SECURITIES PURCHASE AGREEMENT
EXHIBIT 99.7
This Securities Purchase Agreement (this
“Agreement”) is dated as of September 29,
2006, by and among Chembio Diagnostics, Inc., a Nevada
corporation (the “Company”), and the purchasers
identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively the “Purchasers”).
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the “Securities Act”)
and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to
the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Certificate of
Designation (as defined herein), and (b) the following
terms have the meanings indicated in this Section 1.1:
“Action” shall have the meaning ascribed
to such term in Section 3.1(j).
“Actual Minimum” means, as of any date,
the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants and shares
of Preferred Stock, ignoring any conversion or exercise limits
set forth therein, and assuming that any previously unconverted
shares of Preferred Stock are held until the third anniversary
of the Closing Date and all dividends are paid in shares of
Common Stock until such third anniversary.
“Affiliate” means any Person that,
directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under
Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is
managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
“Certificate of Designations” means the
Certificate of Designations to be filed prior to the Closing by
the Company with the Secretary of State of Nevada, in the form
of Exhibit A attached hereto.
“Closing” means the closing of the
purchase and sale of the Securities pursuant to Section 2.1.
“Closing Date” means the Trading Day
when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay
the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or
waived.
“Commission” means the Securities and
Exchange Commission.
“Common Stock” means the common stock of
the Company, par value $0.01 per share, and any other class of
securities into which such securities may hereafter be
reclassified or changed into.
“Common Stock Equivalents” means any
securities of the Company or the Subsidiaries which would
entitle the holder thereof to acquire, directly or indirectly,
at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
“Company Counsel” means Xxxxxx Xxxxx LLP.
“Conversion Price” shall have the
meaning ascribed to such term in the Certificate of Designation.
“Disclosure Schedules” shall have the
meaning ascribed to such term in Section 3.1.
“Effective Date” means the date that the
initial Registration Statement filed by the Company pursuant to
the Registration Rights Agreement is first declared effective by
the Commission.
“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance” means the issuance of
(a) shares of Common Stock or options to employees,
officers, consultants, or directors of the Company pursuant to
any stock or option plan or other resolution duly adopted by a
majority of the non-employee members of the Board of Directors
of the Company or a majority of the members of a committee of
non-employee directors established for such purpose,
(b) securities upon the exercise of or conversion of any
Securities issued hereunder, convertible securities, options or
warrants issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the
date of this Agreement to increase the number of such securities
or to decrease the exercise or conversion price of any such
securities (except pursuant to any anti-dilution adjustment
contained therein), (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business reasonably
deemed by the Company’s Board of Directors to be
strategically advantageous to the business of the Company and in
which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary
business is investing in securities, (d) shares issued as
dividend payments on the Series A, Series B Preferred
Stock and Preferred Stock and (e) for purposes of
Sections 4.13 and 4.14 only, up to an amount of Preferred
Stock and warrants equal to the difference between $10,000,000
and the aggregate Subscription Amounts hereunder, on
substantially the same terms and conditions hereunder, which
investors shall execute definitive agreements for the purchase
of such securities and such transactions shall have closed on or
before October 5, 2006.
“FWS” means 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.
“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.
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“Proceeding” means an action, claim,
suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning
ascribed to such term in Section 4.11.
“Registration Rights Agreement” means
the Registration Rights Agreement, dated the date hereof, among
the Company and the Purchasers, in the form of
Exhibit B attached hereto.
“Registration Statement” means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
“Required Approvals” shall have the
meaning ascribed to such term in Section 3.1(e).
“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule
or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
“SEC Reports” shall have the meaning
ascribed to such term in Section 3.1(h).
“Securities” means the Preferred Stock,
the Warrants and the Underlying Shares.
“Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Short Sales” means all “short
sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the
location
and/or
reservation of borrowable shares of Common Stock).
“Stated Value” means $50,000 per share
of Preferred Stock.
“Subscription Amount” shall mean, as to
each Purchaser, the aggregate amount to be paid for the
Preferred Stock purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement
and next to the heading “Subscription Amount”, in
United States Dollars and in immediately available funds.
Notwithstanding the foregoing, a Purchaser may pay its
Subscription Amount by surrendering the Company’s Secured
Debentures, dated June 29, 2006 (aggregate of all such
debentures, $1,300,000). The principal amount surrendered by a
Purchaser shall be as set forth on such Purchaser’s
signature page to this Agreement and such Purchaser’s
Subscription Amount as it relates to surrendered debentures
shall be calculated by multiplying 1.14286 times the sum of the
principal amount plus all accrued interest on the Secured
Debentures surrendered.
“Subsequent Financing” shall have the
meaning ascribed to such term in Section 4.13.
“Subsequent Financing Notice” shall have
the meaning ascribed to such term in Section 4.13.
“Subsidiary” means any subsidiary of the
Company as set forth on Schedule 3.1(a).
“Trading Day” means a day on which the
Common Stock is traded on a Trading Market.
“Trading Market” means the following
markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the Nasdaq SmallCap
Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
“Transaction Documents” means this
Agreement, the Certificate of Designation, the Warrants, the
Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions
contemplated hereunder.
“Underlying Shares” means the shares of
Common Stock issued and issuable upon conversion of the
Preferred Stock, upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of dividends on the
Preferred Stock in accordance with the terms of the Certificate
of Designation.
“VWAP” means, for any date, the price
determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of
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the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (b) if the Common Stock
is not then listed or quoted on a Trading Market and if prices
for the Common Stock are then reported in the “Pink
Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock
so reported; or (c) in all other cases, the fair market
value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.
“Warrants” means collectively the
Series C-1
Common Stock purchase warrants, in the form of
Exhibit C delivered to the Purchasers at the Closing
in accordance with Section 2.2(a) hereof, which Warrants
shall be exercisable immediately and have a term of exercise
equal to five years.
“Warrant Shares” means the shares of
Common Stock issuable upon exercise of the Warrants.
ARTICLE II
PURCHASE AND
SALE
2.1 Closing. On the Closing Date,
upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and
each Purchaser agrees to purchase in the aggregate, severally
and not jointly, up to $10,000,000 of shares of Preferred Stock
with an aggregate Stated Value equal to such Purchaser’s
Subscription Amount and Warrants as determined by pursuant to
Section 2.2(a). The aggregate number of shares of Preferred
Stock sold hereunder shall be up to 205. Each Purchaser shall
deliver to the Company via wire transfer or a certified check of
immediately available funds (or principal amount of Secured
Debentures surrendered as described in the definition of
Subscription Amount) equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective shares
of Preferred Stock and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in
Section 2.2 issuable at the Closing. Upon satisfaction of
the conditions set forth in Sections 2.2 and 2.3, the
Closing shall occur at the offices of FWS, or such other
location as the parties shall mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver or cause
to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto;
(iii) a certificate evidencing a number of shares of
Preferred Stock equal to such Purchaser’s Subscription
Amount divided by the Stated Value, registered in the name of
such Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 25%
of such Purchaser’s Subscription Amount divided by $0.85,
with an exercise price equal to $1.00, subject to adjustment
therein; and
(v) the Registration Rights Agreement duly executed by the
Company.
b) On the Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser’s Subscription Amount as to the
applicable Closing by wire transfer to the Company (or surrender
of Secured Debentures, as applicable); and
(iii) the Registration Rights Agreement duly executed by
such Purchaser.
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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;
(v) all holders of secured Indebtedness of the Company
shall have agreed to exchange such Indebtedness for Preferred
Stock as payment in full of any obligations thereunder or agree
to be paid off for cash at the Closing as set forth on
Schedule 4.9 (and in both cases the Company shall have
received duly authorized pay-off letters from all such
holders); and
(vi) from the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
or the Company’s principal Trading Market (except for any
suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not
have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in
each case, in the reasonable judgment of each Purchaser, makes
it impracticable or inadvisable to purchase the Preferred Stock
at the Closing.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES
3.1 Representations 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-
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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 Xxxxxxxxxxxx
0
Xxxxxxxxx, (xxx) 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
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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
8
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. Except as set
forth on Schedule 3.1(s), no brokerage or finder’s
fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming
the accuracy of the Purchasers representations and warranties
set forth in Section 3.2, no registration under the
Securities Act is required for the offer and sale of the
Securities
9
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
10
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
11
represents to each Purchaser that the Company’s decision to
enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby
by the Company and its representatives.
(jj) Acknowledgement Regarding Purchasers’
Trading Activity. Anything in this Agreement
or elsewhere herein to the contrary notwithstanding (except for
Section 4.16 hereof), it is understood and agreed by the
Company (i) that none of the Purchasers have been asked to
agree, nor has any Purchaser agreed, to desist from purchasing
or selling, long
and/or
short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold
the Securities for any specified term; (ii) that past or
future open market or other transactions by any Purchaser,
including Short Sales, and specifically including, without
limitation, Short Sales or “derivative” transactions,
before or after the closing of this or future private placement
transactions, may negatively impact the market price of the
Company’s publicly-traded securities; (iii) that any
Purchaser, and counter parties in “derivative”
transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in
the Common Stock, and (iv) that each Purchaser shall not be
deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative”
transaction.
(kk) Regulation M
Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or paid
any compensation for soliciting purchases of, any of the
securities of the Company, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the
case of clauses (ii) and (iii), compensation paid to the
Company’s placement agent in connection with the placement
of the Securities.
3.2 Representations and Warranties of the
Purchasers
. Each Purchaser hereby, for itself and for no other
Purchaser, represents and warrants as of the date hereof and as
of the Closing Date to the Company as follows:
(a) Organization; Authority. Such
Purchaser is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and
authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(b) Own Account. Such Purchaser
understands that the Securities are “restricted
securities” and have not been registered under the
Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and
not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities
Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and
has no direct or indirect arrangement or understandings with any
other persons to distribute or regarding the distribution of
such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law. Such
Purchaser is acquiring the Securities hereunder in the ordinary
course of its business.
(c) Purchaser Status. At the time
such Purchaser was offered the Securities, it was, and at the
date hereof it is, and on each date on which it exercises any
Warrants, it will be either: (i) an “accredited
investor” as
12
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.
13
(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
14
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.
4.2 Acknowledgment 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.
4.3 Furnishing 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.
4.4 Integration. 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.
4.5 Conversion 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.
4.6 Securities Laws Disclosure;
Publicity. The Company shall, by
8:30 a.m. New York City time on October 5, 2006,
issue a Current Report on
Form 8-K,
disclosing the material terms of the transactions contemplated
hereby and including the Transaction Documents as exhibits
thereto and also disclosing any other material non-
15
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
16
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.
17
4.13 Participation in Future
Financing.
(a) From the date hereof until the one year anniversary of
the Closing Date, upon any financing by the Company or any of
its Subsidiaries of Common Stock or Common Stock Equivalents (a
“Subsequent Financing”), each Purchaser shall
have the right, subject to Section 4.13(e), to participate
in up to 100% of the Subsequent Financing (the
“Participation Maximum”); provided,
however, the Participation Maximum shall be reduced on a
pro rata basis to allow the holders of the Company’s
Secured Debentures, dated June 29, 2006, to participate in
the Subsequent Financing, to the extent such holders may have
such rights.
(b) At least 7 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each
Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the
details of such financing (such additional notice, a
“Subsequent Financing Notice”). Upon the
request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request,
deliver a Subsequent Financing Notice to such Purchaser. The
Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document
relating thereto.
(c) Any Purchaser desiring to participate in such
Subsequent Financing must provide written notice to the Company
by not later than 5:30 p.m. (New York City time) on the
7th Trading
Day after such Purchaser has received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing,
the amount of the Purchaser’s participation, and that the
Purchaser has such funds ready, willing, and available for
investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of
such
7th Trading
Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the
7th Trading
Day after all of the requesting Purchasers have received the
Pre-Notice, notifications by the Purchasers of their willingness
to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing
Notice.
(e) If by 5:30 p.m. (New York City time) on the
7th Trading
Day after all of the Purchasers have received the Pre-Notice,
the Company receives responses to a Subsequent Financing Notice
from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall
have the right to purchase the greater of (a) their Pro
Rata Portion (as defined below) of the Participation Maximum and
(b) the difference between the Participation Maximum and
the aggregate amount of participation by all other Purchasers.
“Pro Rata Portion” is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date
by a Purchaser participating under this Section 4.13 and
(y) the sum of the aggregate Subscription Amounts of
Securities purchased on the Closing Date by all Purchasers
participating under this Section 4.13.
(f) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have
the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any
reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13
shall not apply in respect of an Exempt Issuance or (ii) an
underwritten public offering of Common Stock.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the
Effective Date, neither the Company nor any Subsidiary shall
issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this
Section 4.14 shall be extended for the number of Trading
Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following
the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not
be used by the Purchasers for the resale of the Underlying
Shares.
18
(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
19
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
5.1 Termination. This Agreement
may be terminated by any Purchaser, by written notice to the
other parties, if the Closing has not been consummated on or
before October 5, 2006; provided that no such termination
will affect the right of any party to xxx for any breach by the
other party (or parties).
5.2 Fees and Expenses. At the
Closing, the Company has agreed to reimburse Crestview Capital
Master LLC up to $15,000 for its actual, reasonable,
out-of-pocket legal fees and expenses. At the Closing, the
Company has agreed to reimburse
[ ]
up to $15,000 for its actual, reasonable, out-of-pocket legal
fees and expenses. Accordingly, in lieu of the foregoing
payments, the aggregate amount that such Purchasers are to pay
for the Securities at the Closing shall be reduced by $15,000
for each such Purchaser in lieu thereof. The Company shall
deliver, prior to the Closing, a completed and executed copy of
the Closing Statement, attached hereto as
Annex A. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay
the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall
pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities.
5.3 Entire Agreement. The
Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to
such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
5.4 Notices. Any and all notices
or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the
signature pages attached hereto on a day that is not a Trading
Day or later than 5:30 p.m. (New York City time) on any
Trading Day, (c) the second Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the
signature pages attached hereto.
5.5 Amendments; Waivers. No
provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and Purchasers then
holding at least 81% of the Securities then outstanding or, in
the case of a waiver, by the party against whom enforcement of
any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.
20
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
21
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.
5.17 Usury. 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
22
shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction
Document. Nothing contained herein or in any Transaction
Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting
in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation, the rights arising out
of this Agreement or out of the other Transaction Documents, and
it shall not be necessary for any other Purchaser to be joined
as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents.
For reasons of administrative convenience only, Purchasers and
their respective counsel have chosen to communicate with the
Company through FWS. FWS does not represent any of the
Purchasers but only Crestview Capital Master, LLC. The Company
has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.
5.19 Liquidated Damages. The
Company’s obligations to pay any partial liquidated damages
or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate
until all unpaid partial liquidated damages and other amounts
have been paid notwithstanding the fact that the instrument or
security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been canceled.
5.20 Construction. The parties
agree that each of them
and/or their
respective counsel has reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of
construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of the Transaction Documents or any amendments
hereto.
[SIGNATURE
PAGE FOLLOWS]
23
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated
above.
| CHEMBIO DIAGNOSTICS, INC. | Address for Notice: |
| By: |
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
24
[PURCHASER
SIGNATURE PAGES TO CEMI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
| Name of Purchaser: |
| Signature of Authorized Signatory of Purchaser: |
| Name of Authorized Signatory: |
| Title of Authorized Signatory: |
| Email Address of Purchaser: |
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as
above):
Subscription Amount:
Cash:
Surrendered Secured Debentures:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
25
Annex A
CLOSING
STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as
of the date hereto, the purchasers shall purchase up to
$10,000,000 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 ,
counsel to the Company. All funds will be disbursed in
accordance with this Closing Statement.
Disbursement
Date: September , 2006
|
I. PURCHASE PRICE
|
||||
|
Gross Proceeds to be Received in Trust
|
$ | |||
|
II. DISBURSEMENTS
|
$ | |||
| $ | ||||
| $ | ||||
| $ | ||||
| $ | ||||
|
Total Amount Disbursed:
|
$ |
WIRE INSTRUCTIONS:
| To: | |
| To: |
26
