SECURED DEBENTURE
Exhibit
10.16 Debenture
$_________ June
29,
2006
FOR
VALUE
RECEIVED, Chembio Diagnostics, Inc., a Nevada corporation
(the "Maker"),
with
its primary offices located at 0000 Xxxxxxxxxx Xxxx, Xxxxxxx,
Xxx Xxxx 00000,
promises to pay to the order of ____________, or its registered
assigns (the
"Payee"),
upon
the terms set forth below, the principal sum of __________________
($____________) plus interest on the unpaid principal sum
outstanding at the
rate of 0.667% per month (the “Debenture”).
This
Debenture is issued pursuant to terms and conditions of
the Securities Purchase
Agreement, dated as of June 29, 2006, between the Maker,
Payee and other
investors signatory thereto (the “Purchase
Agreement”).
Any
terms used but not defined herein shall have the meanings
given such terms in
the Purchase Agreement.
1. Payments.
(a)
The
full amount of principal and accrued interest under this
Debenture shall be due
on September 27, 2006 (the "Maturity
Date"),
unless due earlier in accordance with the terms of this
Debenture.
(b)
Maker
may not prepay, in whole or in part, the principal sum
and interest under this
Debenture without the prior written consent of Payee.
2.
Secured
Obligation.
As
security for the payment in full of principal, interest
and performance under
this Debenture and of all other liabilities and obligations
of the Maker to the
Payee, Maker hereby grants to the Payee a general security
interest in all
assets of the Maker and all proceeds arising therefrom
and any and all products
of such assets, as further set forth in the Security Agreement
between the
Maker, each subsidiary of the Maker (each, a “Subsidiary”
and
collectively the “Subsidiaries”)
and
the Payee, dated June 29, 2006 (the “Security
Agreement”).
3.
Events
of Default.
(a)
"Event
of Default",
wherever used herein, means any one 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):
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(i)
any
default in the payment of the principal of, or the interest
on, this Debenture,
as and when the same shall become due and payable;
(ii)
Maker shall fail to observe or perform any obligation or
shall breach any term
or provision of this Debenture and such failure or breach
shall not have been
remedied within 5 days after the date on which notice of
such failure or breach
shall have been delivered;
(iii)
Maker or a Subsidiary shall fail to observe or perform
any of their respective
material obligations owed to Payee or any other covenant,
agreement,
representation or warranty contained in, or otherwise commit
any material breach
hereunder or in the Purchase Agreement, Security Agreement,
the Subsidiary
Guarantee, dated as of June __, 2006, by the Subsidiaries
in favor of the Payee
(the “Subsidiary
Guarantee”),
the
Common Stock Purchase Warrant, dated June __, 2006, issued
by the Maker and
registered in the name of the Payee (the “Warrant”)
or the
Registration Rights Agreement, dated as of June __, 2006,
between the Maker and
the Payee (the “Registration
Rights Agreement”)
(the
Debenture, Purchase Agreement, Security Agreement, Subsidiary
Guarantee, Warrant
and Registration Rights Agreement, collectively, the “Transaction
Documents”)
executed in connection herewith;
(iv)
Maker or any of its subsidiaries shall commence, or there
shall be commenced
against Maker or a Subsidiary, a case under any applicable
bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or Maker
or a Subsidiary commences any other proceeding under any
reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or
liquidation or similar law of any jurisdiction whether
now or hereafter in
effect relating to Maker or a Subsidiary, or there is commenced
against Maker or
a Subsidiary any such bankruptcy, insolvency or other proceeding
which remains
undismissed for a period of 45 days; or Maker or a Subsidiary
is adjudicated
insolvent or bankrupt; or any order of relief or other
order approving any such
case or proceeding is entered; or Maker or a Subsidiary
suffers any appointment
of any custodian or the like for it or any substantial
part of its property
which continues undischarged or unstayed for a period of
45 days; or Maker or a
Subsidiary makes a general assignment for the benefit of
creditors; or Maker or
a Subsidiary shall fail to pay, or shall state that it
is unable to pay, or
shall be unable to pay, its debts generally as they become
due; or Maker or a
Subsidiary shall call a meeting of its creditors with a
view to arranging a
composition, adjustment or restructuring of its debts;
or Maker or a Subsidiary
shall by any act or failure to act expressly indicate its
consent to, approval
of or acquiescence in any of the foregoing; or any corporate
or other action is
taken by Maker or a Subsidiary for the purpose of effecting
any of the
foregoing;
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(v)
Maker
or a Subsidiary shall default in any of its respective
obligations under any
other note or any mortgage, credit agreement or other facility,
indenture
agreement, factoring agreement or other instrument under
which there may be
issued, or by which there may be secured or evidenced any
indebtedness for
borrowed money or money due under any long term leasing
or factoring arrangement
of Maker or a Subsidiary, whether such indebtedness now
exists or shall
hereafter be created and such default shall result in such
indebtedness becoming
or being declared due and payable prior to the date on
which it would otherwise
become due and payable;
(vi)
Maker shall (a) be a party to any Change of Control Transaction
(as defined
below), (b) agree to sell or dispose all or in excess of
33% of its assets in
one or more transactions (whether or not such sale would
constitute a Change of
Control Transaction), (c) redeem or repurchase more than
a de minimis
number
of shares of Common Stock or other equity securities of
Maker, or (d) make any
distribution or declare or pay any dividends (in cash or
other property, other
than common stock) on, or purchase, acquire, redeem, or
retire any of Maker's
capital stock, of any class, whether now or hereafter outstanding,
provided that
any regularly scheduled dividends payable on the Series
A Preferred Stock and
the Series B Preferred Stock (as defined in the Purchase
Agreement) shall not be
deemed an Event of Default under this Section 3(a)(vi),
provided that the terms
of Series A Preferred Stock and the Series B Preferred
Stock have not been
amended after the date of the Purchase Agreement. "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 Securities Exchange Act
of 1934, as amended)
of effective control (whether through legal or beneficial
ownership of capital
stock of the Maker, by contract or otherwise) of in excess
of 33% of the voting
securities of the Maker (other than by means of exercise
of the Warrants), or
(ii) the Maker merges into or consolidates with any other
Person, or any Person
merges into or consolidates with the Maker and, after giving
effect to such
transaction, the stockholders of the Maker immediately
prior to such transaction
own less than 66% of the aggregate voting power of the
Maker or the successor
entity of such transaction, or (iii) the Maker sells or
transfers all or
substantially all of its assets to another Person and the
stockholders of the
Maker immediately prior to such transaction own less than
66% of the aggregate
voting power of the acquiring entity immediately after
the transaction, or (iv)
a replacement at one time or within a three year period
of more than one-half of
the members of the Maker’s board of directors which is not approved by a
majority of those individuals who are members of the board
of directors on the
date hereof (or by those individuals who are serving as
members of the board of
directors on any date whose nomination to the board of
directors was approved by
a majority of the members of the board of directors who
are
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members
on the date hereof), or (v) the execution by the Maker
of an agreement to which
the Maker is a party or by which it is bound, providing
for any of the events
set forth in clauses (i) through (iv) above; or
(viii)
any member of Maker's management shall cease to be a member
of Maker's senior
management or shall cease to perform any of the material
functions and duties
currently performed by such person. For purposes hereof,
"senior management"
refers to the President, the Chief Executive Officer, the
Chief Financial
Officer and any officer performing the customary function
of such officers;
or
(ix)
Maker shall unreasonably modify or change its method of
accounting or enter
into, modify, or terminate any agreement currently existing,
or at any time
hereafter entered into with any third party accounting
firm or service bureau
for the preparation or storage of its accounting records,
or restate or modify
its financial statements for any period of time prior to
the date of this
Debenture.
(b)
If
any
Event of Default occurs, the full principal amount of this
Debenture, together
with all accrued interest thereon, shall become, at the
Payee's election,
immediately due and payable in cash. Commencing 5 days
after the occurrence of
any Event of Default that results in the acceleration of
this Debenture, the
interest rate on this Debenture shall accrue at the rate
of 18% per annum, or
such lower maximum amount of interest permitted to be charged
under applicable
law. Except as specifically provided in this Debenture,
the Payee need not
provide and Maker hereby waives any presentment, demand,
protest or other notice
of any kind, and the Payee may immediately and without
expiration of any grace
period enforce any and all of its rights and remedies hereunder
and all other
remedies available to it under applicable law. Such declaration
may be rescinded
and annulled by Xxxxx at any time prior to payment hereunder.
No such rescission
or annulment shall affect any subsequent Event of Default
or impair any right
consequent thereon.
4.
Most
Favored Nation.
The
Payee shall have the right, in its sole discretion, to
convert the then
outstanding principal balance of this Debenture plus accrued
but unpaid
interest, in whole or in part, into securities of the Maker
(or its successor or
parent) being issued in any private or public offering
of equity securities of
the Maker (or its successor or parent) consummated while
this Debenture is
outstanding, upon the terms and conditions of such offering,
at a rate equal to,
for each $1.00 of principal amount of this Debenture surrendered
plus accrued
but unpaid interest, $1.14286 of new consideration offered
for such securities.
By way of example, if the Payee wishes to surrender $100,000
principal amount of
this Debenture to the Maker as consideration for the purchase
of new securities,
the Payee shall receive, and the Maker shall issue, $114,286
of new securities
to the Payee, otherwise on the same terms and conditions
as the other
participants.
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5. No
Waiver of Payee's Rights.
All
payments of principal and interest shall be made without
setoff, deduction or
counterclaim. No delay or failure on the part of the Payee
in exercising any of
its options, powers or rights, nor any partial or single
exercise of its
options, powers or rights shall constitute a waiver thereof
or of any other
option, power or right, and no waiver on the part of the
Payee of any of its
options, powers or rights shall constitute a waiver of
any other option, power
or right. Maker hereby waives presentment of payment, protest,
and all notices
or demands in connection with the delivery, acceptance,
performance, default or
endorsement of this Debenture. Acceptance by the Payee
of less than the full
amount due and payable hereunder shall in no way limit
the right of the Payee to
require full payment of all sums due and payable hereunder
in accordance with
the terms hereof.
6.
Modifications.
No term
or provision contained herein may be modified, amended
or waived except by
written agreement or consent signed by the party to be
bound
thereby.
7.
Cumulative
Rights and Remedies; Usury.
The
rights and remedies of Payee expressed herein are cumulative
and not exclusive
of any rights and remedies otherwise available under the
Transaction Documents
or applicable law (including at equity). The election of
Payee to avail itself
of any one or more remedies shall not be a bar to any other
available remedies,
which Maker agrees Payee may take from time to time. If
it shall be found that
any interest due hereunder shall violate applicable laws
governing usury, the
applicable rate of interest due hereunder shall be reduced
to the maximum
permitted rate of interest under such law.
9.
Use
of
Proceeds.
Maker
shall use the proceeds from this Debenture hereunder for
working capital
purposes and not for the satisfaction of any portion of
Maker's or a
Subsidiary's debt (other than payment of trade payables
in the ordinary course
of Maker's business and prior practices), the redemption
of any of Maker's
equity or equity-equivalent securities or the settlement
of any outstanding
litigation.
10.
Collection
Expenses.
If
Payee shall commence an action or proceeding to enforce
this Secured Debenture,
then Maker shall reimburse Payee for its costs of collection
and reasonable
attorneys fees incurred with the investigation, preparation
and prosecution of
such action or proceeding.
11.
Severability.
If any
provision of this Debenture is declared by a court of competent
jurisdiction to
be in any way invalid, illegal or unenforceable, the balance
of this Debenture
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 shall violate applicable laws governing
usury, the
applicable rate of interest due hereunder shall automatically
be lowered to
equal the maximum permitted rate of interest.
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12.
Successors
and Assigns.
This
Debenture shall be binding upon Maker and its successors
and shall inure to the
benefit of the Payee and its successors and assigns. The
term "Payee" as used
herein, shall also include any endorsee, assignee or other
holder of this
Debenture.
13.
Lost
or Stolen Debenture.
If this
Debenture is lost, stolen, mutilated or otherwise destroyed,
Maker shall execute
and deliver to the Payee a new debenture containing the
same terms, and in the
same form, as this Debenture. In such event, Maker may
require the Payee to
deliver to Maker an affidavit of lost instrument and customary
indemnity in
respect thereof as a condition to the delivery of any such
new
debenture.
14.
Due
Authorization.
This
Debenture has been duly authorized, executed and delivered
by Maker and is the
legal obligation of Maker, enforceable against Maker in
accordance with its
terms. No consent of any other party and no consent, license,
approval or
authorization of, or registration or declaration with,
any governmental
authority, bureau or agency is required in connection with
the execution,
delivery or performance by the Maker, or the validity or
enforceability of this
Debenture other than such as have been met or obtained.
The execution, delivery
and performance of this Debenture and all other agreements
and instruments
executed and delivered or to be executed and delivered
pursuant hereto or
thereto or the securities issuable upon conversion of this
will not violate any
provision of any existing law or regulation or any order
or decree of any court,
regulatory body or administrative agency or the certificate
of incorporation or
by-laws of the Maker or any mortgage, indenture, contract
or other agreement to
which the Maker is a party or by which the Maker or any
property or assets of
the Maker may be bound.
15. Construction.
The
Maker and Payee and/or their respective counsel have reviewed
and had an
opportunity to review and revise this Debenture 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 this
Debenture.
16.
Governing
Law.
All
questions concerning the construction, validity, enforcement
and interpretation
of this Debenture 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 conflict of laws thereof. Each of Maker and
Payee agree that all
legal proceedings concerning the interpretations, enforcement
and defense of
this Debenture shall be commenced in the state and federal
courts sitting in the
City of New York, Borough of Manhattan (the "New
York Courts").
Each
of Maker and Payee hereby irrevocably submit to the exclusive
jurisdiction of
the New York Courts for the adjudication of any dispute
hereunder (including the
enforcement of this Debenture), 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. Each of Maker and Payee hereby
irrevocably waive
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 the other at the
address in effect for notices to it under this Debenture
and agrees that such
service shall constitute good and sufficient
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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 of
Maker and Payee hereby irrevocably waive, 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 Debenture or the transactions
contemplated
hereby.
17. Notice.
Any and
all notices or other communications or deliveries to be
provided by the Payee
hereunder shall be in writing and delivered personally,
by facsimile, sent by a
nationally recognized overnight courier service or sent
by certified or
registered mail, postage prepaid, addressed to the Maker
at 0000 Xxxxxxxxxx
Xxxx, Xxxxxxx, Xxx Xxxx 00000, facsimile number: _______________,
Attention:
Xxxxxxxx X. Xxxxxxx, President,
or such
other address or facsimile number as the Maker may specify
for such purposes by
notice to the Payee delivered in accordance with this paragraph.
Any and all
notices or other communications or deliveries to be provided
by the Maker
hereunder shall be in writing and delivered personally,
by facsimile, sent by a
nationally recognized overnight courier service or sent
by certified or
registered mail, postage prepaid, addressed to the Payee
at _______________,
facsimile number: ______________, Attention: __________,
or such other address
or facsimile number as the Payee may specify for such purposes
by notice to the
Maker delivered in accordance with this paragraph. Any
notice or other
communication or deliveries hereunder shall be deemed given
and effective on the
earliest of (i) the date of transmission if delivered by
hand
or by telecopy that has been confirmed as received by 5:00
p.m. (New York City
time) on a business day,
(ii)
one
business day after being sent by nationally recognized
overnight courier or
received by telecopy after 5:00 p.m. (New York City time)
on any day,
or
(iii) 5
business
days
after being sent by certified or registered mail, postage
and charges prepaid,
return receipt requested.
The
undersigned signs this Debenture as a maker and not as
a surety or guarantor or
in any other capacity.
By:
_____________________
Name:
Title:
