by the delivery of a Put Notice.

(b)  MINIMUM AMOUNT OF PUTS.  There shall be no minimum commitment amount of
puts.

Section 2.2  MECHANICS.

(a)  PUT NOTICE.  At any time during the Commitment Period, the Company may
deliver a Put Notice to Investor, subject to the conditions set forth in Section
7.2; provided, however, the Investment Amount for each Put as designated by the
Company in the applicable Put Notice shall be neither less than the Minimum Put
Amount nor more than the Maximum Put Amount.

(b)  DATE OF DELIVERY OF PUT NOTICE.  A Put Notice shall be deemed delivered on
(i) the Trading Day it is received by facsimile or otherwise by Investor if such
notice is received on or prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 noon New York time on a Trading Day or at anytime on a day which is
not a Trading Day.

 
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Section 2.3  CLOSINGS.  On or prior to each Interim Closing Date, or Remainder
Closing Date, for a Put, (a) the Company shall deliver to the Investor one or
more certificates representing the Interim Put Shares or Remainder Put Shares,
as applicable, to be purchased by Investor pursuant to Section 2.1 herein,
registered in the name of Investor and (b) provided all conditions to Closing
have been satisfied by the Company, Investor shall deliver to the Company the
Interim Investment Amount, or Remainder Investment Amount, as applicable, by
wire transfer of immediately available funds within 24 hours after each Interim
Closing Date, or Remainder Closing Date, as applicable.  In lieu of delivering
physical certificates representing the Common Stock issuable in accordance with
clause (a) of this Section 2.3, and provided that the Transfer Agent then is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon request of Investor, the Company shall use its
commercially reasonable efforts to cause the Transfer Agent to electronically
transmit, prior to the Closing Date, the Put Shares by crediting the account of
the Investor’s prime broker with DTC through its Deposit Withdrawal Agent
Commission (“DWAC”) system, and provide proof satisfactory to the Investor of
such delivery.  In addition, on or prior to such Closing Date, each of the
Company and Investor shall deliver all documents, instruments and writings
required to be delivered or reasonably requested by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein.

Section 2.4    [INTENTIONALLY OMITTED]

Section 2.5  TERMINATION OF INVESTMENT OBLIGATION.  The obligation of Investor
pursuant to this Agreement to purchase shares of Common Stock shall terminate
permanently (including with respect to a Closing Date that has not yet occurred)
in the event that (a) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension during a Blackout Period in accordance with the Registration
Rights Agreement, as a result of corporate developments subsequent to the
Subscription Date that would require such Registration Statement to be amended
to reflect such event in order to maintain its compliance with the disclosure
requirements of the Securities Act, or (b) the Company shall at any time fail to
comply with the requirements of Section 6.3, 6.4, or 6.6 and such failure shall
continue for more than thirty (30) days.

Section 2.6  BLACKOUT SHARES.  In the event that, (a) within fifteen (15)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period (“OLD BID PRICE”) is greater than the Bid Price on the first
Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement (“NEW BID
PRICE”), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the “BLACKOUT SHARES”) equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing
Date(the “REMAINING PUT SHARES”) multiplied by the Old Bid Price, divided by the
New Bid Price, and (ii) the Remaining Put Shares that were issued on the most
recent Closing Date.

Section 2.7  [INTENTIONALLY LEFT BLANK]

Section 2.8  LIQUIDATED DAMAGES.  Each of the Company and Investor acknowledge
and agree that the requirement to issue Blackout Shares under Section 2.6 shall
give rise to liquidated damages and not penalties. Each of the Company and
Investor further acknowledge that (a) the amount of loss or

 
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damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amount specified in such Section bears a reasonable proportion
and is not plainly or grossly disproportionate to the probable loss likely to be
incurred by Investor in connection with the failure by the Company to make Puts
with aggregate Purchase Prices totaling at least the Minimum Commitment Amount
or in connection with a Blackout Period under the Registration Rights Agreement,
and (c) each of the Company and Investor are sophisticated business parties and
have been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm’s length.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF INVESTOR

Investor represents and warrants to the Company that:

Section 3.1  INTENT.  Investor is entering into this Agreement for its own
account and Investor has no present arrangement (whether or not legally binding)
at any time to sell the Common Stock to or through any person or entity;
provided, however, Investor reserves the right to dispose of the Common Stock at
any time in accordance with federal and state securities laws applicable to such
disposition.

Section 3.2  SOPHISTICATED INVESTOR.  Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.

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 partnership duly
organized, validly existing and in good standing under the laws of Delaware ,
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.

 
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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Investor that, except as disclosed in the
SEC Documents:

Section 4.1  ORGANIZATION OF THE COMPANY.  The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Florida, and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Company
is duly qualified as a domestic corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.

Section 4.2  AUTHORITY.  (a) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and the
Registration Rights Agreement and to issue the Put Shares and the Blackout
Shares, if any; (b) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (c) each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

Section 4.3  CAPITALIZATION.  As of November 23, 2009, the authorized capital
stock of the Company consisted of 950,000,000 shares of Common Stock, no par
value, of which 725,352,136 shares were issued and outstanding, and no shares of
Preferred Stock, none of which are issued and outstanding. Except for options to
purchase approximately 29,282,044 shares of Common Stock with exercises prices
ranging between $0.01 and $ 2.77 per share, and warrants to purchase
approximately 5,666,667 shares of Common Stock with an exercise price of $.005,
there are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.  .

All of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable.

Section 4.4  COMMON STOCK.  The Company has registered the Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing or quotation of the Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date of this Agreement, the Principal Market is the OTC Bulletin Board.

Section 4.5  SEC DOCUMENTS.  The Company has delivered or made available to
Investor true and complete copies of the SEC Documents on file as of October 31,
2009. To the best of Company’s knowledge, the Company has not provided to
Investor any information that, according to applicable law,

 
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rule or regulation should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be otherwise
indicated in such financial statements or the notes thereto or (b) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).

Section 4.6  EXEMPTION FROM REGISTRATION; VALID ISSUANCES.  To the best of
Company’s knowledge, the sale and issuance of the Put Shares and the Blackout
Shares, if any, in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued by the Company to Investor pursuant to an exemption from
registration pursuant to the Securities Act and/or any applicable state law.
When issued and paid for as herein provided, the Put Shares, and the Blackout
Shares, if any, shall be duly and validly issued, fully paid, and nonassessable.
Neither the sales of the Put Shares or the Blackout Shares, if any, pursuant to,
nor the Company’s performance of its obligations under, this Agreement or the
Registration Rights Agreement shall (a) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or the
Blackout Shares, if any, or any of the assets of the Company, or (b) entitle the
holders of Outstanding Common Stock to preemptive or other rights to subscribe
to or acquire the Common Stock or other securities of the Company. The Put
Shares and the Blackout Shares, if any, shall not subject Investor to personal
liability by reason of the ownership thereof.

Section 4.7  NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION.  Neither the Company nor any of its affiliates nor any person
acting on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares or the Blackout Shares, if
any, or (b) made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of the
Common Stock under the Securities Act.

Section 4.8  CORPORATE DOCUMENTS.  The Company has furnished or made available
to Investor true and correct copies of the Company’s Certificate of
Incorporation, as amended and in effect on the date hereof (the “CERTIFICATE”),
and the Company’s By-Laws, as amended and in effect on the date hereof (the
“BY-LAWS”).

Section 4.9  NO CONFLICTS.  The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put Shares
and the Blackout Shares, if any, do not and will not (a) result in a violation
of the Certificate or By-Laws or (b) conflict with, or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or give to others

 
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any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture, instrument or any “lock-up” or similar provision
of any underwriting or similar agreement to which the Company is a party, or (c)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing; provided, however, that for purposes of the Company’s
representations and warranties as to violations of foreign law, rule or
regulation referenced in clause (c), such representations and warranties are
made only to the best of the Company’s knowledge insofar as the execution,
delivery and  performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby are or may be affected by
the status of Investor under or pursuant to any such foreign law, rule or
regulation. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, FINRA 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 October 31, 2009, no event has
occurred that would have a Material Adverse Effect on the Company, except as
disclosed in the SEC Documents on file on the date hereof.

Section 4.11  NO UNDISCLOSED LIABILITIES.  The Company has no liabilities or
obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents on file on the date hereof or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company’s businesses since October 31, 2009 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 October 31, 2009,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents on file on the date hereof.

Section 4.13  NO INTEGRATED OFFERING.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.

Section 4.14  LITIGATION AND OTHER PROCEEDINGS.  Except as may be set forth in
the SEC Documents on file on the date hereof, there are no lawsuits or
proceedings pending or to the best

 
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knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents on file on the date hereof, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
have a Material Adverse Effect.

Section 4.15  NO MISLEADING OR UNTRUE COMMUNICATION.  The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares or the Blackout Shares, if any, in
connection with the transactions contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.

ARTICLE V

COVENANTS OF INVESTOR

Section 5.1  COMPLIANCE WITH LAW. Investor’s trading activities with respect to
shares of the Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and the rules and regulations of
the FINRA and the Principal Market on which the Common stock is listed.

ARTICLE VI

COVENANTS OF THE COMPANY

Section 6.1  REGISTRATION RIGHTS.  The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.

Section 6.2  RESERVATION OF COMMON STOCK.  Not later than November 30, 2009, the
Company shall have available and the Company shall reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares and the
Blackout Shares, if any; such amount of shares of Common Stock to be reserved
shall be calculated based upon a minimum Purchase Price of $.005 for the Put
Shares under the terms and conditions of this Agreement and a good faith
estimate by the Company in consultation with Investor of the number of Blackout
Shares, if any, that will need to be issued. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

Section 6.3  LISTING OF COMMON STOCK.  The Company shall maintain the listing of
the Common Stock on a Principal Market and, if applicable, will cause the Put
Shares and the Blackout Shares, if any, to be listed on the Principal Market.
The Company further shall, if the Company applies to have the Common Stock
traded on any other Principal Market, include in such application the Put Shares
and the Blackout Shares, if any, and shall take such other action as is
necessary or desirable in the

 
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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 FINRA and the Principal Market.

Section 6.4  EXCHANGE ACT REGISTRATION.  The Company shall take all commercially
reasonable steps to cause the Common Stock to continue to be registered under
Section 12(g) or 12(b) of the Exchange Act, will use its commercially reasonable
efforts to comply in all material respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder)to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.

Section 6.5  LEGENDS.  The certificates evidencing the Put Shares and the
Blackout Shares, if any, shall be free of legends, except as provided for in
Article VIII.

Section 6.6  CORPORATE EXISTENCE.  The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
the Company.

Section  6.7  [INTENTIONALLY OMITTED]

Section 6.8  NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT.  The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (a)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company’s reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.

Section 6.9  [INTENTIONALLY OMITTED]

Section 6.10  CONSOLIDATION; MERGER.  The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially

 
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all of the assets of the Company to, another entity unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to Investor such shares of Common Stock and/or
securities as Investor is entitled to receive pursuant to this Agreement.

Section 6.11  ISSUANCE OF PUT SHARES AND BLACKOUT SHARES.  The sale of the Put
Shares and the issuance of the Blackout Shares, if any, shall be made in
accordance with the provisions and requirements of Regulation D (or shall
otherwise be exempt from the registration requirements of the Securities Act)
and any applicable state law.

Section 6.12  REIMBURSEMENT.  If (i) Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred.  In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement.  The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.

Section 6.13  DILUTION.  The number of shares of Common Stock issuable as Put
Shares may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Commitment Period.  The Company’s executive officers and directors have studied
and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect.  The board
of directors of the Company has concluded, in its good faith business judgment
that such issuance is in the best interests of the Company.  The Company
specifically acknowledges that its obligation to issue the Put Shares is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.

Section 6.14  CERTAIN AGREEMENTS.  (a) (i) The Company covenants and agrees that
it will not, without the prior written consent of the Investor, enter into any
subsequent or further offer or sale of Common Stock or Common Stock Equivalents
(collectively, “New Common Stock”) with any third party pursuant to a
transaction which in any manner permits the sale of the New Common Stock on any
date which is thirty (30) days prior or subsequent to any Additional Closing
Date.

 
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(ii)  The provisions of subparagraph 6.15(i) will not apply to (w) Common Stock
issued pursuant to an exemption from registration under the Securities Act of
1933; (x) an underwritten public offering of shares of Common Stock or Preferred
Stock; (y) an offering of convertible Preferred Stock at market or above; or (z)
the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition or the exchange
of the capital stock for assets, stock or other joint venture interests.

(iii)  In the event the Company breaches the provisions of this Section, the
Discount (as defined in  shall be amended to be equal to (x)110% of  the
Discount set forth herein and the Investor may terminate its obligations under
this Agreement and demand such amounts as may be owing under Section 2.1.

(b)      The Company covenants and agrees that it will not, without the prior
written consent of the Investor, enter into any subsequent or further equity
credit line agreement (however denominated) with any third party during the
Commitment Period.

ARTICLE VII

CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING

Section 7.1  CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL COMMON STOCK.  The obligation hereunder of the Company to issue and sell
the Put Shares to Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.

(a)  ACCURACY OF INVESTOR’S REPRESENTATIONS AND WARRANTIES.  The representations
and warranties of Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such Closing as though
made at each such time, except for changes which have not had a Material Adverse
Effect.

(b)  PERFORMANCE BY INVESTOR.  Investor shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by Investor at or
prior to such Closing.

Section 7.2  CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT
NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES.  The right of the
Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a “CONDITION SATISFACTION DATE”), of each of the
following conditions:

(a)  REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC.  As set forth in the
Registration Rights Agreement, the Company shall have filed with the SEC the
Initial Registration Statement with respect to the resale of the Initial
Registrable Securities by Investor and such Registration Statement shall have
been declared effective by the SEC prior to the first Put Date. For the purposes
of any

 
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Put Notice with respect to the Registrable Securities other than the Initial
Registrable Securities, the Company shall have filed with the SEC a Registration
Statement with respect to the resale of such Registrable Securities by Investor
which shall have been declared effective by the SEC prior to the Put Date
therefore.

(b)  EFFECTIVE REGISTRATION STATEMENT.  As set forth in the Registration Rights
Agreement, a Registration Statement shall have previously become effective for
the resale by Investor of the Registrable Securities subject to such Put Notice
and such Registration Statement shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor Investor shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
such Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC’s concerns
have been addressed and Investor is reasonably satisfied that the SEC no longer
is considering or intends to take such action),and (ii) no other suspension of
the use or withdrawal of the effectiveness of such Registration Statement or
related prospectus shall exist.

(c)  ACCURACY OF THE COMPANY’S REPRESENTATIONS AND WARRANTIES.  The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing material impairment to the Company or Investor.

(d)  PERFORMANCE BY THE COMPANY.  The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.

(e)  NO INJUNCTION.  No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or adopted by
any court or governmental authority of competent jurisdiction that prohibits or
directly and materially adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.

(f)  ADVERSE CHANGES.  Since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a Material Adverse
Effect has occurred.

(g)  NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.  The trading of
the Common Stock shall not have been suspended by the SEC, the Principal Market
or the FINRA and the Common Stock shall have been approved for listing or
quotation on and shall not have been delisted from the Principal Market.

(h)  LEGAL OPINION.  The Company shall have caused to be delivered to Investor,
within five (5) Trading Days of the effective date of the Initial Registration
Statement and each subsequent Registration Statement, an opinion of the
Company’s legal counsel in the form of Exhibit C hereto, addressed to Investor.

 
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(i)  [INTENTIONALLY OMITTED]

(j)  FIVE PERCENT LIMITATION.  Notwithstanding anything to the contrary
contained herein, if, on any Closing Date, the number of Put Shares then to be
purchased pursuant to a Put Notice by Investor would, when aggregated with all
other shares of Common Stock then held by Investor (including, for the purposes
of this Section 7.2(j), Common Stock issuable upon conversion, exercise or
exchange, as applicable, of Common Stock Equivalents then held by Investor),
cause Investor to beneficially own in excess of 4.999% of the total number of
issued and outstanding shares of Common Stock after giving effect to the Put
(the “Percentage Cap”), then the number of Put Shares shall be reduced to the
extent necessary for Investor’s beneficial ownership of Common Stock, after
giving effect to the Put, not to exceed the Percentage Cap.  For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  In the event
the number of Put Shares with respect to any Put are required to be reduced
pursuant to this Section 7.2(j), Investor shall provide, via facsimile, as soon
as possible on the Closing Date, and in no event later than 12:00 p.m. EST, a
notice to the Company setting forth the maximum number of shares issuable
pursuant to such Put which would not result in Investor’s beneficial ownership
exceeding the Percentage Cap.

(k)  NO KNOWLEDGE.  The Company shall have no knowledge of any event more likely
than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on which such Notice
is deemed delivered.

(l)  SHAREHOLDER VOTE.  The issuance of shares of Common Stock with respect to
the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.

(m)  OTHER.  On each Condition Satisfaction Date, Investor shall have received
and been reasonably satisfied with such other certificates and documents as
shall have been reasonably requested by Investor in order for Investor to
confirm the Company’s satisfaction of the conditions set forth in this Section
7.2., including, without limitation, a certificate in substantially the form and
substance of Exhibit D hereto, executed by an executive officer of the Company
and to the effect that all the conditions to such Closing shall have been
satisfied as at the date of each such certificate.

Section 7.3  DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

(a)  The Company shall make available for inspection and review by Investor,
advisors to and representatives of Investor (who may or may not be affiliated
with Investor and who are reasonably acceptable to the Company), and any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, FINRA 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.

 
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(b)  Each of the Company, its officers, directors, employees and agents shall in
no event disclose non-public information to Investor, advisors to or
representatives of Investor.

(c)  Nothing herein shall require the Company to disclose non-public information
to Investor or its advisors or representatives, and the Company represents that
it does not disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts; provided, however, that notwithstanding anything herein to the
contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not
misleading.  Nothing contained in this Section 7.3 shall be construed to mean
that such persons or entities other than Investor (without the written consent
of Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms and conditions of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, any Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in such Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.

ARTICLE VIII

LEGENDS

Section 8.1 LEGENDS.  
 
(a)   Except as otherwise provided below, each certificate representing
Registrable Securities will bear the following legend (the “LEGEND”):

The securities represented by this certificate have not been registered under
the Securities Act of 1933 (the “Securities Act”) or qualified under applicable
state securities laws. These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except pursuant to (i) an
effective registration statement and qualification in effect with respect
thereto under the Securities Act and under any applicable state securities law,
(ii) to the extent applicable, Rule 144 under the Securities Act, or (iii) an
opinion of counsel reasonably acceptable to the Company that such registration
and qualification is not required under applicable federal and state securities
laws.”

(b)  As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent the Transfer Agent Instructions. Such
instructions shall be irrevocable by the Company from and after the date thereof
or from and after the issuance thereof except as otherwise expressly

 
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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) Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered.

Section 8.2  NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS.  No legend other
than the one specified in Section 8.1 has been or shall be placed on the share
certificates representing the Common Stock and no instructions or “stop
transfers orders,” so called, “stock transfer restrictions,” or other
restrictions have been or shall be given to the Company’s transfer agent with
respect thereto other than as expressly set forth in this Article VIII.

Section 8.3  COVER.  If the Company fails for any reason to deliver the Put
Shares on such Closing Date and the holder of the Put Shares (a “Investor”)
purchases, in an open market transaction or otherwise, shares of Common Stock
(the “Covering Shares”) in order to make delivery in satisfaction of a sale of
Common Stock by such Investor (the “Sold Shares”), which delivery such Investor
anticipated to make using the Put Shares (a “Buy-In”), then the Company shall
pay to such Investor, in addition to all other amounts contemplated in other
provisions of the Transaction Documents, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The “Buy-In Adjustment Amount” is the
amount equal to the excess, if any, of (x) such Investor’s total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by such Investor
from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment
Amount to such Investor in immediately available funds immediately upon demand
by such Investor. By way of illustration and not in limitation of the foregoing,
if such Investor purchases Covering Shares having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock that it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount that the Company will be required to pay to such Investor will
be $1,000.

Section 8.4  INVESTOR’S COMPLIANCE.  Nothing in this Article VIII shall affect
in any way Investor’s obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.

 
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ARTICLE IX

NOTICES; INDEMNIFICATION

Section 9.1  NOTICES.  All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (a) personally served,(b) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(c) delivered by reputable air courier service with charges prepaid, or (d)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
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.
5307 N.W. 35th Terrace
Ft. Lauderdale, FL 33309
Telephone No.: (954) 581-9800
Telecopier No.: (954) 581-0555

with a copy (which shall not constitute notice) to:

Robert B. Macaulay, Esq.
Carlton Fields, P.A.
4000 International Place
100 S.E. Second Street
Miami, FL 33131-9101
Telephone No.: (305) 530-4026
Telecopier No.: (305) 530-0055

If to Investor:                        Southridge Partners II, LP
90 Grove Street
Ridgefield CT 06877

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.

 
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Section 9.2  INDEMNIFICATION.

The Company agrees to indemnify and hold harmless Investor and its officers,
directors, employees, and agents, and each Person or entity, if any, who
controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor’s failure to perform any
covenant or agreement contained in this Agreement or Investor’s or its
officer’s, director’s, employee’s, agent’s or Controlling Person’s negligence,
recklessness or bad faith in performing its obligations under this Agreement.

Section 9.3  METHOD OF ASSERTING INDEMNIFICATION CLAIMS.  All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:

(a)  In the event any claim or demand in respect of which any person claiming
indemnification under any provision of  this Article (an “INDEMNIFIED PARTY”)
might seek indemnity under this Article is asserted against or sought to be
collected from such Indemnified Party by a person other than a party hereto or
an affiliate thereof (a “THIRD PARTY CLAIM”), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party’s claim for indemnification that is being asserted under any
provision of this Article against any person (the “INDEMNIFYING PARTY”),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a “CLAIM NOTICE”)
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party’s ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the “DISPUTE PERIOD”) whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under this
Article and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim.(i)If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying
Party shall have the right to defend, with counsel reasonably satisfactory to
the Indemnified Party, at the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate proceedings, which proceedings shall
be vigorously and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying Party (but
only with the consent of the Indemnified Party in the case of any settlement
that provides for any relief other than the payment of monetary damages or that
provides for the payment of monetary damages as to which the Indemnified Party
shall not be indemnified in full pursuant to this Article). The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement

 
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thereof; provided, however, that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying Party’s
delivery of the notice referred to in the first sentence of this clause (i),
file any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to protect
its interests; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in
contesting any Third Party Claim that the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may takeover
the control of the defense or settlement of a Third Party Claim at any time if
it irrevocably waives its right to indemnity under this Article with respect to
such Third Party Claim. (ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified
Party(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party’s defense pursuant to this clause (ii) or of
the Indemnifying Party’s participation therein at the Indemnified Party’s
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation. (iii) If the Indemnifying
Party notifies the Indemnified Party that it does not dispute its liability or
the amount of its liability to the Indemnified Party with respect to the Third
Party Claim under this Article or fails to notify the Indemnified Party within
the Dispute Period whether the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with respect to such Third
Party Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under this Article and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.

 
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(b)  In the event any Indemnified Party should have a claim under this Article
against the Indemnifying Party that does not involve a Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for indemnity
under this Article specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an “INDEMNITY NOTICE”) with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party’s rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under this Article and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.

(c)  The indemnity agreements contained herein shall be in addition to (i) any
cause of action or similar rights of the Indemnified Party against the
Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party
may be subject to.

Section 9.4  REIMBURSEMENT.  If (i) any Investor, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Investor is impleaded in
any such action, proceeding or investigation by any Person, or (ii) any
Investor, other than by reason of its gross negligence or willful misconduct or
by reason of its trading of the Common Stock in a manner that is illegal under
the federal securities laws, becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Investor is impleaded in
any such action, proceeding or investigation by any Person, then in any such
case, the Company will reimburse such Investor for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred.  In addition,
other than with respect to any matter in which such Investor is a named party,
the Company will pay such Investor the charges, as reasonably determined by such
Investor, for the time of any officers or employees of such Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement.  The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor and any such Affiliate and any such
Person.  The Company also agrees that neither any Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in

 
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connection with or as a result of the consummation of the Transaction Agreements
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company result from the gross negligence or willful misconduct
of such Investor.

ARTICLE X

MISCELLANEOUS

Section 10.1  GOVERNING LAW; JURISDICTION.  This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Florida without
regard to the principles of conflicts of law. Each of the Company and Investor
hereby submit to the exclusive jurisdiction of the United States Federal and
state courts located in Florida with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.

Section 10.2  JURY TRIAL WAIVER.  The Company and the Investor hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents.

Section 10.3  SPECIFIC ENFORCEMENT.  The Company and the Investor acknowledge
and agree that irreparable damage would occur to the Investor in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached.  It is accordingly agreed that
the Investor shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.

Section 10.4  ASSIGNMENT.  Neither this Agreement nor any rights of Investor or
the Company hereunder may be assigned by either party to any other person.

Section 10.5  THIRD PARTY BENEFICIARIES.  This Agreement is intended for the
benefit of the Company and Investor, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.

Section 10.6  TERMINATION.  This Agreement shall terminate at the end of the
Commitment Period or as otherwise provided herein (unless extended by the
agreement of the Company and Investor); provided, however, that the provisions
of Article VI, VIII, IX and Sections 10.2, 10.3 and 10.4 shall survive the
termination of this Agreement.

Section 10.7  ENTIRE AGREEMENT.  This Agreement together with Exhibit A, and the
instruments referenced herein contain the entire understanding of the Company
and Investor with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters.

Section 10.8  FEES AND EXPENSES.  Except as otherwise provided in this Agreement
or any of the Exhibits thereto, each of the Company and Investor agrees to pay
its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Investor in connection with any
amendments,

 
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modifications or waivers of this Agreement or the Registration Rights Agreement
or incurred in connection with the enforcement of this Agreement and the
Registration Rights Agreement, including, without limitation, all reasonable
attorneys fees and expenses. The Company shall pay all stamp or other similar
taxes and duties levied in connection with issuance of the Shares pursuant
hereto.

Section 10.9  NO BROKERS.  Each of the Company and Investor represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company, agrees to indemnify the Investor against and hold the other
harmless from any and all liabilities to any persons claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.

Section 10.10  COUNTERPARTS.  This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the Company and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.

Section 10.11  SURVIVAL; SEVERABILITY.  The representations, warranties,
covenants and agreements of the Company hereto shall survive each Closing
hereunder for a period of one (1) year thereafter. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.

Section 10.12  FURTHER ASSURANCES.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

Section 10.13  NO STRICT CONSTRUCTION.  The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

Section 10.14  TITLE AND SUBTITLES.  The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.

Section 10.15  REPORTING ENTITY FOR THE COMMON STOCK.  The reporting entity
relied upon for the determination of the trading price of the Common Stock on
any given Trading Day for the purposes of this Agreement shall be Bloomberg L.P.
or any successor thereto. 

Section 10.16  PUBLICITY.  The Company and Investor shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the

 
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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.

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/ Linda B. Grable
                                                Name: Linda B. Grable
                                                Title: Chief Executive Officer
 
 
 

                                                SOUTHRIDGE PARTNERS II, LP

 
                                                By: /s/ Stephen Hicks
                                                Stephen Hicks, Manager of
General Partner

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