SECURITIES PURCHASE AGREEMENT
Exhibit
10.2 Security Purchase Agreement dated October 5, 2006
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
Xxxxxx Xxxxx 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 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
“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
Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
“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.
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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.
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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) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
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 xxx 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.
|
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:
_____________________________________
|
