SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported) September
29, 2006
CHEMBIO
DIAGNOSTIC, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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0-30379
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88-0425691
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer
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of
Incorporation)
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Identification
Number)
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3661
Horseblock Road
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Medford,
NY 11763
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(Address
of principal executive offices)
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631-924-1135
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(Registrant’s
Telephone Number)
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N/A
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended
to simultaneously
satisfy the filing obligation of the registrant under any
of the following
provisions:
o Written
communications pursuant to Rule 425 under the Securities
Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR
240.13e-4(c))
ITEM
1.01. Entry into a Material Definitive Agreement
On
September 29, 2006 and October 5, 2006, the Registrant
entered into the material
agreements described under ITEM 3.02 below.
ITEM
3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
Series
C Offering
On
September 29, 2006 and October 5, 2006, the Registrant
entered into a private
placement (the “Series C Offering”) for $8,150,000, consisting of 165 shares of
its 7% Series C Convertible Preferred Stock (the “Series C Stock”) together with
warrants to purchase up to 2,578,125 shares of its common
stock (the “Common
Stock”). Except as described below with respect to the conversion
of convertible
debt, each $.80 of consideration received (a) $.80 of
face amount of Series C
Stock, which is convertible into one share of the Common
Stock, and (b) a
five-year warrant to acquire .25 of a share of Common
Stock. Each full share of
the Series C Stock was purchased for $50,000, with fractional
shares of Series C
Stock being purchased in the case of smaller amounts
of
consideration.
The
proceeds from the Series C Offering will be used primarily
for general corporate
purposes including for sales and marketing, research
and development, and
intellectual property, and also for working capital,
investor relations, and
capital expenditures. $600,245 of the private placement
resulted from conversion
of previously outstanding convertible debt of the Registrant.
Based on the terms
of the previously outstanding convertible debt, the $600,245
of debt was
converted at a discount of 12.5% to the price paid by
the other
investors.
The
Registrant relied on Section 4(2) of the Securities Act
of 1933 and Rule 506
promulgated thereunder as the basis for its exemption
from registration of this
issuance. All of the investors in the Series C Offering
are accredited investors
as defined under Rule 501 promulgated under the Securities
Act of
1933.
THE
SECURITIES OFFERED IN THE SERIES C OFFERING HAVE NOT
BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES
ABSENT REGISTRATION OR AN APPLICABLE EXEMPTION FROM REGISTRATION
REQUIREMENTS.
Compensation
of Placement Agent
Midtown
Partners & Co., LLC (“Midtown”) acted as the placement agent with respect to
investors investing $1,000,000 in the Series C Offering
(the “Midtown
Investors”). As compensation for services rendered to the Registrant
by Midtown,
the Registrant agreed to the following:
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§
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to
pay Midtown a cash fee equal to 5% of the amount
of cash proceeds the
Registrant received from the Midtown
Investors.
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to
issue to Midtown warrants to purchase 62,500
shares of the Registrant’s
Common Stock (the “Placement Warrants”). The Placement Warrants are
exercisable for a period of five years from
their issuance and have an
exercise price of $1.00 per share. The Registrant
has agreed to include
the shares of Common Stock underlying the Placement
Warrants in the
Registration Statement (as defined and described
below).
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Terms
of the Series C Stock
Dividends.
Holders of Series C Stock are entitled to a 7% per annum
dividend per
share. The dividend accrues and is payable semi-annually
in cash or in shares of
Common Stock (at the option of the Registrant). Accrued
but unpaid dividends are
also payable upon the conversion or redemption of the
shares of Series C Stock
and upon a liquidation event.
Voting
Rights.
As long as any shares of Series C Stock are outstanding,
the Registrant
cannot take any of the following actions without the
separate class vote or
written consent of 81% of the then outstanding shares
of Series C Stock:
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·
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amend,
alter or repeal the provisions of the Series
C Stock so as to adversely
affect any right, preference, privilege or
voting power of the Series C
Stock;
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authorize
or create any class of stock ranking as to
dividends, redemption or
distribution of assets upon a liquidation event,
senior to or otherwise
pari passu with the Series C Stock;
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amend
the Articles of Incorporation or By-Laws of
the Registrant so as to
adversely affect any rights of the Series C
Stock;
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·
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increase
the authorized number of shares of Series C
Stock;
or
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enter
into any agreement with respect to the foregoing.
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Conversion.
The Series C Stock is convertible, at the option of the
holders, into
shares of Common Stock at an initial conversion price
of $.80 per share. Based
on the original purchase price of $50,000.00 per share,
each share of Series C
Stock is initially convertible into 62,500 shares of
Common Stock. The Series C
Stock is issuable in fractional shares. The Series C Stock contains
adjustment provisions upon the occurrence of stock splits,
stock dividends,
combinations, reclassifications or similar events of
our capital stock.
Redemption.
In the event of (i) a consolidation, merger, or other business
combination involving the Registrant, (ii) the sale of
all or substantially all
of the Registrant’s assets, (iii) the acquisition by another person of
in excess
of 50% of the voting securities of the Registrant or
(iv) certain specified
triggering events (involving (A) the lapse or unavailability
of the Registration
Statement, (B) the suspension from listing of the Common
Stock for a period of
seven (7) consecutive days, (C) the Registrant’s failure or inability to comply
with a conversion request from a holder of Series C Stock,
(D) the breach by the
Registrant of any of its representations or warranties
contained in the Series C
Stock documentation that continues uncured for a period
of thirty (30) days, or
(E) the Registrant becomes subject to certain bankruptcy
events) (collectively,
the “Trigger Events”), each holder of Series C Stock has the right to require
the Registrant to redeem all of such holder's shares
of Series C Stock at a
price per share of Series C Stock equal to the sum of
(i) the greater of (a)
$65,000 and (b) the product of (x) the daily volume weighted
average price of
the Registrant’s Common Stock as reported on the OTC Bulletin Board
on the date
immediately preceding the Trigger Event by Bloomberg
Financial L.P. and (y) the
quotient of $65,000 divided by the then current conversion
price for the Series
C Stock, plus (ii) any accrued but unpaid dividends,
plus (iii) all liquidated
damages and other amounts due in respect of the Series
C Stock.
Rank;
Liquidation Preference.
The holders of Series C Stock rank pari passu to the
holders of the
Registrant’s Series A Convertible Preferred Stock (the “Series A Stock”), Series
B 9% Convertible Preferred Stock (the “Series B Stock”) and prior to the holders
of the Common Stock and, unless otherwise consented to
by the holders of Series
C Stock, prior to all other classes of capital stock
that the Registrant may
establish, with respect to (i) the payment of dividends
and (ii) the
distribution of its assets upon a bankruptcy, liquidation
or other similar
event. The liquidation preference for the Series C Stock
is an amount equal to
$50,000 per share plus any accrued and unpaid dividends
and liquidated damages
owing thereon.
Preemptive
Rights
Pursuant
to the terms of the Series C Offering, the Registrant
granted each investor the
right to purchase a pro rata portion of any future sales of Common Stock,
or securities convertible into Common Stock, except for
certain permitted
issuances (a “Subsequent Financing”), by the Registrant within the twelve (12)
months following the closing of the Series C Offering
(the “Closing”), based on
the ratio of the number of shares of Series C Stock held
by that investor, to
the total number of shares of Series C Stock purchased
by all of the investors
in the Series C Offering (subject to reduction on a pro
rata basis to allow for
the preemptive rights granted to holders of Series A
Stock and Series B Stock).
As a result, the holders of Series A Stock, Series B
Stock and Series C Stock
will have the right to purchase 100% of the securities
that the Registrant
offers to sell in a Subsequent Financing. The Registrant also agreed that
during the ninety (90) day period after the effective
date of the Registration
Statement (described below) it would not enter into any
Subsequent Financing.
Exchange
Rights
Pursuant
to the terms of the Series C Offering, the Registrant
granted each investor the
right
to
exchange all or a portion of the Series C Stock then
held by it for any
securities issued in a Subsequent Financing (such exchange
to be made at the
same time as, and pursuant to, the closing of such Subsequent
Financing) based
the effective price at which such securities are sold
in such Subsequent
Placement. The exchanged Series C Stock will be valued
at $50,000 per share plus
accrued but unpaid dividends and other fees owed to the
holder.
Registration
Rights
In
connection with the offering of the Series C Stock, the
Registrant entered into
a registration rights agreement (the “Registration Rights Agreement”) pursuant
to which it is required to file a registration statement
with the Commission
(the “Registration Statement”) within 45 days of Closing, to register (i) all
the shares of Common Stock issuable upon the conversion
of the Series C Stock
(including any shares of Common Stock issuable upon conversion
of shares of
Series C Stock issued as dividends on the Series C Stock,
and including any
shares issued pursuant to the anti-dilutive provisions
of the Series C Stock),
(ii) all the shares of Common Stock issuable upon the exercise of
the
warrants issued to the investors in the Series C Offering,
and (iii) all the
shares of Common Stock issuable upon conversion of the
Placement Shares and the
Placement Warrants. If the Registration Statement is not filed within 45
days of Closing or declared effective by the SEC within
120 days of Closing
(within 150 days of Closing in the event of a full review
by the Commission),
then, in each such case, the Registrant will be subject
to the payment of
liquidated damages equal to 1% of the aggregate purchase
price received by it
from each respective subscriber.
The
Registrant must keep the Registration Statement effective
until the earliest to
occur of (i) the date when all the securities covered
by the Registration
Statement may be sold without restriction pursuant to
Rule 144(k) and (ii) the
date on which all securities covered by the registration
statement have been
sold.
The
foregoing descriptions do not purport to be complete
and are qualified in their
entirety by reference to the Certificate of Designation
of Preferences, Rights
and Limitations of the Series C Stock, Amended Certificate
of Designation of
Preferences, Rights and Limitations of the Series C Stock,
the form of warrant
issued to the investors, the Registration Rights Agreements
and the Securities
Purchase Agreements, copies of which are included as
Exhibits 3.1,
3.2, 4.1, 4.2, 4.3, 10.1, 10.2 and 10.3, respectively, to
this Current
Report on Form 8-K.
ITEM
7.01. REGULATION FD DISCLOSURES
On
October 5, 2006, Chembio Diagnostics, Inc. (the “Company”) issued a press
release entitled “Chembio Reports $8.15 Million Private Financing.” The press
release is attached as Exhibit 99.1 hereto.
In
accordance with General Instruction B.2 of Form 8-K,
the information in this
report shall not be deemed filed for the purpose of Section
18 of the Securities
Act of 1934, nor shall it be deemed incorporated by reference
in any
filing.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
3.1
Certificate of Designation of Preferences, Rights and
Limitations of
Series C 7% Convertible Preferred Stock of the Registrant.
3.2
Amended Certificate of Designation of Preferences, Rights
and Limitations of
Series C 7% Convertible Preferred Stock of the Registrant
4.1
Form of Common Stock Warrant issued pursuant to the Securities
Purchase
Agreement.
4.2
Registration Rights Agreement, dated as of September
29, 2006, by and among the
Registrant and the Purchasers listed therein.
4.3
Registration Rights Agreement, dated as of October 5,
2006, by and among the
Registrant and the Purchasers listed therein.
10.1
Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of
September 29, 2006, by and among the Registrant and the
Purchasers listed
therein.
10.2
Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of
October 5, 2006, by and among the Registrant and the
Purchasers listed
therein.
10.3
Letter of Amendment to Securities Purchase Agreements
dated as of September 29,
2006 by and among the Registrant and the Purchasers listed
therein.
99.1
Press Release entitled “Chembio Reports $8.15 Million Private Financing”, issued
October 5, 2006.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of
1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned thereunto
duly authorized.
Date:
October 5, 2006 CHEMBIO
DIAGNOSTICS, INC.
By: /s/
Lawrence A. Siebert
Lawrence
A. Siebert
Chief
Executive Officer
Exhibit
3.1 Certificate of Designation
EXHIBIT
A
CHEMBIO
DIAGNOSTICS, INC.
CERTIFICATE
OF DESIGNATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
SERIES
C 7% CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 78.1955 OF THE
NEVADA
REVISED STATUTES
The
undersigned, Richard J. Larkin, does hereby certify that:
1.
He is
the Chief Financial Officer of Chembio Diagnostics, Inc., a Nevada
corporation
(the “Corporation”).
2.
The
Corporation is authorized to issue 10,000,000 shares of preferred
stock,
297.82698 of which have been issued.
3.
The
following resolutions were duly adopted by the Board of Directors:
WHEREAS,
the Articles of Incorporation of the Corporation provides for a class
of its
authorized stock known as preferred stock, comprised of 10,000,000
shares, $0.01
par value, issuable from time to time in one or more series;
WHEREAS,
the Board of Directors of the Corporation is authorized to fix the
dividend
rights, dividend rate, voting rights, conversion rights, rights and
terms of
redemption and liquidation preferences of any wholly unissued series
of
preferred stock and the number of shares constituting any Series
and the
designation thereof, of any of them; and
WHEREAS,
it is the desire of the Board of Directors of the Corporation, pursuant
to its
authority as aforesaid, to fix the rights, preferences, restrictions
and other
matters relating to a series of the preferred stock, which shall
consist of,
except as otherwise set forth in the Purchase Agreement, up to 205
shares of the
preferred stock which the Corporation has the authority to issue,
as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for
the issuance of a series of preferred stock for cash or exchange
of other
securities, rights or property and does hereby fix and determine
the rights,
preferences, restrictions and other matters relating to such series
of preferred
stock as follows:
TERMS
OF PREFERRED STOCK
Section
1.
Definitions.
Capitalized terms used and not otherwise defined herein that are
defined in the
Purchase Agreement shall have the meanings given such terms in the
Purchase
Agreement. For the purposes hereof, the following terms shall have
the following
meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 7(e).
“Bankruptcy
Event”
means
any of the following events: (a) the Corporation or any Significant
Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or
similar law of any jurisdiction relating to the Corporation or any
Significant
Subsidiary thereof; (b) there is commenced against the Corporation
or any
Significant Subsidiary thereof any such case or proceeding that is
not dismissed
within 60 days after commencement; (c) the Corporation or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief
or other order approving any such case or proceeding is entered;
(d) the
Corporation or any Significant Subsidiary thereof suffers any appointment
of any
custodian or the like for it or any substantial part of its property
that is not
discharged or stayed within 60 calendar days after such appointment;
(e) the
Corporation or any Significant Subsidiary thereof makes a general
assignment for
the benefit of creditors; (f) the Corporation or any Significant
Subsidiary
thereof calls a meeting of its creditors with a view to arranging
a composition,
adjustment or restructuring of its debts; or (g) the Corporation
or any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or
takes any corporate or other action for the purpose of effecting
any of the
foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 7(b).
“Buy-In”
shall
have the meaning set forth in Section 6(d)(iii).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition
after the date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether
through legal or beneficial ownership of capital stock of the Corporation,
by
contract or otherwise) of in excess of 50% of the aggregate voting
power of the
Corporation, or (ii) the Corporation merges into or consolidates
with any other
Person, or any Person merges into or consolidates with the Corporation
and,
after giving effect to such transaction, the stockholders of the
Corporation
immediately prior to such transaction own less than 50% of the aggregate
voting
power of the Corporation or the successor entity of such transaction,
or (iii)
the Corporation sells or transfers its assets, as an entirety or
substantially
as an entirety, to another Person and the stockholders of the Corporation
immediately prior to such transaction own less than 50% of the aggregate
voting
power of the acquiring entity immediately after the transaction,
or (iv) the
execution by the Corporation of an agreement to which the Corporation
is a party
or by which it is bound, providing for any of the events set forth
above.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
each Holder’s obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the Corporation’s common stock, par value $0.01 per share, and stock of any
other class of securities into which such securities may hereafter
be
reclassified or changed into.
“Common
Stock Equivalents”
means
any securities of the Corporation or the Subsidiaries which would
entitle the
holder thereof to acquire, directly or indirectly, at any time Common
Stock,
including without limitation, any debt, preferred stock, rights,
options,
warrants or other instrument that is at any time convertible into
or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Conversion
Amount”
means
the sum of the Stated Value at issue.
“Conversion
Date”
shall
have the meaning set forth in Section 6(a).
“Conversion
Price”
shall
have the meaning set forth in Section 6(b).
“Conversion
Shares”
means,
collectively, the shares of Common Stock into which the shares of
Preferred
Stock are convertible in accordance with the terms hereof.
“Conversion
Shares Registration Statement”
means
a
registration statement that meets the requirements of the Registration
Rights
Agreement and registers the resale of all Conversion Shares by the
Holder, who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“Dilutive
Issuance”
shall
have the meaning set forth in Section 7(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 7(b).
“Dividend
Payment Date”
shall
have the meaning set forth in Section 3(a).
“Effective
Date”
means
the date that the Conversion Shares Registration Statement is declared
effective
by the Commission.
“Equity
Conditions”
means,
during the period in question, (i)
the
Corporation shall have duly honored all conversions scheduled to
occur or
occurring by virtue of one or more Notices of Conversion of the applicable
Holder on or prior to the dates so requested or required, if any,
(ii) the
Corporation shall have paid all liquidated damages and other amounts
owing to
the applicable Holder in respect of the Preferred Stock, (iii)
there is an effective Conversion Shares Registration Statement pursuant
to which
the Holders are permitted to utilize the prospectus thereunder to
resell all of
the shares of Common Stock issuable pursuant to the Transaction Documents
(and
the Corporation believes, in good faith, that such effectiveness
will continue
uninterrupted for the foreseeable future), (iv) the Common Stock
is trading on a
Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on such Trading Market (and the
Corporation
believes, in good faith, that trading of the Common Stock on a Trading
Market
will continue uninterrupted for the foreseeable future), (v) there
is a
sufficient number of authorized, but unissued and otherwise unreserved,
shares
of Common Stock for the issuance of all of the shares of Common Stock
issuable
pursuant to the Transaction Documents, (vi) there is no existing
Triggering
Event or no existing event which, with the passage of time or the
giving of
notice, would constitute a Triggering Event, (vii) the issuance of
the shares in
question to the applicable Holder would not violate the limitations
set forth in
Section 6(c), (viii)
there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated
and
(ix) the applicable Holder is not in possession of any information
that
constitutes, or may constitute, material non-public information.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulation
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees,
officers,
consultants, or directors of the Corporation pursuant to any stock
or option
plan or other resolution duly adopted by a majority of the non-employee
members
of the Board of Directors of the Corporation or a majority of the
members of a
committee of non-employee directors established for such purpose,
(b) securities
upon the exercise of or conversion of any Securities issued hereunder,
convertible securities, options or warrants issued and outstanding
on the date
of the Purchase Agreement, provided that such securities have not
been amended
since the date of the Purchase Agreement to increase the number of
such
securities or to decrease the exercise or conversion price of any
such
securities (except pursuant to any anti-dilution adjustment contained
therein),
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself
or through
its subsidiaries, an operating company in a business reasonably deemed
by the
Corporation’s Board of Directors to be strategically advantageous to the
business of the Corporation and in which the Corporation receives
benefits in
addition to the investment of funds, but shall not include a transaction
in
which the Corporation is issuing securities primarily for the purpose
of raising
capital or to an entity whose primary business is investing in securities
and
(d) shares issued as dividend payments on the Series A Convertible
Preferred
Stock, the Series B 9% Convertible Preferred Stock and the Preferred
Stock.
“Forced
Conversion Notice”
shall
have the meaning set forth in Section 8(a).
“Forced
Conversion Notice Date”
shall
have the meaning set forth in Section 8(a).
“Fundamental
Transaction”
shall
have the meaning set forth in Section 7(e).
“Holder”
shall
have the meaning given such term in Section 2.
“Junior
Securities”
means
the Common Stock and all other Common Stock Equivalents of the Corporation
other
than those securities which are explicitly senior or pari passu
to the
Preferred Stock in dividend rights or liquidation preference.
“Liquidation”
shall
have the meaning given such term in Section 5.
“New
York Courts”
shall
have the meaning given such term in Section 10(e).
“Notice
of Conversion”
shall
have the meaning given such term in Section 6(a).
“Original
Issue Date”
shall
mean the date of the first issuance of any shares of the Preferred
Stock
regardless of the number of transfers of any particular shares of
Preferred
Stock and regardless of the number of certificates which may be issued
to
evidence such Preferred Stock.
“Person”
means
a
corporation, an association, a partnership, an organization, a business,
an
individual, a government or political subdivision thereof or a governmental
agency.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of the Original Issue
Date, to which
the Corporation and the original Holders are parties, as amended,
modified or
supplemented from time to time in accordance with its terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, to which the Corporation and the original Holder are parties,
as
amended, modified or supplemented from time to time in accordance
with its
terms.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning given such term in Section 6(d).
“Stated
Value”
shall
have the meaning given such term in Section 2.
“Subscription
Amount”
shall
mean, as to each Purchaser, the amount to be paid for the Preferred
Stock
purchased pursuant to the Purchase Agreement as specified below such
Purchaser’s
name on the signature page of the Purchase Agreement and next to
the heading
“Subscription Amount”, in United States Dollars and in immediately available
funds.
“Subsidiary”
shall
have the meaning given to such term in the Purchase Agreement.
“Threshold
Period”
shall
have the meaning set forth in Section 6(a).
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the OTC Bulletin Board, the
Nasdaq SmallCap
Market, the American Stock Exchange, the New York Stock Exchange
or the Nasdaq
National Market.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“Triggering
Event”
shall
have the meaning set forth in Section 9(a).
“Triggering
Redemption Amount”
for
each share of Preferred Stock means the sum of (i) the greater of
(A) 130% of
the Stated Value and (B) the product of (a) the VWAP on the Trading
Day
immediately preceding the date of the Triggering Event and (b) the
Stated Value
divided by the then Conversion Price, (ii) all accrued but unpaid
dividends
thereon and (iii) all liquidated damages and other amounts due in
respect of the
Preferred Stock.
“Triggering
Redemption Payment Date”
shall
have the meaning set forth in Section 9(b).
“VWAP”
means,
for any date, the price determined by the first of the following
clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading
Market,
the daily volume weighted average price of the Common Stock for such
date (or
the nearest preceding date) on the Trading Market on which the Common
Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based
on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if
the Common Stock is not then listed or quoted on a Trading Market
and if prices
for the Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding
to its
functions of reporting prices), the most recent bid price per share
of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in
good faith by the Purchasers and reasonably acceptable to the Corporation.
Section
2.
Designation,
Rank, Amount and Par Value.
The
series of preferred stock shall be designated as its Series C 7%
Convertible
Preferred Stock (the “Preferred
Stock”)
and
the number of shares so designated shall be 205 (which shall not
be subject to
increase without the consent of all of the holders of the Preferred
Stock (each,
a “Holder”
and
collectively, the “Holders”)).
Each
share of Preferred Stock shall have a par value of $0.01 per share
and a stated
value equal to $50,000 (the “Stated
Value”).
The
Preferred Stock shall rank pari passu to the Corporation’s Series A Convertible
Preferred Stock and the Corporation’s Series B 9% Convertible Preferred Stock as
to payment of dividends and liquidation preference. Capitalized terms
not
otherwise defined herein shall have the meaning given such terms
in Section 1
hereof.
Section
3.
Dividends.
a) Dividends
in Cash or in Kind.
Holders
shall be entitled to receive, and the Corporation shall pay, cumulative
dividends at the rate per share (as a percentage of the Stated Value
per share)
of 7% per annum,
payable
semi-annually on January 1 and July 1, beginning on July 1, 2007
and on each
Conversion Date (with respect only to Preferred Stock being converted)
(each
such date, a “Dividend
Payment Date”)
(if
any Dividend Payment Date is not a Trading Day, the applicable payment
shall be
due on the next succeeding Trading Day) in cash or duly authorized,
validly
issued, fully paid and non-assessable shares of Common Stock as set
forth in
this Section 3(a), or a combination thereof (the amount to be paid
in shares of
Common Stock, the “Dividend
Share Amount”).
The
form of dividend payments to each Holder shall be determined in the
following
order of priority: (i) if funds are legally available for the payment
of
dividends and the Equity Conditions have not been met during the
20 consecutive
Trading Days immediately prior to the applicable Dividend Payment
Date, in cash
only; (ii) if funds are legally available for the payment of dividends
and the
Equity Conditions have been met during the 20 consecutive Trading
Days
immediately prior to the applicable Dividend Payment Date, at the
sole election
of the Corporation, in cash or shares of Common Stock which shall
be valued
solely for such purpose at 90% of the average of the VWAPs for the
20
consecutive Trading Days ending on the Trading Day that is immediately
prior to
the Dividend Payment Date; (iii) if funds are not legally available
for the
payment of dividends and the Equity Conditions have been met during
the 20
consecutive Trading Days immediately prior to the applicable Dividend
Payment
Date, in shares of Common Stock which shall be valued solely for
such purpose at
90% of the average of the VWAPs for the 20 consecutive Trading Days
ending on
the Trading Day that is immediately prior to the Dividend Payment
Date; (iv) if
funds are not legally available for the payment of dividends and
the Equity
Condition relating to an effective Conversion Shares Registration
Statement has
been waived by such Holder, as to such Holder only, in unregistered
shares of
Common Stock which shall be valued solely for such purpose at 90%
of the average
of the VWAPs for the 20 consecutive Trading Days ending on the Trading
Day that
is immediately prior to the Dividend Payment Date; and (v) if funds
are not
legally available for the payment of dividends and the Equity Conditions
have
not been met during the 20 consecutive Trading Days immediately prior
to the
applicable Dividend Payment Date, then, at the election of such Holder,
such
dividends shall accrue to the next Dividend Payment Date or shall
be accreted
to, and increase, the outstanding Stated Value. The Holders shall
have the same
rights and remedies with respect to the delivery of any such shares
as if such
shares were being issued pursuant to Section 6. On the Closing Date
the
Corporation shall have notified the Holders whether or not it may
legally pay
cash dividends as of the Closing Date. The Corporation shall promptly
notify the
Holders at any time the Corporation shall become able or unable,
as the case may
be, to legally pay cash dividends. If at any time the Corporation
has the right
to pay dividends in cash or Common Stock, the Corporation must provide
the
Holders with at least 20 Trading Days’ notice of its election to pay a regularly
scheduled dividend in Common Stock (the Corporation may indicate
in such notice
that the election contained in such notice shall continue for later
periods
until revised by a subsequent notice). Dividends on the Preferred
Stock shall be
calculated on the basis of a 360-day year, consisting of twelve 30
calendar day
periods, shall accrue daily commencing on the Original Issue Date,
and shall be
deemed to accrue from such date whether or not earned or declared
and whether or
not there are profits, surplus or other funds of the Corporation
legally
available for the payment of dividends. Except as otherwise provided
herein, if
at any time the Corporation pays dividends partially in cash and
partially in
shares, then such payment shall be distributed ratably among the
Holders based
upon the number of shares of Preferred Stock held by each Holder
on such
Dividend Payment Date. Any dividends, whether paid in cash or shares
of Common
Stock, that are not paid within three Trading Days following a Dividend
Payment
Date shall continue to accrue and shall entail a late fee, which
must be paid in
cash, at the rate of 18% per annum or the lesser rate permitted by
applicable
law (such fees to accrue daily, from the Dividend Payment Date through
and
including the date of payment). If at any time the Corporation delivers
a notice
to the Holders of its election to pay the dividends in shares of
Common Stock,
the Corporation shall timely file a prospectus supplement pursuant
to Rule 424
disclosing such election.
b) So
long
as any Preferred Stock shall remain outstanding, neither the Corporation
nor any
Subsidiary thereof shall redeem, purchase or otherwise acquire directly
or
indirectly any Junior Securities. So long as any Preferred Stock
shall remain
outstanding, neither the Corporation nor any Subsidiary thereof shall
directly
or indirectly pay or declare any dividend or make any distribution
(other than a
dividend or distribution described in Section 6 or dividends due
and paid in the
ordinary course on preferred stock of the Corporation at such times
when the
Corporation is in compliance with its payment and other obligations
hereunder)
upon, nor shall any distribution be made in respect of, any Junior
Securities so
long as any dividends due on the Preferred Stock remain unpaid, nor
shall any
monies be set aside for or applied to the purchase or redemption
(through a
sinking fund or otherwise) of any Junior Securities.
Section
4.
Voting
Rights.
Except
as otherwise provided herein and as otherwise required by law, the
Preferred
Stock shall have no voting rights. However, so long as any shares
of Preferred
Stock are outstanding, the Corporation shall not, without the affirmative
vote
of the Holders of at least 81% of the shares of the Preferred Stock
then
outstanding, (a) alter or change adversely the powers, preferences
or rights
given to the Preferred Stock or alter or amend this Certificate of
Designation,
(b) authorize or create any class of stock ranking as to dividends,
redemption
or distribution of assets upon a Liquidation (as defined in Section
5) senior to
or otherwise pari passu with the Preferred Stock, (c) amend its articles
of
incorporation or other charter documents so as to affect adversely
any rights of
the Holders, (d) increase the authorized number of shares of Preferred
Stock, or
(e) enter into any agreement with respect to the foregoing.
Section
5.
Liquidation.
Upon
any liquidation, dissolution or winding-up of the Corporation, whether
voluntary
or involuntary (a “Liquidation”),
the
Holders shall be entitled to receive out of the assets of the Corporation,
whether such assets are capital or surplus, for each share of Preferred
Stock an
amount equal to the Stated Value per share plus any accrued and unpaid
dividends
thereon and any other fees or liquidated damages owing thereon before
any
distribution or payment shall be made to the holders of any Junior
Securities,
and if the assets of the Corporation shall be insufficient to pay
in full such
amounts, then the entire assets to be distributed to the Holders
shall be
distributed among the Holders ratably in accordance with the respective
amounts
that would be payable on such shares if all amounts payable thereon
were paid in
full, pari passu
with the
Corporation’s Series A Convertible Preferred Stock and the Series B 9%
Convertible Preferred Stock treated together as a class based upon
the
liquidation preferences of each such series. A Fundamental Transaction
or Change
of Control Transaction shall not be treated as a Liquidation. The
Corporation
shall mail written notice of any such Liquidation, not less than
45 days prior
to the payment date stated therein, to each record Holder.
Section
6.
Conversion.
a) Conversions
at Option of Holder.
Each
share of Preferred Stock shall be convertible into that number of
shares of
Common Stock (subject to the limitations set forth in Sections 6(c))
determined
by dividing the Stated Value of such share of Preferred Stock by
the Conversion
Price, at the option of the Holder, at any time and from time to
time from and
after the Original Issue Date. Holders shall effect conversions by
providing the
Corporation with the form of conversion notice attached hereto as
Annex
A
(a
“Notice
of Conversion”).
Each
Notice of Conversion shall specify the number of shares of Preferred
Stock to be
converted, the number of shares of Preferred Stock owned prior to
the conversion
at issue, the number of shares of Preferred Stock owned subsequent
to the
conversion at issue and the date on which such conversion is to be
effected,
which date may not be prior to the date the Holder delivers such
Notice of
Conversion to the Corporation by facsimile (the “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion
Date
shall be the date that such Notice of Conversion to the Corporation
is deemed
delivered hereunder. The calculations and entries set forth in the
Notice of
Conversion shall control in the absence of manifest or mathematical
error. To
effect conversions, as the case may be, of shares of Preferred Stock,
a Holder
shall not be required to surrender the certificate(s) representing
such shares
of Preferred Stock to the Corporation unless all of the shares of
Preferred
Stock represented thereby are so converted, in which case such Holder
shall
deliver the certificate representing such shares of Preferred Stock
promptly
following the Conversion Date at issue. Shares of Preferred Stock
converted into
Common Stock or redeemed in accordance with the terms hereof shall
be canceled
and may not be reissued.
b) Conversion
Price.
The
conversion price for the Preferred Stock shall equal $0.85
(the
“Conversion
Price”),
subject to adjustment herein.
c) Beneficial
Ownership Limitation. The
Corporation shall not effect any conversion of the Preferred Stock,
and a Holder
shall not have the right to convert any portion of the Preferred
Stock, to the
extent that, after giving effect to the conversion set forth on the
applicable
Notice of Conversion, such Holder (together with such Holder’s Affiliates, and
any other Person or entity acting as a group together with such Holder
or any of
such Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned
by such Holder
and its Affiliates shall include the number of shares of Common Stock
issuable
upon conversion of the Preferred Stock with respect to which such
determination
is being made, but shall exclude the number of shares of Common Stock
which are
issuable upon (A) conversion of the remaining, unconverted Stated
Value of
Preferred Stock beneficially owned by such Holder or any of its Affiliates
and
(B) exercise or conversion of the unexercised or unconverted portion
of any
other securities of the Corporation subject to a limitation on conversion
or
exercise analogous to the limitation contained herein (including
the Warrants)
beneficially owned by such Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 6(c),
beneficial
ownership shall be calculated in accordance with Section 13(d) of
the Exchange
Act and the rules and regulations promulgated thereunder. To the
extent that the
limitation contained in this Section 6(c) applies, the determination
of whether
the Preferred Stock is convertible (in relation to other securities
owned by
such Holder together with any Affiliates) and of how many shares
of Preferred
Stock are convertible shall be in the sole discretion of such Holder,
and the
submission of a Notice of Conversion shall be deemed to be such Holder’s
determination of whether the shares of Preferred Stock may be converted
(in
relation to other securities owned by such Holder together with any
Affiliates)
and how many shares of the Preferred Stock are convertible, in each
case subject
to such aggregate percentage limitations. To ensure compliance with
this
restriction, each Holder will be deemed to represent to the Corporation
each
time it delivers a Notice of Conversion that such Notice of Conversion
has not
violated the restrictions set forth in this paragraph and the Corporation
shall
have no obligation to verify or confirm the accuracy of such determination.
In
addition, a determination as to any group status as contemplated
above shall be
determined in accordance with Section 13(d) of the Exchange Act and
the
rules and regulations promulgated thereunder.
For
purposes of this Section 6(c), in determining the number of outstanding
shares
of Common Stock, a Holder may rely on the number of outstanding shares
of Common
Stock as stated in the most recent of the following: (A) the Corporation’s most
recent Form [10-QSB or Form [10-KSB, as the case may be, (B) a more
recent
public announcement by the Corporation or (C) a more recent notice
by the
Corporation or the Corporation’s transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of a
Holder, the Corporation shall within two Trading Days confirm orally
and in
writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise
of
securities of the Corporation, including the Preferred Stock, by
such Holder or
its Affiliates since the date as of which such number of outstanding
shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately
after giving
effect to the issuance of shares of Common Stock issuable upon conversion
of
Preferred Stock held by the applicable Holder. The Beneficial Ownership
Limitation provisions of this Section 6(c) may be waived by such
Holder, at the
election of such Holder, upon not less than 61 days’ prior notice to the
Corporation, to change the Beneficial Ownership Limitation to 9.99%
of the
number of shares of the Common Stock outstanding immediately after
giving effect
to the issuance of shares of Common Stock upon conversion of Preferred
Stock
held by the applicable Holder and the provisions of this Section
6(c) shall
continue to apply. Upon such a change by a Holder of the Beneficial
Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the
Beneficial
Ownership Limitation shall not be further waived by such Holder.
The provisions
of this paragraph shall be construed and implemented in a manner
otherwise than
in strict conformity with the terms of this Section 6(c) to correct
this
paragraph (or any portion hereof) which may be defective or inconsistent
with
the intended Beneficial Ownership Limitation herein contained or
to make changes
or supplements necessary or desirable to properly give effect to
such
limitation.
The
limitations contained in this paragraph shall apply to a successor
holder of
Preferred Stock.
d) Mechanics
of Conversion
i. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Corporation shall deliver to the Holder (A) a certificate or certificates
which,
after the Effective Date, shall be free of restrictive legends and
trading
restrictions (other than those required by the Purchase Agreement)
representing
the number of shares of Common Stock being acquired upon the conversion
of
shares of Preferred Stock, and (B) a bank check in the amount of
accrued and
unpaid dividends (if the Corporation has elected or is required to
pay accrued
dividends in cash). After the Effective Date, the Corporation shall,
upon
request of the Holder, deliver any certificate or certificates required
to be
delivered by the Corporation under this Section electronically through
the
Depository Trust Company or another established clearing corporation
performing
similar functions if the Corporation’s transfer agent is a participant in such
system. If in the case of any Notice of Conversion such certificate
or
certificates are not delivered to or as directed by the applicable
Holder by the
third Trading Day after the Conversion Date, the Holder shall be
entitled to
elect by written notice to the Corporation at any time on or before
its receipt
of such certificate or certificates thereafter, to rescind such conversion,
in
which event the Corporation shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.
ii. Obligation
Absolute; Partial Liquidated Damages.
The
Corporation’s obligation to issue and deliver the Conversion Shares upon
conversion of Preferred Stock in accordance with the terms hereof
are absolute
and unconditional, irrespective of any action or inaction by a Holder
to enforce
the same, any waiver or consent with respect to any provision hereof,
the
recovery of any judgment against any Person or any action to enforce
the same,
or any setoff, counterclaim, recoupment, limitation or termination,
or any
breach or alleged breach by such Holder or any other Person of any
obligation to
the Corporation or any violation or alleged violation of law by such
Holder or
any other Person, and irrespective of any other circumstance which
might
otherwise limit such obligation of the Corporation to such Holder
in connection
with the issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Corporation of
any such
action that the Corporation may have against such Holder. In the
event a Holder
shall elect to convert any or all of the Stated Value of its Preferred
Stock,
the Corporation may not refuse conversion based on any claim that
such Holder or
any one associated or affiliated with such Holder has been engaged
in any
violation of law, agreement or for any other reason, unless an injunction
from a
court, on notice to Holder, restraining and/or enjoining conversion
of all or
part of the Preferred Stock of such Holder shall have been sought
and obtained,
and the Corporation posts a surety bond for the benefit of such Holder
in the
amount of 150% of the Stated Value of Preferred Stock which is subject
to the
injunction, which bond shall remain in effect until the completion
of
arbitration/litigation of the underlying dispute and the proceeds
of which shall
be payable to such Holder to the extent it obtains judgment. In the
absence of
such injunction, the Corporation shall issue Conversion Shares and,
if
applicable, cash, upon a properly noticed conversion. If the Corporation
fails
to deliver to a Holder such certificate or certificates pursuant
to Section
6(e)(i) on the second Trading Day after the Share Delivery Date applicable
to
such conversion, the Corporation shall pay to such Holder, in cash,
as
liquidated damages and not as a penalty, for each $5,000 of Stated
Value of
Preferred Stock being converted, $50 per Trading Day (increasing
to $100 per
Trading Day after the third Trading Day and increasing to $200 per
Trading Day
after the sixth Trading Day after such damages begin to accrue) for
each Trading
Day after such second Trading Day after the Share Delivery Date until
such
certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare a Triggering Event pursuant to Section
9 for
the Corporation’s failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all
remedies
available to it hereunder, at law or in equity including, without
limitation, a
decree of specific performance and/or injunctive relief. The Exercise
of any
such rights shall not prohibit a Holder from seeking to enforce damages
pursuant
to any other Section hereof or under applicable law.
iii. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
If the
Corporation fails to deliver to a Holder the applicable certificate
or
certificates by the Share Delivery Date pursuant to Section 6(e)(i),
and if
after such Share Delivery Date such Holder is required by its brokerage
firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm purchases, shares of Common Stock to deliver in satisfaction
of a sale by
such Holder of the Conversion Shares which such Holder was entitled
to receive
upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then
the Corporation shall (A) pay in cash to such Holder (in addition
to any other
remedies available to or elected by such Holder) the amount by which
(x) such
Holder’s total purchase price (including any brokerage commissions) for
the
shares of Common Stock so purchased exceeds (y) the product of (1)
the aggregate
number of shares of Common Stock that such Holder was entitled to
receive from
the conversion at issue multiplied by (2) the actual sale price at
which the
sell order giving rise to such purchase obligation was executed (including
any
brokerage commissions) and (B) at the option of such Holder, either
reissue (if
surrendered) the shares of Preferred Stock equal to the number of
shares of
Preferred Stock submitted for conversion or deliver to such Holder
the number of
shares of Common Stock that would have been issued if the Corporation
had timely
complied with its delivery requirements under Section 6(e)(i). For
example, if a
Holder purchases shares of Common Stock having a total purchase price
of $11,000
to cover a Buy-In with respect to an attempted conversion of shares
of Preferred
Stock with respect to which the actual sale price (including any
brokerage
commissions) giving rise to such purchase obligation was a total
of $10,000
under clause (A) of the immediately preceding sentence, the Corporation
shall be
required to pay such Holder $1,000. The Holder shall provide the
Corporation
written notice indicating the amounts payable to such Holder in respect
of the
Buy-In and, upon request of the Corporation, evidence of the amount
of such
loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without
limitation, a
decree of specific performance and/or injunctive relief with respect
to the
Corporation’s failure to timely deliver certificates representing shares of
Common Stock upon conversion of the shares of Preferred Stock as
required
pursuant to the terms hereof.
iv. Reservation
of Shares Issuable Upon Conversion.
The
Corporation covenants that it will at all times reserve and keep
available out
of its authorized and unissued shares of Common Stock solely for
the purpose of
issuance upon conversion of the Preferred Stock and payment of dividends
for
three years from any point in time on the Preferred Stock, each as
herein
provided, free from preemptive rights or any other actual contingent
purchase
rights of Persons other than the Holders, not less than such number
of shares of
the Common Stock as shall (subject to any additional requirements
of the
Corporation as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of
Section 7) upon the conversion of all outstanding shares of Preferred
Stock. The
Corporation covenants that all shares of Common Stock that shall
be so issuable
shall, upon issue, be duly and validly authorized, issued and fully
paid,
nonassessable and, if the Conversion Shares Registration Statement
is then
effective under the Securities Act, registered for public sale in
accordance
with such Conversion Shares Registration Statement.
v. Fractional
Shares.
Upon a
conversion hereunder, the Corporation shall not be required to issue
stock
certificates representing fractions of shares of Common Stock, but
may if
otherwise permitted, make a cash payment in respect of any final
fraction of a
share based on the VWAP at such time. If the Corporation elects not,
or is
unable, to make such a cash payment, the Holders shall be entitled
to receive,
in lieu of the final fraction of a share, one whole share of Common
Stock.
vi. Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion
of the
Preferred Stock shall be made without charge to the Holders thereof
for any
documentary stamp or similar taxes that may be payable in respect
of the issue
or delivery of such certificates, provided that the Corporation shall
not be
required to pay any tax that may be payable in respect of any transfer
involved
in the issuance and delivery of any such certificate upon conversion
in a name
other than that of the Holders of such shares of Preferred Stock
so converted
and the Corporation shall not be required to issue or deliver such
certificates
unless or until the Person or Persons requesting the issuance thereof
shall have
paid to the Corporation the amount of such tax or shall have established
to the
satisfaction of the Corporation that such tax has been paid.
Section
7.
Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Corporation, at any time while this Preferred Stock is outstanding:
(A) pays a
stock dividend or otherwise makes a distribution or distributions
payable in
shares of Common Stock on shares of Common Stock or any other Common
Stock
Equivalents (which, for avoidance of doubt, shall not include any
shares of
Common Stock issued by the Corporation upon conversion of, or payment
of a
dividend on, this Preferred Stock, the Series A Convertible Preferred
Stock or
the Series B 9% Convertible Preferred Stock); (B) subdivides outstanding
shares
of Common Stock into a larger number of shares; (C) combines (including
by way
of a reverse stock split) outstanding shares of Common Stock into
a smaller
number of shares; or (D) issues, in the event of a reclassification
of shares of
the Common Stock, any shares of capital stock of the Corporation,
then the
Conversion Price shall be multiplied by a fraction of which the numerator
shall
be the number of shares of Common Stock (excluding any treasury shares
of the
Corporation) outstanding immediately before such event and of which
the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this
Section 7(a)
shall become effective immediately after the record date for the
determination
of stockholders entitled to receive such dividend or distribution
and shall
become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
b) Subsequent
Equity Sales.
If, at
any time while this Preferred Stock is outstanding, the Corporation
or any
Subsidiary, as applicable, sells or grants any option to purchase
or sells or
grants any right to reprice its securities, or otherwise disposes
of or issues
(or announces any sale, grant or any option to purchase or other
disposition)
any Common Stock or Common Stock Equivalents entitling any Person
to acquire
shares of Common Stock at an effective price per share that is lower
than the
then Conversion Price (such lower price, the “Base
Conversion Price”
and
such issuances collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued
shall at
any time, whether by operation of purchase price adjustments, reset
provisions,
floating conversion, exercise or exchange prices or otherwise, or
due to
warrants, options or rights per share which are issued in connection
with such
issuance, be entitled to receive shares of Common Stock at an effective
price
per share that is lower than the Conversion Price, such issuance
shall be deemed
to have occurred for less than the Conversion Price on such date
of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the
Base
Conversion Price. Notwithstanding
the foregoing, no adjustment will be made under this Section 7(b)
in respect of
an Exempt Issuance.
The
Corporation shall notify the Holders in writing, no later than the
Business Day
following the issuance of any Common Stock or Common Stock Equivalents
subject
to this Section 7(b), indicating therein the applicable issuance
price, or
applicable reset price, exchange price, conversion price and other
pricing terms
(such notice, the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Corporation provides
a Dilutive
Issuance Notice pursuant to this Section 7(b), upon the occurrence
of any
Dilutive Issuance, the Holders are entitled to receive a number of
Conversion
Shares based upon the Base Conversion Price on or after the date
of such
Dilutive Issuance, regardless of whether a Holder accurately refers
to the Base
Conversion Price in the Notice of Conversion.
c) Subsequent
Rights Offerings.
If the
Corporation, at any time while the Preferred Stock is outstanding,
shall issue
rights, options or warrants to all holders of Common Stock (and not
to Holders)
entitling them to subscribe for or purchase shares of Common Stock
at a price
per share less than the VWAP at the record date mentioned below,
then the
Conversion Price shall be multiplied by a fraction, of which the
denominator
shall be the number of shares of the Common Stock outstanding on
the date of
issuance of such rights or warrants plus the number of additional
shares of
Common Stock offered for subscription or purchase, and of which the
numerator
shall be the number of shares of the Common Stock outstanding on
the date of
issuance of such rights or warrants plus the number of shares which
the
aggregate offering price of the total number of shares so offered
(assuming
receipt by the Corporation in full of all consideration payable upon
exercise of
such rights, options or warrants) would purchase at such VWAP. Such
adjustment
shall be made whenever such rights or warrants are issued, and shall
become
effective immediately after the record date for the determination
of
stockholders entitled to receive such rights, options or warrants.
d) Pro
Rata Distributions.
If the
Corporation, at any time while Preferred Stock is outstanding, shall
distribute
to all holders of Common Stock (and not to Holders) evidences of
its
indebtedness or assets or rights or warrants to subscribe for or
purchase any
security, then in each such case the Conversion Price shall be determined
by
multiplying such Conversion Price in effect immediately prior to
the record date
fixed for determination of stockholders entitled to receive such
distribution by
a fraction of which the denominator shall be the VWAP determined
as of the
record date mentioned above, and of which the numerator shall be
such VWAP on
such record date less the then fair market value at such record date
of the
portion of such assets or evidence of indebtedness so distributed
applicable to
one outstanding share of the Common Stock as determined by the Board
of
Directors in good faith. In either case the adjustments shall be
described in a
statement provided to the Holders of the portion of assets or evidences
of
indebtedness so distributed or such subscription rights applicable
to one share
of Common Stock. Such adjustment shall be made whenever any such
distribution is
made and shall become effective immediately after the record date
mentioned
above.
e) Fundamental
Transaction.
If, at
any time while this Preferred Stock is outstanding, (A) the Corporation
effects
any merger or consolidation of the Corporation with or into another
Person, (B)
the Corporation effects any sale of all or substantially all of its
assets in
one or a series of related transactions, (C) any tender offer or
exchange offer
(whether by the Corporation or another Person) is completed pursuant
to which
holders of Common Stock are permitted to tender or exchange their
shares for
other securities, cash or property, or (D) the Corporation effects
any
reclassification of the Common Stock or any compulsory share exchange
pursuant
to which the Common Stock is effectively converted into or exchanged
for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then
upon any subsequent conversion of this Preferred Stock, the Holders
shall have
the right to receive, for each Conversion Share that would have been
issuable
upon such conversion immediately prior to the occurance of such Fundamental
Transaction, the same kind and amount of securities, cash or property
as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction,
the holder of one share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion
Price shall
be appropriately adjusted to apply to such Alternate Consideration
based on the
amount of Alternate Consideration issuable in respect of one share
of Common
Stock in such Fundamental Transaction, and the Corporation shall
apportion the
Conversion Price among the Alternate Consideration in a reasonable
manner
reflecting the relative value of any different components of the
Alternate
Consideration. If holders of Common Stock are given any choice as
to the
securities, cash or property to be received in a Fundamental Transaction,
then
the Holders shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Preferred Stock following such
Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any
successor to the Corporation or surviving entity in such Fundamental
Transaction
shall file a new Certificate of Designation with the same terms and
conditions
and issue to the Holders new preferred stock consistent with the
foregoing
provisions and evidencing the Holders’ right to convert such preferred stock
into Alternate Consideration. The terms of any agreement pursuant
to which a
Fundamental Transaction is effected shall include terms requiring
any such
successor or surviving entity to comply with the provisions of this
Section 7(e)
and insuring that this Preferred Stock (or any such replacement security)
will
be similarly adjusted upon any subsequent transaction analogous to
a Fundamental
Transaction.
f) Exempt
Issuance.
Notwithstanding
the foregoing, no adjustment will be made under this Section 7 in
respect of an
Exempt Issuance.
g) Calculations.
All
calculations under this Section 7 shall be made to the nearest cent
or the
nearest 1/100th of a share, as the case may be. The number of shares
of Common
Stock outstanding at any given time shall not include shares owned
or held by or
for the account of the Corporation, and the description of any such
shares of
Common Stock shall be considered on issue or sale of Common Stock.
For purposes
of this Section 7, the number of shares of Common Stock deemed to
be issued and
outstanding as of a given date shall be the sum of the number of
shares of
Common Stock (excluding treasury shares, if any) issued and
outstanding.
h) Notice
to Holders.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provisions
of this
Section 7, the Corporation shall promptly mail to each Holder a notice
setting
forth the Conversion Price after such adjustment and setting forth
a brief
statement of the facts requiring such adjustment. If the Corporation
issues a
variable rate security, despite the prohibition thereon in the Purchase
Agreement, the Corporation shall be deemed to have issued Common
Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price
at which
such securities may be converted or exercised in the case of a Variable
Rate
Transaction (as defined in the Purchase Agreement), or the lowest
possible
adjustment price in the case of an MFN Transaction (as defined in
the Purchase
Agreement).
ii. Notice
to Allow Conversion by Holder.
If (A)
the Corporation shall declare a dividend (or any other distribution)
on the
Common Stock; (B) the Corporation shall declare a special nonrecurring
cash
dividend on or a redemption of the Common Stock; (C) the Corporation
shall
authorize the granting to all holders of the Common Stock rights
or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any
rights; (D) the approval of any stockholders of the Corporation shall
be
required in connection with any reclassification of the Common Stock,
any
consolidation or merger to which the Corporation is a party, any
sale or
transfer of all or substantially all of the assets of the Corporation,
of any
compulsory share exchange whereby the Common Stock is converted into
other
securities, cash or property; (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation; then,
in each case,
the Corporation shall cause to be filed at each office or agency
maintained for
the purpose of conversion of the Preferred Stock, and shall cause
to be
mailed
to
the Holders at their last addresses as they shall appear upon the
stock
books of
the
Corporation, at least 20 calendar days prior to the applicable record
or
effective date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken,
the date as of which the holders of the Common Stock of record to
be entitled to
such dividend, distributions, redemption, rights or warrants are
to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or
close, and the date as of which it is expected that holders of the
Common Stock
of record shall be entitled to exchange their shares of the Common
Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided,
that
the failure to mail such notice or any defect therein or in the mailing
thereof
shall not affect the validity of the corporate action required to
be specified
in such notice. Holders are entitled to convert the Conversion Amount
of
Preferred Stock during the 20-day period commencing the date of such
notice to
the effective date of the event triggering such notice.
Section
8.
Forced
Conversion
a) Forced
Conversion.
Notwithstanding anything herein to the contrary, if after the Effective
Date (i)
the VWAP for the Common Stock for each of any 20 consecutive Trading
Days
(“Threshold
Period”),
which
20 consecutive Trading Day period shall have commenced only after
the Effective
Date, exceeds $2.00, subject to adjustment for reverse and forward
stock splits
and the like, and (ii) the trading volume of the Common Stock for
each Trading
Day during such Threshold Period is at least 100,000 shares, subject
to
adjustment for reverse and forward stock splits and the like, the
Corporation
may, within 1 Trading Day after the end of any such Threshold Period,
deliver a
written notice to all Holders (a “Forced
Conversion Notice”
and
the
date such notice is delivered to the Holders, the “Forced
Conversion Notice Date”)
to
cause each Holder to convert all or part of such Holder’s Preferred Stock (as
specified in such Forced Conversion Notice) plus all accrued but
unpaid
dividends thereon and all liquidated damages and other amounts due
in respect of
the Preferred Stock pursuant to Section 6, it being agreed that the
“Conversion
Date” for purposes of Section 6 shall be deemed to occur on the third Trading
Day following the Forced Conversion Notice Date (such third Trading
Day, the
“Forced
Conversion Date”).
The
Corporation may not deliver a Forced Conversion Notice, and any Forced
Conversion Notice delivered by the Corporation shall not be effective,
unless
all of the Equity Conditions have been met on each Trading Day occurring
during
the applicable Threshold Period through and including the later of
the Forced
Conversion Date and the Trading Day after the date that the Conversion
Shares
issuable pursuant to such conversion are actually delivered to the
Holders
pursuant to the Forced Conversion Notice. Any Forced Conversion Notices
shall be
applied ratably to all of the Holders in proportion to each Holder’s initial
purchases of Preferred Stock hereunder, provided that any voluntary
conversions
by a Holder shall be applied against such Holder’s pro-rata allocation thereby
decreasing the aggregate amount forcibly converted hereunder. Notwithstanding
anything herein to the contrary, in the event the Corporation issues
a Forced
Conversion Notice and because of the beneficial ownership limitation
of Section
6(c) it is unable to force the Holders to convert all of the Preferred
Stock, as
to any Preferred Stock outstanding, the Corporation shall not have
the right to
issue another Forced Conversion Notice for at least 30 days and at
such time all
conditions hereunder must again be met, including the pricing condition
and the
Equity Conditions. For purposes of clarification, a Forced Conversion
shall be
subject to all of the provisions of Section 6, including, without
limitation,
the provisions requiring payment of liquidated damages and limitations
on
conversions.
Section
9.
Redemption
Upon Triggering Events.
a) “Triggering
Event”
means
any one or more of the following events (whatever the reason and
whether it
shall be voluntary or involuntary or effected by operation of law
or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of
any administrative or governmental body):
i. the
failure of a Conversion Shares Registration Statement to be declared
effective
by the Commission on or prior to the 210th
day
after the Original Issue Date;
ii. if,
during the Effectiveness Period, the effectiveness of the Conversion
Shares
Registration Statement lapses for any reason for more than an aggregate
of 25
calendar days (which need not be consecutive days) during any 12
month period,
or the Holder shall not be permitted to resell Registrable Securities
under the
Conversion Shares Registration Statement for more than an aggregate
of 25
calendar days (which need not be consecutive days) during any 12
month period,
and in each case the shares of Common Stock into which such Holder’s Preferred
Stock can be converted cannot be sold in the public securities market
pursuant
to Rule 144(k) under the Securities Act, provided, that the cause
of such lapse
or unavailability is not due to factors solely within the control
of such holder
of Preferred Stock;
iii. the
Corporation shall fail to deliver certificates representing Conversion
Shares
issuable upon a conversion hereunder that comply with the provisions
hereof
prior to the 9th
Trading
Day after such shares are required to be delivered hereunder, or
the Corporation
shall provide written notice to any Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for
conversion of any shares of Preferred Stock in accordance with the
terms
hereof;
iv. one
of
the Events (as defined in the Registration Rights Agreement) described
in
subsections (i), (ii) or (iii) of Section 2(b) of the Registration
Rights
Agreement shall not have been cured to the satisfaction of the Holders
prior to
the expiration of 30 days from the Event Date (as defined in the
Registration
Rights Agreement) relating thereto (other than an Event resulting
from a failure
of a Conversion Shares Registration Statement to be declared effective
by the
Commission on or prior to the 210th day after the Original Issue
Date, which
shall be covered by Section 9(a)(i));
v. the
Corporation shall fail for any reason to pay in full the amount of
cash due
pursuant to a Buy-In within 15 days after notice therefor is delivered
hereunder
or shall fail to pay all amounts owed on account of an Event within
15 days of
the date due;
vi. the
Corporation shall fail to have available a sufficient number of authorized
and
unreserved shares of Common Stock to issue to such Holder upon a
conversion
hereunder;
vii. the
Corporation shall fail to observe or perform any other covenant,
agreement or
warranty contained in, or otherwise commit any breach of the Transaction
Documents, and such failure or breach shall not, if subject to the
possibility
of a cure by the Corporation, have been remedied within 30 calendar
days after
the date on which written notice of such failure or breach shall
have been
given;
viii. the
Corporation shall redeem more than a de minimis
number
of Junior Securities other than as to repurchases of Common Stock
or Common
Stock Equivalents from departing officers and directors of the Corporation,
provided that, while any of the Preferred Stock remains outstanding,
such
repurchases shall not exceed an aggregate of $100,000 from all officers
and
directors;
ix. the
Corporation shall be party to a Change of Control Transaction;
x. there
shall have occurred a Bankruptcy Event; or
xi. the
Common Stock shall fail to be listed or quoted for trading on a Trading
Market
for more than 7 Trading Days, which need not be consecutive Trading
Days.
b) Upon
the
occurrence of a Triggering Event, each Holder shall (in addition
to all other
rights it may have hereunder or under applicable law) have the right,
exercisable at the sole option of such Holder, to require the Corporation
to
redeem all of the Preferred Stock then held by such Holder for a
redemption
price, in cash, equal to the Triggering Redemption Amount. The Triggering
Redemption Amount shall be due and payable within 5 Trading Days
of the date on
which the notice for the payment therefor is provided by a Holder
(the
“Triggering
Redemption Payment Date”).
If
the Corporation fails to pay the Triggering Redemption Amount hereunder
in full
pursuant to this Section on the date such amount is due in accordance
with this
Section, the Corporation will pay interest thereon at a rate of 18%
per annum
(or such lesser amount permitted by applicable law), accruing daily
from such
date until the Triggering Redemption Amount, plus all such interest
thereon, is
paid in full. For purposes of this Section, a share of Preferred
Stock is
outstanding until such date as the Holder shall have received Conversion
Shares
upon a conversion (or attempted conversion) thereof that meets the
requirements
hereof or has been paid the Triggering Redemption Amount plus all
accrued but
unpaid dividends and all accrued but unpaid liquidated damages in
cash.
Section
10.
Miscellaneous.
a) No
Debt.
So long
as at least 5 shares of Preferred Stock are outstanding, the Corporation
will
not and will not permit any of its Subsidiaries to directly or indirectly
enter
into, create, incur, assume or suffer to exist (or allow any of its
Subsidiaries
to do so) any indebtedness or liens of any kind on or
with
respect to any of its property or assets now owned or hereafter acquired
or any
interest therein or any income or profits therefrom, other than (1)
accounts
payable, equipment leases, other
current payables and other accrued liabilities incurred in connection
with
short-term operating liabilities, (2) accrued interest on the Corporation’s
existing indebtedness as set forth on Schedule 10 hereto, and (3)
up
to
$2,000,000 for non-equity linked debt financing.
b) Notices.
Any and
all notices or other communications or deliveries to be provided
by the Holders
hereunder, including, without limitation, any Notice of Conversion,
shall be in
writing and delivered personally, by facsimile, sent by a nationally
recognized
overnight courier service, addressed to the Corporation, at the address
set
forth above, facsimile number 631-924-6033,
Attn: Chief Financial Officer, Richard Larkin
such
other address or facsimile number as the Corporation may specify
for such
purposes by notice to the Holders delivered in accordance with this
Section. Any
and all notices or other communications or deliveries to be provided
by the
Corporation hereunder shall be in writing and delivered personally,
by
facsimile, sent by a nationally recognized overnight courier service
addressed
to each Holder at the facsimile telephone number or address of such
Holder
appearing on the books of the Corporation, or if no such facsimile
telephone
number or address appears, at the principal place of business of
the Holder. Any
notice or other communication or deliveries hereunder shall be deemed
given and
effective on the earliest of (i) the date of transmission, if such
notice or
communication is delivered via facsimile at the facsimile telephone
number
specified in this Section prior to 5:30 p.m. (New York City time),
(ii) the date
after the date of transmission, if such notice or communication is
delivered via
facsimile at the facsimile telephone number specified in this Section
later than
5:30 p.m. (New York City time) on any date and earlier than 11:59
p.m. (New York
City time) on such date, (iii) the second Business Day following
the date of
mailing, if sent by nationally recognized overnight courier service,
or (iv)
upon actual receipt by the party to whom such notice is required
to be
given.
c) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Certificate of
Designation
shall alter or impair the obligation of the Corporation, which is
absolute and
unconditional, to pay the liquidated damages (if any) on, the shares
of
Preferred Stock at the time, place, and rate, and in the coin or
currency,
herein prescribed.
d) Lost
or Mutilated Preferred Stock Certificate.
If a
Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or
destroyed, the Corporation shall execute and deliver, in exchange
and
substitution for and upon cancellation of a mutilated certificate,
or in lieu of
or in substitution for a lost, stolen or destroyed certificate, a
new
certificate for the shares of Preferred Stock so mutilated, lost,
stolen or
destroyed but only upon receipt of evidence of such loss, theft or
destruction
of such certificate, and of the ownership hereof, and indemnity,
if requested,
all reasonably satisfactory to the Corporation.
e) Governing
Law.
All
questions concerning the construction, validity, enforcement and
interpretation
of this Certificate of Designation shall be governed by and construed
and
enforced in accordance with the internal laws of the State of New
York, without
regard to the principles of conflicts of law thereof. Each party
agrees that all
legal proceedings concerning the interpretations, enforcement and
defense of the
transactions contemplated by any of the Transaction Documents (whether
brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state
and federal
courts sitting in the City of New York, Borough of Manhattan (the
“New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed
herein
(including with respect to the enforcement of any of the Transaction
Documents),
and hereby irrevocably waives, and agrees not to assert in any suit,
action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, or such New York Courts are improper or inconvenient
venue for
such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action
or
proceeding by mailing a copy thereof via registered or certified
mail or
overnight delivery (with evidence of delivery) to such party at the
address in
effect for notices to it under this Certificate of Designation and
agrees that
such service shall constitute good and sufficient service of process
and notice
thereof. Nothing contained herein shall be deemed to limit in any
way any right
to serve process in any manner permitted by law. Each party hereto
hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and
all right to trial by jury in any legal proceeding arising out of
or relating to
this Certificate of Designation or the transactions contemplated
hereby. If
either party shall commence an action or proceeding to enforce any
provisions of
this Certificate of Designation, then the prevailing party in such
action or
proceeding shall be reimbursed by the other party for its attorneys
fees and
other costs and expenses incurred with the investigation, preparation
and
prosecution of such action or proceeding.
f) Waiver.
Any
waiver by the Corporation or the Holder of a breach of any provision
of this
Certificate of Designation shall not operate as or be construed to
be a waiver
of any other breach of such provision or of any breach of any other
provision of
this Certificate of Designation. The failure of the Corporation or
the Holder to
insist upon strict adherence to any term of this Certificate of Designation
on
one or more occasions shall not be considered a waiver or deprive
that party of
the right thereafter to insist upon strict adherence to that term
or any other
term of this Certificate of Designation. Any waiver must be in
writing.
g) Severability.
If any
provision of this Certificate of Designation is invalid, illegal
or
unenforceable, the balance of this Certificate of Designation shall
remain in
effect, and if any provision is inapplicable to any Person or circumstance,
it
shall nevertheless remain applicable to all other Persons and circumstances.
If
it shall be found that any interest or other amount deemed interest
due
hereunder violates applicable laws governing usury, the applicable
rate of
interest due hereunder shall automatically be lowered to equal the
maximum
permitted rate of interest.
h) Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on
a day other
than a Business Day, such payment shall be made on the next succeeding
Business
Day.
i) Headings.
The
headings contained herein are for convenience only, do not constitute
a part of
this Certificate of Designation and shall not be deemed to limit
or affect any
of the provisions hereof.
j) Status
of Converted or Redeemed Preferred Stock.
Shares
of Preferred Stock may only be issued pursuant to the Purchase Agreement.
If any
shares of Preferred Stock shall be converted, redeemed or reacquired
by the
Corporation, such shares shall resume the status of authorized but
unissued
shares of preferred stock and shall no longer be designated as Series
C 7%
Convertible Preferred Stock.
*********************
RESOLVED,
FURTHER, that the Chairman, the president or any vice-president,
the Chief
Financial Officer and the secretary or any assistant secretary, of
the
Corporation be and they hereby are authorized and directed to prepare
and file a
Certificate of Designation of Preferences, Rights and Limitations
in accordance
with the foregoing resolution and the provisions of the Nevada Revised
Statutes.
IN
WITNESS WHEREOF, the undersigned have executed this Certificate this
29th day of
September, 2006.
__________________________
Richard
J. Larkin
Title:
Chief Financial Officer
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)
The
undersigned hereby elects to convert the number of shares of Series
C 7%
Convertible Preferred Stock indicated below, into shares of common
stock, par
value $0.01 per share (the “Common
Stock”),
of
Chembio Diagnostics, Inc., a Nevada corporation (the “Corporation”),
according to the conditions hereof, as of the date written below.
If shares are
to be issued in the name of a Person other than undersigned, the
undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the
Corporation in accordance therewith. No fee will be charged to the
Holder for
any conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
_____________________________________________
|
|
Number
of shares of Preferred Stock owned prior to Conversion:
_______________
|
|
Number
of shares of Preferred Stock to be Converted:
________________________
|
|
Stated
Value of shares of Preferred Stock to be Converted:
____________________
|
|
Number
of shares of Common Stock to be Issued:
___________________________
|
|
Applicable
Conversion
Price:____________________________________________
|
|
Number
of shares of Preferred Stock subsequent to Conversion:
________________
|
|
[HOLDER]
By:___________________________________
Name:
Title:
|
Exhibit
31.2 Amended Certificate of Designation
EXHIBIT
A
CHEMBIO
DIAGNOSTICS, INC.
AMENDED
AND RESTATED
CERTIFICATE
OF DESIGNATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
SERIES
C 7% CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 78.1955 OF THE
NEVADA
REVISED STATUTES
The
undersigned, Richard J. Larkin, does hereby certify that:
1.
He is
the Chief Financial Officer of Chembio Diagnostics, Inc., a Nevada
corporation
(the “Corporation”).
2.
The
Corporation is authorized to issue 10,000,000 shares of preferred stock,
297.82698 of which have been issued.
3.
The
following resolutions were duly adopted by the Board of Directors:
WHEREAS,
the Articles of Incorporation of the Corporation provides for a class
of its
authorized stock known as preferred stock, comprised of 10,000,000
shares, $0.01
par value, issuable from time to time in one or more series;
WHEREAS,
the Board of Directors of the Corporation is authorized to fix the
dividend
rights, dividend rate, voting rights, conversion rights, rights and
terms of
redemption and liquidation preferences of any wholly unissued series
of
preferred stock and the number of shares constituting any Series and
the
designation thereof, of any of them; and
WHEREAS,
it is the desire of the Board of Directors of the Corporation, pursuant
to its
authority as aforesaid, to fix the rights, preferences, restrictions
and other
matters relating to a series of the preferred stock, which shall consist
of,
except as otherwise set forth in the Purchase Agreement, up to 205
shares of the
preferred stock which the Corporation has the authority to issue, as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for
the issuance of a series of preferred stock for cash or exchange of
other
securities, rights or property and does hereby fix and determine the
rights,
preferences, restrictions and other matters relating to such series
of preferred
stock as follows:
TERMS
OF PREFERRED STOCK
Section
1.
Definitions.
Capitalized terms used and not otherwise defined herein that are defined
in the
Purchase Agreement shall have the meanings given such terms in the
Purchase
Agreement. For the purposes hereof, the following terms shall have
the following
meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 7(e).
“Bankruptcy
Event”
means
any of the following events: (a) the Corporation or any Significant
Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Corporation or any
Significant
Subsidiary thereof; (b) there is commenced against the Corporation
or any
Significant Subsidiary thereof any such case or proceeding that is
not dismissed
within 60 days after commencement; (c) the Corporation or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief
or other order approving any such case or proceeding is entered; (d)
the
Corporation or any Significant Subsidiary thereof suffers any appointment
of any
custodian or the like for it or any substantial part of its property
that is not
discharged or stayed within 60 calendar days after such appointment;
(e) the
Corporation or any Significant Subsidiary thereof makes a general assignment
for
the benefit of creditors; (f) the Corporation or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a
composition,
adjustment or restructuring of its debts; or (g) the Corporation or
any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or
takes any corporate or other action for the purpose of effecting any
of the
foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 7(b).
“Buy-In”
shall
have the meaning set forth in Section 6(d)(iii).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after
the date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether
through legal or beneficial ownership of capital stock of the Corporation,
by
contract or otherwise) of in excess of 50% of the aggregate voting
power of the
Corporation, or (ii) the Corporation merges into or consolidates with
any other
Person, or any Person merges into or consolidates with the Corporation
and,
after giving effect to such transaction, the stockholders of the Corporation
immediately prior to such transaction own less than 50% of the aggregate
voting
power of the Corporation or the successor entity of such transaction,
or (iii)
the Corporation sells or transfers its assets, as an entirety or substantially
as an entirety, to another Person and the stockholders of the Corporation
immediately prior to such transaction own less than 50% of the aggregate
voting
power of the acquiring entity immediately after the transaction, or
(iv) the
execution by the Corporation of an agreement to which the Corporation
is a party
or by which it is bound, providing for any of the events set forth
above.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
each Holder’s obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the Corporation’s common stock, par value $0.01 per share, and stock of any
other class of securities into which such securities may hereafter
be
reclassified or changed into.
“Common
Stock Equivalents”
means
any securities of the Corporation or the Subsidiaries which would entitle
the
holder thereof to acquire, directly or indirectly, at any time Common
Stock,
including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Conversion
Amount”
means
the sum of the Stated Value at issue.
“Conversion
Date”
shall
have the meaning set forth in Section 6(a).
“Conversion
Price”
shall
have the meaning set forth in Section 6(b).
“Conversion
Shares”
means,
collectively, the shares of Common Stock into which the shares of Preferred
Stock are convertible in accordance with the terms hereof.
“Conversion
Shares Registration Statement”
means
a
registration statement that meets the requirements of the Registration
Rights
Agreement and registers the resale of all Conversion Shares by the
Holder, who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“Dilutive
Issuance”
shall
have the meaning set forth in Section 7(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 7(b).
“Dividend
Payment Date”
shall
have the meaning set forth in Section 3(a).
“Effective
Date”
means
the date that the Conversion Shares Registration Statement is declared
effective
by the Commission.
“Equity
Conditions”
means,
during the period in question, (i)
the
Corporation shall have duly honored all conversions scheduled to occur
or
occurring by virtue of one or more Notices of Conversion of the applicable
Holder on or prior to the dates so requested or required, if any, (ii)
the
Corporation shall have paid all liquidated damages and other amounts
owing to
the applicable Holder in respect of the Preferred Stock, (iii)
there is an effective Conversion Shares Registration Statement pursuant
to which
the Holders are permitted to utilize the prospectus thereunder to resell
all of
the shares of Common Stock issuable pursuant to the Transaction Documents
(and
the Corporation believes, in good faith, that such effectiveness will
continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on a
Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on such Trading Market (and the Corporation
believes, in good faith, that trading of the Common Stock on a Trading
Market
will continue uninterrupted for the foreseeable future), (v) there
is a
sufficient number of authorized, but unissued and otherwise unreserved,
shares
of Common Stock for the issuance of all of the shares of Common Stock
issuable
pursuant to the Transaction Documents, (vi) there is no existing Triggering
Event or no existing event which, with the passage of time or the giving
of
notice, would constitute a Triggering Event, (vii) the issuance of
the shares in
question to the applicable Holder would not violate the limitations
set forth in
Section 6(c), (viii)
there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated
and
(ix) the applicable Holder is not in possession of any information
that
constitutes, or may constitute, material non-public information.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulation
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees,
officers,
consultants, or directors of the Corporation pursuant to any stock
or option
plan or other resolution duly adopted by a majority of the non-employee
members
of the Board of Directors of the Corporation or a majority of the members
of a
committee of non-employee directors established for such purpose, (b)
securities
upon the exercise of or conversion of any Securities issued hereunder,
convertible securities, options or warrants issued and outstanding
on the date
of the Purchase Agreement, provided that such securities have not been
amended
since the date of the Purchase Agreement to increase the number of
such
securities or to decrease the exercise or conversion price of any such
securities (except pursuant to any anti-dilution adjustment contained
therein),
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself
or through
its subsidiaries, an operating company in a business reasonably deemed
by the
Corporation’s Board of Directors to be strategically advantageous to the
business of the Corporation and in which the Corporation receives benefits
in
addition to the investment of funds, but shall not include a transaction
in
which the Corporation is issuing securities primarily for the purpose
of raising
capital or to an entity whose primary business is investing in securities
and
(d) shares issued as dividend payments on the Series A Convertible
Preferred
Stock, the Series B 9% Convertible Preferred Stock and the Preferred
Stock.
“Forced
Conversion Notice”
shall
have the meaning set forth in Section 8(a).
“Forced
Conversion Notice Date”
shall
have the meaning set forth in Section 8(a).
“Fundamental
Transaction”
shall
have the meaning set forth in Section 7(e).
“Holder”
shall
have the meaning given such term in Section 2.
“Junior
Securities”
means
the Common Stock and all other Common Stock Equivalents of the Corporation
other
than those securities which are explicitly senior or pari passu
to the
Preferred Stock in dividend rights or liquidation preference.
“Liquidation”
shall
have the meaning given such term in Section 5.
“New
York Courts”
shall
have the meaning given such term in Section 10(e).
“Notice
of Conversion”
shall
have the meaning given such term in Section 6(a).
“Original
Issue Date”
shall
mean the date of the first issuance of any shares of the Preferred
Stock
regardless of the number of transfers of any particular shares of Preferred
Stock and regardless of the number of certificates which may be issued
to
evidence such Preferred Stock.
“Person”
means
a
corporation, an association, a partnership, an organization, a business,
an
individual, a government or political subdivision thereof or a governmental
agency.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of September 29, 2006,
to which the
Corporation and the original Holders are parties, as amended, modified
or
supplemented from time to time in accordance with its terms.
“Registration
Rights Agreement”
as
to a
Holder, means the Registration Rights Agreement entered into to which
the
Corporation and such Holder are parties, as amended, modified or supplemented
from time to time in accordance with its terms.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning given such term in Section 6(d).
“Stated
Value”
shall
have the meaning given such term in Section 2.
“Subscription
Amount”
shall
mean, as to each Purchaser, the amount to be paid for the Preferred
Stock
purchased pursuant to the Purchase Agreement (or, if applicable to
a Holder, any
other Securities Purchase Agreement entered into for the sale of Preferred
Stock
as permitted hereunder) as specified below such Purchaser’s name on the
signature page of the Purchase Agreement (or other Securities Purchase
Agreement, as applicable) and next to the heading “Subscription Amount”, in
United States Dollars and in immediately available funds.
“Subsidiary”
shall
have the meaning given to such term in the Purchase Agreement.
“Threshold
Period”
shall
have the meaning set forth in Section 6(a).
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the OTC Bulletin Board, the Nasdaq
SmallCap
Market, the American Stock Exchange, the New York Stock Exchange or
the Nasdaq
National Market.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement or, as to any
Holders party
to another Securities Purchase Agreement, as such term is defined in
such
agreement.
“Triggering
Event”
shall
have the meaning set forth in Section 9(a).
“Triggering
Redemption Amount”
for
each share of Preferred Stock means the sum of (i) the greater of (A)
130% of
the Stated Value and (B) the product of (a) the VWAP on the Trading
Day
immediately preceding the date of the Triggering Event and (b) the
Stated Value
divided by the then Conversion Price, (ii) all accrued but unpaid dividends
thereon and (iii) all liquidated damages and other amounts due in respect
of the
Preferred Stock.
“Triggering
Redemption Payment Date”
shall
have the meaning set forth in Section 9(b).
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading
Market,
the daily volume weighted average price of the Common Stock for such
date (or
the nearest preceding date) on the Trading Market on which the Common
Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based
on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if
the Common Stock is not then listed or quoted on a Trading Market and
if prices
for the Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to
its
functions of reporting prices), the most recent bid price per share
of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in
good faith by the Purchasers and reasonably acceptable to the Corporation.
Section
2.
Designation,
Rank, Amount and Par Value.
The
series of preferred stock shall be designated as its Series C 7% Convertible
Preferred Stock (the “Preferred
Stock”)
and
the number of shares so designated shall be 205 (which shall not be
subject to
increase without the consent of all of the holders of the Preferred
Stock (each,
a “Holder”
and
collectively, the “Holders”)).
Each
share of Preferred Stock shall have a par value of $0.01 per share
and a stated
value equal to $50,000 (the “Stated
Value”).
The
Preferred Stock shall rank pari passu to the Corporation’s Series A Convertible
Preferred Stock and the Corporation’s Series B 9% Convertible Preferred Stock as
to payment of dividends and liquidation preference. Capitalized terms
not
otherwise defined herein shall have the meaning given such terms in
Section 1
hereof.
Section
3.
Dividends.
a) Dividends
in Cash or in Kind.
Holders
shall be entitled to receive, and the Corporation shall pay, cumulative
dividends at the rate per share (as a percentage of the Stated Value
per share)
of 7% per annum,
payable
semi-annually on January 1 and July 1, beginning on July 1, 2007 and
on each
Conversion Date (with respect only to Preferred Stock being converted)
(each
such date, a “Dividend
Payment Date”)
(if
any Dividend Payment Date is not a Trading Day, the applicable payment
shall be
due on the next succeeding Trading Day) in cash or duly authorized,
validly
issued, fully paid and non-assessable shares of Common Stock as set
forth in
this Section 3(a), or a combination thereof (the amount to be paid
in shares of
Common Stock, the “Dividend
Share Amount”).
The
form of dividend payments to each Holder shall be determined in the
following
order of priority: (i) if funds are legally available for the payment
of
dividends and the Equity Conditions have not been met during the 20
consecutive
Trading Days immediately prior to the applicable Dividend Payment Date,
in cash
only; (ii) if funds are legally available for the payment of dividends
and the
Equity Conditions have been met during the 20 consecutive Trading Days
immediately prior to the applicable Dividend Payment Date, at the sole
election
of the Corporation, in cash or shares of Common Stock which shall be
valued
solely for such purpose at 90% of the average of the VWAPs for the
20
consecutive Trading Days ending on the Trading Day that is immediately
prior to
the Dividend Payment Date; (iii) if funds are not legally available
for the
payment of dividends and the Equity Conditions have been met during
the 20
consecutive Trading Days immediately prior to the applicable Dividend
Payment
Date, in shares of Common Stock which shall be valued solely for such
purpose at
90% of the average of the VWAPs for the 20 consecutive Trading Days
ending on
the Trading Day that is immediately prior to the Dividend Payment Date;
(iv) if
funds are not legally available for the payment of dividends and the
Equity
Condition relating to an effective Conversion Shares Registration Statement
has
been waived by such Holder, as to such Holder only, in unregistered
shares of
Common Stock which shall be valued solely for such purpose at 90% of
the average
of the VWAPs for the 20 consecutive Trading Days ending on the Trading
Day that
is immediately prior to the Dividend Payment Date; and (v) if funds
are not
legally available for the payment of dividends and the Equity Conditions
have
not been met during the 20 consecutive Trading Days immediately prior
to the
applicable Dividend Payment Date, then, at the election of such Holder,
such
dividends shall accrue to the next Dividend Payment Date or shall be
accreted
to, and increase, the outstanding Stated Value. The Holders shall have
the same
rights and remedies with respect to the delivery of any such shares
as if such
shares were being issued pursuant to Section 6. On the Closing Date
the
Corporation shall have notified the Holders whether or not it may legally
pay
cash dividends as of the Closing Date. The Corporation shall promptly
notify the
Holders at any time the Corporation shall become able or unable, as
the case may
be, to legally pay cash dividends. If at any time the Corporation has
the right
to pay dividends in cash or Common Stock, the Corporation must provide
the
Holders with at least 20 Trading Days’ notice of its election to pay a regularly
scheduled dividend in Common Stock (the Corporation may indicate in
such notice
that the election contained in such notice shall continue for later
periods
until revised by a subsequent notice). Dividends on the Preferred Stock
shall be
calculated on the basis of a 360-day year, consisting of twelve 30
calendar day
periods, shall accrue daily commencing on the Original Issue Date,
and shall be
deemed to accrue from such date whether or not earned or declared and
whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. Except as otherwise provided
herein, if
at any time the Corporation pays dividends partially in cash and partially
in
shares, then such payment shall be distributed ratably among the Holders
based
upon the number of shares of Preferred Stock held by each Holder on
such
Dividend Payment Date. Any dividends, whether paid in cash or shares
of Common
Stock, that are not paid within three Trading Days following a Dividend
Payment
Date shall continue to accrue and shall entail a late fee, which must
be paid in
cash, at the rate of 18% per annum or the lesser rate permitted by
applicable
law (such fees to accrue daily, from the Dividend Payment Date through
and
including the date of payment). If at any time the Corporation delivers
a notice
to the Holders of its election to pay the dividends in shares of Common
Stock,
the Corporation shall timely file a prospectus supplement pursuant
to Rule 424
disclosing such election.
b) So
long
as any Preferred Stock shall remain outstanding, neither the Corporation
nor any
Subsidiary thereof shall redeem, purchase or otherwise acquire directly
or
indirectly any Junior Securities. So long as any Preferred Stock shall
remain
outstanding, neither the Corporation nor any Subsidiary thereof shall
directly
or indirectly pay or declare any dividend or make any distribution
(other than a
dividend or distribution described in Section 6 or dividends due and
paid in the
ordinary course on preferred stock of the Corporation at such times
when the
Corporation is in compliance with its payment and other obligations
hereunder)
upon, nor shall any distribution be made in respect of, any Junior
Securities so
long as any dividends due on the Preferred Stock remain unpaid, nor
shall any
monies be set aside for or applied to the purchase or redemption (through
a
sinking fund or otherwise) of any Junior Securities.
Section
4.
Voting
Rights.
Except
as otherwise provided herein and as otherwise required by law, the
Preferred
Stock shall have no voting rights. However, so long as any shares of
Preferred
Stock are outstanding, the Corporation shall not, without the affirmative
vote
of the Holders of at least 81% of the shares of the Preferred Stock
then
outstanding, (a) alter or change adversely the powers, preferences
or rights
given to the Preferred Stock or alter or amend this Certificate of
Designation,
(b) authorize or create any class of stock ranking as to dividends,
redemption
or distribution of assets upon a Liquidation (as defined in Section
5) senior to
or otherwise pari passu with the Preferred Stock, (c) amend its articles
of
incorporation or other charter documents so as to affect adversely
any rights of
the Holders, (d) increase the authorized number of shares of Preferred
Stock, or
(e) enter into any agreement with respect to the foregoing.
Section
5.
Liquidation.
Upon
any liquidation, dissolution or winding-up of the Corporation, whether
voluntary
or involuntary (a “Liquidation”),
the
Holders shall be entitled to receive out of the assets of the Corporation,
whether such assets are capital or surplus, for each share of Preferred
Stock an
amount equal to the Stated Value per share plus any accrued and unpaid
dividends
thereon and any other fees or liquidated damages owing thereon before
any
distribution or payment shall be made to the holders of any Junior
Securities,
and if the assets of the Corporation shall be insufficient to pay in
full such
amounts, then the entire assets to be distributed to the Holders shall
be
distributed among the Holders ratably in accordance with the respective
amounts
that would be payable on such shares if all amounts payable thereon
were paid in
full, pari passu
with the
Corporation’s Series A Convertible Preferred Stock and the Series B 9%
Convertible Preferred Stock treated together as a class based upon
the
liquidation preferences of each such series. A Fundamental Transaction
or Change
of Control Transaction shall not be treated as a Liquidation. The Corporation
shall mail written notice of any such Liquidation, not less than 45
days prior
to the payment date stated therein, to each record Holder.
Section
6.
Conversion.
a) Conversions
at Option of Holder.
Each
share of Preferred Stock shall be convertible into that number of shares
of
Common Stock (subject to the limitations set forth in Sections 6(c))
determined
by dividing the Stated Value of such share of Preferred Stock by the
Conversion
Price, at the option of the Holder, at any time and from time to time
from and
after the Original Issue Date. Holders shall effect conversions by
providing the
Corporation with the form of conversion notice attached hereto as Annex
A
(a
“Notice
of Conversion”).
Each
Notice of Conversion shall specify the number of shares of Preferred
Stock to be
converted, the number of shares of Preferred Stock owned prior to the
conversion
at issue, the number of shares of Preferred Stock owned subsequent
to the
conversion at issue and the date on which such conversion is to be
effected,
which date may not be prior to the date the Holder delivers such Notice
of
Conversion to the Corporation by facsimile (the “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion
Date
shall be the date that such Notice of Conversion to the Corporation
is deemed
delivered hereunder. The calculations and entries set forth in the
Notice of
Conversion shall control in the absence of manifest or mathematical
error. To
effect conversions, as the case may be, of shares of Preferred Stock,
a Holder
shall not be required to surrender the certificate(s) representing
such shares
of Preferred Stock to the Corporation unless all of the shares of Preferred
Stock represented thereby are so converted, in which case such Holder
shall
deliver the certificate representing such shares of Preferred Stock
promptly
following the Conversion Date at issue. Shares of Preferred Stock converted
into
Common Stock or redeemed in accordance with the terms hereof shall
be canceled
and may not be reissued.
b) Conversion
Price.
The
conversion price for the Preferred Stock shall equal $0.80
(the
“Conversion
Price”),
subject to adjustment herein.
c) Beneficial
Ownership Limitation. The
Corporation shall not effect any conversion of the Preferred Stock,
and a Holder
shall not have the right to convert any portion of the Preferred Stock,
to the
extent that, after giving effect to the conversion set forth on the
applicable
Notice of Conversion, such Holder (together with such Holder’s Affiliates, and
any other Person or entity acting as a group together with such Holder
or any of
such Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by
such Holder
and its Affiliates shall include the number of shares of Common Stock
issuable
upon conversion of the Preferred Stock with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock
which are
issuable upon (A) conversion of the remaining, unconverted Stated Value
of
Preferred Stock beneficially owned by such Holder or any of its Affiliates
and
(B) exercise or conversion of the unexercised or unconverted portion
of any
other securities of the Corporation subject to a limitation on conversion
or
exercise analogous to the limitation contained herein (including the
Warrants)
beneficially owned by such Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 6(c),
beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange
Act and the rules and regulations promulgated thereunder. To the extent
that the
limitation contained in this Section 6(c) applies, the determination
of whether
the Preferred Stock is convertible (in relation to other securities
owned by
such Holder together with any Affiliates) and of how many shares of
Preferred
Stock are convertible shall be in the sole discretion of such Holder,
and the
submission of a Notice of Conversion shall be deemed to be such Holder’s
determination of whether the shares of Preferred Stock may be converted
(in
relation to other securities owned by such Holder together with any
Affiliates)
and how many shares of the Preferred Stock are convertible, in each
case subject
to such aggregate percentage limitations. To ensure compliance with
this
restriction, each Holder will be deemed to represent to the Corporation
each
time it delivers a Notice of Conversion that such Notice of Conversion
has not
violated the restrictions set forth in this paragraph and the Corporation
shall
have no obligation to verify or confirm the accuracy of such determination.
In
addition, a determination as to any group status as contemplated above
shall be
determined in accordance with Section 13(d) of the Exchange Act and
the
rules and regulations promulgated thereunder.
For
purposes of this Section 6(c), in determining the number of outstanding
shares
of Common Stock, a Holder may rely on the number of outstanding shares
of Common
Stock as stated in the most recent of the following: (A) the Corporation’s most
recent Form [10-QSB or Form [10-KSB, as the case may be, (B) a more
recent
public announcement by the Corporation or (C) a more recent notice
by the
Corporation or the Corporation’s transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of a
Holder, the Corporation shall within two Trading Days confirm orally
and in
writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise
of
securities of the Corporation, including the Preferred Stock, by such
Holder or
its Affiliates since the date as of which such number of outstanding
shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately
after giving
effect to the issuance of shares of Common Stock issuable upon conversion
of
Preferred Stock held by the applicable Holder. The Beneficial Ownership
Limitation provisions of this Section 6(c) may be waived by such Holder,
at the
election of such Holder, upon not less than 61 days’ prior notice to the
Corporation, to change the Beneficial Ownership Limitation to 9.99%
of the
number of shares of the Common Stock outstanding immediately after
giving effect
to the issuance of shares of Common Stock upon conversion of Preferred
Stock
held by the applicable Holder and the provisions of this Section 6(c)
shall
continue to apply. Upon such a change by a Holder of the Beneficial
Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the
Beneficial
Ownership Limitation shall not be further waived by such Holder. The
provisions
of this paragraph shall be construed and implemented in a manner otherwise
than
in strict conformity with the terms of this Section 6(c) to correct
this
paragraph (or any portion hereof) which may be defective or inconsistent
with
the intended Beneficial Ownership Limitation herein contained or to
make changes
or supplements necessary or desirable to properly give effect to such
limitation.
The
limitations contained in this paragraph shall apply to a successor
holder of
Preferred Stock.
d) Mechanics
of Conversion
i. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Corporation shall deliver to the Holder (A) a certificate or certificates
which,
after the Effective Date, shall be free of restrictive legends and
trading
restrictions (other than those required by the Purchase Agreement)
representing
the number of shares of Common Stock being acquired upon the conversion
of
shares of Preferred Stock, and (B) a bank check in the amount of accrued
and
unpaid dividends (if the Corporation has elected or is required to
pay accrued
dividends in cash). After the Effective Date, the Corporation shall,
upon
request of the Holder, deliver any certificate or certificates required
to be
delivered by the Corporation under this Section electronically through
the
Depository Trust Company or another established clearing corporation
performing
similar functions if the Corporation’s transfer agent is a participant in such
system. If in the case of any Notice of Conversion such certificate
or
certificates are not delivered to or as directed by the applicable
Holder by the
third Trading Day after the Conversion Date, the Holder shall be entitled
to
elect by written notice to the Corporation at any time on or before
its receipt
of such certificate or certificates thereafter, to rescind such conversion,
in
which event the Corporation shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.
ii. Obligation
Absolute; Partial Liquidated Damages.
The
Corporation’s obligation to issue and deliver the Conversion Shares upon
conversion of Preferred Stock in accordance with the terms hereof are
absolute
and unconditional, irrespective of any action or inaction by a Holder
to enforce
the same, any waiver or consent with respect to any provision hereof,
the
recovery of any judgment against any Person or any action to enforce
the same,
or any setoff, counterclaim, recoupment, limitation or termination,
or any
breach or alleged breach by such Holder or any other Person of any
obligation to
the Corporation or any violation or alleged violation of law by such
Holder or
any other Person, and irrespective of any other circumstance which
might
otherwise limit such obligation of the Corporation to such Holder in
connection
with the issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Corporation of any
such
action that the Corporation may have against such Holder. In the event
a Holder
shall elect to convert any or all of the Stated Value of its Preferred
Stock,
the Corporation may not refuse conversion based on any claim that such
Holder or
any one associated or affiliated with such Holder has been engaged
in any
violation of law, agreement or for any other reason, unless an injunction
from a
court, on notice to Holder, restraining and/or enjoining conversion
of all or
part of the Preferred Stock of such Holder shall have been sought and
obtained,
and the Corporation posts a surety bond for the benefit of such Holder
in the
amount of 150% of the Stated Value of Preferred Stock which is subject
to the
injunction, which bond shall remain in effect until the completion
of
arbitration/litigation of the underlying dispute and the proceeds of
which shall
be payable to such Holder to the extent it obtains judgment. In the
absence of
such injunction, the Corporation shall issue Conversion Shares and,
if
applicable, cash, upon a properly noticed conversion. If the Corporation
fails
to deliver to a Holder such certificate or certificates pursuant to
Section
6(e)(i) on the second Trading Day after the Share Delivery Date applicable
to
such conversion, the Corporation shall pay to such Holder, in cash,
as
liquidated damages and not as a penalty, for each $5,000 of Stated
Value of
Preferred Stock being converted, $50 per Trading Day (increasing to
$100 per
Trading Day after the third Trading Day and increasing to $200 per
Trading Day
after the sixth Trading Day after such damages begin to accrue) for
each Trading
Day after such second Trading Day after the Share Delivery Date until
such
certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare a Triggering Event pursuant to Section
9 for
the Corporation’s failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all
remedies
available to it hereunder, at law or in equity including, without limitation,
a
decree of specific performance and/or injunctive relief. The Exercise
of any
such rights shall not prohibit a Holder from seeking to enforce damages
pursuant
to any other Section hereof or under applicable law.
iii. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
If the
Corporation fails to deliver to a Holder the applicable certificate
or
certificates by the Share Delivery Date pursuant to Section 6(e)(i),
and if
after such Share Delivery Date such Holder is required by its brokerage
firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm purchases, shares of Common Stock to deliver in satisfaction of
a sale by
such Holder of the Conversion Shares which such Holder was entitled
to receive
upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then
the Corporation shall (A) pay in cash to such Holder (in addition to
any other
remedies available to or elected by such Holder) the amount by which
(x) such
Holder’s total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1)
the aggregate
number of shares of Common Stock that such Holder was entitled to receive
from
the conversion at issue multiplied by (2) the actual sale price at
which the
sell order giving rise to such purchase obligation was executed (including
any
brokerage commissions) and (B) at the option of such Holder, either
reissue (if
surrendered) the shares of Preferred Stock equal to the number of shares
of
Preferred Stock submitted for conversion or deliver to such Holder
the number of
shares of Common Stock that would have been issued if the Corporation
had timely
complied with its delivery requirements under Section 6(e)(i). For
example, if a
Holder purchases shares of Common Stock having a total purchase price
of $11,000
to cover a Buy-In with respect to an attempted conversion of shares
of Preferred
Stock with respect to which the actual sale price (including any brokerage
commissions) giving rise to such purchase obligation was a total of
$10,000
under clause (A) of the immediately preceding sentence, the Corporation
shall be
required to pay such Holder $1,000. The Holder shall provide the Corporation
written notice indicating the amounts payable to such Holder in respect
of the
Buy-In and, upon request of the Corporation, evidence of the amount
of such
loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation,
a
decree of specific performance and/or injunctive relief with respect
to the
Corporation’s failure to timely deliver certificates representing shares of
Common Stock upon conversion of the shares of Preferred Stock as required
pursuant to the terms hereof.
iv. Reservation
of Shares Issuable Upon Conversion.
The
Corporation covenants that it will at all times reserve and keep available
out
of its authorized and unissued shares of Common Stock solely for the
purpose of
issuance upon conversion of the Preferred Stock and payment of dividends
for
three years from any point in time on the Preferred Stock, each as
herein
provided, free from preemptive rights or any other actual contingent
purchase
rights of Persons other than the Holders, not less than such number
of shares of
the Common Stock as shall (subject to any additional requirements of
the
Corporation as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of
Section 7) upon the conversion of all outstanding shares of Preferred
Stock. The
Corporation covenants that all shares of Common Stock that shall be
so issuable
shall, upon issue, be duly and validly authorized, issued and fully
paid,
nonassessable and, if the Conversion Shares Registration Statement
is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement.
v. Fractional
Shares.
Upon a
conversion hereunder, the Corporation shall not be required to issue
stock
certificates representing fractions of shares of Common Stock, but
may if
otherwise permitted, make a cash payment in respect of any final fraction
of a
share based on the VWAP at such time. If the Corporation elects not,
or is
unable, to make such a cash payment, the Holders shall be entitled
to receive,
in lieu of the final fraction of a share, one whole share of Common
Stock.
vi. Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion
of the
Preferred Stock shall be made without charge to the Holders thereof
for any
documentary stamp or similar taxes that may be payable in respect of
the issue
or delivery of such certificates, provided that the Corporation shall
not be
required to pay any tax that may be payable in respect of any transfer
involved
in the issuance and delivery of any such certificate upon conversion
in a name
other than that of the Holders of such shares of Preferred Stock so
converted
and the Corporation shall not be required to issue or deliver such
certificates
unless or until the Person or Persons requesting the issuance thereof
shall have
paid to the Corporation the amount of such tax or shall have established
to the
satisfaction of the Corporation that such tax has been paid.
Section
7.
Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Corporation, at any time while this Preferred Stock is outstanding:
(A) pays a
stock dividend or otherwise makes a distribution or distributions payable
in
shares of Common Stock on shares of Common Stock or any other Common
Stock
Equivalents (which, for avoidance of doubt, shall not include any shares
of
Common Stock issued by the Corporation upon conversion of, or payment
of a
dividend on, this Preferred Stock, the Series A Convertible Preferred
Stock or
the Series B 9% Convertible Preferred Stock); (B) subdivides outstanding
shares
of Common Stock into a larger number of shares; (C) combines (including
by way
of a reverse stock split) outstanding shares of Common Stock into a
smaller
number of shares; or (D) issues, in the event of a reclassification
of shares of
the Common Stock, any shares of capital stock of the Corporation, then
the
Conversion Price shall be multiplied by a fraction of which the numerator
shall
be the number of shares of Common Stock (excluding any treasury shares
of the
Corporation) outstanding immediately before such event and of which
the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this
Section 7(a)
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and
shall
become effective immediately after the effective date in the case of
a
subdivision, combination or re-classification.
b) Subsequent
Equity Sales.
If, at
any time while this Preferred Stock is outstanding, the Corporation
or any
Subsidiary, as applicable, sells or grants any option to purchase or
sells or
grants any right to reprice its securities, or otherwise disposes of
or issues
(or announces any sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents entitling any Person to
acquire
shares of Common Stock at an effective price per share that is lower
than the
then Conversion Price (such lower price, the “Base
Conversion Price”
and
such issuances collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued
shall at
any time, whether by operation of purchase price adjustments, reset
provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to
warrants, options or rights per share which are issued in connection
with such
issuance, be entitled to receive shares of Common Stock at an effective
price
per share that is lower than the Conversion Price, such issuance shall
be deemed
to have occurred for less than the Conversion Price on such date of
the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the
Base
Conversion Price. Notwithstanding
the foregoing, no adjustment will be made under this Section 7(b) in
respect of
an Exempt Issuance.
The
Corporation shall notify the Holders in writing, no later than the
Business Day
following the issuance of any Common Stock or Common Stock Equivalents
subject
to this Section 7(b), indicating therein the applicable issuance price,
or
applicable reset price, exchange price, conversion price and other
pricing terms
(such notice, the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Corporation provides
a Dilutive
Issuance Notice pursuant to this Section 7(b), upon the occurrence
of any
Dilutive Issuance, the Holders are entitled to receive a number of
Conversion
Shares based upon the Base Conversion Price on or after the date of
such
Dilutive Issuance, regardless of whether a Holder accurately refers
to the Base
Conversion Price in the Notice of Conversion.
c) Subsequent
Rights Offerings.
If the
Corporation, at any time while the Preferred Stock is outstanding,
shall issue
rights, options or warrants to all holders of Common Stock (and not
to Holders)
entitling them to subscribe for or purchase shares of Common Stock
at a price
per share less than the VWAP at the record date mentioned below, then
the
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock outstanding on the
date of
issuance of such rights or warrants plus the number of additional shares
of
Common Stock offered for subscription or purchase, and of which the
numerator
shall be the number of shares of the Common Stock outstanding on the
date of
issuance of such rights or warrants plus the number of shares which
the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Corporation in full of all consideration payable upon
exercise of
such rights, options or warrants) would purchase at such VWAP. Such
adjustment
shall be made whenever such rights or warrants are issued, and shall
become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
d) Pro
Rata Distributions.
If the
Corporation, at any time while Preferred Stock is outstanding, shall
distribute
to all holders of Common Stock (and not to Holders) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any
security, then in each such case the Conversion Price shall be determined
by
multiplying such Conversion Price in effect immediately prior to the
record date
fixed for determination of stockholders entitled to receive such distribution
by
a fraction of which the denominator shall be the VWAP determined as
of the
record date mentioned above, and of which the numerator shall be such
VWAP on
such record date less the then fair market value at such record date
of the
portion of such assets or evidence of indebtedness so distributed applicable
to
one outstanding share of the Common Stock as determined by the Board
of
Directors in good faith. In either case the adjustments shall be described
in a
statement provided to the Holders of the portion of assets or evidences
of
indebtedness so distributed or such subscription rights applicable
to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is
made and shall become effective immediately after the record date mentioned
above.
e) Fundamental
Transaction.
If, at
any time while this Preferred Stock is outstanding, (A) the Corporation
effects
any merger or consolidation of the Corporation with or into another
Person, (B)
the Corporation effects any sale of all or substantially all of its
assets in
one or a series of related transactions, (C) any tender offer or exchange
offer
(whether by the Corporation or another Person) is completed pursuant
to which
holders of Common Stock are permitted to tender or exchange their shares
for
other securities, cash or property, or (D) the Corporation effects
any
reclassification of the Common Stock or any compulsory share exchange
pursuant
to which the Common Stock is effectively converted into or exchanged
for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then
upon any subsequent conversion of this Preferred Stock, the Holders
shall have
the right to receive, for each Conversion Share that would have been
issuable
upon such conversion immediately prior to the occurance of such Fundamental
Transaction, the same kind and amount of securities, cash or property
as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion
Price shall
be appropriately adjusted to apply to such Alternate Consideration
based on the
amount of Alternate Consideration issuable in respect of one share
of Common
Stock in such Fundamental Transaction, and the Corporation shall apportion
the
Conversion Price among the Alternate Consideration in a reasonable
manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the
securities, cash or property to be received in a Fundamental Transaction,
then
the Holders shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Preferred Stock following such
Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Corporation or surviving entity in such Fundamental
Transaction
shall file a new Certificate of Designation with the same terms and
conditions
and issue to the Holders new preferred stock consistent with the foregoing
provisions and evidencing the Holders’ right to convert such preferred stock
into Alternate Consideration. The terms of any agreement pursuant to
which a
Fundamental Transaction is effected shall include terms requiring any
such
successor or surviving entity to comply with the provisions of this
Section 7(e)
and insuring that this Preferred Stock (or any such replacement security)
will
be similarly adjusted upon any subsequent transaction analogous to
a Fundamental
Transaction.
f) Exempt
Issuance.
Notwithstanding
the foregoing, no adjustment will be made under this Section 7 in respect
of an
Exempt Issuance.
g) Calculations.
All
calculations under this Section 7 shall be made to the nearest cent
or the
nearest 1/100th of a share, as the case may be. The number of shares
of Common
Stock outstanding at any given time shall not include shares owned
or held by or
for the account of the Corporation, and the description of any such
shares of
Common Stock shall be considered on issue or sale of Common Stock.
For purposes
of this Section 7, the number of shares of Common Stock deemed to be
issued and
outstanding as of a given date shall be the sum of the number of shares
of
Common Stock (excluding treasury shares, if any) issued and
outstanding.
h) Notice
to Holders.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provisions
of this
Section 7, the Corporation shall promptly mail to each Holder a notice
setting
forth the Conversion Price after such adjustment and setting forth
a brief
statement of the facts requiring such adjustment. If the Corporation
issues a
variable rate security, despite the prohibition thereon in the Purchase
Agreement (or other Securities Purchase Agreement if applicable to
a Holder),
the Corporation shall be deemed to have issued Common Stock or Common
Stock
Equivalents at the lowest possible conversion or exercise price at
which such
securities may be converted or exercised in the case of a Variable
Rate
Transaction (as defined in the Purchase Agreement), or the lowest possible
adjustment price in the case of an MFN Transaction (as defined in the
Purchase
Agreement).
ii. Notice
to Allow Conversion by Holder.
If (A)
the Corporation shall declare a dividend (or any other distribution)
on the
Common Stock; (B) the Corporation shall declare a special nonrecurring
cash
dividend on or a redemption of the Common Stock; (C) the Corporation
shall
authorize the granting to all holders of the Common Stock rights or
warrants to
subscribe for or purchase any shares of capital stock of any class
or of any
rights; (D) the approval of any stockholders of the Corporation shall
be
required in connection with any reclassification of the Common Stock,
any
consolidation or merger to which the Corporation is a party, any sale
or
transfer of all or substantially all of the assets of the Corporation,
of any
compulsory share exchange whereby the Common Stock is converted into
other
securities, cash or property; (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation; then,
in each case,
the Corporation shall cause to be filed at each office or agency maintained
for
the purpose of conversion of the Preferred Stock, and shall cause to
be
mailed
to
the Holders at their last addresses as they shall appear upon the stock
books of
the
Corporation, at least 20 calendar days prior to the applicable record
or
effective date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken,
the date as of which the holders of the Common Stock of record to be
entitled to
such dividend, distributions, redemption, rights or warrants are to
be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or
close, and the date as of which it is expected that holders of the
Common Stock
of record shall be entitled to exchange their shares of the Common
Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided,
that
the failure to mail such notice or any defect therein or in the mailing
thereof
shall not affect the validity of the corporate action required to be
specified
in such notice. Holders are entitled to convert the Conversion Amount
of
Preferred Stock during the 20-day period commencing the date of such
notice to
the effective date of the event triggering such notice.
Section
8.
Forced
Conversion
a) Forced
Conversion.
Notwithstanding anything herein to the contrary, if after the Effective
Date (i)
the VWAP for the Common Stock for each of any 20 consecutive Trading
Days
(“Threshold
Period”),
which
20 consecutive Trading Day period shall have commenced only after the
Effective
Date, exceeds $2.00, subject to adjustment for reverse and forward
stock splits
and the like, and (ii) the trading volume of the Common Stock for each
Trading
Day during such Threshold Period is at least 100,000 shares, subject
to
adjustment for reverse and forward stock splits and the like, the Corporation
may, within 1 Trading Day after the end of any such Threshold Period,
deliver a
written notice to all Holders (a “Forced
Conversion Notice”
and
the
date such notice is delivered to the Holders, the “Forced
Conversion Notice Date”)
to
cause each Holder to convert all or part of such Holder’s Preferred Stock (as
specified in such Forced Conversion Notice) plus all accrued but unpaid
dividends thereon and all liquidated damages and other amounts due
in respect of
the Preferred Stock pursuant to Section 6, it being agreed that the
“Conversion
Date” for purposes of Section 6 shall be deemed to occur on the third Trading
Day following the Forced Conversion Notice Date (such third Trading
Day, the
“Forced
Conversion Date”).
The
Corporation may not deliver a Forced Conversion Notice, and any Forced
Conversion Notice delivered by the Corporation shall not be effective,
unless
all of the Equity Conditions have been met on each Trading Day occurring
during
the applicable Threshold Period through and including the later of
the Forced
Conversion Date and the Trading Day after the date that the Conversion
Shares
issuable pursuant to such conversion are actually delivered to the
Holders
pursuant to the Forced Conversion Notice. Any Forced Conversion Notices
shall be
applied ratably to all of the Holders in proportion to each Holder’s initial
purchases of Preferred Stock hereunder, provided that any voluntary
conversions
by a Holder shall be applied against such Holder’s pro-rata allocation thereby
decreasing the aggregate amount forcibly converted hereunder. Notwithstanding
anything herein to the contrary, in the event the Corporation issues
a Forced
Conversion Notice and because of the beneficial ownership limitation
of Section
6(c) it is unable to force the Holders to convert all of the Preferred
Stock, as
to any Preferred Stock outstanding, the Corporation shall not have
the right to
issue another Forced Conversion Notice for at least 30 days and at
such time all
conditions hereunder must again be met, including the pricing condition
and the
Equity Conditions. For purposes of clarification, a Forced Conversion
shall be
subject to all of the provisions of Section 6, including, without limitation,
the provisions requiring payment of liquidated damages and limitations
on
conversions.
Section
9.
Redemption
Upon Triggering Events.
a) “Triggering
Event”
means
any one or more of the following events (whatever the reason and whether
it
shall be voluntary or involuntary or effected by operation of law or
pursuant to
any judgment, decree or order of any court, or any order, rule or regulation
of
any administrative or governmental body):
i. the
failure of a Conversion Shares Registration Statement to be declared
effective
by the Commission on or prior to the 210th
day
after the Original Issue Date;
ii. if,
during the Effectiveness Period, the effectiveness of the Conversion
Shares
Registration Statement lapses for any reason for more than an aggregate
of 25
calendar days (which need not be consecutive days) during any 12 month
period,
or the Holder shall not be permitted to resell Registrable Securities
under the
Conversion Shares Registration Statement for more than an aggregate
of 25
calendar days (which need not be consecutive days) during any 12 month
period,
and in each case the shares of Common Stock into which such Holder’s Preferred
Stock can be converted cannot be sold in the public securities market
pursuant
to Rule 144(k) under the Securities Act, provided, that the cause of
such lapse
or unavailability is not due to factors solely within the control of
such holder
of Preferred Stock;
iii. the
Corporation shall fail to deliver certificates representing Conversion
Shares
issuable upon a conversion hereunder that comply with the provisions
hereof
prior to the 9th
Trading
Day after such shares are required to be delivered hereunder, or the
Corporation
shall provide written notice to any Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for
conversion of any shares of Preferred Stock in accordance with the
terms
hereof;
iv. one
of
the Events (as defined in the Registration Rights Agreement) described
in
subsections (i), (ii) or (iii) of Section 2(b) of the Registration
Rights
Agreement shall not have been cured to the satisfaction of the Holders
prior to
the expiration of 30 days from the Event Date (as defined in the Registration
Rights Agreement) relating thereto (other than an Event resulting from
a failure
of a Conversion Shares Registration Statement to be declared effective
by the
Commission on or prior to the 210th day after the Original Issue Date,
which
shall be covered by Section 9(a)(i));
v. the
Corporation shall fail for any reason to pay in full the amount of
cash due
pursuant to a Buy-In within 15 days after notice therefor is delivered
hereunder
or shall fail to pay all amounts owed on account of an Event within
15 days of
the date due;
vi. the
Corporation shall fail to have available a sufficient number of authorized
and
unreserved shares of Common Stock to issue to such Holder upon a conversion
hereunder;
vii. the
Corporation shall fail to observe or perform any other covenant, agreement
or
warranty contained in, or otherwise commit any breach of the Transaction
Documents, and such failure or breach shall not, if subject to the
possibility
of a cure by the Corporation, have been remedied within 30 calendar
days after
the date on which written notice of such failure or breach shall have
been
given;
viii. the
Corporation shall redeem more than a de minimis
number
of Junior Securities other than as to repurchases of Common Stock or
Common
Stock Equivalents from departing officers and directors of the Corporation,
provided that, while any of the Preferred Stock remains outstanding,
such
repurchases shall not exceed an aggregate of $100,000 from all officers
and
directors;
ix. the
Corporation shall be party to a Change of Control Transaction;
x. there
shall have occurred a Bankruptcy Event; or
xi. the
Common Stock shall fail to be listed or quoted for trading on a Trading
Market
for more than 7 Trading Days, which need not be consecutive Trading
Days.
b) Upon
the
occurrence of a Triggering Event, each Holder shall (in addition to
all other
rights it may have hereunder or under applicable law) have the right,
exercisable at the sole option of such Holder, to require the Corporation
to
redeem all of the Preferred Stock then held by such Holder for a redemption
price, in cash, equal to the Triggering Redemption Amount. The Triggering
Redemption Amount shall be due and payable within 5 Trading Days of
the date on
which the notice for the payment therefor is provided by a Holder (the
“Triggering
Redemption Payment Date”).
If
the Corporation fails to pay the Triggering Redemption Amount hereunder
in full
pursuant to this Section on the date such amount is due in accordance
with this
Section, the Corporation will pay interest thereon at a rate of 18%
per annum
(or such lesser amount permitted by applicable law), accruing daily
from such
date until the Triggering Redemption Amount, plus all such interest
thereon, is
paid in full. For purposes of this Section, a share of Preferred Stock
is
outstanding until such date as the Holder shall have received Conversion
Shares
upon a conversion (or attempted conversion) thereof that meets the
requirements
hereof or has been paid the Triggering Redemption Amount plus all accrued
but
unpaid dividends and all accrued but unpaid liquidated damages in
cash.
Section
10.
Miscellaneous.
a) No
Debt.
So long
as at least 5 shares of Preferred Stock are outstanding, the Corporation
will
not and will not permit any of its Subsidiaries to directly or indirectly
enter
into, create, incur, assume or suffer to exist (or allow any of its
Subsidiaries
to do so) any indebtedness or liens of any kind on or
with
respect to any of its property or assets now owned or hereafter acquired
or any
interest therein or any income or profits therefrom, other than (1)
accounts
payable, equipment leases, other
current payables and other accrued liabilities incurred in connection
with
short-term operating liabilities, (2) accrued interest on the Corporation’s
existing indebtedness as set forth on Schedule 10 hereto, and (3) up
to
$2,000,000 for non-equity linked debt financing.
b) Notices.
Any and
all notices or other communications or deliveries to be provided by
the Holders
hereunder, including, without limitation, any Notice of Conversion,
shall be in
writing and delivered personally, by facsimile, sent by a nationally
recognized
overnight courier service, addressed to the Corporation, at the address
set
forth above, facsimile number 631-924-6033,
Attn: Chief Financial Officer, Richard Larkin
such
other address or facsimile number as the Corporation may specify for
such
purposes by notice to the Holders delivered in accordance with this
Section. Any
and all notices or other communications or deliveries to be provided
by the
Corporation hereunder shall be in writing and delivered personally,
by
facsimile, sent by a nationally recognized overnight courier service
addressed
to each Holder at the facsimile telephone number or address of such
Holder
appearing on the books of the Corporation, or if no such facsimile
telephone
number or address appears, at the principal place of business of the
Holder. Any
notice or other communication or deliveries hereunder shall be deemed
given and
effective on the earliest of (i) the date of transmission, if such
notice or
communication is delivered via facsimile at the facsimile telephone
number
specified in this Section prior to 5:30 p.m. (New York City time),
(ii) the date
after the date of transmission, if such notice or communication is
delivered via
facsimile at the facsimile telephone number specified in this Section
later than
5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York
City time) on such date, (iii) the second Business Day following the
date of
mailing, if sent by nationally recognized overnight courier service,
or (iv)
upon actual receipt by the party to whom such notice is required to
be
given.
c) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Certificate of Designation
shall alter or impair the obligation of the Corporation, which is absolute
and
unconditional, to pay the liquidated damages (if any) on, the shares
of
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
d) Lost
or Mutilated Preferred Stock Certificate.
If a
Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or
destroyed, the Corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate,
or in lieu of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Preferred Stock so mutilated, lost, stolen
or
destroyed but only upon receipt of evidence of such loss, theft or
destruction
of such certificate, and of the ownership hereof, and indemnity, if
requested,
all reasonably satisfactory to the Corporation.
e) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Certificate of Designation shall be governed by and construed
and
enforced in accordance with the internal laws of the State of New York,
without
regard to the principles of conflicts of law thereof. Each party agrees
that all
legal proceedings concerning the interpretations, enforcement and defense
of the
transactions contemplated by any of the Transaction Documents (whether
brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state
and federal
courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents),
and hereby irrevocably waives, and agrees not to assert in any suit,
action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, or such New York Courts are improper or inconvenient
venue for
such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action
or
proceeding by mailing a copy thereof via registered or certified mail
or
overnight delivery (with evidence of delivery) to such party at the
address in
effect for notices to it under this Certificate of Designation and
agrees that
such service shall constitute good and sufficient service of process
and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right
to serve process in any manner permitted by law. Each party hereto
hereby
irrevocably waives, to the fullest extent permitted by applicable law,
any and
all right to trial by jury in any legal proceeding arising out of or
relating to
this Certificate of Designation or the transactions contemplated hereby.
If
either party shall commence an action or proceeding to enforce any
provisions of
this Certificate of Designation, then the prevailing party in such
action or
proceeding shall be reimbursed by the other party for its attorneys
fees and
other costs and expenses incurred with the investigation, preparation
and
prosecution of such action or proceeding.
f) Waiver.
Any
waiver by the Corporation or the Holder of a breach of any provision
of this
Certificate of Designation shall not operate as or be construed to
be a waiver
of any other breach of such provision or of any breach of any other
provision of
this Certificate of Designation. The failure of the Corporation or
the Holder to
insist upon strict adherence to any term of this Certificate of Designation
on
one or more occasions shall not be considered a waiver or deprive that
party of
the right thereafter to insist upon strict adherence to that term or
any other
term of this Certificate of Designation. Any waiver must be in
writing.
g) Severability.
If any
provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall
remain in
effect, and if any provision is inapplicable to any Person or circumstance,
it
shall nevertheless remain applicable to all other Persons and circumstances.
If
it shall be found that any interest or other amount deemed interest
due
hereunder violates applicable laws governing usury, the applicable
rate of
interest due hereunder shall automatically be lowered to equal the
maximum
permitted rate of interest.
h) Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on
a day other
than a Business Day, such payment shall be made on the next succeeding
Business
Day.
i) Headings.
The
headings contained herein are for convenience only, do not constitute
a part of
this Certificate of Designation and shall not be deemed to limit or
affect any
of the provisions hereof.
j) Status
of Converted or Redeemed Preferred Stock.
Shares
of Preferred Stock may only be issued if permitted pursuant to the
Purchase
Agreement. If any shares of Preferred Stock shall be converted, redeemed
or
reacquired by the Corporation, such shares shall resume the status
of authorized
but unissued shares of preferred stock and shall no longer be designated
as
Series C 7% Convertible Preferred Stock.
*********************
RESOLVED,
FURTHER, that the Chairman, the president or any vice-president, the
Chief
Financial Officer and the secretary or any assistant secretary, of
the
Corporation be and they hereby are authorized and directed to prepare
and file a
Restated and Amended Certificate of Designation of Preferences, Rights
and
Limitations in accordance with the foregoing resolution and the provisions
of
the Nevada Revised Statutes.
IN
WITNESS WHEREOF, the undersigned have executed this Certificate this
5th
day of
October, 2006.
__________________________
Richard
J. Larkin
Title:
Chief Financial Officer
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)
The
undersigned hereby elects to convert the number of shares of Series
C 7%
Convertible Preferred Stock indicated below, into shares of common
stock, par
value $0.01 per share (the “Common
Stock”),
of
Chembio Diagnostics, Inc., a Nevada corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If
shares are
to be issued in the name of a Person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the
Corporation in accordance therewith. No fee will be charged to the
Holder for
any conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
_____________________________________________
|
|
Number
of shares of Preferred Stock owned prior to Conversion:
_______________
|
|
Number
of shares of Preferred Stock to be Converted:
________________________
|
|
Stated
Value of shares of Preferred Stock to be Converted:
____________________
|
|
Number
of shares of Common Stock to be Issued:
___________________________
|
|
Applicable
Conversion
Price:____________________________________________
|
|
Number
of shares of Preferred Stock subsequent to Conversion:
________________
|
|
[HOLDER]
By:___________________________________
Name:
Title:
|
Exhibit
4.1 Form of Warrant - Series C
EXHIBIT
C
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH
SECURITIES.
COMMON
STOCK PURCHASE WARRANT
To
Purchase __________ Shares of Common Stock of
CHEMBIO
DIAGNOSTICS, INC.
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received, _____________ (the “Holder”),
is
entitled, upon the terms and subject to the limitations on exercise
and the
conditions hereinafter set forth, at any time on or after the date
hereof (the
“Initial
Exercise Date”)
and on
or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the “Termination
Date”)
but
not thereafter, to subscribe for and purchase from Chembio Diagnostics,
Inc., a
Nevada corporation (the “Company”),
up to
______ shares (the “Warrant
Shares”)
of
Common Stock, par value $0.01 per share, of the Company (the “Common
Stock”).
The
purchase price of one share of Common Stock under this Warrant shall
be equal to
the Exercise Price, as defined in Section 2(b).
Section
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings
set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”),
dated
September 29, 2006, among the Company and the purchasers signatory
thereto.
Section
2. Exercise.
a) Exercise
of the purchase rights represented by this Warrant may be made, in
whole or in
part, at any time or times on or after the Initial Exercise Date and
on or
before the Termination Date by delivery to the Company of a duly executed
facsimile copy of the Notice of Exercise Form annexed hereto (or such
other
office or agency of the Company as it may designate by notice in writing
to the
registered Holder at the address of such Holder appearing on the books
of the
Company); and, within 3 Trading Days of the date said Notice of Exercise
is
delivered to the Company, the Company shall have received payment of
the
aggregate Exercise Price of the shares thereby purchased by wire transfer
or
cashier’s check drawn on a United States bank. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender
this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares
available hereunder and the Warrant has been exercised in full, in
which case,
the Holder shall surrender this Warrant to the Company for cancellation
within 3
Trading Days of the date the final Notice of Exercise is delivered
to the
Company. Partial exercises of this Warrant resulting in purchases of
a portion
of the total number of Warrant Shares available hereunder shall have
the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder
in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder
and the Company shall maintain records showing the number of Warrant
Shares
purchased and the date of such purchases. The Company shall deliver
any
objection to any Notice of Exercise Form within 1 Business Day of receipt
of
such notice. In the event of any dispute or discrepancy, the records
of the
Holder shall be controlling and determinative in the absence of manifest
error.
The Holder and any assignee, by acceptance of this Warrant, acknowledge
and
agree that, by reason of the provisions of this paragraph, following
the
purchase of a portion of the Warrant Shares hereunder, the number of
Warrant
Shares available for purchase hereunder at any given time may be less
than the
amount stated on the face hereof.
b) Exercise
Price.
The
exercise price of the Common Stock under this Warrant shall be $1.00,
subject
to adjustment hereunder (the “Exercise
Price”).
c) Cashless
Exercise.
If at
any time after one year from the date of issuance of this Warrant there
is no
effective Registration Statement registering, or no current prospectus
available
for, the resale of the Warrant Shares by the Holder, then this Warrant
may also
be exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant
Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A)
= the
VWAP on the Trading Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
(X)
= the
number of Warrant Shares issuable upon exercise of this Warrant in
accordance
with the terms of this Warrant by means of a cash exercise rather than
a
cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant
shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d) The
Company shall not effect any exercise of this Warrant, and a Holder
shall not
have the right to exercise any portion of this Warrant, pursuant to
Section 2(c)
or otherwise, to the extent that after giving effect to such issuance
after
exercise as set forth on the applicable Notice of Exercise, such Holder
(together with such Holder’s Affiliates, and any other person or entity acting
as a group together with such Holder or any of such Holder’s Affiliates), as set
forth on the applicable Notice of Exercise, would beneficially own
in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially
owned
by such Holder and its Affiliates shall include the number of shares
of Common
Stock issuable upon exercise of this Warrant with respect to which
such
determination is being made, but shall exclude the number of shares
of Common
Stock which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by such Holder or any of
its
Affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without
limitation,
any other [Preferred Stock or Warrants) subject to a limitation on
conversion or
exercise analogous to the limitation contained herein beneficially
owned by such
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(d)(i), beneficial ownership
shall be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules
and regulations promulgated thereunder, it being acknowledged by a
Holder that
the Company is not representing to such Holder that such calculation
is in
compliance with Section 13(d) of the Exchange Act and such Holder is
solely
responsible for any schedules required to be filed in accordance therewith.
To
the extent that the limitation contained in this Section 2(d) applies,
the
determination of whether this Warrant is exercisable (in relation to
other
securities owned by such Holder together with any Affiliates) and of
which a
portion of this Warrant is exercisable shall be in the sole discretion
of a
Holder, and the submission of a Notice of Exercise shall be deemed
to be each
Holder’s determination of whether this Warrant is exercisable (in relation
to
other securities owned by such Holder together with any Affiliates)
and of which
portion of this Warrant is exercisable, in each case subject to such
aggregate
percentage limitation, and the Company shall have no obligation to
verify or
confirm the accuracy of such determination. In addition, a determination
as to
any group status as contemplated above shall be determined in accordance
with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(d), in determining the number
of
outstanding shares of Common Stock, a Holder may rely on the number
of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company
or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to such
Holder the
number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving
effect to
the conversion or exercise of securities of the Company, including
this Warrant,
by such Holder or its Affiliates since the date as of which such number
of
outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable
upon
exercise of this Warrant. The Beneficial Ownership Limitation provisions
of this
Section 2(d)(i) may be waived by such Holder, at the election of such
Holder,
upon not less than 61 days’ prior notice to the Company to change the Beneficial
Ownership Limitation to 9.99% of the number of shares of the Common
Stock
outstanding immediately after giving effect to the issuance of shares
of Common
Stock upon exercise of this Warrant, and the provisions of this Section
2(d)
shall continue to apply. Upon such a change by a Holder of the Beneficial
Ownership Limitation from such 4.99% limitation to such 9.99% limitation,
the
Beneficial Ownership Limitation may not be further waived by such Holder.
The
provisions of this paragraph shall be construed and implemented in
a manner
otherwise than in strict conformity with the terms of this Section
2(d)(i) to
correct this paragraph (or any portion hereof) which may be defective
or
inconsistent with the intended Beneficial Ownership Limitation herein
contained
or to make changes or supplements necessary or desirable to properly
give effect
to such limitation. The limitations contained in this paragraph shall
apply to a
successor holder of this Warrant.
e) Mechanics
of Exercise.
i. Authorization
of Warrant Shares.
The
Company covenants that all Warrant Shares which may be issued upon
the exercise
of the purchase rights represented by this Warrant will, upon exercise
of the
purchase rights represented by this Warrant, be duly authorized, validly
issued,
fully paid and nonassessable and free from all taxes, liens and charges
in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
ii. Delivery
of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be transmitted by
the transfer
agent of the Company to the Holder by crediting the account of the
Holder’s
prime broker with the Depository Trust Company through its Deposit
Withdrawal
Agent Commission (“DWAC”)
system
if the Company is a participant in such system, and otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise
within
3 Trading Days from the delivery to the Company of the Notice of Exercise
Form,
surrender of this Warrant and payment of the aggregate Exercise Price
as set
forth above (“Warrant
Share Delivery Date”).
This
Warrant shall be deemed to have been exercised on the date the Exercise
Price is
received by the Company. The Warrant Shares shall be deemed to have
been issued,
and Holder or any other person so designated to be named therein shall
be deemed
to have become a holder of record of such shares for all purposes,
as of the
date the Warrant has been exercised by payment to the Company of the
Exercise
Price (or by cashless exercise, if permitted) and all taxes required
to be paid
by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance
of
such shares, have been paid.
iii. Delivery
of New Warrants Upon Exercise.
If this
Warrant shall have been exercised in part, the Company shall, at the
time of
delivery of the certificate or certificates representing Warrant Shares,
deliver
to Holder a new Warrant evidencing the rights of Holder to purchase
the
unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall
in all other respects be identical with this Warrant.
iv. Rescission
Rights.
If the
Company fails to cause its transfer agent to transmit to the Holder
a
certificate or certificates representing the Warrant Shares pursuant
to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder
will have
the right to rescind such exercise.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise.
In
addition to any other rights available to the Holder, if the Company
fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates
representing the Warrant Shares pursuant to an exercise on or before
the Warrant
Share Delivery Date, and if after such date the Holder is required
by its broker
to purchase (in an open market transaction or otherwise) or the Holder’s
brokerage firm otherwise purchases shares of Common Stock to deliver
in
satisfaction of a sale by the Holder of the Warrant Shares which the
Holder
anticipated receiving upon such exercise (a “Buy-In”),
then
the Company shall (1) pay in cash to the Holder the amount by which
(x) the
Holder’s total purchase price (including brokerage commissions, if any) for
the
shares of Common Stock so purchased exceeds (y) the amount obtained
by
multiplying (A) the number of Warrant Shares that the Company was required
to
deliver to the Holder in connection with the exercise at issue times
(B) the
price at which the sell order giving rise to such purchase obligation
was
executed, and (2) at the option of the Holder, either reinstate the
portion of
the Warrant and equivalent number of Warrant Shares for which such
exercise was
not honored or deliver to the Holder the number of shares of Common
Stock that
would have been issued had the Company timely complied with its exercise
and
delivery obligations hereunder. For example, if the Holder purchases
Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to
an attempted exercise of shares of Common Stock with an aggregate sale
price
giving rise to such purchase obligation of $10,000, under clause (1)
of the
immediately preceding sentence the Company shall be required to pay
the Holder
$1,000. The Holder shall provide the Company written notice indicating
the
amounts payable to the Holder in respect of the Buy-In, together with
applicable
confirmations and other evidence reasonably requested by the Company.
Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree
of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common
Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
vi. No
Fractional Shares or Scrip.
No
fractional shares or scrip representing fractional shares shall be
issued upon
the exercise of this Warrant. As to any fraction of a share which Holder
would
otherwise be entitled to purchase upon such exercise, the Company shall
pay a
cash adjustment in respect of such final fraction in an amount equal
to such
fraction multiplied by the Exercise Price.
vii. Charges,
Taxes and Expenses.
Issuance of certificates for Warrant Shares shall be made without charge
to the
Holder for any issue or transfer tax or other incidental expense in
respect of
the issuance of such certificate, all of which taxes and expenses shall
be paid
by the Company, and such certificates shall be issued in the name of
the Holder
or in such name or names as may be directed by the Holder; provided,
however,
that in
the event certificates for Warrant Shares are to be issued in a name
other than
the name of the Holder, this Warrant when surrendered for exercise
shall be
accompanied by the Assignment Form attached hereto duly executed by
the Holder;
and the Company may require, as a condition thereto, the payment of
a sum
sufficient to reimburse it for any transfer tax incidental thereto.
viii. Closing
of Books.
The
Company will not close its stockholder books or records in any manner
which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.
Section
3. Certain Adjustments.
a) Stock
Dividends and Splits.
If the
Company, at any time while this Warrant is outstanding: (A) pays a
stock
dividend or otherwise make a distribution or distributions on shares
of its
Common Stock or any other equity or equity equivalent securities payable
in
shares of Common Stock (which, for avoidance of doubt, shall not include
any
shares of Common Stock issued by the Company upon exercise of this
Warrant, the
Company’s Series A Convertible Preferred Stock, the Company’s Series B 9%
Convertible Preferred Stock or the Company’s Series C 7% Convertible Preferred
Stock), (B) subdivides outstanding shares of Common Stock into a larger
number
of shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues
by
reclassification of shares of the Common Stock any shares of capital
stock of
the Company, then in each case the Exercise Price shall be multiplied
by a
fraction of which the numerator shall be the number of shares of Common
Stock
(excluding treasury shares, if any) outstanding immediately before
such event
and of which the denominator shall be the number of shares of Common
Stock
outstanding immediately after such event and the number of shares issuable
upon
exercise of this Warrant shall be proportionately adjusted. Any adjustment
made
pursuant to this Section 3(a) shall become effective immediately after
the
record date for the determination of stockholders entitled to receive
such
dividend or distribution and shall become effective immediately after
the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while
this Warrant
is outstanding, shall offer, sell, grant any option to purchase or
offer, sell
or grant any right to reprice its securities, or otherwise dispose
of or issue
(or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling
any Person
to acquire shares of Common Stock, at an effective price per share
less than the
then Exercise Price (such lower price, the “Base
Share Price”
and
such issuances collectively, a “Dilutive
Issuance”),
as
adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price
adjustments, reset provisions, floating conversion, exercise or exchange
prices
or otherwise, or due to warrants, options or rights per share which
are issued
in connection with such issuance, be entitled to receive shares of
Common Stock
at an effective price per share which is less than the Exercise Price,
such
issuance shall be deemed to have occurred for less than the Exercise
Price on
such date of the Dilutive Issuance), then, the Exercise Price shall
be reduced
to equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price
payable
hereunder, after taking into account the decrease in the Exercise Price,
shall
be equal to the aggregate Exercise Price prior to such adjustment.
Such
adjustment shall be made whenever such Common Stock or Common Stock
Equivalents
are issued. The Company shall notify the Holder in writing, no later
than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable
issuance
price, or of applicable reset price, exchange price, conversion price
and other
pricing terms (such notice the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3(b), upon the occurrence
of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder
is
entitled to receive a number of Warrant Shares based upon the Base
Share Price
regardless of whether the Holder accurately refers to the Base Share
Price in
the Notice of Exercise.
c) Pro
Rata Distributions.
If the
Company, at any time prior to the Termination Date, shall distribute
to all
holders of Common Stock (and not to Holders of the Warrants) evidences
of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any
security other than the Common Stock (which shall be subject to Section
3(b)),
then in each such case the Exercise Price shall be adjusted by multiplying
the
Exercise Price in effect immediately prior to the record date fixed
for
determination of stockholders entitled to receive such distribution
by a
fraction of which the denominator shall be the VWAP determined as of
the record
date mentioned above, and of which the numerator shall be such VWAP
on such
record date less the then per share fair market value at such record
date of the
portion of such assets or evidence of indebtedness so distributed applicable
to
one outstanding share of the Common Stock as determined by the Board
of
Directors in good faith. In either case the adjustments shall be described
in a
statement provided to the Holders of the portion of assets or evidences
of
indebtedness so distributed or such subscription rights applicable
to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is
made and shall become effective immediately after the record date mentioned
above.
d) Fundamental
Transaction.
If, at
any time while this Warrant is outstanding, (A) the Company effects
any merger
or consolidation of the Company with or into another Person, (B) the
Company
effects any sale of all or substantially all of its assets in one or
a series of
related transactions, (C) any tender offer or exchange offer (whether
by the
Company or another Person) is completed pursuant to which holders of
Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of
the Common
Stock or any compulsory share exchange pursuant to which the Common
Stock is
effectively converted into or exchanged for other securities, cash
or property
(in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent exercise of this Warrant, the Holder shall have
the right to
receive, for each Warrant Share that would have been issuable upon
such exercise
immediately prior to the occurrence of such Fundamental Transaction,
at the
option of the Holder, (a) upon exercise of this Warrant, the number
of shares of
Common Stock of the successor or acquiring corporation or of the Company,
if it
is the surviving corporation and any additional consideration, and
Alternate
Consideration receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by
a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event or (b) if the Company is acquired in
an all cash
transaction, cash equal to the value of this Warrant as determined
in accordance
with the Black-Scholes option pricing formula (the “Alternate
Consideration”).
For
purposes of any such exercise, the determination of the Exercise Price
shall be
appropriately adjusted to apply to such Alternate Consideration based
on the
amount of Alternate Consideration issuable in respect of one share
of Common
Stock in such Fundamental Transaction, and the Company shall apportion
the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the
securities, cash or property to be received in a Fundamental Transaction,
then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing
provisions
and evidencing the Holder’s right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor
or
surviving entity to comply with the provisions of this Section 3(d)
and insuring
that this Warrant (or any such replacement security) will be similarly
adjusted
upon any subsequent transaction analogous to a Fundamental
Transaction.
e) Exempt
Issuance.
Notwithstanding the foregoing, no adjustments, Alternate Consideration
nor
notices shall be made, paid or issued under this Section 3 in respect
of an
Exempt Issuance.
f) Calculations.
All
calculations under this Section 3 shall be made to the nearest cent
or the
nearest 1/100th of a share, as the case may be. The number of shares
of Common
Stock outstanding at any given time shall not include shares of Common
Stock
owned or held by or for the account of the Company, and the description
of any
such shares of Common Stock shall be considered on issue or sale of
Common
Stock. For purposes of this Section 3, the number of shares of Common
Stock
deemed to be issued and outstanding as of a given date shall be the
sum of the
number of shares of Common Stock (excluding treasury shares, if any)
issued and
outstanding.
g) Voluntary
Adjustment By Company.
The
Company may at any time during the term of this Warrant reduce the
then current
Exercise Price to any amount and for any period of time deemed appropriate
by
the Board of Directors of the Company.
h) Notice
to Holders.
i. Adjustment
to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to this Section 3,
the Company
shall promptly mail to each Holder a notice setting forth the Exercise
Price
after such adjustment and setting forth a brief statement of the facts
requiring
such adjustment. If the Company issues a variable rate security, despite
the
prohibition thereon in the Purchase Agreement, the Company shall be
deemed to
have issued Common Stock or Common Stock Equivalents at the lowest
possible
conversion or exercise price at which such securities may be converted
or
exercised in the case of a Variable Rate Transaction (as defined in
the Purchase
Agreement), or the lowest possible adjustment price in the case of
an MFN
Transaction (as defined in the Purchase Agreement.
ii. Notice
to Allow Exercise by Holder.
If (A)
the Company shall declare a dividend (or any other distribution) on
the Common
Stock; (B) the Company shall declare a special nonrecurring cash dividend
on or
a redemption of the Common Stock; (C) the Company shall authorize the
granting
to all holders of the Common Stock rights or warrants to subscribe
for or
purchase any shares of capital stock of any class or of any rights;
(D) the
approval of any stockholders of the Company shall be required in connection
with
any reclassification of the Common Stock, any consolidation or merger
to which
the Company is a party, any sale or transfer of all or substantially
all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock
is converted into other securities, cash or property; (E) the Company
shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of
the affairs of the Company; then, in each case, the Company shall cause
to be
mailed to the Holder at its last address as it shall appear upon the
Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x)
the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken,
the date as
of which the holders of the Common Stock of record to be entitled to
such
dividend, distributions, redemption, rights or warrants are to be determined
or
(y) the date on which such reclassification, consolidation, merger,
sale,
transfer or share exchange is expected to become effective or close,
and the
date as of which it is expected that holders of the Common Stock of
record shall
be entitled to exchange their shares of the Common Stock for securities,
cash or
other property deliverable upon such reclassification, consolidation,
merger,
sale, transfer or share exchange; provided,
that
the failure to mail such notice or any defect therein or in the mailing
thereof
shall not affect the validity of the corporate action required to be
specified
in such notice. The Holder is entitled to exercise this Warrant during
the
20-day period commencing on the date of such notice to the effective
date of the
event triggering such notice.
Section
4. Transfer
of Warrant.
a) Transferability.
Subject
to compliance with any applicable securities laws and the conditions
set forth
in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1
of the
Purchase Agreement, this Warrant and all rights hereunder are transferable,
in
whole or in part, upon surrender of this Warrant at the principal office
of the
Company, together with a written assignment of this Warrant substantially
in the
form attached hereto duly executed by the Holder or its agent or attorney
and
funds sufficient to pay any transfer taxes payable upon the making
of such
transfer. Upon such surrender and, if required, such payment, the Company
shall
execute and deliver a new Warrant or Warrants in the name of the assignee
or
assignees and in the denomination or denominations specified in such
instrument
of assignment, and shall issue to the assignor a new Warrant evidencing
the
portion of this Warrant not so assigned, and this Warrant shall promptly
be
cancelled. A Warrant, if properly assigned, may be exercised by a new
holder for
the purchase of Warrant Shares without having a new Warrant issued.
b) New
Warrants.
This
Warrant may be divided or combined with other Warrants upon presentation
hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to
be issued,
signed by the Holder or its agent or attorney. Subject to compliance
with
Section 4(a), as to any transfer which may be involved in such division
or
combination, the Company shall execute and deliver a new Warrant or
Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
c) Warrant
Register.
The
Company shall register this Warrant, upon records to be maintained
by the
Company for that purpose (the “Warrant
Register”),
in
the name of the record Holder hereof from time to time. The Company
may deem and
treat the registered Holder of this Warrant as the absolute owner hereof
for the
purpose of any exercise hereof or any distribution to the Holder, and
for all
other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions.
If,
at the
time
of
the surrender of this Warrant in connection with any transfer of this
Warrant,
the transfer of this Warrant shall not be registered pursuant to an
effective
registration
statement under the Securities Act
and
under
applicable state securities or blue sky laws, the Company may require,
as a
condition of allowing such transfer (i) that the Holder or transferee
of this
Warrant, as the case may be, furnish to the Company a written opinion
of counsel
(which opinion shall be in form, substance and scope customary for
opinions of
counsel in comparable transactions) to the effect that such transfer
may be made
without
registration under
the
Securities Act and under applicable state securities or blue sky laws,
(ii) that
the holder or transferee execute and deliver to the Company an investment
letter
in form and substance acceptable to the Company and (iii) that the
transferee be
an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a qualified institutional buyer
as
defined in Rule 144A(a) promulgated under the Securities Act.
Section
5. Miscellaneous.
a) Title
to Warrant.
Prior
to the Termination Date and subject to compliance with applicable laws
and
Section 4 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the
Holder in person or by duly authorized attorney, upon surrender of
this Warrant
together with the Assignment Form annexed hereto properly endorsed.
The
transferee shall sign an investment letter in form and substance reasonably
satisfactory to the Company.
b) No
Rights as Shareholder Until Exercise.
This
Warrant does not entitle the Holder to any voting rights or other rights
as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price (or by
means of a
cashless exercise), the Warrant Shares so purchased shall be and be
deemed to be
issued to such Holder as the record owner of such shares as of the
close of
business on the later of the date of such surrender or payment.
c) Loss,
Theft, Destruction or Mutilation of Warrant.
The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant
or any stock certificate relating to the Warrant Shares, and in case
of loss,
theft or destruction, of indemnity or security reasonably satisfactory
to it
(which, in the case of the Warrant, shall not include the posting of
any bond),
and upon surrender and cancellation of such Warrant or stock certificate,
if
mutilated, the Company will make and deliver a new Warrant or stock
certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant
or
stock certificate.
d) Saturdays,
Sundays, Holidays, etc.
If the
last or appointed day for the taking of any action or the expiration
of any
right required or granted herein shall be a Saturday, Sunday or a legal
holiday,
then such action may be taken or such right may be exercised on the
next
succeeding day not a Saturday, Sunday or legal holiday.
e) Authorized
Shares.
The
Company covenants that during the period the Warrant is outstanding,
it will
reserve from its authorized and unissued Common Stock a sufficient
number of
shares to provide for the issuance of the Warrant Shares upon the exercise
of
any purchase rights under this Warrant. The Company further covenants
that its
issuance of this Warrant shall constitute full authority to its officers
who are
charged with the duty of executing stock certificates to execute and
issue the
necessary certificates for the Warrant Shares upon the exercise of
the purchase
rights under this Warrant. The Company will take all such reasonable
action as
may be necessary to assure that such Warrant Shares may be issued as
provided
herein without violation of any applicable law or regulation, or of
any
requirements of the Trading Market upon which the Common Stock may
be listed.
Except
and to the extent as waived or consented to by the Holder, the Company
shall not
by any action, including, without limitation, amending its certificate
of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary
action,
avoid or seek to avoid the observance or performance of any of the
terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all
such terms and in the taking of all such actions as may be necessary
or
appropriate to protect the rights of Holder as set forth in this Warrant
against
impairment. Without limiting the generality of the foregoing, the Company
will
(a) not increase the par value of any Warrant Shares above the amount
payable
therefor upon such exercise immediately prior to such increase in par
value, (b)
take all such action as may be necessary or appropriate in order that
the
Company may validly and legally issue fully paid and nonassessable
Warrant
Shares upon the exercise of this Warrant, and (c) use commercially
reasonable
efforts to obtain all such authorizations, exemptions or consents from
any
public regulatory body having jurisdiction thereof as may be necessary
to enable
the Company to perform its obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number
of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price,
the
Company shall obtain all such authorizations or exemptions thereof,
or consents
thereto, as may be necessary from any public regulatory body or bodies
having
jurisdiction thereof.
f) Jurisdiction.
All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions
of the
Purchase Agreement.
g) Restrictions.
The
Holder acknowledges that the Warrant Shares acquired upon the exercise
of this
Warrant, if not registered, will have restrictions upon resale imposed
by state
and federal securities laws.
h) Nonwaiver
and Expenses.
No
course of dealing or any delay or failure to exercise any right hereunder
on the
part of Holder shall operate as a waiver of such right or otherwise
prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully
and
knowingly fails to comply with any provision of this Warrant, which
results in
any material damages to the Holder, the Company shall pay to Holder
such amounts
as shall be sufficient to cover any costs and expenses including, but
not
limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or
in otherwise enforcing any of its rights, powers or remedies
hereunder.
i) Notices.
Any
notice, request or other document required or permitted to be given
or delivered
to the Holder by the Company shall be delivered in accordance with
the notice
provisions of the Purchase Agreement.
j) Limitation
of Liability.
No
provision hereof, in the absence of any affirmative action by Holder
to exercise
this Warrant or purchase Warrant Shares, and no enumeration herein
of the rights
or privileges of Holder, shall give rise to any liability of Holder
for the
purchase price of any Common Stock or as a stockholder of the Company,
whether
such liability is asserted by the Company or by creditors of the
Company.
k) Remedies.
Holder,
in addition to being entitled to exercise all rights granted by law,
including
recovery of damages, will be entitled to specific performance of its
rights
under this Warrant. The Company agrees that monetary damages would
not be
adequate compensation for any loss incurred by reason of a breach by
it of the
provisions of this Warrant and hereby agrees to waive the defense in
any action
for specific performance that a remedy at law would be adequate.
l) Successors
and Assigns.
Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon
the
successors of the Company and the successors and permitted assigns
of Holder.
The provisions of this Warrant are intended to be for the benefit of
all Holders
from time to time of this Warrant and shall be enforceable by any such
Holder or
holder of Warrant Shares.
m) Amendment.
This
Warrant may be modified or amended or the provisions hereof waived
with the
written consent of the Company and the Holder.
n) Severability.
Wherever possible, each provision of this Warrant shall be interpreted
in such
manner as to be effective and valid under applicable law, but if any
provision
of this Warrant shall be prohibited by or invalid under applicable
law, such
provision shall be ineffective to the extent of such prohibition or
invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
o) Headings.
The
headings used in this Warrant are for the convenience of reference
only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its
officer thereunto duly authorized.
Dated:
September __, 2006
|
CHEMBIO
DIAGNOSTICS, INC.
|
|
By:__________________________________________
Name:
Title:
|
NOTICE
OF EXERCISE
TO: CHEMBIO
DIAGNOSTICS, INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the
Company
pursuant to the terms of the attached Warrant (only if exercised in
full), and
tenders herewith payment of the exercise price in full, together with
all
applicable transfer taxes, if any.
(2) Payment
shall take the form of (check applicable box):
[
] in
lawful money of the United States; or
[
] the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 2(c), to exercise this Warrant
with
respect to the maximum number of Warrant Shares purchasable pursuant
to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares
in the name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following:
_______________________________
_______________________________
_______________________________
(4)
Accredited
Investor.
The
undersigned is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act of 1933, as amended.
[SIGNATURE
OF HOLDER]
Name
of
Investing Entity:
________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity:
_________________________________________________
Name
of
Authorized Signatory:
___________________________________________________________________
Title
of
Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this
form
and supply required information.
Do
not
use this form to exercise the warrant.)
FOR
VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby
assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE:
The
signature to this Assignment Form must correspond with the name as
it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company. Officers
of
corporations and those acting in a fiduciary or other representative
capacity
should file proper evidence of authority to assign the foregoing
Warrant.
Exhibit 4.2 Registration Rights
EXHIBIT
B
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “Agreement”)
is
made and entered into as of September 29, 2006, among Chembio Diagnostics,
Inc.,
a Nevada corporation (the “Company”),
and
the purchasers signatory hereto (each such purchaser is a “Purchaser”
and
collectively, the “Purchasers”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the
date hereof among the Company and the Purchasers (the “Purchase
Agreement”).
The
Company and the Purchasers hereby agree as follows:
1.
Definitions
Capitalized
terms used and not otherwise defined herein that are defined in the
Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
As used
in this Agreement, the following terms shall have the following
meanings:
“Advice”
shall
have the meaning set forth in Section 6(d).
“Effectiveness
Date”
means,
with respect to the initial Registration Statement required to be filed
hereunder, the 120th
calendar
day following the date hereof (150th
calendar
day following the date hereof in the event of a full review by the
Commission of
the initial Registration Statement) and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c),
the
60th
calendar
day following the date on which the Company first knows, or reasonably
should
have known, that such additional Registration Statement is required
hereunder;
provided,
however,
that in
the event the Company is notified by the Commission that one of the
above
Registration Statements will not be reviewed or is no longer subject
to further
review and comments, the Effectiveness Date as to such Registration
Statement
shall be the fifth Trading Day following the date on which the Company
is so
notified if such date precedes the dates required above.
“Effectiveness
Period”
shall
have the meaning set forth in Section 2(a).
“Event”
shall
have the meaning set forth in Section 2(b).
“Event
Date”
shall
have the meaning set forth in Section 2(b).
“Filing
Date”
means,
with respect to the initial Registration Statement required hereunder,
the
45th
calendar
day following the date hereof and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 15th
day
following the date on which the Company first knows, or reasonably
should have
known that such additional Registration Statement is required hereunder.
“Holder”
or
“Holders”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
“Indemnified
Party”
shall
have the meaning set forth in Section 5(c).
“Indemnifying
Party”
shall
have the meaning set forth in Section 5(c).
“Losses”
shall
have the meaning set forth in Section 5(a).
“Plan
of Distribution”
shall
have the meaning set forth in Section 2(a).
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Prospectus”
means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted
from a
prospectus filed as part of an effective registration statement in
reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering
of any
portion of the Registrable Securities covered by a Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to
be
incorporated by reference in such Prospectus.
“Registrable
Securities”
means,
as of the date in question, (i) all of the shares of Common Stock issuable
upon
conversion in full of the shares of Preferred Stock, (ii) all shares
of Common
Stock issuable as dividends on the Preferred Stock assuming all dividend
payments are made in shares of Common Stock and the Preferred Stock
is held for
at least 3 years, (iii) all Warrant Shares, (iv) any securities issued
or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing and (v) any additional
shares
issuable in connection with any anti-dilution provisions associated
with the
Preferred Stock and Warrants (in each case, without giving effect to
any
limitations on conversion set forth in the Certificate of Designation
or
limitations on exercise set forth in the Warrant).
“Registration
Statement”
means
the registration statements required to be filed hereunder and any
additional
registration statements contemplated by Section 3(c), including (in
each case)
the Prospectus, amendments and supplements to such registration statement
or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto,
and all material incorporated by reference or deemed to be incorporated
by
reference in such registration statement.
“Rule
415”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose
and
effect as such Rule.
“Rule
424”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose
and
effect as such Rule.
“Selling
Shareholder Questionnaire”
shall
have the meaning set forth in Section 3(a).
2.
Shelf
Registration
(a)
On or
prior to each Filing Date, the Company shall prepare and file with
the
Commission a “Shelf” Registration Statement covering the resale of 130% of the
Registrable Securities on such Filing Date for an offering to be made
on a
continuous basis pursuant to Rule 415. The Registration Statement shall
be on
Form S-3 (except if the Company is not then eligible to register for
resale the
Registrable Securities on Form S-3, in which case such registration
shall be on
another appropriate form in accordance herewith, such as Form SB-2)
and shall
contain (unless otherwise directed by the Holders) substantially the
“Plan
of Distribution”
attached hereto as Annex
A.
Subject
to the terms of this Agreement, the Company shall use its best efforts
to cause
the Registration Statement to be declared effective under the Securities
Act as
promptly as possible after the filing thereof, but in any event prior
to the
applicable Effectiveness Date, and shall use its best efforts to keep
such
Registration Statement continuously effective under the Securities
Act until all
Registrable Securities covered by such Registration Statement have
been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as
determined by
the counsel to the Company pursuant to a written opinion letter to
such effect,
addressed and acceptable to the Company’s transfer agent and the affected
Holders (the “Effectiveness
Period”).
The
Company shall telephonically request effectiveness of a Registration
Statement
as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
notify the Holders via facsimile of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically confirms
effectiveness with the Commission, which shall be the date requested
for
effectiveness of a Registration Statement. The Company shall, by 9:30
am Eastern
Time on the Trading Day after the Effective Date (as defined in the
Purchase
Agreement), file a final Prospectus with the Commission as required
by Rule 424.
Failure to so notify the Holder within 1 Trading Day of such notification
of
effectiveness or failure to file a final Prospectus as aforesaid shall
be deemed
an Event under Section 2(b).
(b)
If:
(i) a Registration Statement is not filed on or prior to its Filing
Date (if the
Company files a Registration Statement without affording the Holders
the
opportunity to review and comment on the same as required by Section
3(a), the
Company shall not be deemed to have satisfied this clause (i)), or
(ii) the
Company fails to file with the Commission a request for acceleration
in
accordance with Rule 461 promulgated under the Securities Act, within
five
Trading Days of the date that the Company is notified (orally or in
writing,
whichever is earlier) by the Commission that a Registration Statement
will not
be “reviewed,” or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment
and
otherwise respond in writing to comments made by the Commission in
respect of
such Registration Statement within 20 calendar days after the receipt
of
comments by or notice from the Commission that such amendment is required
in
order for a Registration Statement to be declared effective, or (iv)
a
Registration Statement filed or required to be filed hereunder is not
declared
effective by the Commission by its Effectiveness Date, or (v) after
the
Effectiveness Date, a Registration Statement ceases for any reason
to remain
continuously effective as to all Registrable Securities for which it
is required
to be effective, or the Holders are not permitted to utilize the Prospectus
therein to resell such Registrable Securities for 10 consecutive calendar
days
but no more than an aggregate of 15 calendar days during any 12-month
period
(which need not be consecutive Trading Days) (any such failure or breach
being
referred to as an “Event”,
and
for purposes of clause (i) or (iv) the date on which such Event occurs,
or for
purposes of clause (ii) the date on which such five Trading Day period
is
exceeded, or for purposes of clause (iii) the date which such 20 calendar
day
period is exceeded, or for purposes of clause (v) the date on which
such 10 or
15 calendar day period, as applicable, is exceeded being referred to
as
“Event
Date”),
then
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary
of each
such Event Date (if the applicable Event shall not have been cured
by such date)
until the applicable Event is cured, the Company shall pay to each
Holder an
amount in cash, as partial liquidated damages and not as a penalty,
equal to
1.5% (1% as to an Event caused solely under clause (i) above) of the
aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement
for any
Registrable Securities (including the Preferred Stock overlying such
Registrable
Securities) then held by such Holder. The parties agree that (1) the
Company
will not be liable for liquidated damages under this Agreement with
respect to
any Warrants or Warrant Shares and (2) the maximum aggregate liquidated
damages
payable to a Holder under this Agreement shall be 9% of the aggregate
Subscription Amount paid by such Holder pursuant to the Purchase Agreement.
If
the Company fails to pay any partial liquidated damages pursuant to
this Section
in full within seven days after the date payable, the Company will
pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that
is
permitted to be paid by applicable law) to the Holder, accruing daily
from the
date such partial liquidated damages are due until such amounts, plus
all such
interest thereon, are paid in full. The partial liquidated damages
pursuant to
the terms hereof shall apply on a daily pro-rata basis for any portion
of a
month prior to the cure of an Event.
3.
Registration
Procedures
In
connection with the Company’s registration obligations hereunder, the Company
shall:
(a) Not
less
than three Trading Days prior to the filing of each Registration Statement
or
any related Prospectus or any amendment or supplement thereto (including
any
document that would be incorporated or deemed to be incorporated therein
by
reference), the Company shall, (i) furnish to each Holder copies of
all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review
of such
Holders, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall
be necessary,
in the reasonable opinion of respective counsel to conduct a reasonable
investigation within the meaning of the Securities Act. The Company
shall not
file the Registration Statement or any such Prospectus or any amendments
or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the
Company is
notified of such objection in writing no later than 3 Trading Days
after the
Holders have been so furnished copies of such documents. Each Holder
agrees to
furnish to the Company a completed Questionnaire in the form attached
to this
Agreement as Annex B (a “Selling
Shareholder Questionnaire”)
not
less than two Trading Days prior to the Filing Date or by the end of
the fourth
Trading Day following the date on which such Holder receives draft
materials in
accordance with this Section.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in
connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act
all of the
Registrable Securities; (ii) cause the related Prospectus to be amended
or
supplemented by any required Prospectus supplement (subject to the
terms of this
Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received
from
the Commission with respect to a Registration Statement or any amendment
thereto
and as promptly as reasonably possible provide the Holders true and
complete
copies of all correspondence from and to the Commission relating to
a
Registration Statement; and (iv) comply in all material respects with
the
provisions of the Securities Act and the Exchange Act with respect
to the
disposition of all Registrable Securities covered by a Registration
Statement
during the applicable period in accordance (subject to the terms of
this
Agreement) with the intended methods of disposition by the Holders
thereof set
forth in such Registration Statement as so amended or in such Prospectus
as so
supplemented.
(c) If
during
the Effectiveness Period, the number of Registrable Securities at any
time
exceeds 85% of the number of shares of Common Stock then registered
in a
Registration Statement, then the Company shall file as soon as reasonably
practicable but in any case prior to the applicable Filing Date, an
additional
Registration Statement covering the resale by the Holders of not less
than 130%
of the number of such Registrable Securities.
(d) Notify
the Holders of Registrable Securities to be sold (which notice shall,
pursuant
to clauses (ii) through (vi) hereof, be accompanied by an instruction
to suspend
the use of the Prospectus until the requisite changes have been made)
as
promptly as reasonably possible (and, in the case of (i)(A) below,
not less than
five Trading Days prior to such filing) and (if requested by any such
Person)
confirm such notice in writing no later than one Trading Day following
the day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B)
when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing
on such
Registration Statement (the Company shall provide true and complete
copies
thereof and all written responses thereto to each of the Holders);
and (C) with
respect to a Registration Statement or any post-effective amendment,
when the
same has become effective; (ii) of any request by the Commission or
any other
Federal or state governmental authority for amendments or supplements
to a
Registration Statement or Prospectus or for additional information;
(iii) of the
issuance by the Commission or any other federal or state governmental
authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Registrable Securities or the initiation
of any
Proceedings for that purpose; (iv) of the receipt by the Company of
any
notification with respect to the suspension of the qualification or
exemption
from qualification of any of the Registrable Securities for sale in
any
jurisdiction, or the initiation or threatening of any Proceeding for
such
purpose; (v) of the occurrence of any event or passage of time that
makes the
financial statements included in a Registration Statement ineligible
for
inclusion therein or any statement made in a Registration Statement
or
Prospectus or any document incorporated or deemed to be incorporated
therein by
reference untrue in any material respect or that requires any revisions
to a
Registration Statement, Prospectus or other documents so that, in the
case of a
Registration Statement or the Prospectus, as the case may be, it will
not
contain any untrue statement of a material fact or omit to state any
material
fact required to be stated therein or necessary to make the statements
therein,
in light of the circumstances under which they were made, not misleading;
and
(vi) the occurrence or existence of any pending corporate development
with
respect to the Company that the Company believes may be material and
that, in
the determination of the Company, makes it not in the best interest
of the
Company to allow continued availability of the Registration Statement
or
Prospectus; provided that any and all of such information shall remain
confidential to each Holder until such information otherwise becomes
public,
unless disclosure by a Holder is required by law; provided,
further,
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.
(e) Use
its
best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of
(i) any order suspending the effectiveness of a Registration Statement,
or (ii)
any suspension of the qualification (or exemption from qualification)
of any of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f) Furnish
to each Holder, without charge, at least one conformed copy of each
such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person,
and
all exhibits to the extent requested by such Person (including those
previously
furnished or incorporated by reference) promptly after the filing of
such
documents with the Commission.
(g) Promptly
deliver to each Holder, without charge, as many copies of the Prospectus
or
Prospectuses (including each form of prospectus) and each amendment
or
supplement thereto as such Persons may reasonably request in connection
with
resales by the Holder of Registrable Securities. Subject to the terms
of this
Agreement, the Company hereby consents to the use of such Prospectus
and each
amendment or supplement thereto by each of the selling Holders in connection
with the offering and sale of the Registrable Securities covered by
such
Prospectus and any amendment or supplement thereto, except after the
giving of
any notice pursuant to Section 3(d).
(h) Prior
to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling
Holders
in connection with the registration or qualification (or exemption
from the
Registration or qualification) of such Registrable Securities for the
resale by
the Holder under the securities or Blue Sky laws of such jurisdictions
within
the United States as any Holder reasonably requests in writing, to
keep each
registration or qualification (or exemption therefrom) effective during
the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that the
Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material
tax in
any such jurisdiction where it is not then so subject or file a general
consent
to service of process in any such jurisdiction.
(i) If
NASDR
Rule 2710 requires any broker-dealer to make a filing prior to executing
a sale
by a Holder, make an Issuer Filing with the NASDR, Inc. Corporate Financing
Department pursuant to NASDR Rule 2710(b)(10)(A)(i) and respond within
five
Trading Days to any comments received from NASDR in connection therewith,
and
pay the filing fee required in connection therewith.
(j) If
requested by the Holders, cooperate with the Holders to facilitate
the timely
preparation and delivery of certificates representing Registrable Securities
to
be delivered to a transferee pursuant to a Registration Statement,
which
certificates shall be free, to the extent permitted by the Purchase
Agreement,
of all restrictive legends, and to enable such Registrable Securities
to be in
such denominations and registered in such names as any such Holders
may
reasonably request.
(k) Upon
the
occurrence of any event contemplated by this Section 3, as promptly
as
reasonably possible under the circumstances taking into account the
Company’s
good faith assessment of any adverse consequences to the Company and
its
stockholders of the premature disclosure of such event, prepare a supplement
or
amendment, including a post-effective amendment, to a Registration
Statement or
a supplement to the related Prospectus or any document incorporated
or deemed to
be incorporated therein by reference, and file any other required document
so
that, as thereafter delivered, neither a Registration Statement nor
such
Prospectus will contain an untrue statement of a material fact or omit
to state
a material fact required to be stated therein or necessary to make
the
statements therein, in light of the circumstances under which they
were made,
not misleading. If
the
Company notifies the Holders in accordance with clauses (ii) through
(vi) of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend
use of
such Prospectus. The Company will use its best efforts to ensure that
the use of
the Prospectus may be resumed as promptly as is practicable. The Company
shall
be entitled to exercise its right under this Section 3(j) to suspend
the
availability of a Registration Statement and Prospectus, subject to
the payment
of partial liquidated damages pursuant to Section 2(b), for a period
not to
exceed 60 days (which need not be consecutive days) in any 12 month
period.
(l) Comply
with all applicable rules and regulations of the Commission.
(m) The
Company may require each selling Holder to furnish to the Company a
certified
statement as to the number of shares of Common Stock beneficially owned
by such
Holder and, if required by the Commission, the person thereof that
has voting
and dispositive control over the Shares. During any periods that the
Company is
unable to meet its obligations hereunder with respect to the registration
of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company’s request, any liquidated
damages that are accruing at such time shall be tolled and any Event
that may
otherwise occur solely because of such delay shall be suspended, until
such
information is delivered to the Company.
4.
Registration
Expenses.
All
fees and expenses incident to the performance of or compliance with
this
Agreement by the Company shall be borne by the Company whether or not
any
Registrable Securities are sold pursuant to the Registration Statement.
The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation,
fees and expenses (A) with respect to filings required to be made with
the
Trading Market on which the Common Stock is then listed for trading,
(B) in
compliance with applicable state securities or Blue Sky laws reasonably
agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination
of
the eligibility of the Registrable Securities for investment under
the laws of
such jurisdictions as reasonably requested by the Holders) and (C)
if not
previously paid by the Company in connection with an Issuer Filing,
with respect
to any filing that may be required to be made by any broker through
which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving
no more
than a customary brokerage commission in connection with such sale,
(ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities), (iii) messenger, telephone
and
delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v)
Securities Act liability insurance, if the Company so desires such
insurance,
and (vi) fees and expenses of all other Persons retained by the Company
in
connection with the consummation of the transactions contemplated by
this
Agreement. In addition, the Company shall be responsible for all of
its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all
salaries and
expenses of its officers and employees performing legal or accounting
duties),
the expense of any annual audit and the fees and expenses incurred
in connection
with the listing of the Registrable Securities on any securities exchange
as
required hereunder. In no event shall the Company be responsible for
any broker
or similar commissions or, except to the extent provided for in the
Transaction
Documents, any legal fees or other costs of the Holders.
5.
Indemnification
(a)
Indemnification
by the Company.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, members, partners,
agents,
brokers (including brokers who offer and sell Registrable Securities
as
principal as a result of a pledge or any failure to perform under a
margin call
of Common Stock), investment advisors and employees (and any other
Persons with
a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person
who
controls any such Holder (within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act) and the officers, directors, members,
shareholders, partners, agents and employees (and any other Persons
with a
functionally equivalent role of a Person holding such titles, notwithstanding
a
lack of such title or any other title) of each such controlling Person,
to the
fullest extent permitted by applicable law, from and against any and
all losses,
claims, damages, liabilities, costs (including, without limitation,
reasonable
attorneys’ fees) and expenses (collectively, “Losses”),
as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement,
any
Prospectus or any form of prospectus or in any amendment or supplement
thereto
or in any preliminary prospectus, or arising out of or relating to
any omission
or alleged omission of a material fact required to be stated therein
or
necessary to make the statements therein (in the case of any Prospectus
or form
of prospectus or supplement thereto, in light of the circumstances
under which
they were made) not misleading, or (2) any violation or alleged violation
by the
Company of the Securities Act, Exchange Act or any state securities
law, or any
rule or regulation thereunder, in connection with the performance of
its
obligations under this Agreement, except to the extent, but only to
the extent,
that (i) such untrue statements or omissions are based solely upon
information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates
to
such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder
expressly for use in a Registration Statement, such Prospectus or such
form of
Prospectus or in any amendment or supplement thereto (it being understood
that
the Holder has approved Annex A hereto for this purpose) or (ii) in
the case of
an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the
use by such Holder of an outdated or defective Prospectus after the
Company has
notified such Holder in writing that the Prospectus is outdated or
defective and
prior to the receipt by such Holder of the Advice contemplated in Section
6(d).
The Company shall notify the Holders promptly of the institution, threat
or
assertion of any Proceeding arising from or in connection with the
transactions
contemplated by this Agreement of which the Company is aware.
(b)
Indemnification
by Holders.
Each
Holder shall, severally and not jointly, indemnify and hold harmless
the
Company, its directors, officers, agents and employees, each Person
who controls
the Company (within the meaning of Section 15 of the Securities Act
and Section
20 of the Exchange Act), and the directors, officers, agents or employees
of
such controlling Persons, to the fullest extent permitted by applicable
law,
from and against all Losses, as incurred, to the extent arising out
of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue or alleged untrue
statement
of a material fact contained in any Registration Statement, any Prospectus,
or
any form of prospectus, or in any amendment or supplement thereto or
in any
preliminary prospectus, or arising out of or relating to any omission
or alleged
omission of a material fact required to be stated therein or necessary
to make
the statements therein not misleading (i) to the extent, but only to
the extent,
that such untrue statement or omission is contained in any information
so
furnished in writing by such Holder to the Company specifically for
inclusion in
such Registration Statement or such Prospectus or (ii) to the extent
that (1)
such untrue statements or omissions are based solely upon information
regarding
such Holder furnished in writing to the Company by such Holder expressly
for use
therein, or to the extent that such information relates to such Holder
or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly
for use in
the Registration Statement (it being understood that the Holder has
approved
Annex A hereto for this purpose), such Prospectus or such form of Prospectus
or
in any amendment or supplement thereto or (2) in the case of an occurrence
of an
event of the type specified in Section 3(d)(ii)-(vi), the use by such
Holder of
an outdated or defective Prospectus after the Company has notified
such Holder
in writing that the Prospectus is outdated or defective and prior to
the receipt
by such Holder of the Advice contemplated in Section 6(d). In no event
shall the
liability of any selling Holder hereunder be greater in amount than
the dollar
amount of the net proceeds received by such Holder upon the sale of
the
Registrable Securities giving rise to such indemnification
obligation.
(c)
Conduct
of Indemnification Proceedings.
If any
Proceeding shall be brought or asserted against any Person entitled
to indemnity
hereunder (an “Indemnified
Party”),
such
Indemnified Party shall promptly notify the Person from whom indemnity
is sought
(the “Indemnifying
Party”)
in
writing, and the Indemnifying Party shall have the right to assume
the defense
thereof, including the employment of counsel reasonably satisfactory
to the
Indemnified Party and the payment of all fees and expenses incurred
in
connection with defense thereof; provided, that the failure of any
Indemnified
Party to give such notice shall not relieve the Indemnifying Party
of its
obligations or liabilities pursuant to this Agreement, except (and
only) to the
extent that it shall be finally determined by a court of competent
jurisdiction
(which determination is not subject to appeal or further review) that
such
failure shall have prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in
any such
Proceeding and to participate in the defense thereof, but the fees
and expenses
of such counsel shall be at the expense of such Indemnified Party or
Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and
expenses; (2) the Indemnifying Party shall have failed promptly to
assume the
defense of such Proceeding and to employ counsel reasonably satisfactory
to such
Indemnified Party in any such Proceeding; or (3) the named parties
to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall reasonably
believe
that a material conflict of interest is likely to exist if the same
counsel were
to represent such Indemnified Party and the Indemnifying Party (in
which case,
if such Indemnified Party notifies the Indemnifying Party in writing
that it
elects to employ separate counsel at the expense of the Indemnifying
Party, the
Indemnifying Party shall not have the right to assume the defense thereof
and
the reasonable fees and expenses of one separate counsel shall be at
the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable
for any
settlement of any such Proceeding effected without its written consent,
which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without
the prior written consent of the Indemnified Party, effect any settlement
of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless
such settlement includes an unconditional release of such Indemnified
Party from
all liability on claims that are the subject matter of such
Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of
the
Indemnified Party (including reasonable fees and expenses to the extent
incurred
in connection with investigating or preparing to defend such Proceeding
in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof
to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and
expenses
applicable to such actions for which such Indemnified Party is not
entitled to
indemnification hereunder, determined based upon the relative faults
of the
parties.
(d)
Contribution.
If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any
Losses, then
each Indemnifying Party shall contribute to the amount paid or payable
by such
Indemnified Party, in such proportion as is appropriate to reflect
the relative
fault of the Indemnifying Party and Indemnified Party in connection
with the
actions, statements or omissions that resulted in such Losses as well
as any
other relevant equitable considerations. The relative fault of such
Indemnifying
Party and Indemnified Party shall be determined by reference to, among
other
things, whether any action in question, including any untrue or alleged
untrue
statement of a material fact or omission or alleged omission of a material
fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent
such
action, statement or omission. The amount paid or payable by a party
as a result
of any Losses shall be deemed to include, subject to the limitations
set forth
in this Agreement, any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to
the extent
such party would have been indemnified for such fees or expenses if
the
indemnification provided for in this Section was available to such
party in
accordance with its terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation
or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall
be required
to contribute, in the aggregate, any amount in excess of the amount
by which the
net proceeds actually received by such Holder from the sale of the
Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such
Holder has otherwise been required to pay by reason of such untrue
or alleged
untrue statement or omission or alleged omission, except in the case
of fraud by
such Holder.
The
indemnity and contribution agreements contained in this Section are
in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
6.
Miscellaneous
(a) Remedies.
In the
event of a breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may be,
in
addition to being entitled to exercise all rights granted by law and
under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each
Holder
agree that monetary damages would not provide adequate compensation
for any
losses incurred by reason of a breach by it of any of the provisions
of this
Agreement and hereby further agrees that, in the event of any action
for
specific performance in respect of such breach, it shall waive the
defense that
a remedy at law would be adequate.
(b) No
Piggyback on Registrations.
Except
as set forth on Schedule
6(b)
attached
hereto, neither the Company nor any of its security holders (other
than the
Holders in such capacity pursuant hereto) may include securities of
the Company
in the Registration Statement other than the Registrable Securities.
The Company
shall not file any other registration statements until the initial
Registration
Statement required hereunder is declared effective by the Commission,
provided
that this Section 6(b) shall not prohibit the Company from filing amendments
to
registration statements already filed.
(c) Compliance.
Each
Holder covenants and agrees that it will comply with the prospectus
delivery
requirements of the Securities Act as applicable to it in connection
with sales
of Registrable Securities pursuant to the Registration Statement.
(d) Discontinued
Disposition.
Each
Holder agrees by its acquisition of such Registrable Securities that,
upon
receipt of a notice from the Company of the occurrence of any event
of the kind
described in Section 3(d), such Holder will forthwith discontinue disposition
of
such Registrable Securities under a Registration Statement until such
Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration
Statement, or until it is advised in writing (the “Advice”)
by the
Company that the use of the applicable Prospectus may be resumed, and,
in either
case, has received copies of any additional or supplemental filings
that are
incorporated or deemed to be incorporated by reference in such Prospectus
or
Registration Statement. The Company will use its best efforts to ensure
that the
use of the Prospectus may be resumed as promptly as it practicable.
The Company
agrees and acknowledges that any periods during which the Holder is
required to
discontinue the disposition of the Registrable Securities hereunder
shall be
subject to the provisions of Section 2(b).
(e) Piggy-Back
Registrations.
If at
any time during the Effectiveness Period there is not an effective
Registration
Statement covering all of the Registrable Securities and the Company
shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others
under the
Securities Act of any of its equity securities, other than on Form
S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with
any
acquisition of any entity or business or equity securities issuable
in
connection with the stock option or other employee benefit plans, then
the
Company shall send to each Holder a written notice of such determination
and, if
within fifteen days after the date of such notice, any such Holder
shall so
request in writing, the Company shall include in such registration
statement all
or any part of such Registrable Securities such Holder requests to
be
registered; provided, that, the Company shall not be required to register
any
Registrable Securities pursuant to this Section 6(e) that are eligible
for
resale pursuant to Rule 144(k) promulgated under the Securities Act
or that are
the subject of a then effective Registration Statement.
(f) Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this sentence,
may not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in
writing and
signed by the Company and Holders holding at least 81% of the then
Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart
from
the provisions hereof with respect to a matter that relates exclusively
to the
rights of Holders and that does not directly or indirectly affect the
rights of
other Holders may be given by Holders of all of the Registrable Securities
to
which such waiver or consent relates; provided,
however,
that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
(g) Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be delivered as set forth in the Purchase
Agreement.
(h) Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit
of each
Holder. The Company may not assign its rights or obligations hereunder
without
the prior written consent of all of the Holders of the then Registrable
Securities. Each Holder may assign their respective rights hereunder
in the
manner and to the Persons as permitted under the Purchase
Agreement.
(i) No
Inconsistent Agreements.
Neither
the Company nor any of its subsidiaries has entered, as of the date
hereof, nor
shall the Company or any of its subsidiaries, on or after the date
of this
Agreement, enter into any agreement with respect to its securities,
that would
have the effect of impairing the rights granted to the Holders in this
Agreement
or otherwise conflicts with the provisions hereof. Except as set forth
on
Schedule
6(i),
neither
the Company nor any of its subsidiaries has previously entered into
any
agreement granting any registration rights with respect to any of its
securities
to any Person that have not been satisfied in full.
(j) Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect as
if such
facsimile or “.pdf” signature page were an original thereof.
(k) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined with the provisions of the Purchase
Agreement.
(l) Cumulative
Remedies.
The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
(m) Severability.
If any
term, provision, covenant or restriction of this Agreement is held
by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set
forth herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the same
or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of such
that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings.
The
headings in this Agreement are for convenience of reference only and
shall not
limit or otherwise affect the meaning hereof.
(o) Independent
Nature of Holders’ Obligations and Rights.
The
obligations of each Holder hereunder are several and not joint with
the
obligations of any other Holder hereunder, and no Holder shall be responsible
in
any way for the performance of the obligations of any other Holder
hereunder.
Nothing contained herein or in any other agreement or document delivered
at any
closing, and no action taken by any Holder pursuant hereto or thereto,
shall be
deemed to constitute the Holders as a partnership, an association,
a joint
venture or any other kind of entity, or create a presumption that the
Holders
are in any way acting in concert with respect to such obligations or
the
transactions contemplated by this Agreement. Each Holder shall be entitled
to
protect and enforce its rights, including without limitation the rights
arising
out of this Agreement, and it shall not be necessary for any other
Holder to be
joined as an additional party in any proceeding for such purpose.
********************
IN
WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as
of the date first written above.
|
CHEMBIO
DIAGNOSTICS, INC.
|
|
By:__________________________________________
Name:
Title:
|
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[HOLDER’S
SIGNATURE PAGE TO CEMI RRA]
Name
of
Holder: __________________________
Signature
of Authorized Signatory of Holder:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
[SIGNATURE
PAGES CONTINUE]
ANNEX
A
Plan
of Distribution
Each
Selling Stockholder (the “Selling
Stockholders”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock
on the
[principal Trading Market] or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions.
These sales
may be at fixed or negotiated prices. A Selling Stockholder may use
any one or
more of the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the
shares as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the
applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the
registration
statement of which this prospectus is a
part;
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified
number of such
shares at a stipulated price per
share;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
|
·
|
a
combination of any such methods of sale;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the
Securities
Act of 1933, as amended (the “Securities
Act”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts
from
the Selling Stockholders (or, if any broker-dealer acts as agent for
the
purchaser of shares, from the purchaser) in amounts to be negotiated,
but,
except as set forth in a supplement to this Prospectus, in the case
of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup
or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein,
the Selling
Stockholders may enter into hedging transactions with broker-dealers
or other
financial institutions, which may in turn engage in short sales of
the Common
Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver
these
securities to close out their short positions, or loan or pledge the
common
stock to broker-dealers that in turn may sell these securities. The
Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one
or more
derivative securities which require the delivery to such broker-dealer
or other
financial institution of shares offered by this prospectus, which shares
such
broker-dealer or other financial institution may resell pursuant to
this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale
of the
shares purchased by them may be deemed to be underwriting commissions
or
discounts under the Securities Act. Each Selling Stockholder has informed
the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.
In no
event shall any broker-dealer receive fees, commissions and markups
which, in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the
Company
incident to the registration of the shares. The Company has agreed
to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery
requirements
of the Securities Act including Rule 172 thereunder. In addition, any
securities
covered by this prospectus which qualify for sale pursuant to Rule
144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection
with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date
on which the
shares may be resold by the Selling Stockholders without registration
and
without regard to any volume limitations by reason of Rule 144(k) under
the
Securities Act or any other rule of similar effect or (ii) all of the
shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold
only through
registered or licensed brokers or dealers if required under applicable
state
securities laws. In addition, in certain states, the resale shares
may not be
sold unless they have been registered or qualified for sale in the
applicable
state or an exemption from the registration or qualification requirement
is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person
engaged in
the distribution of the resale shares may not simultaneously engage
in market
making activities with respect to the common stock for the applicable
restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject
to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or
any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of
this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
Annex
B
CHEMBIO
DIAGNOSTICS, INC.
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock, par value $0.01 per share
(the
“Common
Stock”),
of
Chembio Diagnostics, Inc., a Nevada corporation (the “Company”),
(the
“Registrable
Securities”)
understands that the Company has filed or intends to file with the
Securities
and Exchange Commission (the “Commission”)
a
registration statement on Form [S-3 (the “Registration
Statement”)
for
the registration and resale under Rule 415 of the Securities Act of
1933, as
amended (the “Securities
Act”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement, dated as of September 29, 2006 (the “Registration
Rights Agreement”),
among
the Company and the Purchasers named therein. A copy of the Registration
Rights
Agreement is available from the Company upon request at the address
set forth
below. All capitalized terms not otherwise defined herein shall have
the
meanings ascribed thereto in the Registration Rights Agreement.
Certain
legal consequences arise from being named as a selling securityholder
in the
Registration Statement and the related prospectus. Accordingly, holders
and
beneficial owners of Registrable Securities are advised to consult
their own
securities law counsel regarding the consequences of being named or
not being
named as a selling securityholder in the Registration Statement and
the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “Selling
Securityholder”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it and listed below in Item 3 (unless otherwise specified under
such Item 3)
in the Registration Statement.
The
undersigned hereby provides the following information to the Company
and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
|
(a)
|
Full
Legal Name of Selling
Securityholder
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above)
through
which Registrable Securities Listed in Item 3 below are
held:
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural
person who
directly or indirectly alone or with others has power to
vote or dispose
of the securities covered by the
questionnaire):
|
2.
Address for Notices to Selling Securityholder:
|
Telephone:
|
|
Fax:
|
|
Contact
Person:
|
3.
Beneficial Ownership of Registrable Securities:
|
(a)
|
Type
and Number of Registrable Securities beneficially owned (not
including the
Registrable Securities that are issuable pursuant to the
Purchase
Agreement):
|
4.
Broker-Dealer Status:
|
(a)
|
Are
you a broker-dealer?
|
Yes
No
|
(b)
|
If
“yes” to Section 4(a), did you receive your Registrable Securities
as
compensation for investment banking services to the
Company.
|
Yes
No
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes
No
|
(d)
|
If
you are an affiliate of a broker-dealer, do you certify that
you bought
the Registrable Securities in the ordinary course of business,
and at the
time of the purchase of the Registrable Securities to be
resold, you had
no agreements or understandings, directly or indirectly,
with any person
to distribute the Registrable
Securities?
|
Yes
No
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
5.
Beneficial Ownership of Other Securities of the Company Owned by the
Selling
Securityholder.
Except
as set forth below in this Item 5, the undersigned is not the beneficial
or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
|
(a)
|
Type
and Amount of Other Securities beneficially owned by the
Selling
Securityholder:
|
6.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates,
officers,
directors or principal equity holders (owners of 5% of more of the
equity
securities of the undersigned) has held any position or office or has
had any
other material relationship with the Company (or its predecessors or
affiliates)
during the past three years.
State
any
exceptions here:
The
undersigned agrees to promptly notify the Company of any inaccuracies
or changes
in the information provided herein that may occur subsequent to the
date hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion
of such
information in the Registration Statement and the related prospectus
and
any
amendments or supplements thereto.
The
undersigned understands that such information will be relied upon by
the Company
in connection with the preparation or amendment of the Registration
Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice
and Questionnaire to be executed and delivered either in person or
by its duly
authorized agent.
Dated:
Beneficial
Owner:
By:
Name:
Title:
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE,
AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
Exhibit
4.3 Registration Rights dated October 5, 2006
EXHIBIT
B
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “Agreement”)
is
made and entered into as of October 5, 2006, among Chembio Diagnostics,
Inc., a
Nevada corporation (the “Company”),
and
the purchasers signatory hereto (each such purchaser is a “Purchaser”
and
collectively, the “Purchasers”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the
date hereof among the Company and the Purchasers (the “Purchase
Agreement”).
The
Company and the Purchasers hereby agree as follows:
1.
Definitions
Capitalized
terms used and not otherwise defined herein that are defined in the
Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
As used
in this Agreement, the following terms shall have the following
meanings:
“Advice”
shall
have the meaning set forth in Section 6(d).
“Effectiveness
Date”
means,
with respect to the initial Registration Statement required to be filed
hereunder, the 120th
calendar
day following the date hereof (150th
calendar
day following the date hereof in the event of a full review by the
Commission of
the initial Registration Statement) and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c),
the
60th
calendar
day following the date on which the Company first knows, or reasonably
should
have known, that such additional Registration Statement is required
hereunder;
provided,
however,
that in
the event the Company is notified by the Commission that one of the
above
Registration Statements will not be reviewed or is no longer subject
to further
review and comments, the Effectiveness Date as to such Registration
Statement
shall be the fifth Trading Day following the date on which the Company
is so
notified if such date precedes the dates required above.
“Effectiveness
Period”
shall
have the meaning set forth in Section 2(a).
“Event”
shall
have the meaning set forth in Section 2(b).
“Event
Date”
shall
have the meaning set forth in Section 2(b).
“Filing
Date”
means,
with respect to the initial Registration Statement required hereunder,
the
45th
calendar
day following the date hereof and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 15th
day
following the date on which the Company first knows, or reasonably
should have
known that such additional Registration Statement is required hereunder.
“Holder”
or
“Holders”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
“Indemnified
Party”
shall
have the meaning set forth in Section 5(c).
“Indemnifying
Party”
shall
have the meaning set forth in Section 5(c).
“Losses”
shall
have the meaning set forth in Section 5(a).
“Plan
of Distribution”
shall
have the meaning set forth in Section 2(a).
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Prospectus”
means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted
from a
prospectus filed as part of an effective registration statement in
reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering
of any
portion of the Registrable Securities covered by a Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to
be
incorporated by reference in such Prospectus.
“Registrable
Securities”
means,
as of the date in question, (i) all of the shares of Common Stock issuable
upon
conversion in full of the shares of Preferred Stock, (ii) all shares
of Common
Stock issuable as dividends on the Preferred Stock assuming all dividend
payments are made in shares of Common Stock and the Preferred Stock
is held for
at least 3 years, (iii) all Warrant Shares, (iv) any securities issued
or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing and (v) any additional
shares
issuable in connection with any anti-dilution provisions associated
with the
Preferred Stock and Warrants (in each case, without giving effect to
any
limitations on conversion set forth in the Certificate of Designation
or
limitations on exercise set forth in the Warrant).
“Registration
Statement”
means
the registration statements required to be filed hereunder and any
additional
registration statements contemplated by Section 3(c), including (in
each case)
the Prospectus, amendments and supplements to such registration statement
or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto,
and all material incorporated by reference or deemed to be incorporated
by
reference in such registration statement.
“Rule
415”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose
and
effect as such Rule.
“Rule
424”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose
and
effect as such Rule.
“Selling
Shareholder Questionnaire”
shall
have the meaning set forth in Section 3(a).
2.
Shelf
Registration
(a)
On or
prior to each Filing Date, the Company shall prepare and file with
the
Commission a “Shelf” Registration Statement covering the resale of 130% of the
Registrable Securities on such Filing Date for an offering to be made
on a
continuous basis pursuant to Rule 415. The Registration Statement shall
be on
Form S-3 (except if the Company is not then eligible to register for
resale the
Registrable Securities on Form S-3, in which case such registration
shall be on
another appropriate form in accordance herewith, such as Form SB-2)
and shall
contain (unless otherwise directed by the Holders) substantially the
“Plan
of Distribution”
attached hereto as Annex
A.
Subject
to the terms of this Agreement, the Company shall use its best efforts
to cause
the Registration Statement to be declared effective under the Securities
Act as
promptly as possible after the filing thereof, but in any event prior
to the
applicable Effectiveness Date, and shall use its best efforts to keep
such
Registration Statement continuously effective under the Securities
Act until all
Registrable Securities covered by such Registration Statement have
been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as
determined by
the counsel to the Company pursuant to a written opinion letter to
such effect,
addressed and acceptable to the Company’s transfer agent and the affected
Holders (the “Effectiveness
Period”).
The
Company shall telephonically request effectiveness of a Registration
Statement
as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
notify the Holders via facsimile of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically confirms
effectiveness with the Commission, which shall be the date requested
for
effectiveness of a Registration Statement. The Company shall, by 9:30
am Eastern
Time on the Trading Day after the Effective Date (as defined in the
Purchase
Agreement), file a final Prospectus with the Commission as required
by Rule 424.
Failure to so notify the Holder within 1 Trading Day of such notification
of
effectiveness or failure to file a final Prospectus as aforesaid shall
be deemed
an Event under Section 2(b).
(b)
If:
(i) a Registration Statement is not filed on or prior to its Filing
Date (if the
Company files a Registration Statement without affording the Holders
the
opportunity to review and comment on the same as required by Section
3(a), the
Company shall not be deemed to have satisfied this clause (i)), or
(ii) the
Company fails to file with the Commission a request for acceleration
in
accordance with Rule 461 promulgated under the Securities Act, within
five
Trading Days of the date that the Company is notified (orally or in
writing,
whichever is earlier) by the Commission that a Registration Statement
will not
be “reviewed,” or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment
and
otherwise respond in writing to comments made by the Commission in
respect of
such Registration Statement within 20 calendar days after the receipt
of
comments by or notice from the Commission that such amendment is required
in
order for a Registration Statement to be declared effective, or (iv)
a
Registration Statement filed or required to be filed hereunder is not
declared
effective by the Commission by its Effectiveness Date, or (v) after
the
Effectiveness Date, a Registration Statement ceases for any reason
to remain
continuously effective as to all Registrable Securities for which it
is required
to be effective, or the Holders are not permitted to utilize the Prospectus
therein to resell such Registrable Securities for 10 consecutive calendar
days
but no more than an aggregate of 15 calendar days during any 12-month
period
(which need not be consecutive Trading Days) (any such failure or breach
being
referred to as an “Event”,
and
for purposes of clause (i) or (iv) the date on which such Event occurs,
or for
purposes of clause (ii) the date on which such five Trading Day period
is
exceeded, or for purposes of clause (iii) the date which such 20 calendar
day
period is exceeded, or for purposes of clause (v) the date on which
such 10 or
15 calendar day period, as applicable, is exceeded being referred to
as
“Event
Date”),
then
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary
of each
such Event Date (if the applicable Event shall not have been cured
by such date)
until the applicable Event is cured, the Company shall pay to each
Holder an
amount in cash, as partial liquidated damages and not as a penalty,
equal to
1.5% (1% as to an Event caused solely under clause (i) above) of the
aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement
for any
Registrable Securities (including the Preferred Stock overlying such
Registrable
Securities) then held by such Holder. The parties agree that (1) the
Company
will not be liable for liquidated damages under this Agreement with
respect to
any Warrants or Warrant Shares and (2) the maximum aggregate liquidated
damages
payable to a Holder under this Agreement shall be 9% of the aggregate
Subscription Amount paid by such Holder pursuant to the Purchase Agreement.
If
the Company fails to pay any partial liquidated damages pursuant to
this Section
in full within seven days after the date payable, the Company will
pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily
from the
date such partial liquidated damages are due until such amounts, plus
all such
interest thereon, are paid in full. The partial liquidated damages
pursuant to
the terms hereof shall apply on a daily pro-rata basis for any portion
of a
month prior to the cure of an Event.
3.
Registration
Procedures
In
connection with the Company’s registration obligations hereunder, the Company
shall:
(a) Not
less
than three Trading Days prior to the filing of each Registration Statement
or
any related Prospectus or any amendment or supplement thereto (including
any
document that would be incorporated or deemed to be incorporated therein
by
reference), the Company shall, (i) furnish to each Holder copies of
all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review
of such
Holders, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall
be necessary,
in the reasonable opinion of respective counsel to conduct a reasonable
investigation within the meaning of the Securities Act. The Company
shall not
file the Registration Statement or any such Prospectus or any amendments
or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the
Company is
notified of such objection in writing no later than 3 Trading Days
after the
Holders have been so furnished copies of such documents. Each Holder
agrees to
furnish to the Company a completed Questionnaire in the form attached
to this
Agreement as Annex B (a “Selling
Shareholder Questionnaire”)
not
less than two Trading Days prior to the Filing Date or by the end of
the fourth
Trading Day following the date on which such Holder receives draft
materials in
accordance with this Section.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in
connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act
all of the
Registrable Securities; (ii) cause the related Prospectus to be amended
or
supplemented by any required Prospectus supplement (subject to the
terms of this
Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received
from
the Commission with respect to a Registration Statement or any amendment
thereto
and as promptly as reasonably possible provide the Holders true and
complete
copies of all correspondence from and to the Commission relating to
a
Registration Statement; and (iv) comply in all material respects with
the
provisions of the Securities Act and the Exchange Act with respect
to the
disposition of all Registrable Securities covered by a Registration
Statement
during the applicable period in accordance (subject to the terms of
this
Agreement) with the intended methods of disposition by the Holders
thereof set
forth in such Registration Statement as so amended or in such Prospectus
as so
supplemented.
(c) If
during
the Effectiveness Period, the number of Registrable Securities at any
time
exceeds 85% of the number of shares of Common Stock then registered
in a
Registration Statement, then the Company shall file as soon as reasonably
practicable but in any case prior to the applicable Filing Date, an
additional
Registration Statement covering the resale by the Holders of not less
than 130%
of the number of such Registrable Securities.
(d) Notify
the Holders of Registrable Securities to be sold (which notice shall,
pursuant
to clauses (ii) through (vi) hereof, be accompanied by an instruction
to suspend
the use of the Prospectus until the requisite changes have been made)
as
promptly as reasonably possible (and, in the case of (i)(A) below,
not less than
five Trading Days prior to such filing) and (if requested by any such
Person)
confirm such notice in writing no later than one Trading Day following
the day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B)
when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing
on such
Registration Statement (the Company shall provide true and complete
copies
thereof and all written responses thereto to each of the Holders);
and (C) with
respect to a Registration Statement or any post-effective amendment,
when the
same has become effective; (ii) of any request by the Commission or
any other
Federal or state governmental authority for amendments or supplements
to a
Registration Statement or Prospectus or for additional information;
(iii) of the
issuance by the Commission or any other federal or state governmental
authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Registrable Securities or the initiation
of any
Proceedings for that purpose; (iv) of the receipt by the Company of
any
notification with respect to the suspension of the qualification or
exemption
from qualification of any of the Registrable Securities for sale in
any
jurisdiction, or the initiation or threatening of any Proceeding for
such
purpose; (v) of the occurrence of any event or passage of time that
makes the
financial statements included in a Registration Statement ineligible
for
inclusion therein or any statement made in a Registration Statement
or
Prospectus or any document incorporated or deemed to be incorporated
therein by
reference untrue in any material respect or that requires any revisions
to a
Registration Statement, Prospectus or other documents so that, in the
case of a
Registration Statement or the Prospectus, as the case may be, it will
not
contain any untrue statement of a material fact or omit to state any
material
fact required to be stated therein or necessary to make the statements
therein,
in light of the circumstances under which they were made, not misleading;
and
(vi) the occurrence or existence of any pending corporate development
with
respect to the Company that the Company believes may be material and
that, in
the determination of the Company, makes it not in the best interest
of the
Company to allow continued availability of the Registration Statement
or
Prospectus; provided that any and all of such information shall remain
confidential to each Holder until such information otherwise becomes
public,
unless disclosure by a Holder is required by law; provided,
further,
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.
(e) Use
its
best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of
(i) any order suspending the effectiveness of a Registration Statement,
or (ii)
any suspension of the qualification (or exemption from qualification)
of any of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f) Furnish
to each Holder, without charge, at least one conformed copy of each
such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person,
and
all exhibits to the extent requested by such Person (including those
previously
furnished or incorporated by reference) promptly after the filing of
such
documents with the Commission.
(g) Promptly
deliver to each Holder, without charge, as many copies of the Prospectus
or
Prospectuses (including each form of prospectus) and each amendment
or
supplement thereto as such Persons may reasonably request in connection
with
resales by the Holder of Registrable Securities. Subject to the terms
of this
Agreement, the Company hereby consents to the use of such Prospectus
and each
amendment or supplement thereto by each of the selling Holders in connection
with the offering and sale of the Registrable Securities covered by
such
Prospectus and any amendment or supplement thereto, except after the
giving of
any notice pursuant to Section 3(d).
(h) Prior
to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling
Holders
in connection with the registration or qualification (or exemption
from the
Registration or qualification) of such Registrable Securities for the
resale by
the Holder under the securities or Blue Sky laws of such jurisdictions
within
the United States as any Holder reasonably requests in writing, to
keep each
registration or qualification (or exemption therefrom) effective during
the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that the
Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material
tax in
any such jurisdiction where it is not then so subject or file a general
consent
to service of process in any such jurisdiction.
(i) If
NASDR
Rule 2710 requires any broker-dealer to make a filing prior to executing
a sale
by a Holder, make an Issuer Filing with the NASDR, Inc. Corporate Financing
Department pursuant to NASDR Rule 2710(b)(10)(A)(i) and respond within
five
Trading Days to any comments received from NASDR in connection therewith,
and
pay the filing fee required in connection therewith.
(j) If
requested by the Holders, cooperate with the Holders to facilitate
the timely
preparation and delivery of certificates representing Registrable Securities
to
be delivered to a transferee pursuant to a Registration Statement,
which
certificates shall be free, to the extent permitted by the Purchase
Agreement,
of all restrictive legends, and to enable such Registrable Securities
to be in
such denominations and registered in such names as any such Holders
may
reasonably request.
(k) Upon
the
occurrence of any event contemplated by this Section 3, as promptly
as
reasonably possible under the circumstances taking into account the
Company’s
good faith assessment of any adverse consequences to the Company and
its
stockholders of the premature disclosure of such event, prepare a supplement
or
amendment, including a post-effective amendment, to a Registration
Statement or
a supplement to the related Prospectus or any document incorporated
or deemed to
be incorporated therein by reference, and file any other required document
so
that, as thereafter delivered, neither a Registration Statement nor
such
Prospectus will contain an untrue statement of a material fact or omit
to state
a material fact required to be stated therein or necessary to make
the
statements therein, in light of the circumstances under which they
were made,
not misleading. If
the
Company notifies the Holders in accordance with clauses (ii) through
(vi) of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend
use of
such Prospectus. The Company will use its best efforts to ensure that
the use of
the Prospectus may be resumed as promptly as is practicable. The Company
shall
be entitled to exercise its right under this Section 3(j) to suspend
the
availability of a Registration Statement and Prospectus, subject to
the payment
of partial liquidated damages pursuant to Section 2(b), for a period
not to
exceed 60 days (which need not be consecutive days) in any 12 month
period.
(l) Comply
with all applicable rules and regulations of the Commission.
(m) The
Company may require each selling Holder to furnish to the Company a
certified
statement as to the number of shares of Common Stock beneficially owned
by such
Holder and, if required by the Commission, the person thereof that
has voting
and dispositive control over the Shares. During any periods that the
Company is
unable to meet its obligations hereunder with respect to the registration
of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company’s request, any liquidated
damages that are accruing at such time shall be tolled and any Event
that may
otherwise occur solely because of such delay shall be suspended, until
such
information is delivered to the Company.
4.
Registration
Expenses.
All
fees and expenses incident to the performance of or compliance with
this
Agreement by the Company shall be borne by the Company whether or not
any
Registrable Securities are sold pursuant to the Registration Statement.
The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation,
fees and expenses (A) with respect to filings required to be made with
the
Trading Market on which the Common Stock is then listed for trading,
(B) in
compliance with applicable state securities or Blue Sky laws reasonably
agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination
of
the eligibility of the Registrable Securities for investment under
the laws of
such jurisdictions as reasonably requested by the Holders) and (C)
if not
previously paid by the Company in connection with an Issuer Filing,
with respect
to any filing that may be required to be made by any broker through
which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving
no more
than a customary brokerage commission in connection with such sale,
(ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities), (iii) messenger, telephone
and
delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v)
Securities Act liability insurance, if the Company so desires such
insurance,
and (vi) fees and expenses of all other Persons retained by the Company
in
connection with the consummation of the transactions contemplated by
this
Agreement. In addition, the Company shall be responsible for all of
its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all
salaries and
expenses of its officers and employees performing legal or accounting
duties),
the expense of any annual audit and the fees and expenses incurred
in connection
with the listing of the Registrable Securities on any securities exchange
as
required hereunder. In no event shall the Company be responsible for
any broker
or similar commissions or, except to the extent provided for in the
Transaction
Documents, any legal fees or other costs of the Holders.
5.
Indemnification
(a)
Indemnification
by the Company.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, members, partners,
agents,
brokers (including brokers who offer and sell Registrable Securities
as
principal as a result of a pledge or any failure to perform under a
margin call
of Common Stock), investment advisors and employees (and any other
Persons with
a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person
who
controls any such Holder (within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act) and the officers, directors, members,
shareholders, partners, agents and employees (and any other Persons
with a
functionally equivalent role of a Person holding such titles, notwithstanding
a
lack of such title or any other title) of each such controlling Person,
to the
fullest extent permitted by applicable law, from and against any and
all losses,
claims, damages, liabilities, costs (including, without limitation,
reasonable
attorneys’ fees) and expenses (collectively, “Losses”),
as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement,
any
Prospectus or any form of prospectus or in any amendment or supplement
thereto
or in any preliminary prospectus, or arising out of or relating to
any omission
or alleged omission of a material fact required to be stated therein
or
necessary to make the statements therein (in the case of any Prospectus
or form
of prospectus or supplement thereto, in light of the circumstances
under which
they were made) not misleading, or (2) any violation or alleged violation
by the
Company of the Securities Act, Exchange Act or any state securities
law, or any
rule or regulation thereunder, in connection with the performance of
its
obligations under this Agreement, except to the extent, but only to
the extent,
that (i) such untrue statements or omissions are based solely upon
information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates
to
such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder
expressly for use in a Registration Statement, such Prospectus or such
form of
Prospectus or in any amendment or supplement thereto (it being understood
that
the Holder has approved Annex A hereto for this purpose) or (ii) in
the case of
an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the
use by such Holder of an outdated or defective Prospectus after the
Company has
notified such Holder in writing that the Prospectus is outdated or
defective and
prior to the receipt by such Holder of the Advice contemplated in Section
6(d).
The Company shall notify the Holders promptly of the institution, threat
or
assertion of any Proceeding arising from or in connection with the
transactions
contemplated by this Agreement of which the Company is aware.
(b)
Indemnification
by Holders.
Each
Holder shall, severally and not jointly, indemnify and hold harmless
the
Company, its directors, officers, agents and employees, each Person
who controls
the Company (within the meaning of Section 15 of the Securities Act
and Section
20 of the Exchange Act), and the directors, officers, agents or employees
of
such controlling Persons, to the fullest extent permitted by applicable
law,
from and against all Losses, as incurred, to the extent arising out
of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue or alleged untrue
statement
of a material fact contained in any Registration Statement, any Prospectus,
or
any form of prospectus, or in any amendment or supplement thereto or
in any
preliminary prospectus, or arising out of or relating to any omission
or alleged
omission of a material fact required to be stated therein or necessary
to make
the statements therein not misleading (i) to the extent, but only to
the extent,
that such untrue statement or omission is contained in any information
so
furnished in writing by such Holder to the Company specifically for
inclusion in
such Registration Statement or such Prospectus or (ii) to the extent
that (1)
such untrue statements or omissions are based solely upon information
regarding
such Holder furnished in writing to the Company by such Holder expressly
for use
therein, or to the extent that such information relates to such Holder
or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly
for use in
the Registration Statement (it being understood that the Holder has
approved
Annex A hereto for this purpose), such Prospectus or such form of Prospectus
or
in any amendment or supplement thereto or (2) in the case of an occurrence
of an
event of the type specified in Section 3(d)(ii)-(vi), the use by such
Holder of
an outdated or defective Prospectus after the Company has notified
such Holder
in writing that the Prospectus is outdated or defective and prior to
the receipt
by such Holder of the Advice contemplated in Section 6(d). In no event
shall the
liability of any selling Holder hereunder be greater in amount than
the dollar
amount of the net proceeds received by such Holder upon the sale of
the
Registrable Securities giving rise to such indemnification
obligation.
(c)
Conduct
of Indemnification Proceedings.
If any
Proceeding shall be brought or asserted against any Person entitled
to indemnity
hereunder (an “Indemnified
Party”),
such
Indemnified Party shall promptly notify the Person from whom indemnity
is sought
(the “Indemnifying
Party”)
in
writing, and the Indemnifying Party shall have the right to assume
the defense
thereof, including the employment of counsel reasonably satisfactory
to the
Indemnified Party and the payment of all fees and expenses incurred
in
connection with defense thereof; provided, that the failure of any
Indemnified
Party to give such notice shall not relieve the Indemnifying Party
of its
obligations or liabilities pursuant to this Agreement, except (and
only) to the
extent that it shall be finally determined by a court of competent
jurisdiction
(which determination is not subject to appeal or further review) that
such
failure shall have prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in
any such
Proceeding and to participate in the defense thereof, but the fees
and expenses
of such counsel shall be at the expense of such Indemnified Party or
Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and
expenses; (2) the Indemnifying Party shall have failed promptly to
assume the
defense of such Proceeding and to employ counsel reasonably satisfactory
to such
Indemnified Party in any such Proceeding; or (3) the named parties
to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall reasonably
believe
that a material conflict of interest is likely to exist if the same
counsel were
to represent such Indemnified Party and the Indemnifying Party (in
which case,
if such Indemnified Party notifies the Indemnifying Party in writing
that it
elects to employ separate counsel at the expense of the Indemnifying
Party, the
Indemnifying Party shall not have the right to assume the defense thereof
and
the reasonable fees and expenses of one separate counsel shall be at
the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable
for any
settlement of any such Proceeding effected without its written consent,
which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without
the prior written consent of the Indemnified Party, effect any settlement
of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless
such settlement includes an unconditional release of such Indemnified
Party from
all liability on claims that are the subject matter of such
Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of
the
Indemnified Party (including reasonable fees and expenses to the extent
incurred
in connection with investigating or preparing to defend such Proceeding
in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof
to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and
expenses
applicable to such actions for which such Indemnified Party is not
entitled to
indemnification hereunder, determined based upon the relative faults
of the
parties.
(d)
Contribution.
If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any
Losses, then
each Indemnifying Party shall contribute to the amount paid or payable
by such
Indemnified Party, in such proportion as is appropriate to reflect
the relative
fault of the Indemnifying Party and Indemnified Party in connection
with the
actions, statements or omissions that resulted in such Losses as well
as any
other relevant equitable considerations. The relative fault of such
Indemnifying
Party and Indemnified Party shall be determined by reference to, among
other
things, whether any action in question, including any untrue or alleged
untrue
statement of a material fact or omission or alleged omission of a material
fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent
such
action, statement or omission. The amount paid or payable by a party
as a result
of any Losses shall be deemed to include, subject to the limitations
set forth
in this Agreement, any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to
the extent
such party would have been indemnified for such fees or expenses if
the
indemnification provided for in this Section was available to such
party in
accordance with its terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation
or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall
be required
to contribute, in the aggregate, any amount in excess of the amount
by which the
net proceeds actually received by such Holder from the sale of the
Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such
Holder has otherwise been required to pay by reason of such untrue
or alleged
untrue statement or omission or alleged omission, except in the case
of fraud by
such Holder.
The
indemnity and contribution agreements contained in this Section are
in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
6.
Miscellaneous
(a) Remedies.
In the
event of a breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may be,
in
addition to being entitled to exercise all rights granted by law and
under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each
Holder
agree that monetary damages would not provide adequate compensation
for any
losses incurred by reason of a breach by it of any of the provisions
of this
Agreement and hereby further agrees that, in the event of any action
for
specific performance in respect of such breach, it shall waive the
defense that
a remedy at law would be adequate.
(b) No
Piggyback on Registrations.
Except
as set forth on Schedule
6(b)
attached
hereto and except for other shares issuable upon conversion of Preferred
Stock
and exercise of Warrants held by the holders of the Preferred Stock
issued on
September 29, 2006, neither the Company nor any of its security holders
(other
than the Holders in such capacity pursuant hereto) may include securities
of the
Company in the Registration Statement other than the Registrable Securities.
The
Company shall not file any other registration statements until the
initial
Registration Statement required hereunder is declared effective by
the
Commission, provided that this Section 6(b) shall not prohibit the
Company from
filing amendments to registration statements already filed.
(c) Compliance.
Each
Holder covenants and agrees that it will comply with the prospectus
delivery
requirements of the Securities Act as applicable to it in connection
with sales
of Registrable Securities pursuant to the Registration Statement.
(d) Discontinued
Disposition.
Each
Holder agrees by its acquisition of such Registrable Securities that,
upon
receipt of a notice from the Company of the occurrence of any event
of the kind
described in Section 3(d), such Holder will forthwith discontinue disposition
of
such Registrable Securities under a Registration Statement until such
Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration
Statement, or until it is advised in writing (the “Advice”)
by the
Company that the use of the applicable Prospectus may be resumed, and,
in either
case, has received copies of any additional or supplemental filings
that are
incorporated or deemed to be incorporated by reference in such Prospectus
or
Registration Statement. The Company will use its best efforts to ensure
that the
use of the Prospectus may be resumed as promptly as it practicable.
The Company
agrees and acknowledges that any periods during which the Holder is
required to
discontinue the disposition of the Registrable Securities hereunder
shall be
subject to the provisions of Section 2(b).
(e) Piggy-Back
Registrations.
If at
any time during the Effectiveness Period there is not an effective
Registration
Statement covering all of the Registrable Securities and the Company
shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others
under the
Securities Act of any of its equity securities, other than on Form
S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with
any
acquisition of any entity or business or equity securities issuable
in
connection with the stock option or other employee benefit plans, then
the
Company shall send to each Holder a written notice of such determination
and, if
within fifteen days after the date of such notice, any such Holder
shall so
request in writing, the Company shall include in such registration
statement all
or any part of such Registrable Securities such Holder requests to
be
registered; provided, that, the Company shall not be required to register
any
Registrable Securities pursuant to this Section 6(e) that are eligible
for
resale pursuant to Rule 144(k) promulgated under the Securities Act
or that are
the subject of a then effective Registration Statement.
(f) Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this sentence,
may not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in
writing and
signed by the Company and Holders holding at least 51% of the then
Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart
from
the provisions hereof with respect to a matter that relates exclusively
to the
rights of Holders and that does not directly or indirectly affect the
rights of
other Holders may be given by Holders of all of the Registrable Securities
to
which such waiver or consent relates; provided,
however,
that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
(g) Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be delivered as set forth in the Purchase
Agreement.
(h) Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit
of each
Holder. The Company may not assign its rights or obligations hereunder
without
the prior written consent of all of the Holders of the then Registrable
Securities. Each Holder may assign their respective rights hereunder
in the
manner and to the Persons as permitted under the Purchase
Agreement.
(i) No
Inconsistent Agreements.
Neither
the Company nor any of its subsidiaries has entered, as of the date
hereof, nor
shall the Company or any of its subsidiaries, on or after the date
of this
Agreement, enter into any agreement with respect to its securities,
that would
have the effect of impairing the rights granted to the Holders in this
Agreement
or otherwise conflicts with the provisions hereof. Except as set forth
on
Schedule
6(i),
neither
the Company nor any of its subsidiaries has previously entered into
any
agreement granting any registration rights with respect to any of its
securities
to any Person that have not been satisfied in full.
(j) Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect as
if such
facsimile or “.pdf” signature page were an original thereof.
(k) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined with the provisions of the Purchase
Agreement.
(l) Cumulative
Remedies.
The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
(m) Severability.
If any
term, provision, covenant or restriction of this Agreement is held
by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set
forth herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the same
or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of such
that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings.
The
headings in this Agreement are for convenience of reference only and
shall not
limit or otherwise affect the meaning hereof.
(o) Independent
Nature of Holders’ Obligations and Rights.
The
obligations of each Holder hereunder are several and not joint with
the
obligations of any other Holder hereunder, and no Holder shall be responsible
in
any way for the performance of the obligations of any other Holder
hereunder.
Nothing contained herein or in any other agreement or document delivered
at any
closing, and no action taken by any Holder pursuant hereto or thereto,
shall be
deemed to constitute the Holders as a partnership, an association,
a joint
venture or any other kind of entity, or create a presumption that the
Holders
are in any way acting in concert with respect to such obligations or
the
transactions contemplated by this Agreement. Each Holder shall be entitled
to
protect and enforce its rights, including without limitation the rights
arising
out of this Agreement, and it shall not be necessary for any other
Holder to be
joined as an additional party in any proceeding for such purpose.
********************
IN
WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as
of the date first written above.
|
CHEMBIO
DIAGNOSTICS, INC.
|
|
By:__________________________________________
Name:
Title:
|
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[HOLDER’S
SIGNATURE PAGE TO CEMI RRA]
Name
of
Holder: __________________________
Signature
of Authorized Signatory of Holder:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
[SIGNATURE
PAGES CONTINUE]
ANNEX
A
Plan
of Distribution
Each
Selling Stockholder (the “Selling
Stockholders”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock
on the
[principal Trading Market] or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions.
These sales
may be at fixed or negotiated prices. A Selling Stockholder may use
any one or
more of the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the
shares as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the
applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the
registration
statement of which this prospectus is a
part;
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified
number of such
shares at a stipulated price per
share;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
|
·
|
a
combination of any such methods of sale;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the
Securities
Act of 1933, as amended (the “Securities
Act”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts
from
the Selling Stockholders (or, if any broker-dealer acts as agent for
the
purchaser of shares, from the purchaser) in amounts to be negotiated,
but,
except as set forth in a supplement to this Prospectus, in the case
of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup
or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein,
the Selling
Stockholders may enter into hedging transactions with broker-dealers
or other
financial institutions, which may in turn engage in short sales of
the Common
Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver
these
securities to close out their short positions, or loan or pledge the
common
stock to broker-dealers that in turn may sell these securities. The
Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one
or more
derivative securities which require the delivery to such broker-dealer
or other
financial institution of shares offered by this prospectus, which shares
such
broker-dealer or other financial institution may resell pursuant to
this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale
of the
shares purchased by them may be deemed to be underwriting commissions
or
discounts under the Securities Act. Each Selling Stockholder has informed
the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.
In no
event shall any broker-dealer receive fees, commissions and markups
which, in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the
Company
incident to the registration of the shares. The Company has agreed
to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery
requirements
of the Securities Act including Rule 172 thereunder. In addition, any
securities
covered by this prospectus which qualify for sale pursuant to Rule
144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection
with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date
on which the
shares may be resold by the Selling Stockholders without registration
and
without regard to any volume limitations by reason of Rule 144(k) under
the
Securities Act or any other rule of similar effect or (ii) all of the
shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold
only through
registered or licensed brokers or dealers if required under applicable
state
securities laws. In addition, in certain states, the resale shares
may not be
sold unless they have been registered or qualified for sale in the
applicable
state or an exemption from the registration or qualification requirement
is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person
engaged in
the distribution of the resale shares may not simultaneously engage
in market
making activities with respect to the common stock for the applicable
restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject
to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or
any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of
this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
Annex
B
CHEMBIO
DIAGNOSTICS, INC.
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock, par value $0.01 per share
(the
“Common
Stock”),
of
Chembio Diagnostics, Inc., a Nevada corporation (the “Company”),
(the
“Registrable
Securities”)
understands that the Company has filed or intends to file with the
Securities
and Exchange Commission (the “Commission”)
a
registration statement on Form [S-3 (the “Registration
Statement”)
for
the registration and resale under Rule 415 of the Securities Act of
1933, as
amended (the “Securities
Act”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement, dated as of October __, 2006 (the “Registration
Rights Agreement”),
among
the Company and the Purchasers named therein. A copy of the Registration
Rights
Agreement is available from the Company upon request at the address
set forth
below. All capitalized terms not otherwise defined herein shall have
the
meanings ascribed thereto in the Registration Rights Agreement.
Certain
legal consequences arise from being named as a selling securityholder
in the
Registration Statement and the related prospectus. Accordingly, holders
and
beneficial owners of Registrable Securities are advised to consult
their own
securities law counsel regarding the consequences of being named or
not being
named as a selling securityholder in the Registration Statement and
the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “Selling
Securityholder”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it and listed below in Item 3 (unless otherwise specified under
such Item 3)
in the Registration Statement.
The
undersigned hereby provides the following information to the Company
and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
|
(a)
|
Full
Legal Name of Selling
Securityholder
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above)
through
which Registrable Securities Listed in Item 3 below are
held:
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural
person who
directly or indirectly alone or with others has power to
vote or dispose
of the securities covered by the
questionnaire):
|
2.
Address for Notices to Selling Securityholder:
|
Telephone:
|
|
Fax:
|
|
Contact
Person:
|
3.
Beneficial Ownership of Registrable Securities:
|
(a)
|
Type
and Number of Registrable Securities beneficially owned (not
including the
Registrable Securities that are issuable pursuant to the
Purchase
Agreement):
|
4.
Broker-Dealer Status:
|
(a)
|
Are
you a broker-dealer?
|
Yes
No
|
(b)
|
If
“yes” to Section 4(a), did you receive your Registrable Securities
as
compensation for investment banking services to the
Company.
|
Yes
No
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes
No
|
(d)
|
If
you are an affiliate of a broker-dealer, do you certify that
you bought
the Registrable Securities in the ordinary course of business,
and at the
time of the purchase of the Registrable Securities to be
resold, you had
no agreements or understandings, directly or indirectly,
with any person
to distribute the Registrable
Securities?
|
Yes
No
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
5.
Beneficial Ownership of Other Securities of the Company Owned by the
Selling
Securityholder.
Except
as set forth below in this Item 5, the undersigned is not the beneficial
or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
|
(a)
|
Type
and Amount of Other Securities beneficially owned by the
Selling
Securityholder:
|
6.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates,
officers,
directors or principal equity holders (owners of 5% of more of the
equity
securities of the undersigned) has held any position or office or has
had any
other material relationship with the Company (or its predecessors or
affiliates)
during the past three years.
State
any
exceptions here:
The
undersigned agrees to promptly notify the Company of any inaccuracies
or changes
in the information provided herein that may occur subsequent to the
date hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion
of such
information in the Registration Statement and the related prospectus
and
any
amendments or supplements thereto.
The
undersigned understands that such information will be relied upon by
the Company
in connection with the preparation or amendment of the Registration
Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice
and Questionnaire to be executed and delivered either in person or
by its duly
authorized agent.
Dated:
Beneficial
Owner:
By:
Name:
Title:
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE,
AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
Exhibit 10.1 Securities Purchase Agreement
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of September 29, 2006, by and among Chembio Diagnostics, Inc.,
a Nevada
corporation (the “Company”),
and
the purchasers identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and
pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”)
and
Rule 506 promulgated thereunder, the Company desires to issue and sell
to each
Purchaser, and each Purchaser, severally and not jointly, desires to
purchase
from the Company, securities of the Company as more fully described
in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement,
and for other good and valuable consideration the receipt and adequacy
of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such
terms in
the Certificate of Designation (as defined herein), and (b) the following
terms
have the meanings indicated in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Actual
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock
then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or
conversion
in full of all Warrants and shares of Preferred Stock, ignoring any
conversion
or exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the third anniversary
of
the Closing Date and all dividends are paid in shares of Common Stock
until such
third anniversary.
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person,
as such
terms are used in and construed under Rule 144 under the Securities
Act. With
respect to a Purchaser, any investment fund or managed account that
is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Certificate
of Designations”
means
the Certificate of Designations to be filed prior to the Closing by
the Company
with the Secretary of State of Nevada, in the form of Exhibit
A
attached
hereto.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to
Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.01 per share, and any
other class
of securities into which such securities may hereafter be reclassified
or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle
the holder
thereof to acquire, directly or indirectly, at any time Common Stock,
including
without limitation, any debt, preferred stock, rights, options, warrants
or
other instrument that is at any time convertible into or exercisable
or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Company
Counsel”
means
Patton Boggs LLP.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Certificate of
Designation.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company
pursuant
to the Registration Rights Agreement is first declared effective by
the
Commission.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees,
officers,
consultants, or directors of the Company pursuant to any stock or option
plan or
other resolution duly adopted by a majority of the non-employee members
of the
Board of Directors of the Company or a majority of the members of a
committee of
non-employee directors established for such purpose, (b) securities
upon the
exercise of or conversion of any Securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date
of this
Agreement, provided that such securities have not been amended since
the date of
this Agreement to increase the number of such securities or to decrease
the
exercise or conversion price of any such securities (except pursuant
to any
anti-dilution adjustment contained therein), (c) securities issued
pursuant to
acquisitions or strategic transactions, provided any such issuance
shall only be
to a Person which is, itself or through its subsidiaries, an operating
company
in a business reasonably deemed by the Company’s Board of Directors to be
strategically advantageous to the business of the Company and in which
the
Company receives benefits in addition to the investment of funds, but
shall not
include a transaction in which the Company is issuing securities primarily
for
the purpose of raising capital or to an entity whose primary business
is
investing in securities, (d) shares issued as dividend payments on
the Series A,
Series B Preferred Stock and Preferred Stock and (e) for purposes of
Sections
4.13 and 4.14 only, up to an amount of Preferred Stock and warrants
equal to the
difference between $10,000,000 and the aggregate Subscription Amounts
hereunder,
on substantially the same terms and conditions hereunder, which investors
shall
execute definitive agreements for the purchase of such securities and
such
transactions shall have closed on or before October 5, 2006.
“FWS”
means
Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal,
preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company,
government (or an agency or subdivision thereof) or other entity of
any
kind.
“Preferred
Stock”
means
the up to 205 shares of the Company’s 7% Series C Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set
forth in the
Certificate of Designations, in the form of Exhibit A attached
hereto.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the
Company and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Underlying Shares by
each
Purchaser as provided for in the Registration Rights Agreement.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Preferred Stock, the Warrants and the Underlying Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation
of
borrowable shares of Common Stock).
“Stated
Value”
means
$50,000 per share of Preferred Stock.
“Subscription
Amount”
shall
mean, as to each Purchaser, the aggregate amount to be paid for the
Preferred
Stock purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount”,
in United States Dollars and in immediately available funds. Notwithstanding
the
foregoing, a Purchaser may pay its Subscription Amount by surrendering
the
Company’s Secured Debentures, dated June 29, 2006 (aggregate of all such
debentures, $1,300,000). The principal amount surrendered by a Purchaser
shall
be as set forth on such Purchaser’s signature page to this Agreement and such
Purchaser’s Subscription Amount as it relates to surrendered debentures shall
be
calculated by multiplying 1.14286 times the sum of the principal amount
plus all
accrued interest on the Secured Debentures surrendered.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the
American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
or the
OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Certificate of Designation, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in
connection
with the transactions contemplated hereunder.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion of the
Preferred
Stock, upon exercise of the Warrants and issued and issuable in lieu
of the cash
payment of dividends on the Preferred Stock in accordance with the
terms of the
Certificate of Designation.
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading
Market,
the daily volume weighted average price of the Common Stock for such
date (or
the nearest preceding date) on the Trading Market on which the Common
Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based
on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for
the Common Stock are then reported in the “Pink Sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its
functions of
reporting prices), the most recent bid price per share of the Common
Stock so
reported; or (c) in all other cases, the fair market value of a share
of Common
Stock as determined by an independent appraiser selected in good faith
by the
Purchasers and reasonably acceptable to the Company.
“Warrants”
means
collectively the Series C-1 Common Stock purchase warrants, in the
form of
Exhibit C
delivered to the Purchasers at the Closing in accordance with Section
2.2(a)
hereof, which Warrants shall be exercisable immediately and have a
term of
exercise equal to five years.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth
herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and each Purchaser
agrees to
purchase in the aggregate, severally and not jointly, up to $10,000,000
of
shares of Preferred Stock with an aggregate Stated Value equal to such
Purchaser’s Subscription Amount and Warrants as determined by pursuant to
Section 2.2(a). The aggregate number of shares of Preferred Stock sold
hereunder
shall be up to 205. Each Purchaser shall deliver to the Company via
wire
transfer or a certified check of immediately available funds (or principal
amount of Secured Debentures surrendered as described in the definition
of
Subscription Amount) equal to their Subscription Amount and the Company
shall
deliver to each Purchaser their respective shares of Preferred Stock
and
Warrants as determined pursuant to Section 2.2(a) and the other items
set forth
in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions
set
forth in Sections 2.2 and 2.3, the Closing shall occur at the offices
of FWS, or
such other location as the parties shall mutually agree.
|
2.2
|
Deliveries.
|
a) On
the
Closing Date, the Company shall deliver or cause to be delivered to
each
Purchaser the following:
|
(i)
|
this
Agreement duly executed by the
Company;
|
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
D
attached
hereto;
(iii) a
certificate evidencing a number of shares of Preferred Stock equal
to such
Purchaser’s Subscription Amount divided by the Stated Value, registered in the
name of such Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number
of shares of
Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by
$0.85, with an exercise price equal to $1.00,
subject
to adjustment therein; and
(v) the
Registration Rights Agreement duly executed by the Company.
b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered
to the
Company the following:
|
(i)
|
this
Agreement duly executed by such
Purchaser;
|
(ii) such
Purchaser’s Subscription Amount as to the applicable Closing by wire transfer
to
the Company (or surrender of Secured Debentures, as applicable);
and
(iii) the
Registration Rights Agreement duly executed by such Purchaser.
|
2.3
|
Closing
Conditions.
|
(a) The
obligations of the Company hereunder in connection with the Closing
are subject
to the following conditions being met; provided that the Company, in
its sole
discretion, may waive any and all such conditions:
(i) the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to
be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b)
of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with
the
Closing are subject to the following conditions being met; provided
that each
Purchaser, in its sole discretion, may waive any and all such
conditions:
(i) the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be
performed at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of
this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company
since the
date hereof;
(v) all
holders of secured Indebtedness of the Company shall have agreed to
exchange
such Indebtedness for Preferred Stock as payment in full of any obligations
thereunder or agree to be paid off for cash at the Closing as set forth
on
Schedule 4.9 (and in both cases the Company shall have received duly
authorized
pay-off letters from all such holders); and
(vi) from
the
date hereof to the Closing Date, trading in the Common Stock shall
not have been
suspended by the Commission or the Company’s principal Trading Market (except
for any suspension of trading of limited duration agreed to by the
Company,
which suspension shall be terminated prior to the Closing), and, at
any time
prior to the Closing Date, trading in securities generally as reported
by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall
not have been established on securities whose trades are reported by
such
service, or on any Trading Market, nor shall a banking moratorium have
been
declared either by the United States or New York State authorities
nor shall
there have occurred any material outbreak or escalation of hostilities
or other
national or international calamity of such magnitude in its effect
on, or any
material adverse change in, any financial market which, in each case,
in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Preferred Stock at the Closing.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”)
which
Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
Except
as set forth on Schedule
3.1(g)
attached
hereto, the Company owns, directly or indirectly, all of the capital
stock or
other equity interests of each Subsidiary free and clear of any Liens,
and all
the issued and outstanding shares of capital stock of each Subsidiary
are
validly issued and are fully paid, non-assessable and free of preemptive
and
similar rights to subscribe for or purchase securities. If the Company
has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated
or otherwise
organized, validly existing and in good standing under the laws of
the
jurisdiction of its incorporation or organization (as applicable),
with the
requisite power and authority to own and use its properties and assets
and to
carry on its business as currently conducted. Neither the Company nor
any
Subsidiary is in violation or default of any of the provisions of its
respective
certificate or articles of incorporation, bylaws or other organizational
or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to
conduct business and is in good standing as a foreign corporation or
other
entity in each jurisdiction in which the nature of the business conducted
or
property owned by it makes such qualification necessary, except where
the
failure to be so qualified or in good standing, as the case may be,
could not
have or reasonably be expected to result in (i) a material adverse
effect on the
legality, validity or enforceability of any Transaction Document, (ii)
a
material adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company and the Subsidiaries,
taken as a
whole, or (iii) a material adverse effect on the Company’s ability to perform in
any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into
and to
consummate the transactions contemplated by each of the Transaction
Documents
and otherwise to carry out its obligations hereunder and thereunder.
The
execution and delivery of each of the Transaction Documents by the
Company and
the consummation by it of the transactions contemplated hereby and
thereby have
been duly authorized by all necessary action on the part of the Company
and no
further action is required by the Company, its board of director or
its
stockholders in connection therewith other than in connection with
the Required
Approvals. Each Transaction Document has been (or upon delivery will
have been)
duly executed by the Company and, when delivered in accordance with
the terms
hereof and thereof, will constitute the valid and binding obligation
of the
Company enforceable against the Company in accordance with its terms
except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of
specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by
the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate
any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents,
or (ii)
conflict with, or constitute a default (or an event that with notice
or lapse of
time or both would become a default) under, result in the creation
of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement,
credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or
otherwise) or other understanding to which the Company or any Subsidiary
is a
party or by which any property or asset of the Company or any Subsidiary
is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or
result in a violation of any law, rule, regulation, order, judgment,
injunction,
decree or other restriction of any court or governmental authority
to which the
Company or a Subsidiary is subject (including federal and state securities
laws
and regulations), or by which any property or asset of the Company
or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and
(iii), such as could not have or reasonably be expected to result in
a Material
Adverse Effect.
(e) Filings,
Consents and Approvals.
Except
as set forth on Schedule
3.1(e),
the
Company is not required to obtain any consent, waiver, authorization
or order
of, give any notice to, or make any filing or registration with, any
court or
other federal, state, local or other governmental authority or other
Person in
connection with the execution, delivery and performance by the Company
of the
Transaction Documents, other than (i) filings required pursuant to
Section 4.6,
(ii) the filing with the Commission of the Registration Statement,
(iii) the
notice and/or application(s) to each applicable Trading Market for
the issuance
and sale of the Preferred Stock and Warrants and the listing of the
Underlying
Shares for trading thereon in the time and manner required thereby,
and (iv) the
filing of Form D with the Commission and such filings as are required
to be made
under applicable state securities laws (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued,
fully
paid and nonassessable, free and clear of all Liens imposed by the
Company other
than restrictions on transfer provided for in the Transaction Documents.
The
Underlying Shares, when issued in accordance with the terms of the
Transaction
Documents, will be validly issued, fully paid and nonassessable, free
and clear
of all Liens imposed by the Company. The Company has reserved from
its duly
authorized capital stock a number of shares of Common Stock for issuance
of the
Underlying Shares at least equal to the Actual Minimum on the date
hereof.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees
pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. Except as set forth
in the SEC
Reports, no Person has any right of first refusal, preemptive right,
right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as set forth in Schedule
3.1(g)
and
except as a result of the purchase and sale of the Securities, there
are no
outstanding options, warrants, script rights to subscribe to, calls
or
commitments of any character whatsoever relating to, or securities,
rights or
obligations convertible into or exercisable or or exchangeable for,
or giving
any Person any right to subscribe for or acquire, any shares of Common
Stock, or
contracts, commitments, understandings or arrangements by which the
Company or
any Subsidiary is or may become bound to issue additional shares of
Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities
will not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right of
any holder
of Company securities to adjust the exercise, conversion, exchange
or reset
price under such securities. All of the outstanding shares of capital
stock of
the Company are validly issued, fully paid and nonassessable, have
been issued
in compliance with all federal and state securities laws, and none
of such
outstanding shares was issued in violation of any preemptive rights
or similar
rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of Directors of the Company
or
others is required for the issuance and sale of the Securities. There
are no
stockholders agreements, voting agreements or other similar agreements
with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other
documents
required to be filed by it under the Securities Act and the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by
law to file such material) (the foregoing materials, including the
Company’s
Registration Statement on Form SB-2 filed in 2004 and the exhibits
thereto and
documents incorporated by reference therein, being collectively referred
to
herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing
and has
filed any such SEC Reports prior to the expiration of any such extension.
As of
their respective dates, the SEC Reports complied in all material respects
with
the requirements of the Securities Act and the Exchange Act and the
rules and
regulations of the Commission promulgated thereunder, and none of the
SEC
Reports, when filed, 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 Reports comply in all material respects with applicable
accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements
have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or
the notes
thereto and except that unaudited financial statements may not contain
all
footnotes required by GAAP, and fairly present in all material respects
the
financial position of the Company and its consolidated subsidiaries
as of and
for 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,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within
the SEC
Reports, except as specifically disclosed in the SEC Reports or as
set forth on
Schedule 3.1(i), (i) there has been no event, occurrence or development
that has
had or that could reasonably be expected to result in a Material Adverse
Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary
course of business consistent with past practice and (B) liabilities
not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii)
the
Company has not altered its method of accounting, (iv) the Company
has not
declared or made any dividend or distribution of cash or other property
to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem
any shares of its capital stock and (v) except as set forth in the
SEC Reports,
the Company has not issued any equity securities to any officer, director
or
Affiliate, except pursuant to existing Company stock option plans.
The Company
does not have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated
by this Agreement or as set forth on Schedule
3.1(i),
no
event, liability or development has occurred or exists with respect
to the
Company or its Subsidiaries or their respective business, properties,
operations
or financial condition, that would be required to be disclosed by the
Company
under applicable securities laws at the time this representation is
made that
has not been publicly disclosed at least 1 Trading Day prior to the
date that
this representation is made.
(j) Litigation.
Except
as set forth in the SEC Reports, there is no action, suit, inquiry,
notice of
violation, proceeding or investigation pending or, to the knowledge
of the
Company, threatened against or affecting the Company, any Subsidiary
or any of
their respective properties before or by any court, arbitrator, governmental
or
administrative agency or regulatory authority (federal, state, county,
local or
foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if
there were
an unfavorable decision, have or reasonably be expected to result in
a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director
or
officer thereof, is or has been the subject of any Action involving
a claim of
violation of or liability under federal or state securities laws or
a claim of
breach of fiduciary duty. There has not been, and to the knowledge
of the
Company, there is not pending or contemplated, any investigation by
the
Commission involving the Company or any current or former director
or officer of
the Company. The Commission has not issued any stop order or other
order
suspending the effectiveness of any registration statement filed by
the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company,
is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation
of (and
no event has occurred that has not been waived that, with notice or
lapse of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim that
it is in
default under or that it is in violation of, any indenture, loan or
credit
agreement or any other agreement or instrument to which it is a party
or by
which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of any
court,
arbitrator or governmental body, or (iii) is or has been in violation
of any
statute, rule or regulation of any governmental authority, including
without
limitation all foreign, federal, state and local laws applicable to
its business
except in each case as could not have a Material Adverse Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations
and
permits issued by the appropriate federal, state, local or foreign
regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could
not have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
Except
as set forth on Schedule 3.1(n), the Company and the Subsidiaries have
good and
marketable title in fee simple to all real property owned by them that
is
material to the business of the Company and the Subsidiaries and good
and
marketable title in all personal property owned by them that is material
to the
business of the Company and the Subsidiaries, in each case free and
clear of all
Liens, except for Liens as do not materially affect the value of such
property
and do not materially interfere with the use made and proposed to be
made of
such property by the Company and the Subsidiaries and Liens for the
payment of
federal, state or other taxes, the payment of which is neither delinquent
nor
subject to penalties. Any real property and facilities held under lease
by the
Company and the Subsidiaries are held by them under valid, subsisting
and
enforceable leases of which the Company and the Subsidiaries are in
compliance.
(o) Patents
and Trademarks.
Except
as set forth in the SEC Reports, the Company and the Subsidiaries have,
or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
other similar
rights that are necessary for use in connection with their respective
businesses
as described in the SEC Reports and which the failure to so have could
have a
Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Except as set forth in the SEC Reports, neither the Company nor any
Subsidiary
has received a written notice that the Intellectual Property Rights
used by the
Company or any Subsidiary violates or infringes upon the rights of
any Person.
To the knowledge of the Company, all such Intellectual Property Rights
are
enforceable and there is no existing infringement by another Person
of any of
the Intellectual Property Rights of others.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized
financial
responsibility against such losses and risks and in such amounts as
are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage in an amount as set forth on Schedule
3.1(p).
To the
best of Company’s knowledge, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has any reason
to believe
that it will not be able to renew its existing insurance coverage as
and when
such coverage expires or to obtain similar coverage from similar insurers
as may
be necessary to continue its business without a significant increase
in
cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors
of the
Company and, to the knowledge of the Company, none of the employees
of the
Company is presently a party to any transaction with the Company or
any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for
the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer,
director or such employee or, to the knowledge of the Company, any
entity in
which any officer, director, or any such employee has a substantial
interest or
is an officer, director, trustee or partner, in each case in excess
of $60,000
other than (i) for payment of salary or consulting fees for services
rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for
other employee benefits, including stock option agreements under any
stock
option plan of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Sarbanes-Oxley
Act
of 2002 which are applicable to it as of the Closing Date.
(s) Certain
Fees.
Except
as set forth on Schedule
3.1(s),
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation
with
respect to any fees or with respect to any claims made by or on behalf
of other
Persons for fees of a type contemplated in this Section that may be
due in
connection with the transactions contemplated by this Agreement.
(t) Private
Placement.
Assuming the accuracy of the Purchasers representations and warranties
set forth
in Section 3.2, no registration under the Securities Act is required
for the
offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder
does not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the shares of Preferred Stock, will not be or be an Affiliate
of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that
it will
not become subject to the Investment Company Act.
(v) Registration
Rights.
Except
as set forth in the SEC Reports and on Schedule
3.1(v),
other
than each of the Purchasers, no Person has any right to cause the Company
to
effect the registration under the Securities Act of any securities
of the
Company.
(w)Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge
is likely to have the effect of, terminating the registration of the
Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The
Company has
not, in the 12 months preceding the date hereof, received notice from
any
Trading Market on which the Common Stock is or has been listed or quoted
to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason
to
believe that it will not in the foreseeable future continue to be,
in compliance
with all such listing and maintenance requirements.
(x)Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action,
if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state
of
incorporation that is or could become applicable to the Purchasers
as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities.
(y)Disclosure.
The
Company confirms that neither it nor any other Person acting on its
behalf has
provided any of the Purchasers or their agents or counsel with any
information
that constitutes or might constitute material, nonpublic information,
other than
the information that will be disclosed in the Current Report on Form
8-K to be
filed on or before October 5, 2006 pursuant to Section 4.6. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities
of the
Company. All disclosure provided to the Purchasers regarding the Company,
its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company
with
respect to the representations and warranties made herein are true
and correct
with respect to such representations and warranties and do not contain
any
untrue statement of a material fact or omit to state any material fact
necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges
and agrees
that no Purchaser makes or has made any representations or warranties
with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.
(z)No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2 and except as set forth on Schedule
3.1(z),
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, under circumstances that
would cause
this offering of the Securities to be integrated with prior offerings
by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules
and
regulations of any Trading Market on which any of the securities of
the Company
are listed or designated.
(aa)Solvency.
The
Company does not intend to incur debts beyond its ability to pay such
debts as
they mature (taking into account the timing and amounts of cash to
be payable on
or in respect of its debt). The Company has no knowledge of any facts
or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports set forth as
of the dates
thereof all outstanding secured and unsecured Indebtedness of the Company
or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the
purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess
of $50,000
(other than trade accounts payable incurred in the ordinary course
of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar
transactions in the ordinary course of business; and (c) the present
value of
any lease payments
in excess of $50,000 due under leases required to be capitalized in
accordance
with GAAP. Except
as
set forth on Schedule
3.1(aa),
neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb)Intentionally
Omitted.
(cc)Tax
Status.
Except
for matters that would not, individually or in the aggregate, have
or reasonably
be expected to result in a Material Adverse Effect, the Company and
each
Subsidiary has filed all necessary federal, state and foreign income
and
franchise tax returns and has paid or accrued all taxes shown as due
thereon,
and the Company has no knowledge of a tax deficiency which has been
asserted or
threatened against the Company or any Subsidiary.
(dd)No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered
or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to
the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(ee)Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other
person
acting on behalf of the Company, has (i) directly or indirectly, used
any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or
to any
foreign or domestic political parties or campaigns from corporate funds,
(iii)
failed to disclose fully any contribution made by the Company (or made
by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the
Foreign
Corrupt Practices Act of 1977, as amended
(ff)Accountants.
The
Company’s accountants are set forth on Schedule
3.1(ff)
of the
Disclosure Schedule. To the Company’s knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ending December 31, 2004 are a registered public accounting firm
as
required by the Securities Act.
(gg)Seniority.
Except
as set forth on Schedule
3.1(gg),
as of
the Closing Date, no indebtedness or other equity of the Company is
senior to
the Preferred Stock in right of payment, whether with respect to interest
or
upon liquidation or dissolution, or otherwise, other than indebtedness
secured
by purchase money security interests (which is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior
only as
to the property covered thereby).
(hh)No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably
anticipated
by the Company to arise, between the accountants and lawyers formerly
or
presently employed by the Company and, except as set forth on Schedule
3.1(hh),
the
Company is current with respect to any fees owed to its accountants
and
lawyers.
(ii)Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting
solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of
the Company (or in any similar capacity) with respect to this Agreement
and the
transactions contemplated hereby and any advice given by any Purchaser
or any of
their respective representatives or agents in connection with this
Agreement and
the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each
Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby
by the
Company and its representatives.
(jj)Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof), it is understood and agreed by the
Company (i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that
past or
future open market or other transactions by any Purchaser, including
Short
Sales, and specifically including, without limitation, Short Sales
or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company’s
publicly-traded securities; (iii) that any Purchaser, and counter parties
in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with
or control
over any arm’s length counter-party in any “derivative”
transaction.
(kk)Regulation
M Compliance.
The Company has not, and to its knowledge no one acting on its behalf
has, (i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Securities, (ii) sold,
bid for,
purchased, or paid any compensation for soliciting purchases of, any
of the
securities of the Company, or (iii) paid or agreed to pay to any Person
any
compensation for soliciting another to purchase any other securities
of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to
the Company’s placement agent in connection with the placement of the
Securities.
3.2 Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby, for itself and for no other Purchaser, represents
and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good
standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise
to carry
out its obligations hereunder and thereunder. The execution, delivery
and
performance by such Purchaser of the transactions contemplated by this
Agreement
have been duly authorized by all necessary corporate or similar action
on the
part of such Purchaser. Each Transaction Document to which it is a
party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally
binding
obligation of such Purchaser, enforceable against it in accordance
with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive
relief or other equitable remedies and (iii) insofar as indemnification
and
contribution provisions may be limited by applicable law.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state
securities
law and is acquiring the Securities as principal for its own account
and not
with a view to or for distributing or reselling such Securities or
any part
thereof in violation of the Securities Act or any applicable state
securities
law, has no present intention of distributing any of such Securities
in
violation of the Securities Act or any applicable state securities
law and has
no direct or indirect arrangement or understandings with any other
persons to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities pursuant
to the Registration Statement or otherwise in compliance with applicable
federal
and state securities laws) in violation of the Securities Act or any
applicable
state securities law. Such Purchaser is acquiring the Securities hereunder
in
the ordinary course of its business.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the
date hereof
it is, and on each date on which it exercises any Warrants, it will
be either:
(i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser
is
not required to be registered as a broker-dealer under Section 15 of
the
Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial
matters so as
to be capable of evaluating the merits and risks of the prospective
investment
in the Securities, and has so evaluated the merits and risks of such
investment.
Such Purchaser is able to bear the economic risk of an investment in
the
Securities and, at the present time, is able to afford a complete loss
of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published
in any
newspaper, magazine or similar media or broadcast over television or
radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not
directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including
Short
Sales, in the securities of the Company during the period commencing
from
the time
that such Purchaser first received a term sheet (written or oral) from
the
Company or any other Person setting forth the material terms of the
transactions
contemplated hereunder until the date hereof (“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage
separate portions of such Purchaser's assets and the portfolio managers
have no
direct knowledge of the investment decisions made by the portfolio
managers
managing other portions of such Purchaser's assets, the representation
set forth
above shall only apply with respect to the portion of assets managed
by the
portfolio manager that made the investment decision to purchase the
Securities
covered by this Agreement. Other than to other Persons party to this
Agreement,
such Purchaser has maintained the confidentiality of all disclosures
made to it
in connection with this transaction (including the existence and terms
of this
transaction).
(g) Company
Information.
Each
Purchaser has had an opportunity to discuss the Company’s business, management
and financial affairs with management of the Company. The undersigned
has also
had the opportunity to ask questions of, and receive answers from,
management of
the Company regarding the terms and conditions of this investment.
Each
Purchaser has consulted its own legal and tax counsel regarding the
terms and
conditions of this investment.
The
Company acknowledges and agrees that each Purchaser does not make or
has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this
Section
3.2.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than
pursuant to an effective registration statement or Rule 144, to the
Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide
to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion
shall be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to
be bound by the terms of this Agreement and shall have the rights of
a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this
Section
4.1(b), of a legend on any of the Securities in the following form:
[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time
pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this
Agreement
and the Registration Rights Agreement and, if required under the terms
of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the
pledgees or secured parties. Such a pledge or transfer would not be
subject to
approval of the Company and no legal opinion of legal counsel of the
pledgee,
secured party or pledgor shall be required in connection therewith.
Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation
as a pledgee
or secured party of Securities may reasonably request in connection
with a
pledge or transfer of the Securities, including, if the Securities
are subject
to registration pursuant to the Registration Rights Agreement, the
preparation
and filing of any required prospectus supplement under Rule 424(b)(3)
under the
Securities Act or other applicable provision of the Securities Act
to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (i) while a registration
statement
(including the Registration Statement) covering the resale of such
security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not
required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the
Company’s
transfer agent to effect the removal of the legend hereunder. If all
or any
shares of Preferred Stock or any portion of a Warrant is converted
or exercised
(as applicable) at a time when there is an effective registration statement
to
cover the resale of the Underlying Shares, or if such Underlying Shares
may be
sold under Rule 144(k) or if such legend is not otherwise required
under
applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued
free of all
legends. The Company agrees that following the Effective Date or at
such time as
such legend is no longer required under this Section 4.1(c), it will,
no later
than three Trading Days following the delivery by a Purchaser to the
Company or
the Company’s transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day,
the
“Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The
Company may
not make any notation on its records or give instructions to any transfer
agent
of the Company that enlarge the restrictions on transfer set forth
in this
Section. Certificates for Underlying Shares subject to legend removal
hereunder
shall be transmitted by the transfer agent of the Company to the Purchasers
by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System, if the Company’s transfer agent is a participant in such system.
The Company agrees to cause its transfer agent to be a participant
in such
system (or engage a new transfer agent which is a participant in the
system)
within 60 calendar days of the Closing Date.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock
on the
date such Securities are submitted to the Company’s transfer agent) delivered
for removal of the restrictive legend and subject to Section 4.1(c),
$10 per
Trading Day (increasing to $20 per Trading Day 5 Trading Days after
such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until
such certificate is delivered without a legend. Nothing herein shall
limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation,
a decree of
specific performance and/or injunctive relief.
(e)
Each
Purchaser, severally and not jointly with the other Purchasers, agrees
that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery
requirements, or an exemption therefrom, and that if Securities are
sold
pursuant to a Registration Statement, they will be sold in compliance
with the
plan of distribution set forth therein.
4.2Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result
in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that
its
obligations under the Transaction Documents, including without limitation
its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents,
are unconditional and absolute and not subject to any right of set
off,
counterclaim, delay or reduction, regardless of the effect of any such
dilution
or any claim the Company may have against any Purchaser and regardless
of the
dilutive effect that such issuance may have on the ownership of the
other
stockholders of the Company.
4.3Furnishing
of Information.
As long
as any Purchaser owns Securities, the Company covenants to timely file
(or
obtain extensions in respect thereof and file within the applicable
grace
period) all reports required to be filed by the Company after the date
hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities
that are
not eligible to be sold under Rule 144(k), if the Company is not required
to
file reports pursuant to the Exchange Act, it will prepare and furnish
to the
Purchasers and make publicly available in accordance with Rule 144(c)
such
information as is required for the Purchasers to sell the Securities
under Rule
144. The Company further covenants that it will take such further action
as any
holder of Securities may reasonably request, all to the extent required
from
time to time to enable such Person to sell such Securities without
registration
under the Securities Act within the limitation of the exemptions provided
by
Rule 144.
4.4Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or
otherwise
negotiate in respect of any security (as defined in Section 2 of the
Securities
Act) that would be integrated with the offer or sale of the Securities
in a
manner that would require the registration under the Securities Act
of the sale
of the Securities to the Purchasers or that would be integrated with
the offer
or sale of the Securities for purposes of the rules and regulations
of any
Trading Market.
4.5Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the Notice
of Conversion
included in the Certificate of Designation set forth the totality of
the
procedures required of the Purchasers in order to exercise the Warrants
or
convert the Preferred Stock. No additional legal opinion or other information
or
instructions shall be required of the Purchasers to exercise their
Warrants or
convert their Preferred Stock. The Company shall honor exercises of
the Warrants
and conversions of the Preferred Stock and shall deliver Underlying
Shares in
accordance with the terms, conditions and time periods set forth in
the
Transaction Documents.
4.6Securities
Laws Disclosure;
Publicity.
The
Company shall, by 8:30 a.m. New York City time on October 5, 2006,
issue a
Current Report on Form 8-K, disclosing the material terms of the transactions
contemplated hereby and including the Transaction Documents as exhibits
thereto
and also disclosing any other material non-public information of which
the
Company has informed the Purchasers. The Company and each Purchaser
shall
consult with each other in issuing any other press releases with respect
to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public
statement
without the prior consent of the Company, with respect to any press
release of
any Purchaser, or without the prior consent of each Purchaser, with
respect to
any press release of the Company, which consent shall not unreasonably
be
withheld or delayed, except if such disclosure is required by law,
in which case
the disclosing party shall promptly provide the other party with prior
notice of
such public statement or communication. Notwithstanding the foregoing,
the
Company shall not publicly disclose the name of any Purchaser, or include
the
name of any Purchaser in any filing with the Commission or any regulatory
agency
or Trading Market, without the prior written consent of such Purchaser,
except
(i) as required by federal securities law in connection with (A) any
registration statement contemplated by the Registration Rights Agreement
and (B)
the filing of final Transaction Documents (including signature pages
thereto)
with the Commission and (ii) to the extent such disclosure is required
by law or
Trading Market regulations, in which case the Company shall provide
the
Purchasers with prior notice of such disclosure permitted under this
subclause
(ii).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge
of the
Company, any other Person that any Purchaser is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or
hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger
the
provisions of any such plan or arrangement, by virtue of receiving
Securities
under the Transaction Documents or under any other agreement between
the Company
and the Purchasers. The Company shall conduct its business in a manner
so that
it will not become subject to the Investment Company Act.
4.8
Non-Public
Information.
The
Company covenants and agrees that from and after the date hereof, neither
it nor
any other Person acting on its behalf will provide any Purchaser or
its agents
or counsel with any information that the Company believes constitutes
material
non-public information, unless prior thereto such Purchaser shall have
executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying
on the
foregoing representations in effecting transactions in securities of
the
Company.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the
Securities
hereunder for general corporate purposes including growth and capital
initiatives such as FDA clinical trials, marketing, travel, investor
relations,
public relations and capital expenditures for additional manufacturing
equipment
and, except as set forth on Schedule
4.9
attached
hereto, not for the satisfaction of any portion of the Company’s debt (other
than payment of trade payables in the ordinary course of the Company’s business
and prior practices), to redeem Common Stock or Common Stock Equivalents
or to
settle any outstanding litigation.
4.10 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or
against any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to
or with any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any
investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. 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 Purchasers 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 Purchasers
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 Purchasers
and
any such Affiliate and any such Person. The Company also agrees that
neither the
Purchasers nor any such Affiliates, 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 solely as
a result of
acquiring the Securities under this Agreement.
4.11 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.11, the Company will indemnify
and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title
or any
other title), each Person who controls such Purchaser (within the meaning
of
Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the
directors, officers, shareholders, agents, members, partners or employees
(and
any other Persons with a functionally equivalent role of a Person holding
such
titles notwithstanding a lack of such title or any other title) of
such
controlling person (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments,
amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as
a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in
the other
Transaction Documents or (b) any action instituted against a Purchaser,
or any
of them or their respective Affiliates, by any stockholder of the Company
who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based
upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such stockholder or any violations by the Purchaser of
state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any
action shall
be brought against any Purchaser Party in respect of which indemnity
may be
sought pursuant to this Agreement, such Purchaser Party shall promptly
notify
the Company in writing, and the Company shall have the right to assume
the
defense thereof with counsel of its own choosing. Any Purchaser Party
shall have
the right to employ separate counsel in any such action and participate
in the
defense thereof, but the fees and expenses of such counsel shall be
at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing,
(ii) the
Company has failed after a reasonable period of time to assume such
defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of
such separate counsel, a material conflict on any material issue between
the
position of the Company and the position of such Purchaser Party. The
Company
will not be liable to any Purchaser Party under this Agreement (i)
for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii)
to the
extent, but only to the extent that a loss, claim, damage or liability
is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this
Agreement or
in the other Transaction Documents.
4.12 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of
Common Stock
for issuance pursuant to the Transaction Documents in such amount as
may be
required to fulfill its obligations in full under the Transaction Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than 130% of (i) the Actual Minimum on such
date, minus (ii) the number of shares of Common Stock previously issued
pursuant
to the Transaction Documents, then the Board of Directors of the Company
shall
use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but
unissued
shares of Common Stock to at least the Actual Minimum at such time
(minus the
number of shares of Common Stock previously issued pursuant to the
Transaction
Documents), as soon as possible and in any event not later than the
75th
day
after such date; provided that the Company will not be required at
any time to
authorize a number of shares of Common Stock greater than the maximum
remaining
number of shares of Common Stock that could possibly be issued after
such time
pursuant to the Transaction Documents.
(c) The
Company shall, if applicable: (i) in the time and manner required by
the Trading
Market, prepare and file with such Trading Market an additional shares
listing
application covering a number of shares of Common Stock at least equal
to the
Actual Minimum on the date of such application, (ii) take all steps
necessary to
cause such shares of Common Stock to be approved for listing on the
Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence
of such listing, and (iv) maintain the listing of such Common Stock
on any date
at least equal to the Actual Minimum on such date on such Trading Market
or
another Trading Market.
4.13 Participation
in Future Financing.
(a) From
the
date hereof until the one year anniversary of the Closing Date, upon
any
financing by the Company or any of its Subsidiaries of Common Stock
or Common
Stock Equivalents (a “Subsequent
Financing”),
each
Purchaser shall have the right, subject to Section 4.13(e), to participate
in up
to 100% of the Subsequent Financing (the “Participation
Maximum”);
provided,
however,
the
Participation Maximum shall be reduced on a pro rata basis to allow
the holders
of the Company’s Secured Debentures, dated June 29, 2006, to participate in the
Subsequent Financing, to the extent such holders may have such
rights.
(b) At
least
7 Trading Days prior to the closing of the Subsequent Financing, the
Company
shall deliver to each Purchaser a written notice of its intention to
effect a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details
of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser,
for a
Subsequent Financing Notice, the Company shall promptly, but no later
than 1
Trading Day after such request, deliver a Subsequent Financing Notice
to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail
the proposed terms of such Subsequent Financing, the amount of proceeds
intended
to be raised thereunder, the Person with whom such Subsequent Financing
is
proposed to be effected, and attached to which shall be a term sheet
or similar
document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must
provide
written notice to the Company by not later than 5:30 p.m. (New York
City time)
on the 7th
Trading
Day after such Purchaser has received the Pre-Notice that the Purchaser
is
willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent
Financing
Notice. If the Company receives no notice from a Purchaser as of such
7th
Trading
Day, such Purchaser shall be deemed to have notified the Company that
it does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 7th
Trading
Day after all of the requesting Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate
in the
Subsequent Financing (or to cause their designees to participate) is,
in the
aggregate, less than the total amount of the Subsequent Financing,
then the
Company may effect the remaining portion of such Subsequent Financing
on the
terms and to the Persons set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 7th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to
purchase more than the aggregate amount of the Participation Maximum,
each such
Purchaser shall have the right to purchase the greater of (a) their
Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the
difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is
the
ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date
by a Purchaser participating under this Section 4.13 and (y) the sum
of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by
all Purchasers participating under this Section 4.13.
(f) The
Company must provide the Purchasers with a second Subsequent Financing
Notice,
and the Purchasers will again have the right of participation set forth
above in
this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent
Financing Notice is not consummated for any reason on the terms set
forth in
such Subsequent Financing Notice within 60 Trading Days after the date
of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.14 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company
nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this Section 4.14
shall be
extended for the number of Trading Days during such period in which
(i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following
the
Effective Date, the Registration Statement is not effective or the
prospectus
included in the Registration Statement may not be used by the Purchasers
for the
resale of the Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a “Variable
Rate Transaction”
or
an
“MFN
Transaction”
(each
as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt
or equity
securities that are convertible into, exchangeable or exercisable for,
or
include the right to receive additional shares of Common Stock either
(A) at a
conversion, exercise or exchange rate or other price that is based
upon and/or
varies with the trading prices of or quotations for the shares of Common
Stock
at any time after the initial issuance of such debt or equity securities,
or (B)
with a conversion, exercise or exchange price that is subject to being
reset at
some future date after the initial issuance of such debt or equity
security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common
Stock or
(ii) enters into any agreement, including, but not limited to, an equity
line of
credit, whereby the Company may sell securities at a future determined
price.
The term “MFN
Transaction”
shall
mean a transaction in which the Company issues or sells any securities
in a
capital raising transaction or series of related transactions which
grants to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor
in
such offering.
(c) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction or MFN Transaction
shall be
an Exempt Issuance.
4.15 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any Person to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties
to the
Transaction Documents. For clarification purposes, this provision constitutes
a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended to treat for the Company
the
Purchasers as a class and shall not in any way be construed as the
Purchasers
acting in concert or as a group with respect to the purchase, disposition
or
voting of Securities or otherwise.
4.16 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser severally and not jointly with the other Purchasers covenants
that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period
commencing
at the Discussion Time and ending at the time that the transactions
contemplated
by this Agreement are first publicly announced as described in Section
4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants
that
until such time as the transactions contemplated by this Agreement
are publicly
disclosed by the Company as described in Section 4.6, such Purchaser
will
maintain the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this transaction).
Each
Purchaser understands and acknowledges, severally and not jointly with
any other
Purchaser, that the Commission currently takes the position that coverage
of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is
a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section
A, of the
Manual of Publicly Available Telephone Interpretations, dated July
1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding
the foregoing, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of
the Company
after the time that the transactions contemplated by this Agreement
are first
publicly announced as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions
of such
Purchaser's assets and the portfolio managers have no direct knowledge
of the
investment decisions made by the portfolio managers managing other
portions of
such Purchaser's assets, the covenant set forth above shall only apply
with
respect to the portion of assets managed by the portfolio manager that
made the
investment decision to purchase the Securities covered by this
Agreement.
4.17 Most
Favored Nation Provision.
From
the date hereof until the earlier of (a) such time when the Preferred
Stock is
no longer outstanding or (b) the 18 month anniversary of the Closing
Date, any
time the Company effects a Subsequent Financing, each Purchaser may
elect, in
its sole discretion, to exchange all or some of any of its Preferred
Stock then
held by it for any securities (including all components if in a unit
with other
securities) issued in a Subsequent Financing (such exchange to be made
at the
same time as, and pursuant to, the closing of such Subsequent Financing)
based
on the outstanding Stated Value of the Preferred Stock plus accrued
but unpaid
dividends and other fees owed and the effective price at which such
securities
were sold in such Subsequent Placement. The Company covenants and agrees
to
provide each Purchaser with at least five (5) days written notice of
the terms
of such Subsequent Financing.
4.18 Form
D; Blue Sky Filings.
The
Company agrees to timely file a Form D with respect to the Securities
as
required under Regulation D and to provide a copy thereof, promptly
upon request
of any Purchaser. The Company shall take such action as the Company
shall
reasonably determine is necessary in order to obtain an exemption for,
or to
qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.
4.18 Capital
Change.
Until
the one year anniversary of the Effective Date, the Company shall not
undertake
a reverse or forward stock split or reclassification of the Common
Stock without
the prior written consent of the Purchasers holding a majority in interest
of
the shares of Preferred Stock.
ARTICLE
V
MISCELLANEOUS
5.1Termination.
This
Agreement may be terminated by any Purchaser, by written notice to
the other
parties, if the Closing has not been consummated on or before October
5, 2006;
provided that no such termination will affect the right of any party
to sue for
any breach by the other party (or parties).
5.2Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse Crestview Capital Master
LLC up to
$15,000 for its actual, reasonable, out-of-pocket legal fees and expenses.
At
the Closing, the Company has agreed to reimburse [_________] up to
$15,000 for
its actual, reasonable, out-of-pocket legal fees and expenses. Accordingly,
in
lieu of the foregoing payments, the aggregate amount that such Purchasers
are to
pay for the Securities at the Closing shall be reduced by $15,000 for
each such
Purchaser in lieu thereof. The Company shall deliver, prior to the
Closing, a
completed and executed copy of the Closing Statement, attached hereto
as
Annex
A.
Except
as expressly set forth in the Transaction Documents to the contrary,
each party
shall pay the fees and expenses of its advisers, counsel, accountants
and other
experts, if any, and all other expenses incurred by such party incident
to the
negotiation, preparation, execution, delivery and performance of this
Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other
taxes and
duties levied in connection with the delivery of any Securities.
5.3Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto,
contain
the entire understanding of the parties with respect to the subject
matter
hereof and supersede all prior agreements and understandings, oral
or written,
with respect to such matters, which the parties acknowledge have been
merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be in writing and shall be deemed given and
effective
on the earliest of (a) the date of transmission, if such notice or
communication
is delivered via facsimile at the facsimile number set forth on the
signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day,
(b) the next Trading Day after the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set
forth on
the signature pages attached hereto on a day that is not a Trading
Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party
to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived, modified, supplemented or
amended
except in a written instrument signed, in the case of an amendment,
by the
Company and Purchasers then holding at least 81% of the Securities
then
outstanding or, in the case of a waiver, by the party against whom
enforcement
of any such waiver is sought. No waiver of any default with respect
to any
provision, condition or requirement of this Agreement shall be deemed
to be a
continuing waiver in the future or a waiver of any subsequent default
or a
waiver of any other provision, condition or requirement hereof, nor
shall any
delay or omission of any party to exercise any right hereunder in any
manner
impair the exercise of any such right.
5.6 Headings
The
headings herein are for convenience only, do not constitute a part
of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. 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.
5.7 Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties
and
their successors and permitted assigns. The Company may not assign
this
Agreement or any rights or obligations hereunder without the prior
written
consent of each Purchaser. Any Purchaser may assign any or all of its
rights
under this Agreement to any Person to whom such Purchaser assigns or
transfers
any Securities, provided such transferee agrees in writing to be bound,
with
respect to the transferred Securities, by the provisions hereof that
apply to
the “Purchasers”.
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their
respective
successors and permitted assigns and is not for the benefit of, nor
may any
provision hereof be enforced by, any other Person, except as otherwise
set forth
in Section 4.11.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and
enforced in
accordance with the internal laws of the State of New York, without
regard to
the principles of conflicts of law thereof. Each party agrees that
all legal
proceedings concerning the interpretations, enforcement and defense
of the
transactions contemplated by this Agreement and any other Transaction
Documents
(whether brought against a party hereto or its respective affiliates,
directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each
party hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or
with any
transaction contemplated hereby or discussed herein (including with
respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding,
any claim
that it is not personally subject to the jurisdiction of any such court,
that
such suit, action or proceeding is improper or inconvenient venue for
such
proceeding. Each party hereby irrevocably waives personal service of
process and
consents to process being served in any such suit, action or proceeding
by
mailing a copy thereof via registered or certified mail or overnight
delivery
(with evidence of delivery) to such party at the address in effect
for notices
to it under this Agreement and agrees that such service shall constitute
good
and sufficient service of process and notice thereof. Nothing contained
herein
shall be deemed to limit in any way any right to serve process in any
manner
permitted by law. The parties hereby waive all rights to a trial by
jury. If
either party shall commence an action or proceeding to enforce any
provisions of
the Transaction Documents, then the prevailing party in such action
or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation
and
prosecution of such action or proceeding.
5.10 Survival.
The
representations and warranties contained herein shall survive the Closing
and
the delivery, exercise and/or conversion of the Securities, as applicable
for
the applicable statue of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect as
if such
facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any
term, provision, covenant or restriction of this Agreement is held
by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set
forth herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the same
or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of such
that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without
limiting any
similar provisions of) any of the other Transaction Documents, whenever
any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations
within
the periods therein provided, then such Purchaser may rescind or withdraw,
in
its sole discretion from time to time upon written notice to the Company,
any
relevant notice, demand or election in whole or in part without prejudice
to its
future actions and rights; provided,
however,
in the
case of a rescission of a conversion of the Preferred Stock or exercise
of a
Warrant, the Purchaser shall be required to return any shares of Common
Stock
subject to any such rescinded conversion or exercise notice.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost,
stolen
or destroyed, the Company shall issue or cause to be issued in exchange
and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of
evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable
third-party costs associated with the issuance of such replacement
Securities.
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or
granted by
law, including recovery of damages, each of the Purchasers and the
Company will
be entitled to specific performance under the Transaction Documents.
The parties
agree that monetary damages may not be adequate compensation for any
loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser
pursuant to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared
to be
fraudulent or preferential, set aside, recovered from, disgorged by
or are
required to be refunded, repaid or otherwise restored to the Company,
a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause
of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued
in full force
and effect as if such payment had not been made or such enforcement
or setoff
had not occurred.
5.17Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist
upon or
plead or in any manner whatsoever claim, and will resist any and all
efforts to
be compelled to take the benefit or advantage of, usury laws wherever
enacted,
now or at any time hereafter in force, in connection with any claim,
action or
proceeding that may be brought by any Purchaser in order to enforce
any right or
remedy under any Transaction Document. Notwithstanding any provision
to the
contrary contained in any Transaction Document, it is expressly agreed
and
provided that the total liability of the Company under the Transaction
Documents
for payments in the nature of interest shall not exceed the maximum
lawful rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other sums
in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate
of interest
allowed by law will be the Maximum Rate applicable to the Transaction
Documents
from the effective date forward, unless such application is precluded
by
applicable law. If under any circumstances whatsoever, interest in
excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall
be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling
such excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several
and not
joint with the obligations of any other Purchaser, and no Purchaser
shall be
responsible in any way for the performance of the obligations of any
other
Purchaser under any Transaction Document. Nothing contained herein
or in any
Transaction Document, and no action taken by any Purchaser pursuant
thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption
that the
Purchasers are in any way acting in concert or as a group with respect
to such
obligations or the transactions contemplated by the Transaction Documents.
Each
Purchaser shall be entitled to independently protect and enforce its
rights,
including without limitation, the rights arising out of this Agreement
or out of
the other Transaction Documents, and it shall not be necessary for
any other
Purchaser to be joined as an additional party in any proceeding for
such
purpose. Each Purchaser has been represented by its own separate legal
counsel
in their review and negotiation of the Transaction Documents. For reasons
of
administrative convenience only, Purchasers and their respective counsel
have
chosen to communicate with the Company through FWS. FWS does not represent
any
of the Purchasers but only Crestview Capital
Master, LLC. The Company has elected to provide all Purchasers with
the same
terms and Transaction Documents for the convenience of the Company
and not
because it was required or requested to do so by the Purchasers.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of
the Company
and shall not terminate until all unpaid partial liquidated damages
and other
amounts have been paid notwithstanding the fact that the instrument
or security
pursuant to which such partial liquidated damages or other amounts
are due and
payable shall have been canceled.
5.20 Construction.
The
parties agree that each of them and/or their respective counsel has
reviewed and
had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are
to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
|
CHEMBIO
DIAGNOSTICS, INC.
|
Address
for Notice:
|
|
By:__________________________________________
Name:
Title:
|
|
|
With
a copy to (which shall not constitute notice):
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO CEMI SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement
to be duly executed by their respective authorized signatories as of
the date
first indicated above.
Name
of
Purchaser: __________________________
Signature
of Authorized Signatory of Purchaser:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
Email
Address of Purchaser:________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as above):
Subscription
Amount:
Cash:
Surrendered
Secured Debentures:
Shares
of
Preferred Stock:
Warrant
Shares:
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
Exhibit
10.2 Security Purchase Agreement dated October 5, 2006
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of October 5, 2006, by and among Chembio Diagnostics, Inc.,
a Nevada
corporation (the “Company”),
and
the purchasers identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and
pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”)
and
Rule 506 promulgated thereunder, the Company desires to issue and sell
to each
Purchaser, and each Purchaser, severally and not jointly, desires to
purchase
from the Company, securities of the Company as more fully described
in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement,
and for other good and valuable consideration the receipt and adequacy
of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such
terms in
the Certificate of Designation (as defined herein), and (b) the following
terms
have the meanings indicated in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Actual
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock
then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or
conversion
in full of all Warrants and shares of Preferred Stock, ignoring any
conversion
or exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the third anniversary
of
the Closing Date and all dividends are paid in shares of Common Stock
until such
third anniversary.
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person,
as such
terms are used in and construed under Rule 144 under the Securities
Act. With
respect to a Purchaser, any investment fund or managed account that
is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Certificate
of Designations”
means
the amended and restated Certificate of Designations for the Preferred
Stock to
be filed prior to the Closing by the Company with the Secretary of
State of
Nevada, in the form of Exhibit
A
attached
hereto.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to
Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.01 per share, and any
other class
of securities into which such securities may hereafter be reclassified
or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle
the holder
thereof to acquire, directly or indirectly, at any time Common Stock,
including
without limitation, any debt, preferred stock, rights, options, warrants
or
other instrument that is at any time convertible into or exercisable
or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Company
Counsel”
means
Patton Boggs LLP.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Certificate of
Designation
and
which shall initially be $0.80, subject to adjustment therein.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company
pursuant
to the Registration Rights Agreement is first declared effective by
the
Commission.
“Escrow
Agent”
shall
mean Signature Bank, a New York State chartered bank and having an
office at 261
Madison Avenue, New York, New York 10016.
“Escrow
Deposit Agreement”
shall
mean the Escrow Deposit Agreement, dated October __, 2006, by and among
the
Company, Midtown and the Escrow Agent pursuant to which the Purchasers
shall
deposit Subscription Amounts with the Escrow Agent to be held by the
Escrow
Agent in a non-interest bearing account to be applied to the transactions
contemplated hereunder, substantially in the Form of Exhibit
E
attached
hereto.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees,
officers,
consultants, or directors of the Company pursuant to any stock or option
plan or
other resolution duly adopted by a majority of the non-employee members
of the
Board of Directors of the Company or a majority of the members of a
committee of
non-employee directors established for such purpose, (b) securities
upon the
exercise of or conversion of any Securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date
of this
Agreement, provided that such securities have not been amended since
the date of
this Agreement to increase the number of such securities or to decrease
the
exercise or conversion price of any such securities (except pursuant
to any
anti-dilution adjustment contained therein), (c) securities issued
pursuant to
acquisitions or strategic transactions, provided any such issuance
shall only be
to a Person which is, itself or through its subsidiaries, an operating
company
in a business reasonably deemed by the Company’s Board of Directors to be
strategically advantageous to the business of the Company and in which
the
Company receives benefits in addition to the investment of funds, but
shall not
include a transaction in which the Company is issuing securities primarily
for
the purpose of raising capital or to an entity whose primary business
is
investing in securities, (d) shares issued as dividend payments on
the Series A,
Series B Preferred Stock and Preferred Stock and (e) for purposes of
Sections
4.13 and 4.14 only, up to an amount of Preferred Stock and warrants
equal to the
difference between $6,000,000 and the aggregate Subscription Amounts
hereunder,
on substantially the same terms and conditions hereunder, which investors
shall
execute definitive agreements for the purchase of such securities on
or before
the earlier of the Filing Date and the date that the initial Registration
Statement is filed pursuant to the Registration Rights Agreement.
“FWS”
means
Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal,
preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“Midtown”
shall
mean Midtown Partners & Co., LLC, a Florida limited liability
company.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company,
government (or an agency or subdivision thereof) or other entity of
any
kind.
“Preferred
Stock”
means
the up to 205 shares of the Company’s 7% Series C Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set
forth in the
Certificate of Designations, in the form of Exhibit
A
attached
hereto.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the
Company and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Underlying Shares by
each
Purchaser as provided for in the Registration Rights Agreement.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act,
as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Preferred Stock, the Warrants and the Underlying Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation
of
borrowable shares of Common Stock).
“Stated
Value”
means
$50,000 per share of Preferred Stock.
“Subscription
Amount”
shall
mean, as to each Purchaser, the aggregate amount to be paid for the
Preferred
Stock purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount”,
in United States Dollars and in immediately available funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the
American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
or the
OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Escrow Agreement, the Certificate of Designation,
the
Warrants, the Registration Rights Agreement and any other documents
or
agreements executed in connection with the transactions contemplated
hereunder.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion of the
Preferred
Stock, upon exercise of the Warrants and issued and issuable in lieu
of the cash
payment of dividends on the Preferred Stock in accordance with the
terms of the
Certificate of Designation.
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading
Market,
the daily volume weighted average price of the Common Stock for such
date (or
the nearest preceding date) on the Trading Market on which the Common
Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based
on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for
the Common Stock are then reported in the “Pink Sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its
functions of
reporting prices), the most recent bid price per share of the Common
Stock so
reported; or (c) in all other cases, the fair market value of a share
of Common
Stock as determined by an independent appraiser selected in good faith
by the
Purchasers and reasonably acceptable to the Company.
“Warrants”
means
collectively the Series C-1 Common Stock purchase warrants, in the
form of
Exhibit C
delivered to the Purchasers at the Closing in accordance with Section
2.2(a)
hereof, which Warrants shall be exercisable immediately and have a
term of
exercise equal to five years.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth
herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and each Purchaser
agrees to
purchase in the aggregate, severally and not jointly, up to $6,000,000
of shares
of Preferred Stock with an aggregate Stated Value equal to such Purchaser’s
Subscription Amount and Warrants as determined by pursuant to Section
2.2(a).
The aggregate number of shares of Preferred Stock sold hereunder shall
be up to
205. Each Purchaser shall deliver to the Escrow Agent via wire transfer
or a
certified check of immediately available funds equal to their Subscription
Amount and the Company shall deliver to each Purchaser their respective
shares
of Preferred Stock and Warrants as determined pursuant to Section 2.2(a)
and the
other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction
of the conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at
the offices of FWS, or such other location as the parties shall mutually
agree.
|
2.2
|
Deliveries.
|
a) On
the
Closing Date, the Company shall deliver or cause to be delivered to
each
Purchaser the following:
|
(i)
|
this
Agreement duly executed by the
Company;
|
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
D
attached
hereto;
(iii) a
certificate evidencing a number of shares of Preferred Stock equal
to such
Purchaser’s Subscription Amount divided by the Stated Value, registered in the
name of such Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number
of shares of
Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by
$0.80, with an exercise price equal to $1.00, subject to adjustment
therein;
(v) the
Escrow Deposit Agreement duly executed by the Company and Midtown;
and
(vi) the
Registration Rights Agreement duly executed by the Company.
b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered
to the
Company the following:
|
(i)
|
this
Agreement duly executed by such
Purchaser;
|
(ii) such
Purchaser’s Subscription Amount as to the Closing by wire transfer to the Escrow
Agent;
(iii) if
such
Purchaser is an individual, an investor questionnaire provided to such
Purchaser
by the Midtown, and
(iv) the
Registration Rights Agreement duly executed by such Purchaser.
|
2.3
|
Closing
Conditions.
|
(a) The
obligations of the Company hereunder in connection with the Closing
are subject
to the following conditions being met; provided that the Company, in
its sole
discretion, may waive any and all such conditions:
(i) the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to
be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b)
of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with
the
Closing are subject to the following conditions being met; provided
that each
Purchaser, in its sole discretion, may waive any and all such
conditions:
(i) the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be
performed at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of
this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company
since the
date hereof; and
(v) from
the
date hereof to the Closing Date, trading in the Common Stock shall
not have been
suspended by the Commission or the Company’s principal Trading Market (except
for any suspension of trading of limited duration agreed to by the
Company,
which suspension shall be terminated prior to the Closing), and, at
any time
prior to the Closing Date, trading in securities generally as reported
by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall
not have been established on securities whose trades are reported by
such
service, or on any Trading Market, nor shall a banking moratorium have
been
declared either by the United States or New York State authorities
nor shall
there have occurred any material outbreak or escalation of hostilities
or other
national or international calamity of such magnitude in its effect
on, or any
material adverse change in, any financial market which, in each case,
in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Preferred Stock at the Closing.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”)
which
Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
Except
as set forth on Schedule
3.1(g)
attached
hereto, the Company owns, directly or indirectly, all of the capital
stock or
other equity interests of each Subsidiary free and clear of any Liens,
and all
the issued and outstanding shares of capital stock of each Subsidiary
are
validly issued and are fully paid, non-assessable and free of preemptive
and
similar rights to subscribe for or purchase securities. If the Company
has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated
or otherwise
organized, validly existing and in good standing under the laws of
the
jurisdiction of its incorporation or organization (as applicable),
with the
requisite power and authority to own and use its properties and assets
and to
carry on its business as currently conducted. Neither the Company nor
any
Subsidiary is in violation or default of any of the provisions of its
respective
certificate or articles of incorporation, bylaws or other organizational
or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to
conduct business and is in good standing as a foreign corporation or
other
entity in each jurisdiction in which the nature of the business conducted
or
property owned by it makes such qualification necessary, except where
the
failure to be so qualified or in good standing, as the case may be,
could not
have or reasonably be expected to result in (i) a material adverse
effect on the
legality, validity or enforceability of any Transaction Document, (ii)
a
material adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company and the Subsidiaries,
taken as a
whole, or (iii) a material adverse effect on the Company’s ability to perform in
any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into
and to
consummate the transactions contemplated by each of the Transaction
Documents
and otherwise to carry out its obligations hereunder and thereunder.
The
execution and delivery of each of the Transaction Documents by the
Company and
the consummation by it of the transactions contemplated hereby and
thereby have
been duly authorized by all necessary action on the part of the Company
and no
further action is required by the Company, its board of director or
its
stockholders in connection therewith other than in connection with
the Required
Approvals. Each Transaction Document has been (or upon delivery will
have been)
duly executed by the Company and, when delivered in accordance with
the terms
hereof and thereof, will constitute the valid and binding obligation
of the
Company enforceable against the Company in accordance with its terms
except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of
specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by
the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate
any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents,
or (ii)
conflict with, or constitute a default (or an event that with notice
or lapse of
time or both would become a default) under, result in the creation
of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement,
credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or
otherwise) or other understanding to which the Company or any Subsidiary
is a
party or by which any property or asset of the Company or any Subsidiary
is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or
result in a violation of any law, rule, regulation, order, judgment,
injunction,
decree or other restriction of any court or governmental authority
to which the
Company or a Subsidiary is subject (including federal and state securities
laws
and regulations), or by which any property or asset of the Company
or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and
(iii), such as could not have or reasonably be expected to result in
a Material
Adverse Effect.
(e) Filings,
Consents and Approvals.
Except
as set forth on Schedule
3.1(e),
the
Company is not required to obtain any consent, waiver, authorization
or order
of, give any notice to, or make any filing or registration with, any
court or
other federal, state, local or other governmental authority or other
Person in
connection with the execution, delivery and performance by the Company
of the
Transaction Documents, other than (i) filings required pursuant to
Section 4.6,
(ii) the filing with the Commission of the Registration Statement,
(iii) the
notice and/or application(s) to each applicable Trading Market for
the issuance
and sale of the Preferred Stock and Warrants and the listing of the
Underlying
Shares for trading thereon in the time and manner required thereby,
and (iv) the
filing of Form D with the Commission and such filings as are required
to be made
under applicable state securities laws (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued,
fully
paid and nonassessable, free and clear of all Liens imposed by the
Company other
than restrictions on transfer provided for in the Transaction Documents.
The
Underlying Shares, when issued in accordance with the terms of the
Transaction
Documents, will be validly issued, fully paid and nonassessable, free
and clear
of all Liens imposed by the Company. The Company has reserved from
its duly
authorized capital stock a number of shares of Common Stock for issuance
of the
Underlying Shares at least equal to the Actual Minimum on the date
hereof.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees
pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. Except as set forth
in the SEC
Reports, no Person has any right of first refusal, preemptive right,
right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as set forth in Schedule
3.1(g)
and
except as a result of the purchase and sale of the Securities, there
are no
outstanding options, warrants, script rights to subscribe to, calls
or
commitments of any character whatsoever relating to, or securities,
rights or
obligations convertible into or exercisable or or exchangeable for,
or giving
any Person any right to subscribe for or acquire, any shares of Common
Stock, or
contracts, commitments, understandings or arrangements by which the
Company or
any Subsidiary is or may become bound to issue additional shares of
Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities
will not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right of
any holder
of Company securities to adjust the exercise, conversion, exchange
or reset
price under such securities. All of the outstanding shares of capital
stock of
the Company are validly issued, fully paid and nonassessable, have
been issued
in compliance with all federal and state securities laws, and none
of such
outstanding shares was issued in violation of any preemptive rights
or similar
rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of Directors of the Company
or
others is required for the issuance and sale of the Securities. There
are no
stockholders agreements, voting agreements or other similar agreements
with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other
documents
required to be filed by it under the Securities Act and the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by
law to file such material) (the foregoing materials, including the
Company’s
Registration Statement on Form SB-2 filed in 2004 and the exhibits
thereto and
documents incorporated by reference therein, being collectively referred
to
herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing
and has
filed any such SEC Reports prior to the expiration of any such extension.
As of
their respective dates, the SEC Reports complied in all material respects
with
the requirements of the Securities Act and the Exchange Act and the
rules and
regulations of the Commission promulgated thereunder, and none of the
SEC
Reports, when filed, 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 Reports comply in all material respects with applicable
accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements
have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or
the notes
thereto and except that unaudited financial statements may not contain
all
footnotes required by GAAP, and fairly present in all material respects
the
financial position of the Company and its consolidated subsidiaries
as of and
for 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,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within
the SEC
Reports, except as specifically disclosed in the SEC Reports or as
set forth on
Schedule 3.1(i), (i) there has been no event, occurrence or development
that has
had or that could reasonably be expected to result in a Material Adverse
Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary
course of business consistent with past practice and (B) liabilities
not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii)
the
Company has not altered its method of accounting, (iv) the Company
has not
declared or made any dividend or distribution of cash or other property
to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem
any shares of its capital stock and (v) except as set forth in the
SEC Reports,
the Company has not issued any equity securities to any officer, director
or
Affiliate, except pursuant to existing Company stock option plans.
The Company
does not have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated
by this Agreement or as set forth on Schedule
3.1(i),
no
event, liability or development has occurred or exists with respect
to the
Company or its Subsidiaries or their respective business, properties,
operations
or financial condition, that would be required to be disclosed by the
Company
under applicable securities laws at the time this representation is
made that
has not been publicly disclosed at least 1 Trading Day prior to the
date that
this representation is made.
(j) Litigation.
Except
as set forth in the SEC Reports, there is no action, suit, inquiry,
notice of
violation, proceeding or investigation pending or, to the knowledge
of the
Company, threatened against or affecting the Company, any Subsidiary
or any of
their respective properties before or by any court, arbitrator, governmental
or
administrative agency or regulatory authority (federal, state, county,
local or
foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if
there were
an unfavorable decision, have or reasonably be expected to result in
a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director
or
officer thereof, is or has been the subject of any Action involving
a claim of
violation of or liability under federal or state securities laws or
a claim of
breach of fiduciary duty. There has not been, and to the knowledge
of the
Company, there is not pending or contemplated, any investigation by
the
Commission involving the Company or any current or former director
or officer of
the Company. The Commission has not issued any stop order or other
order
suspending the effectiveness of any registration statement filed by
the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company,
is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation
of (and
no event has occurred that has not been waived that, with notice or
lapse of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim that
it is in
default under or that it is in violation of, any indenture, loan or
credit
agreement or any other agreement or instrument to which it is a party
or by
which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of any
court,
arbitrator or governmental body, or (iii) is or has been in violation
of any
statute, rule or regulation of any governmental authority, including
without
limitation all foreign, federal, state and local laws applicable to
its business
except in each case as could not have a Material Adverse Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations
and
permits issued by the appropriate federal, state, local or foreign
regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could
not have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
Except
as set forth on Schedule 3.1(n), the Company and the Subsidiaries have
good and
marketable title in fee simple to all real property owned by them that
is
material to the business of the Company and the Subsidiaries and good
and
marketable title in all personal property owned by them that is material
to the
business of the Company and the Subsidiaries, in each case free and
clear of all
Liens, except for Liens as do not materially affect the value of such
property
and do not materially interfere with the use made and proposed to be
made of
such property by the Company and the Subsidiaries and Liens for the
payment of
federal, state or other taxes, the payment of which is neither delinquent
nor
subject to penalties. Any real property and facilities held under lease
by the
Company and the Subsidiaries are held by them under valid, subsisting
and
enforceable leases of which the Company and the Subsidiaries are in
compliance.
(o) Patents
and Trademarks.
Except
as set forth in the SEC Reports, the Company and the Subsidiaries have,
or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
other similar
rights that are necessary for use in connection with their respective
businesses
as described in the SEC Reports and which the failure to so have could
have a
Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Except as set forth in the SEC Reports, neither the Company nor any
Subsidiary
has received a written notice that the Intellectual Property Rights
used by the
Company or any Subsidiary violates or infringes upon the rights of
any Person.
To the knowledge of the Company, all such Intellectual Property Rights
are
enforceable and there is no existing infringement by another Person
of any of
the Intellectual Property Rights of others.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized
financial
responsibility against such losses and risks and in such amounts as
are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage in an amount as set forth on Schedule
3.1(p).
To the
best of Company’s knowledge, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has any reason
to believe
that it will not be able to renew its existing insurance coverage as
and when
such coverage expires or to obtain similar coverage from similar insurers
as may
be necessary to continue its business without a significant increase
in
cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors
of the
Company and, to the knowledge of the Company, none of the employees
of the
Company is presently a party to any transaction with the Company or
any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for
the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer,
director or such employee or, to the knowledge of the Company, any
entity in
which any officer, director, or any such employee has a substantial
interest or
is an officer, director, trustee or partner, in each case in excess
of $60,000
other than (i) for payment of salary or consulting fees for services
rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for
other employee benefits, including stock option agreements under any
stock
option plan of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Sarbanes-Oxley
Act
of 2002 which are applicable to it as of the Closing Date.
(s) Certain
Fees.
Other
than the fees payable to Midtown or as contemplated as set forth on
Schedule
3.1(s),
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation
with
respect to any fees or with respect to any claims made by or on behalf
of other
Persons for fees of a type contemplated in this Section that may be
due in
connection with the transactions contemplated by this Agreement.
(t) Private
Placement.
Assuming the accuracy of the Purchasers representations and warranties
set forth
in Section 3.2, no registration under the Securities Act is required
for the
offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder
does not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the shares of Preferred Stock, will not be or be an Affiliate
of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that
it will
not become subject to the Investment Company Act.
(v) Registration
Rights.
Except
as set forth in the SEC Reports and on Schedule
3.1(v),
other
than each of the Purchasers, no Person has any right to cause the Company
to
effect the registration under the Securities Act of any securities
of the
Company.
(w)Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge
is likely to have the effect of, terminating the registration of the
Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The
Company has
not, in the 12 months preceding the date hereof, received notice from
any
Trading Market on which the Common Stock is or has been listed or quoted
to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason
to
believe that it will not in the foreseeable future continue to be,
in compliance
with all such listing and maintenance requirements.
(x)Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action,
if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state
of
incorporation that is or could become applicable to the Purchasers
as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities.
(y)Disclosure.
The
Company confirms that neither it nor any other Person acting on its
behalf has
provided any of the Purchasers or their agents or counsel with any
information
that constitutes or might constitute material, nonpublic information,
other than
the information that will be disclosed in the Current Report on Form
8-K to be
filed on or before October 5, 2006 pursuant to Section 4.6. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities
of the
Company. All disclosure provided to the Purchasers regarding the Company,
its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company
with
respect to the representations and warranties made herein are true
and correct
with respect to such representations and warranties and do not contain
any
untrue statement of a material fact or omit to state any material fact
necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges
and agrees
that no Purchaser makes or has made any representations or warranties
with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.
(z)No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2 and except as set forth on Schedule
3.1(z),
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, under circumstances that
would cause
this offering of the Securities to be integrated with prior offerings
by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules
and
regulations of any Trading Market on which any of the securities of
the Company
are listed or designated.
(aa)Solvency.
The
Company does not intend to incur debts beyond its ability to pay such
debts as
they mature (taking into account the timing and amounts of cash to
be payable on
or in respect of its debt). The Company has no knowledge of any facts
or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports set forth as
of the dates
thereof all outstanding secured and unsecured Indebtedness of the Company
or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the
purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess
of $50,000
(other than trade accounts payable incurred in the ordinary course
of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar
transactions in the ordinary course of business; and (c) the present
value of
any lease payments
in excess of $50,000 due under leases required to be capitalized in
accordance
with GAAP. Except
as
set forth on Schedule
3.1(aa),
neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb)Intentionally
Omitted.
(cc)Tax
Status.
Except
for matters that would not, individually or in the aggregate, have
or reasonably
be expected to result in a Material Adverse Effect, the Company and
each
Subsidiary has filed all necessary federal, state and foreign income
and
franchise tax returns and has paid or accrued all taxes shown as due
thereon,
and the Company has no knowledge of a tax deficiency which has been
asserted or
threatened against the Company or any Subsidiary.
(dd)No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered
or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to
the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(ee)Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other
person
acting on behalf of the Company, has (i) directly or indirectly, used
any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or
to any
foreign or domestic political parties or campaigns from corporate funds,
(iii)
failed to disclose fully any contribution made by the Company (or made
by any
person acting on its behalf of which the Company is aware) which is
in violation
of law, or (iv) violated in any material respect any provision of the
Foreign
Corrupt Practices Act of 1977, as amended
(ff)Accountants.
The
Company’s accountants are set forth on Schedule
3.1(ff)
of the
Disclosure Schedule. To the Company’s knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ending December 31, 2004 are a registered public accounting firm
as
required by the Securities Act.
(gg)Seniority.
Except
as set forth on Schedule
3.1(gg),
as of
the Closing Date, no indebtedness or other equity of the Company is
senior to
the Preferred Stock in right of payment, whether with respect to interest
or
upon liquidation or dissolution, or otherwise, other than indebtedness
secured
by purchase money security interests (which is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior
only as
to the property covered thereby).
(hh)No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably
anticipated
by the Company to arise, between the accountants and lawyers formerly
or
presently employed by the Company and, except as set forth on Schedule
3.1(hh),
the
Company is current with respect to any fees owed to its accountants
and
lawyers.
(ii)Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting
solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of
the Company (or in any similar capacity) with respect to this Agreement
and the
transactions contemplated hereby and any advice given by any Purchaser
or any of
their respective representatives or agents in connection with this
Agreement and
the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each
Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby
by the
Company and its representatives.
(jj)Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof), it is understood and agreed by the
Company (i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that
past or
future open market or other transactions by any Purchaser, including
Short
Sales, and specifically including, without limitation, Short Sales
or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company’s
publicly-traded securities; (iii) that any Purchaser, and counter parties
in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with
or control
over any arm’s length counter-party in any “derivative”
transaction.
(kk)Regulation
M Compliance.
The Company has not, and to its knowledge no one acting on its behalf
has, (i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Securities, (ii) sold,
bid for,
purchased, or paid any compensation for soliciting purchases of, any
of the
securities of the Company, or (iii) paid or agreed to pay to any Person
any
compensation for soliciting another to purchase any other securities
of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to
the Company’s placement agent in connection with the placement of the
Securities.
3.2 Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby, for itself and for no other Purchaser, represents
and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
If such
Purchaser is an entity, such Purchaser is an entity duly organized,
validly
existing and in good standing under the laws of the jurisdiction of
its
organization with full right, corporate or partnership power and authority
to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser,
and
when delivered by such Purchaser in accordance with the terms hereof,
will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as
limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other
equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be
limited by applicable law.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state
securities
law and is acquiring the Securities as principal for its own account
and not
with a view to or for distributing or reselling such Securities or
any part
thereof in violation of the Securities Act or any applicable state
securities
law, has no present intention of distributing any of such Securities
in
violation of the Securities Act or any applicable state securities
law and has
no direct or indirect arrangement or understandings with any other
persons to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities pursuant
to the Registration Statement or otherwise in compliance with applicable
federal
and state securities laws) in violation of the Securities Act or any
applicable
state securities law. If such Purchaser is not an individual, such
Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
Each
Purchaser who is an individual must also fill out an individual investor
questionnaire provided by Midtown and deliver such questionnaire at
the
Closing.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the
date hereof
it is, and on each date on which it exercises any Warrants, it will
be either:
(i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser
is
not required to be registered as a broker-dealer under Section 15 of
the
Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial
matters so as
to be capable of evaluating the merits and risks of the prospective
investment
in the Securities, and has so evaluated the merits and risks of such
investment.
Such Purchaser is able to bear the economic risk of an investment in
the
Securities and, at the present time, is able to afford a complete loss
of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published
in any
newspaper, magazine or similar media or broadcast over television or
radio or
presented at any seminar or any other general solicitation or general
advertisement
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not
directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including
Short
Sales, in the securities of the Company during the period commencing
from
the time
that such Purchaser first received a term sheet (written or oral) from
the
Company or any other Person setting forth the material terms of the
transactions
contemplated hereunder until the date hereof (“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage
separate portions of such Purchaser's assets and the portfolio managers
have no
direct knowledge of the investment decisions made by the portfolio
managers
managing other portions of such Purchaser's assets, the representation
set forth
above shall only apply with respect to the portion of assets managed
by the
portfolio manager that made the investment decision to purchase the
Securities
covered by this Agreement. Other than to other Persons party to this
Agreement,
such Purchaser has maintained the confidentiality of all disclosures
made to it
in connection with this transaction (including the existence and terms
of this
transaction).
(g) Company
Information.
Each
Purchaser has had an opportunity to discuss the Company’s business, management
and financial affairs with management of the Company. The undersigned
has also
had the opportunity to ask questions of, and receive answers from,
management of
the Company regarding the terms and conditions of this investment.
Each
Purchaser has consulted its own legal and tax counsel regarding the
terms and
conditions of this investment.
The
Company acknowledges and agrees that each Purchaser does not make or
has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this
Section
3.2.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than
pursuant to an effective registration statement or Rule 144, to the
Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide
to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion
shall be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to
be bound by the terms of this Agreement and shall have the rights of
a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this
Section
4.1(b), of a legend on any of the Securities in the following form:
[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time
pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this
Agreement
and the Registration Rights Agreement and, if required under the terms
of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the
pledgees or secured parties. Such a pledge or transfer would not be
subject to
approval of the Company and no legal opinion of legal counsel of the
pledgee,
secured party or pledgor shall be required in connection therewith.
Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation
as a pledgee
or secured party of Securities may reasonably request in connection
with a
pledge or transfer of the Securities, including, if the Securities
are subject
to registration pursuant to the Registration Rights Agreement, the
preparation
and filing of any required prospectus supplement under Rule 424(b)(3)
under the
Securities Act or other applicable provision of the Securities Act
to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (i) while a registration
statement
(including the Registration Statement) covering the resale of such
security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not
required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the
Company’s
transfer agent to effect the removal of the legend hereunder. If all
or any
shares of Preferred Stock or any portion of a Warrant is converted
or exercised
(as applicable) at a time when there is an effective registration statement
to
cover the resale of the Underlying Shares, or if such Underlying Shares
may be
sold under Rule 144(k) or if such legend is not otherwise required
under
applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued
free of all
legends. The Company agrees that following the Effective Date or at
such time as
such legend is no longer required under this Section 4.1(c), it will,
no later
than three Trading Days following the delivery by a Purchaser to the
Company or
the Company’s transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day,
the
“Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The
Company may
not make any notation on its records or give instructions to any transfer
agent
of the Company that enlarge the restrictions on transfer set forth
in this
Section. Certificates for Underlying Shares subject to legend removal
hereunder
shall be transmitted by the transfer agent of the Company to the Purchasers
by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System, if the Company’s transfer agent is a participant in such system.
The Company agrees to cause its transfer agent to be a participant
in such
system (or engage a new transfer agent which is a participant in the
system)
within 60 calendar days of the Closing Date.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock
on the
date such Securities are submitted to the Company’s transfer agent) delivered
for removal of the restrictive legend and subject to Section 4.1(c),
$10 per
Trading Day (increasing to $20 per Trading Day 5 Trading Days after
such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until
such certificate is delivered without a legend. Nothing herein shall
limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation,
a decree of
specific performance and/or injunctive relief.
(e)
Each
Purchaser, severally and not jointly with the other Purchasers, agrees
that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery
requirements, or an exemption therefrom, and that if Securities are
sold
pursuant to a Registration Statement, they will be sold in compliance
with the
plan of distribution set forth therein.
4.2Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result
in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that
its
obligations under the Transaction Documents, including without limitation
its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents,
are unconditional and absolute and not subject to any right of set
off,
counterclaim, delay or reduction, regardless of the effect of any such
dilution
or any claim the Company may have against any Purchaser and regardless
of the
dilutive effect that such issuance may have on the ownership of the
other
stockholders of the Company.
4.3Furnishing
of Information.
As long
as any Purchaser owns Securities, the Company covenants to timely file
(or
obtain extensions in respect thereof and file within the applicable
grace
period) all reports required to be filed by the Company after the date
hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities
that are
not eligible to be sold under Rule 144(k), if the Company is not required
to
file reports pursuant to the Exchange Act, it will prepare and furnish
to the
Purchasers and make publicly available in accordance with Rule 144(c)
such
information as is required for the Purchasers to sell the Securities
under Rule
144. The Company further covenants that it will take such further action
as any
holder of Securities may reasonably request, all to the extent required
from
time to time to enable such Person to sell such Securities without
registration
under the Securities Act within the limitation of the exemptions provided
by
Rule 144.
4.4Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or
otherwise
negotiate in respect of any security (as defined in Section 2 of the
Securities
Act) that would be integrated with the offer or sale of the Securities
in a
manner that would require the registration under the Securities Act
of the sale
of the Securities to the Purchasers or that would be integrated with
the offer
or sale of the Securities for purposes of the rules and regulations
of any
Trading Market.
4.5Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the Notice
of Conversion
included in the Certificate of Designation set forth the totality of
the
procedures required of the Purchasers in order to exercise the Warrants
or
convert the Preferred Stock. No additional legal opinion or other information
or
instructions shall be required of the Purchasers to exercise their
Warrants or
convert their Preferred Stock. The Company shall honor exercises of
the Warrants
and conversions of the Preferred Stock and shall deliver Underlying
Shares in
accordance with the terms, conditions and time periods set forth in
the
Transaction Documents.
4.6Securities
Laws Disclosure;
Publicity.
The
Company shall, by 5:00 p.m. New York City time on October 5, 2006,
issue a
Current Report on Form 8-K, disclosing the material terms of the transactions
contemplated hereby and including the Transaction Documents as exhibits
thereto
and also disclosing any other material non-public information of which
the
Company has informed the Purchasers. The Company and each Purchaser
shall
consult with each other in issuing any other press releases with respect
to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public
statement
without the prior consent of the Company, with respect to any press
release of
any Purchaser, or without the prior consent of each Purchaser, with
respect to
any press release of the Company, which consent shall not unreasonably
be
withheld or delayed, except if such disclosure is required by law,
in which case
the disclosing party shall promptly provide the other party with prior
notice of
such public statement or communication. Notwithstanding the foregoing,
the
Company shall not publicly disclose the name of any Purchaser, or include
the
name of any Purchaser in any filing with the Commission or any regulatory
agency
or Trading Market, without the prior written consent of such Purchaser,
except
(i) as required by federal securities law in connection with (A) any
registration statement contemplated by the Registration Rights Agreement
and (B)
the filing of final Transaction Documents (including signature pages
thereto)
with the Commission and (ii) to the extent such disclosure is required
by law or
Trading Market regulations, in which case the Company shall provide
the
Purchasers with prior notice of such disclosure permitted under this
subclause
(ii).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge
of the
Company, any other Person that any Purchaser is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or
hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger
the
provisions of any such plan or arrangement, by virtue of receiving
Securities
under the Transaction Documents or under any other agreement between
the Company
and the Purchasers. The Company shall conduct its business in a manner
so that
it will not become subject to the Investment Company Act.
4.8
Non-Public
Information.
The
Company covenants and agrees that from and after the date hereof, neither
it nor
any other Person acting on its behalf will provide any Purchaser or
its agents
or counsel with any information that the Company believes constitutes
material
non-public information, unless prior thereto such Purchaser shall have
executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying
on the
foregoing representations in effecting transactions in securities of
the
Company.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the
Securities
hereunder for general corporate purposes including growth and capital
initiatives such as FDA clinical trials, marketing, travel, investor
relations,
public relations and capital expenditures for additional manufacturing
equipment
and, except as set forth on Schedule
4.9
attached
hereto, not for the satisfaction of any portion of the Company’s debt (other
than payment of trade payables in the ordinary course of the Company’s business
and prior practices), to redeem Common Stock or Common Stock Equivalents
or to
settle any outstanding litigation.
4.10 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or
against any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to
or with any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any
investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. 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 Purchasers 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 Purchasers
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 Purchasers
and
any such Affiliate and any such Person. The Company also agrees that
neither the
Purchasers nor any such Affiliates, 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 solely as
a result of
acquiring the Securities under this Agreement.
4.11 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.11, the Company will indemnify
and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title
or any
other title), each Person who controls such Purchaser (within the meaning
of
Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the
directors, officers, shareholders, agents, members, partners or employees
(and
any other Persons with a functionally equivalent role of a Person holding
such
titles notwithstanding a lack of such title or any other title) of
such
controlling person (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments,
amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as
a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in
the other
Transaction Documents or (b) any action instituted against a Purchaser,
or any
of them or their respective Affiliates, by any stockholder of the Company
who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based
upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such stockholder or any violations by the Purchaser of
state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any
action shall
be brought against any Purchaser Party in respect of which indemnity
may be
sought pursuant to this Agreement, such Purchaser Party shall promptly
notify
the Company in writing, and the Company shall have the right to assume
the
defense thereof with counsel of its own choosing. Any Purchaser Party
shall have
the right to employ separate counsel in any such action and participate
in the
defense thereof, but the fees and expenses of such counsel shall be
at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing,
(ii) the
Company has failed after a reasonable period of time to assume such
defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of
such separate counsel, a material conflict on any material issue between
the
position of the Company and the position of such Purchaser Party. The
Company
will not be liable to any Purchaser Party under this Agreement (i)
for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii)
to the
extent, but only to the extent that a loss, claim, damage or liability
is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this
Agreement or
in the other Transaction Documents.
4.12 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of
Common Stock
for issuance pursuant to the Transaction Documents in such amount as
may be
required to fulfill its obligations in full under the Transaction Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than 130% of (i) the Actual Minimum on such
date, minus (ii) the number of shares of Common Stock previously issued
pursuant
to the Transaction Documents, then the Board of Directors of the Company
shall
use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but
unissued
shares of Common Stock to at least the Actual Minimum at such time
(minus the
number of shares of Common Stock previously issued pursuant to the
Transaction
Documents), as soon as possible and in any event not later than the
75th
day
after such date; provided that the Company will not be required at
any time to
authorize a number of shares of Common Stock greater than the maximum
remaining
number of shares of Common Stock that could possibly be issued after
such time
pursuant to the Transaction Documents.
(c) The
Company shall, if applicable: (i) in the time and manner required by
the Trading
Market, prepare and file with such Trading Market an additional shares
listing
application covering a number of shares of Common Stock at least equal
to the
Actual Minimum on the date of such application, (ii) take all steps
necessary to
cause such shares of Common Stock to be approved for listing on the
Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence
of such listing, and (iv) maintain the listing of such Common Stock
on any date
at least equal to the Actual Minimum on such date on such Trading Market
or
another Trading Market.
4.13 Participation
in Future Financing.
(a) From
the
date hereof until the one year anniversary of the Closing Date, upon
any
financing by the Company or any of its Subsidiaries of Common Stock
or Common
Stock Equivalents (a “Subsequent
Financing”),
subject to the first rights of the Company’s Secured Debentures, dated June 29,
2006, and the holders of Preferred Stock purchased prior to the date
hereof, to
the extent such holders may have such rights, each Purchaser shall
have the
right, subject to Section 4.13(e), to participate in up to 100% of
the
Subsequent Financing (the “Participation
Maximum”).
(b) At
least
7 Trading Days prior to the closing of the Subsequent Financing, the
Company
shall deliver to each Purchaser a written notice of its intention to
effect a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details
of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser,
for a
Subsequent Financing Notice, the Company shall promptly, but no later
than 1
Trading Day after such request, deliver a Subsequent Financing Notice
to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail
the proposed terms of such Subsequent Financing, the amount of proceeds
intended
to be raised thereunder, the Person with whom such Subsequent Financing
is
proposed to be effected, and attached to which shall be a term sheet
or similar
document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must
provide
written notice to the Company by not later than 5:30 p.m. (New York
City time)
on the 7th
Trading
Day after such Purchaser has received the Pre-Notice that the Purchaser
is
willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent
Financing
Notice. If the Company receives no notice from a Purchaser as of such
7th
Trading
Day, such Purchaser shall be deemed to have notified the Company that
it does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 7th
Trading
Day after all of the requesting Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate
in the
Subsequent Financing (or to cause their designees to participate) is,
in the
aggregate, less than the total amount of the Subsequent Financing,
then the
Company may effect the remaining portion of such Subsequent Financing
on the
terms and to the Persons set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 7th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to
purchase more than the aggregate amount of the Participation Maximum,
each such
Purchaser shall have the right to purchase the greater of (a) their
Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the
difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is
the
ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date
by a Purchaser participating under this Section 4.13 and (y) the sum
of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by
all Purchasers participating under this Section 4.13.
(f) The
Company must provide the Purchasers with a second Subsequent Financing
Notice,
and the Purchasers will again have the right of participation set forth
above in
this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent
Financing Notice is not consummated for any reason on the terms set
forth in
such Subsequent Financing Notice within 60 Trading Days after the date
of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.14 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company
nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this Section 4.14
shall be
extended for the number of Trading Days during such period in which
(i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following
the
Effective Date, the Registration Statement is not effective or the
prospectus
included in the Registration Statement may not be used by the Purchasers
for the
resale of the Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a “Variable
Rate Transaction”
or
an
“MFN
Transaction”
(each
as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt
or equity
securities that are convertible into, exchangeable or exercisable for,
or
include the right to receive additional shares of Common Stock either
(A) at a
conversion, exercise or exchange rate or other price that is based
upon and/or
varies with the trading prices of or quotations for the shares of Common
Stock
at any time after the initial issuance of such debt or equity securities,
or (B)
with a conversion, exercise or exchange price that is subject to being
reset at
some future date after the initial issuance of such debt or equity
security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common
Stock or
(ii) enters into any agreement, including, but not limited to, an equity
line of
credit, whereby the Company may sell securities at a future determined
price.
The term “MFN
Transaction”
shall
mean a transaction in which the Company issues or sells any securities
in a
capital raising transaction or series of related transactions which
grants to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor
in
such offering.
(c) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction or MFN Transaction
shall be
an Exempt Issuance.
4.15 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any Person to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties
to the
Transaction Documents. For clarification purposes, this provision constitutes
a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended to treat for the Company
the
Purchasers as a class and shall not in any way be construed as the
Purchasers
acting in concert or as a group with respect to the purchase, disposition
or
voting of Securities or otherwise.
4.16 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser severally and not jointly with the other Purchasers covenants
that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period
commencing
at the Discussion Time and ending at the time that the transactions
contemplated
by this Agreement are first publicly announced as described in Section
4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants
that
until such time as the transactions contemplated by this Agreement
are publicly
disclosed by the Company as described in Section 4.6, such Purchaser
will
maintain the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this transaction).
Each
Purchaser understands and acknowledges, severally and not jointly with
any other
Purchaser, that the Commission currently takes the position that coverage
of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is
a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section
A, of the
Manual of Publicly Available Telephone Interpretations, dated July
1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding
the foregoing, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of
the Company
after the time that the transactions contemplated by this Agreement
are first
publicly announced as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions
of such
Purchaser's assets and the portfolio managers have no direct knowledge
of the
investment decisions made by the portfolio managers managing other
portions of
such Purchaser's assets, the covenant set forth above shall only apply
with
respect to the portion of assets managed by the portfolio manager that
made the
investment decision to purchase the Securities covered by this
Agreement.
4.17 Most
Favored Nation Provision.
From
the date hereof until the earlier of (a) such time when the Preferred
Stock is
no longer outstanding or (b) the 18 month anniversary of the Closing
Date, any
time the Company effects a Subsequent Financing, each Purchaser may
elect, in
its sole discretion, to exchange all or some of any of its Preferred
Stock then
held by it for any securities (including all components if in a unit
with other
securities) issued in a Subsequent Financing (such exchange to be made
at the
same time as, and pursuant to, the closing of such Subsequent Financing)
based
on the outstanding Stated Value of the Preferred Stock plus accrued
but unpaid
dividends and other fees owed and the effective price at which such
securities
were sold in such Subsequent Placement. The Company covenants and agrees
to
provide each Purchaser with at least five (5) days written notice of
the terms
of such Subsequent Financing.
4.18 Form
D; Blue Sky Filings.
The
Company agrees to timely file a Form D with respect to the Securities
as
required under Regulation D and to provide a copy thereof, promptly
upon request
of any Purchaser. The Company shall take such action as the Company
shall
reasonably determine is necessary in order to obtain an exemption for,
or to
qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.
4.18 Capital
Change.
Until
the one year anniversary of the Effective Date, the Company shall not
undertake
a reverse or forward stock split or reclassification of the Common
Stock without
the prior written consent of the Purchasers holding a majority in interest
of
the shares of Preferred Stock.
ARTICLE
V
MISCELLANEOUS
5.1Termination.
This
Agreement may be terminated by any Purchaser, by written notice to
the other
parties, if the Closing has not been consummated on or before October
13, 2006;
provided that such date may be extended by the mutual, written consent
of the
Company and Midtown but in no event beyond October 31, 2006; provided
that no
such termination will affect the right of any party to sue for any
breach by the
other party (or parties).
5.2Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse Midtown the non-accountable
sum of
$10,000 for its legal fees and expenses. The Company shall deliver,
prior to the
Closing, a completed and executed copy of the Closing Statement, attached
hereto
as Annex
A.
Except
as expressly set forth in the Transaction Documents to the contrary,
each party
shall pay the fees and expenses of its advisers, counsel, accountants
and other
experts, if any, and all other expenses incurred by such party incident
to the
negotiation, preparation, execution, delivery and performance of this
Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other
taxes and
duties levied in connection with the delivery of any Securities.
5.3Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto,
contain
the entire understanding of the parties with respect to the subject
matter
hereof and supersede all prior agreements and understandings, oral
or written,
with respect to such matters, which the parties acknowledge have been
merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be in writing and shall be deemed given and
effective
on the earliest of (a) the date of transmission, if such notice or
communication
is delivered via facsimile at the facsimile number set forth on the
signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day,
(b) the next Trading Day after the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set
forth on
the signature pages attached hereto on a day that is not a Trading
Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party
to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived, modified, supplemented or
amended
except in a written instrument signed, in the case of an amendment,
by the
Company and Purchasers then holding at least 51% of the Securities
then
outstanding or, in the case of a waiver, by the party against whom
enforcement
of any such waiver is sought. No waiver of any default with respect
to any
provision, condition or requirement of this Agreement shall be deemed
to be a
continuing waiver in the future or a waiver of any subsequent default
or a
waiver of any other provision, condition or requirement hereof, nor
shall any
delay or omission of any party to exercise any right hereunder in any
manner
impair the exercise of any such right.
5.6 Headings
The
headings herein are for convenience only, do not constitute a part
of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. 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.
5.7 Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties
and
their successors and permitted assigns. The Company may not assign
this
Agreement or any rights or obligations hereunder without the prior
written
consent of each Purchaser. Any Purchaser may assign any or all of its
rights
under this Agreement to any Person to whom such Purchaser assigns or
transfers
any Securities, provided such transferee agrees in writing to be bound,
with
respect to the transferred Securities, by the provisions hereof that
apply to
the “Purchasers”.
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their
respective
successors and permitted assigns and is not for the benefit of, nor
may any
provision hereof be enforced by, any other Person, except as otherwise
set forth
in Section 4.11.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and
enforced in
accordance with the internal laws of the State of New York, without
regard to
the principles of conflicts of law thereof. Each party agrees that
all legal
proceedings concerning the interpretations, enforcement and defense
of the
transactions contemplated by this Agreement and any other Transaction
Documents
(whether brought against a party hereto or its respective affiliates,
directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each
party hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or
with any
transaction contemplated hereby or discussed herein (including with
respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding,
any claim
that it is not personally subject to the jurisdiction of any such court,
that
such suit, action or proceeding is improper or inconvenient venue for
such
proceeding. Each party hereby irrevocably waives personal service of
process and
consents to process being served in any such suit, action or proceeding
by
mailing a copy thereof via registered or certified mail or overnight
delivery
(with evidence of delivery) to such party at the address in effect
for notices
to it under this Agreement and agrees that such service shall constitute
good
and sufficient service of process and notice thereof. Nothing contained
herein
shall be deemed to limit in any way any right to serve process in any
manner
permitted by law. The parties hereby waive all rights to a trial by
jury. If
either party shall commence an action or proceeding to enforce any
provisions of
the Transaction Documents, then the prevailing party in such action
or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation
and
prosecution of such action or proceeding.
5.10 Survival.
The
representations and warranties contained herein shall survive the Closing
and
the delivery, exercise and/or conversion of the Securities, as applicable
for
the applicable statue of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect as
if such
facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any
term, provision, covenant or restriction of this Agreement is held
by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set
forth herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of such
that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without
limiting any
similar provisions of) any of the other Transaction Documents, whenever
any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations
within
the periods therein provided, then such Purchaser may rescind or withdraw,
in
its sole discretion from time to time upon written notice to the Company,
any
relevant notice, demand or election in whole or in part without prejudice
to its
future actions and rights; provided,
however,
in the
case of a rescission of a conversion of the Preferred Stock or exercise
of a
Warrant, the Purchaser shall be required to return any shares of Common
Stock
subject to any such rescinded conversion or exercise notice.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost,
stolen
or destroyed, the Company shall issue or cause to be issued in exchange
and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of
evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
customary and reasonable indemnity, if requested. The applicants for
a new
certificate or instrument under such circumstances shall also pay any
reasonable
third-party costs associated with the issuance of such replacement
Securities.
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or
granted by
law, including recovery of damages, each of the Purchasers and the
Company will
be entitled to specific performance under the Transaction Documents.
The parties
agree that monetary damages may not be adequate compensation for any
loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser
pursuant to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared
to be
fraudulent or preferential, set aside, recovered from, disgorged by
or are
required to be refunded, repaid or otherwise restored to the Company,
a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause
of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued
in full force
and effect as if such payment had not been made or such enforcement
or setoff
had not occurred.
5.17Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist
upon or
plead or in any manner whatsoever claim, and will resist any and all
efforts to
be compelled to take the benefit or advantage of, usury laws wherever
enacted,
now or at any time hereafter in force, in connection with any claim,
action or
proceeding that may be brought by any Purchaser in order to enforce
any right or
remedy under any Transaction Document. Notwithstanding any provision
to the
contrary contained in any Transaction Document, it is expressly agreed
and
provided that the total liability of the Company under the Transaction
Documents
for payments in the nature of interest shall not exceed the maximum
lawful rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other sums
in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate
of interest
allowed by law will be the Maximum Rate applicable to the Transaction
Documents
from the effective date forward, unless such application is precluded
by
applicable law. If under any circumstances whatsoever, interest in
excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall
be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling
such excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several
and not
joint with the obligations of any other Purchaser, and no Purchaser
shall be
responsible in any way for the performance of the obligations of any
other
Purchaser under any Transaction Document. Nothing contained herein
or in any
Transaction Document, and no action taken by any Purchaser pursuant
thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption
that the
Purchasers are in any way acting in concert or as a group with respect
to such
obligations or the transactions contemplated by the Transaction Documents.
Each
Purchaser shall be entitled to independently protect and enforce its
rights,
including without limitation, the rights arising out of this Agreement
or out of
the other Transaction Documents, and it shall not be necessary for
any other
Purchaser to be joined as an additional party in any proceeding for
such
purpose. Each Purchaser has been represented by its own separate legal
counsel
in their review and negotiation of the Transaction Documents. For reasons
of
administrative convenience only, Purchasers and their respective counsel
have
chosen to communicate with the Company through FWS. The Company has
elected to
provide all Purchasers with the same terms and Transaction Documents
for the
convenience of the Company and not because it was required or requested
to do so
by the Purchasers.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of
the Company
and shall not terminate until all unpaid partial liquidated damages
and other
amounts have been paid notwithstanding the fact that the instrument
or security
pursuant to which such partial liquidated damages or other amounts
are due and
payable shall have been canceled.
5.20 Construction.
The
parties agree that each of them and/or their respective counsel has
reviewed and
had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are
to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
|
CHEMBIO
DIAGNOSTICS, INC.
|
Address
for Notice:
|
|
By:__________________________________________
Name:
Title:
|
|
|
With
a copy to (which shall not constitute notice):
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO CEMI SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement
to be duly executed by their respective authorized signatories as of
the date
first indicated above.
Name
of
Purchaser: __________________________
Signature
of Authorized Signatory of Purchaser:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
Email
Address of Purchaser:________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as above):
Subscription
Amount:
Shares
of
Preferred Stock:
Warrant
Shares:
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date
hereto, the
purchasers shall purchase up to $6,000,000 of Preferred Stock and Warrants
from
Chembio Diagnostics, Inc., a Nevada corporation (the “Company”).
All
funds will be wired into a trust account maintained by the Escrow Agent,
counsel
to the Company. All funds will be disbursed in accordance with this
Closing
Statement.
Disbursement
Date: October
__, 2006
|
I.
PURCHASE
PRICE
|
|
|
Gross
Proceeds to be Received in Trust
|
$
|
|
II. DISBURSEMENTS
|
|
|
$
|
|
|
|
$
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Total
Amount Disbursed:
|
$
|
|
WIRE
INSTRUCTIONS:
|
|
|
To:
_____________________________________
|
|
|
To:
_____________________________________
|
Exhibit
10.3 Letter of Amendment
CHEMBIO
DIAGNOSTICS, INC.
October
5, 2006
Crestview
Capital Master, LLC
95
Revere
Drive, Suite A
Northbrook,
IL 60062
Inverness
Medical Innovations, Inc.
51
Sawyer
Road
Waltham,
MA 02453
Dear
Gentlemen and Ladies:
On
September 29, 2006, each of you and Chembio Diagnostics, Inc. (the
"Company") entered into a Securities Purchase Agreement, Registration
Rights Agreement and a Common Stock Purchase Warrant with your purchase of
the Company's Series C Convertible Preferred Stock (the "Preferred Stock")
and Warrants to purchase the Company's Common Stock. The Company
filed a Certificate of Designation with the Nevada Secretary of State
regarding
the Preferred Stock on that date.
As
contemplated in the Securities Purchase Agreement, the Company has
made
arrangements to sell additional shares of the Preferred Stock and Warrants
to
other investors with an aggregate Subscription Amount not in excess of the
$10,000,000 maximum set forth therein (which amount includes your investments
and conversions by certain holders of the Secured Debentures). As
you are aware, in order to attract additional investors, the Company
agreed to
lower the conversion price of the Preferred Stock from $.85 to $.80
and to issue
Warrants to purchase 62,500 shares of Common Stock to Midtown Partners
as part
of its fee for soliciting investors with an aggregate Subscription
Amount of
$1,000,000. The purpose of this letter agreement is to confirm our
understandings and agreements regarding the conversion price and other
matters
relating to your investment, as follows:
1. The
conversion price of the Preferred Stock issued to you will be changed to
$.80.
2. The
Company will file an Amended and Restated Certificate of Designation
with the
Nevada Secretary of State reflecting the new conversion price of
$.80.
3. The
Warrant exercise price of $1.00 per share will not be changed as a
result of the
change in the conversion price of the Preferred Stock or the issuance
of the
Warrants to Midtown Partners.
4. The
total
number of Warrants issued to each of you will be increased to
625,000.
5. The
62,500 shares underlying the Warrants issued to Midtown Partners will
be
included in the registration statement to be filed by the Company as
provided in
the Registration Rights Agreement.
6. The deadline
for the Company's filing of a Report on Form 8-K on October 5, 2006 as
provided in Section 4.6 of the Securities Purchase Agreement is
changed from 8:30 am to 5:00 pm.
This
letter constitutes an amendment to the Securities Purchase Agreement,
the
Registration Rights Agreement, and the Common Stock Purchase Warrant.
Except as
otherwise specifically modified herein, the terms and conditions of
the
Securities Purchase Agreement, the Registration Rights Agreement, and
the Common
Stock Purchase Warrant are unaffected and remain in full force and
effect.
If
you
agree to the terms of this letter, please so indicate by signing in
the space
designated below. We very much appreciate your investment in the
Company.
Very
truly yours,
Lawrence
A. Siebert
CEO
Agreed
to:
CRESTVIEW
CAPITAL MASTER, LLC Date:
By:
Name:
Title:
INVERNESS
MEDICAL INNOVATIONS, INC. Date:
By:
Name:
Title:
Exhibit
99.1 Press Release
Chembio
Reports
$8.15 Million Private Financing
N.Y.
-
October 5, 2006 - Chembio Diagnostics, Inc. (OTCBB:CEMI) today reported
a
private placement transaction in the total amount of $8.15 million of
Series C 7% Convertible Preferred Stock together with warrants to purchase
common stock. The private placement was co-led by Inverness Medical
Innovations, Inc. and Crestview Capital Master, LLC, each investing
two million
dollars. The proceeds of the financing will be used to fund for general
corporate purposes including growth and capital initiatives such as
additional
manufacturing equipment, FDA clinical trials, marketing, travel, investor
relations, public relations and payment of debt. Approximately $600,000
of the
private placement resulted from conversion of previously outstanding
debt of the
Company.
Lawrence
Siebert, President and CEO of Chembio,
commented, “We are extremely pleased that this financing will help Chembio’s
efforts to assist in meeting the growing demand for rapid HIV testing
in the US
and around the world. The recent CDC recommendations that all Americans
aged
13-64 be tested for HIV highlight the importance of testing in controlling
this
disease.”
The
Company has agreed to file a registration statement with the U.S. Securities
and
Exchange Commission (“SEC”) to register any resales of the common stock
underlying the securities issued.
For
more
information about the terms and conditions please see our Form 8-K
to be filed
with the SEC on October 5, 2006. The securities in the private financing
will
not be or have not been registered under the Securities Act of 1933
and may not
be offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
ABOUT
CHEMBIO
Chembio
Diagnostics, Inc., a developer and manufacturer of rapid diagnostic
tests for
infectious diseases, is on the frontlines of the global battle against
the AIDS
pandemic. The Company has received marketing approval from the FDA
for its SURE
CHECK(R) HIV 1/2 and HIV 1/2 STAT-PAK(TM) rapid tests. The Company
also
manufactures rapid tests for veterinary Tuberculosis and human Chagas
Disease,
and has developed a patent-pending technology, the Dual Path Platform
(DPP(TM)),
for its next generation HIV and other rapid tests. For additional information
please visit www.chembio.com.
FORWARD-LOOKING
STATEMENTS
Statements
contained herein that are not historical facts may be forward-looking
statements
within the meaning of the Securities Act of 1933, as amended. Forward-looking
statements include statements regarding the intent, belief or current
expectations of the Company and its management. Such statements are
estimates
only, as the Company has not completed the preparation of its financial
statements for those periods, nor has its auditor completed the audit
of those
results. Actual revenue may differ materially from those anticipated
in this
press release. Such statements reflect management's current views,
are based on
certain assumptions and involve risks and uncertainties. Actual results,
events,
or performance may differ materially from the above forward-looking
statements
due to a number of important factors, and will be dependent upon a
variety of
factors, including, but not limited to Chembio's ability to obtain
additional
financing, to obtain regulatory approvals in a timely manner, and the
demand for
Chembio's products. Chembio undertakes no obligation to publicly update
these
forward-looking statements to reflect events or circumstances that
occur after
the date hereof or to reflect any change in Chembio's expectations
with regard
to these forward-looking statements or the occurrence of unanticipated
events.
Factors that may impact Chembio's success are more fully disclosed
in Chembio's
most recent public filings with the U.S. Securities and Exchange
Commission.
Contact:
The
Investor Relations Group 212-825-3210
Investors:
James Carbonara
Media:
Susan Morgenbesser