Document:

ex10_1.htm

 

 

                                                 EXHIBIT 10.1

                                                 REDACTED COPY

 

LICENSE AGREEMENT

by and between:

Johnson & Johnson Consumer and Personal Products Worldwide,

a division of Johnson & Johnson Consumer Companies, Inc.

199 Grandview Drive

Skillman, New Jersey

and

Quick-Med Technologies, Inc.

902 NW 4th Street

Gainesville, Florida

WHEREAS, Johnson & Johnson Consumer and Personal Products Worldwide, a division of Johnson & Johnson Consumer Companies, Inc. (hereinafter "JJCPWW") has an established business and intellectual property relating to wound *****;

WHEREAS, Quick-Med Technologies, Inc. (LICENSOR) owns and or has exclusive licenses in patents and patent applications related to bactericidal absorbent wound dressings as set forth herein,

WHEREAS, Quick-Med Technologies, Inc. and University of Florida Research Foundation Inc. (hereinafter UFRI) have entered into the Amended and Restated Exclusive Agreement made effective as of the 21st day of November, 2002, (hereinafter “UFRI Agreement”) and Quick-Med Technologies, Inc. is the exclusive licensee, with the right to grant sublicenses to third parties, under Licensed Patents as set forth herein,

WHEREAS, JJCPWW and LICENSOR desire to enter into this exclusive License Agreement (hereinafter “Agreement”) under terms and conditions including those set forth herein below;

NOW, THEREFORE, in consideration of the premises and of the mutual promises and covenants herein contained, the parties hereto agree as follows:

1.  Definitions:  The following terms, when used with initial capital letters, shall have the meanings set forth below:

1.1           "Affiliate" shall mean any entity that directly or indirectly controls, is controlled by, or is under common control with JJCPWW, and for such purpose "control" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise.

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

  

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1.2           "Calendar Quarter" shall mean the usual and customary JJCPWW calendar quarter, used for internal accounting purposes, of approximately three (3) months, in which each of the first two months consist of four weeks and the third month consists of five weeks.

1.3           “Combination Product” shall mean any Licensed Product which is incorporated into or packaged with any product which is not a Licensed Product.

1.4           “Commercial Sale” shall mean an arms-length transaction and shipment by JJCPWW, its Affiliates or its sublicensees of a Licensed Product to an unaffiliated third party.

1.5           “Effective Date” shall mean the date of the last signature set forth below.

1.6           “Earned Royalty” shall mean the royalty based on Net Sales of the Licensed Product as set forth in Article 3.6 of this Agreement.

1.7           “First Commercial Sale” shall mean, with respect to any Licensed Product, the date on which JJCPWW makes its initial Commercial Sale of such Licensed Product in the Field within the Territory.

1.8           “Intellectual Property” shall mean know-how, Inventions, products, whether patentable or not, improvements, ideas, proprietary information, technology and patents, including any and all provisionals, divisions, continuations, continuations in part, extensions, substitutions, renewals, registrations, revalidations, reissues or additions, including supplementary certificates of protection of or to any of the aforesaid patents.

1.9           “Inventions” shall mean any and all works, ideas, designs, concepts, inventions or improvements.

1.10           “LICENSOR Intellectual Property” shall mean a) all LICENSOR proprietary Intellectual Property related to or useful in the Licensed Field, b) any other patent which LICENSOR owns or is empowered to grant a license to JJCPWW prior to or during the term of this Agreement, the practice of which is reasonably necessary for JJCPWW to make, have made, use or sell Licensed Product in the Licensed Field; and c) any other know-how, processes, technical information, and data, in the possession of LICENSOR prior to or during the Term of this Agreement, which relates to and may be reasonably necessary in the commercial practice of, or developed to the stage where it would be reasonably necessary in the commercial practice of Licensed Product in the Licensed Field.

1.11           “Licensed Field” shall mean Consumer HealthCare  ***** that do not require a prescription for purchase in the United States of America or Canada, the sale of which is limited to retail markets and expressly excludes sale to the institutional healthcare markets, including without limitation, *****.

1.12           “Licensed Patent Applications” shall include those patent applications identified in Appendix A and shall further include all continuations, continuations-in-part, divisions, renewals, reissues, reexaminations, and extensions  within the Territory related thereto.  Furthermore, Licensed Patent Applications shall also include each patent application which LICENSOR owns or is empowered to grant a license to JJCPWW prior to or during the term of this Agreement, the practice of which is reasonably necessary for JJCPWW to make, have made, use, sell, offer to sell, import or otherwise dispose of a Licensed Product within the Territory.

1.13           “Licensed Patents” shall include those patents, patents of addition and patents of importation within the Territory which relate to and/or claim priority to Licensed Patent Applications. Furthermore, Licensed Patents shall also include each patent which LICENSOR owns or is empowered to grant a license to JJCPWW prior to or during the term of this Agreement, the practice of which is reasonably necessary for JJCPWW to make, have made, use, sell, offer to sell, import or otherwise dispose of a Licensed Product within the Territory.

 

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

 

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1.14           “Licensed Intellectual Property" shall include Licensor Intellectual Property, Licensed Patent Applications and Licensed Patents.

1.15           “Licensed Product(s)” shall ***** , which, but for the licenses granted under this Agreement, the manufacture, use, sale, offer for sale, importation or development would (a) infringe at least one Valid Claim of a Licensed Patent in the Territory, or (b) fall within the scope of at least one claim of a Licensed Patent Application, as that scope would reasonably be construed by a court or other governmental agency of competent jurisdiction.

1.16           “Net Sales” is the amount billed which JJCPWW and/or its Affiliates actually collect from the sale of the Licensed Product to an unaffiliated third party, less the following amounts:  (i) discounts, including cash discounts, or rebates actually allowed or granted, (ii) trade allowances, (iii) credits or allowances actually granted upon claims or returns regardless of the party requesting the return, (iv) freight charges paid for delivery, and (v) taxes or other governmental charges levied on or measured by the invoiced amount whether absorbed by the billing or the billed party.

1.17           “Stand-alone Licensed Product” shall mean any Licensed Product that is sold and/or packaged independent of any other product.

1.18            “Territory” shall mean the United States of America and Canada.

1.19           “Valid Claim” is a bona fide, unexpired issued claim of  Licensed Patent which has not been held invalid or unenforceable by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid.

2.           License and Right of First Offer Grant:

2.1           Subject to the terms and conditions of this Agreement, LICENSOR grants JJCPWW an exclusive, royalty-bearing license under the LICENSOR Intellectual Property to make, have made, develop, use, sell, offer for sale, import or otherwise dispose of, Licensed Product in the Licensed Field, within the Territory.

2.2           JJCPWW shall have the right to grant sublicenses under this Agreement to its Affiliates and to third parties for the purpose of manufacturing Licensed Products for JJCPWW.

2.3           For the avoidance of doubt, under the UFRI Agreement, the UFRI has reserved the right to have any non-profit research institution use materials covered under the Licensed Patents solely for their non-commercial educational and research purposes to meet all applicable governmental requirements governing the ability to transfer such materials. The licenses granted to JJCPWW, and any sublicenses that JJCPWW may grant under this Article 2, are and shall be expressly made subject to those rights reserved by the UFRI under the UFRI Agreement.

2.4           LICENSOR grants JJCPWW the right of first offer to expand the Territory of the Agreement.

2.4(a)                 Prior to offering a third party any licenses under the Licensed Patents in the Field outside of the Territory, LICENSOR shall provide JJCPWW written notice of its willingness to offer such third party such license, such notice to be provided at least ninety (90) days prior to offering such license to such third party. Should JJCPWW elect to expand the Territory upon receipt of notice by LICENSOR, JJCPWW shall provide LICENSOR with written notice of its desire to expand the Territory, such notice to be provided not later than sixty (60) days from receipt of LICENSOR’S notice, at which time the Territory will be expanded by amendment of this Agreement pursuant to Article 15.8 of this Agreement.

2.4(b)                 Should JJCPWW, at its sole discretion, elect to expand the Territory prior to receiving a notice from LICENSOR under Article 2.4(a), JJCPWW shall provide LICENSOR with written notice of its desire to expand the Territory, such notice to be provided at least sixty (60) days prior to the date upon which JJCPWW desires to have the Territory expanded, at which time the Territory will be expanded by amendment of this Agreement pursuant to Article 15.8 of this Agreement.

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

 

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2.5           Intellectual Property owned by JJCPWW prior to the Effective Date of this Agreement, or developed solely by JJCPWW subsequent to the Effective Date of this Agreement, shall remain the sole property of JJCPWW and LICENSOR is not granted any rights with respect to such Intellectual Property, nor shall this Agreement be construed in any way to grant any rights to LICENSOR with respect to such Intellectual Property.

2.6           Other than the express licenses granted to JJCPWW by this Agreement, JJCPWW is not granted any rights with respect to Intellectual Property owned by or under control of LICENSOR, nor shall this Agreement be construed in any way to grant any rights to JJCPWW with respect to such Intellectual Property.

2.7           It is understood that as of the Effective Date of this Agreement, the United States Government (through any of its agencies or otherwise) has not funded research during the course of or under which any of the inventions of the Licensed Patents were conceived or made, but that it may do so in the future. If such funding occurs, the United States Government is entitled, as a right, under the provisions of 35 U.S.C. Sections 202-212 and applicable regulations of Title 37 of the Code of Federal Regulations, to a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced the inventions of such Licensed Patents for governmental purposes. The license granted under this Agreement and any sublicense granted by JJCPWW shall be subject to such right.

2.8           In the event that LICENSOR or the UFRI are to receive any governmental funds that would provide the United States Government with rights under 35 U.S.C. Sections 202-212 and applicable regulations of Title 37 of the Code of Federal Regulations, as provided in Article 2.7 of this Agreement, LICENSOR shall provide JJCPWW with written notice of such funding at least ninety (90) days prior to the receipt by either LICENSOR or UFRI of such funds.

3.           Milestone and Licensing Fees:

3.1           In consideration for the execution of this Agreement and for the exclusive license granted under Article 2 herein, JJCPWW shall pay LICENSOR the non-refundable, non-creditable sum of  *****.

3.2           Upon issuance of the first Licensed Patent within the Territory containing ***** which, but for the licenses granted to JJCPWW under this Agreement, would be infringed by the manufacture, use, sale, offer for sale, importation or development of a Licensed Product, JJCPWW shall pay LICENSOR the non-refundable, non-creditable sum of *****. For the avoidance of doubt, this milestone payment shall be only for the first Licensed Patent issued and no additional payments shall be due for any Licensed Patents issued subsequent to issuance of the first Licensed Patent.

3.3           Upon the First Commercial Sale of a License Product in the Licensed Field within the Territory, not later than sixty (60) days after the date of the first shipment by or on behalf of JJCPWW to an unaffiliated party of such Licensed Product, JJCPWW shall pay to LICENSOR the non-refundable sum of *****; provided that, such payment shall be fully creditable towards Earned Royalties as set forth in Article 3.6 below.

3.4           If the First Commercial Sale of a Licensed Product in the Licensed Field in the Territory does not occur by *****, JJCPWW shall pay to LICENSOR not later than *****, the non-refundable sum of *****; provided that, such payment shall be fully creditable towards Earned Royalties as set forth in Article 3.6 below.

3.5           If the First Commercial Sale of  ***** constituting a Licensed Product in the Licensed Field within the Territory has not occurred by *****, JJCPWW shall pay to LICENSOR not later than *****, the non-refundable sum of  ***** in order to maintain the exclusive license granted under Article 2 of this Agreement with respect to *****; provided that, such payment shall be fully creditable towards Earned Royalties as set forth below in Article 3.6. Should JJCPWW elect, at its sole discretion, not to pay the sum of  ***** as provided in this Article 3.5, LICENSOR shall have the right, at its sole discretion, either to convert the license with respect to  ***** to non-exclusive, or to terminate the license with respect to *****, by providing JJCPWW with written notice not later than *****.  Termination or conversion of the license to non-exclusive shall be effective upon receipt by JJCPWW of LICENSOR’S written notice. Should LICENSOR elect to convert the license with respect to ***** to non-exclusive, the Earned Royalties due under Article 3.6 below with respect to ***** shall be reduced by *****.  For the avoidance of doubt, failure to make the First Commercial Sale of  ***** or payment of the ***** under this Article 3.5 shall not convert the exclusive license with respect to ***** to a non-exclusive license and Earned Royalties shall not be reduced by ***** with respect to *****.

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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    3.6           Earned Royalty Payments:  In further consideration for the license granted to JJCPWW under Article 2 herein, for the term of this Agreement JJCPWW shall pay LICENSOR, on a quarterly basis pursuant to Article 3.7 below, an Earned Royalty based on Net Sales of the Licensed Product as set forth in this Article 3.6.  Furthermore, no multiple Earned Royalties shall be payable because the Licensed Product is covered by more than one of the Licensed Patents. Prior to payment of Earned Royalties under this Article 3.6, any fees paid by JJCPWW under Articles 3.3, 3.4 or 3.5 shall be fully credited against any such Earned Royalties.

3.6(a)           Royalty Payment Rate:

3.6(a)(i)  JJCPWW shall pay to LICENSOR a royalty of  ***** percent of the first ***** of combined Net Sales of Stand-alone Products and the prorated share of the Net Sales of Combination Products in any calendar year.

3.6(a)(ii)  JJCPWW shall pay to LICENSOR a royalty of  ***** percent of the combined Net Sales of Stand-alone Licensed Products and the prorated share of the Net Sales of Combination Licensed Products in excess of  ***** of combined Net Sales in any calendar year.

3.6(b)           Combination Products:  Total Net Sales of Combination Products shall be prorated prior to calculation of royalty payments to reflect the actual amount of Net Sales of Combination Products attributable to the Licensed Product. For example, if total Net Sales of Combination Products is one-million dollars ($1,000,000.00) and the amount of such Net Sales of the Combination Product attributable to the Licensed Product utilized in the Combination Product is five-hundred thousand dollars ($500,000.00), the royalty payment due will be based upon a prorated Net Sales of five-hundred thousand dollars ($500,000.00).

3.7         Payment Terms:  All royalty payments are due not later than the sixtieth (60th) day following the end of each Calendar Quarter. All payments will be made to LICENSOR within ten (10) business days of their due date and will be made via wire transfer or company check as determined by JJCPWW, unless specified otherwise.

3.8         Minimum Royalties and Net Sales:  The parties acknowledge that there are ***** royalties required to be paid by JJCPWW to LICENSOR in order to maintain the exclusivity of the rights granted under this Agreement; provided only that, should Net Sales of Licensed Products in any calendar year following the first full calendar year following the First Commercial Sale of Licensed Product in the Licensed Field within the Territory fail to reach *****, LICENSOR shall have the right to notify JJCPWW of its intent to convert the exclusive license granted under this Agreement to a non-exclusive license. LICENSOR shall provide JJCPWW written notice of its intent to convert the exclusive license to non-exclusive, such notice to be provided not later than sixty (60) days after receipt of JJCPWW’s written report of Net Sales of the Licensed Product at the end of any calendar year following the first full calendar year following the First Commercial Sale of Licensed Product in the Licensed Field in the Territory. Should LICENSOR notify JJCPWW of its intent to convert the exclusive license to a non-exclusive license under this Article 3.8, JJCPWW shall have the right, at its sole discretion, to pay any deficit between Earned Royalties accrued for actual Net Sales in any such calendar year and Earned Royalties payable on Net Sales of *****, such payment to be made not later than ninety (90) days from receipt of notice from LICENSOR. Should LICENSOR fail to provide JJCPWW written notice of its intent to convert the exclusive license to non-exclusive within such sixty (60) day period, the license shall remain exclusive throughout the remainder of the respective calendar year. Should LICENSOR provide written notice within the sixty (60) day period in any respective calendar year following the first full calendar year following the First Commercial Sale of Licensed Product in the Licensed Field in the Territory of its intent to convert the exclusive license to non-exclusive, and should JJCPWW elect not to pay the deficit of Earned Royalties as described in this Article 3.8, then LICENSOR shall have the right to convert the exclusive license to non-exclusive, in which case, Earned Royalties due under Article 3.6 of this Agreement shall be reduced by *****.

      3.9           Technical Support Assistance by LICENSOR: Upon prior mutual agreement of the parties, LICENSOR shall provide, and JJCPWW shall fund, certain technical support assistance activities in conjunction with the development of Licensed Products in the Field within the Territory. Prior to initiation of any technical support assistance, the nature, scope and funding of such technical support assistance must be agreed upon in writing by the parties and set forth in a formal agreement executed by a duly authorized representative of each party.

 

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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4.           Reduction or Suspension of Royalty Payments:

4.1         If upon the fourth anniversary of the Effective Date of this Agreement Licensed Intellectual Property does not include  ***** within the Territory containing  ***** covering the manufacture, use or sale of a Licensed Product(s), but Licensed Intellectual Property includes ***** within the Territory containing at least *****, the scope of which would reasonably be construed by a court or other governmental agency of competent jurisdiction to cover the manufacture, use or sale of a Licensed Product, JJCPWW shall have the right to withhold  ***** of Earned Royalty payments due pursuant to Article 3.6 of this Agreement with respect to the Licensed Product(s) sold in such country and to maintain such withheld payments in escrow. JJCPWW shall be obligated to pay the remaining ***** of Earned Royalty payments as set forth in Article 3.6 of this Agreement.

4.2  If upon the fifth anniversary of the Effective Date of this Agreement Licensed Intellectual Property does not include  ***** within the Territory containing ***** covering the manufacture, use or sale of a Licensed Product(s), (a) JJCPWW’s Earned Royalty payments in such country with respect to the Licensed Product(s) will be suspended until such time as ***** within the Territory containing  ***** covering the manufacture, use or sale of a Licensed Product(s) is issued, at which time JJCPWW’s obligation to make Earned Royalty pursuant to Article 3.6 of this Agreement shall be reinstated, and (b) payments held in escrow pursuant to Article 4.1 shall be released to JJCPWW and LICENSOR shall have no rights to receive such escrowed payments.

4.3      If at any time during the term of this Agreement Licensed Intellectual Property does not include either  ***** containing ***** covering the manufacture, use or sale of a Licensed Product(s), or a Licensed Patent Application within the Territory containing at least *****, the scope of which would reasonably be construed by a court or other governmental agency of competent jurisdiction to cover the manufacture, use or sale of a Licensed Product, (a) JJCPWW’s obligation to make Earned Royalty payments in such country with respect to the Licensed Product(s) shall be suspended and (b) payments held in escrow pursuant to Article 4.1 shall be released to JJCPWW and LICENSOR shall have no rights to receive such escrowed payments.

4.4         For the avoidance of doubt, suspension of JJCPWW’s obligation to pay Earned Royalties pursuant to Articles 4.2 or 4.3 shall not suspend or otherwise terminate any of the rights or licenses granted to JJCPWW in Licensed Intellectual Property under this Agreement, further provided that; should all of the Licensed Patents and License Patent Applications expire, become abandoned or be held invalid or unenforceable by a decision of a court or other governmental agency of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, JJCPWW shall be granted a perpetual, royalty-free right and license within the Territory to utilize LICENSOR Intellectual Property to make, have made, develop, use, sell, offer for sale, import or otherwise dispose of products.

4.5           Notwithstanding Article 3.6 above, in the event JJCPWW determines that it must make royalty or other payments to one or more unaffiliated third parties in connection with any licenses or agreements entered into by JJCPWW subsequent to the Effective Date of this Agreement in order for JJCPWW to make, have made, develop, use, sell, offer for sale, import or otherwise dispose of, Licensed Product in the Licensed Field, within the Territory, JJCPWW shall be entitled to a reduction in Earned Royalties payable to LICENSOR equal to any such unaffiliated third-party royalty actually paid, but in no event to a rate of less than ***** of the normal rates as described in Article 3.6 above.

4.6           If (a) a court or other governmental agency of competent jurisdiction renders an appealable decision ruling that each of the contested or reexamined claims of any of the Licensed Patents covering a Licensed Product is invalid or unenforceable, and the decision is appealed, and (b) no other Licensed Patent contains a Valid Claim covering a Licensed Product, and (c) no other Licensed Patent Application within the Territory contains at least one claim, the scope of which would reasonably be construed by a court or other governmental agency of competent jurisdiction to cover the manufacture, use or sale of a Licensed Product, then JJCPWW shall have the right to place Earned Royalties due in an interest-bearing escrow account during the pendency of appeal.  If, on appeal, the decision is reversed, then LICENSOR shall be entitled to all monies placed in such escrow account, together with accrued interest thereon.  If the appellate court or other appropriate body affirms the invalidity decision of the lower court or governmental agency, or if a timely appeal from such decision is not or cannot be filed, then JJCPWW shall thereafter have a fully paid-up license and shall be entitled to all monies placed in the escrow account, together with accrued interest thereon.

4.7         If LICENSOR, or a third party to whom LICENSOR has granted any rights or licenses permitting a third party to sell Licensed Products within the Field and within the Territory, including without limitation rights under  ***** and *****, and any patent that may be issued in the Territory with respect to all continuations, continuations-in-part, divisions, renewals, reissues, reexaminations, and extensions thereof, sells or uses, or causes to be sold or used, Licensed Products in the Licensed Field in the Territory, in addition to any remedies or relief provided for under this Agreement for breach of contract, JJCPWW’s obligation with respect to Earned Royalty payments under this Agreement shall be terminated and JJCPWW shall be granted a perpetual, royalty-free right and license within the Territory to utilize Licensed Intellectual Property to make, have made, develop, use, sell, offer for sale, import or otherwise dispose of products.

 

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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5.           JJCPWW Record Keeping and Reports:

5.1         JJCPWW shall keep accurate books and records of the Net Sales of the Licensed Product, and of all payments due LICENSOR hereunder.  JJCPWW shall deliver to LICENSOR written reports of Net Sales of the Licensed Product during the preceding Calendar Quarter, on or before the sixtieth day following the end of each Calendar Quarter.  Such report shall include a calculation of the Earned Royalty due and, subject to the provisions of Articles 6.1, 11.2 and 16.2, shall be accompanied by the monies due.  The Earned Royalty payable on Net Sales of the Licensed Product outside the U.S. shall be estimated for each Calendar Quarter, and adjusted at the end of each Calendar Year to reflect actual Net Sales and the Earned Royalty payable thereon.

5.2           LICENSOR shall have the right after thirty (30) days advance written notice to JJCPWW, at its own expense, to nominate an independent accountant acceptable to and approved by JJCPWW (which approval shall not be unreasonably withheld) who shall have access to JJCPWW’s records during reasonable business hours for the sole purpose of verifying the royalties payable as provided for in this Agreement for the preceding calendar year, but this right may not be exercised more than once in any calendar year.  LICENSOR shall solicit or receive only information relating solely to the accuracy of the royalty report and the royalty payments made according to this Agreement.  JJCPWW shall be entitled to withhold approval of an accountant which LICENSOR nominates unless the accountant shall agree to sign a confidentiality agreement with JJCPWW which shall obligate such accountant to hold the information it receives from JJCPWW in confidence, except for information necessary for disclosure to LICENSOR to establish the accuracy of the royalty reports.  If the audit reveals a discrepancy on the accounting exceeding 5%, JJCPWW shall pay for the cost of the independent audit, subject to reasonable substantiation thereof (i.e., cost and discrepancy).

6.           Currency and Royalty Transfer:   Earned Royalties based on sales in any country shall be paid in United States Dollars.  The rate of exchange for such payments from sales in a foreign country shall be the same rate as that used for internal JJCPWW financial accounting purposes, in accordance with generally accepted accounting principles, as reported in JJCPWW’s books.  The payment of Earned Royalties shall be made payable to LICENSOR and sent to the address set forth for LICENSOR in Article 12.3 of this Agreement.

7.           Assignment:   JJCPWW may assign this Agreement or any rights and obligations contemplated herein to an Affiliate of JJCPWW, or to a company acquiring substantially all of the assets of JJCPWW to which this Agreement relates as a result of a merger, acquisition or business reorganization, or to a third party in the event that all or substantially all of the assets of JJCPWW are transferred as a result of a merger, acquisition or business reorganization, without the consent of LICENSOR, upon giving thirty (30) day prior written notice thereof to LICENSOR.  Any such assignment shall be subject to the terms of this Agreement.  In all other instances, neither party shall assign this Agreement, any portion thereof or any rights granted hereunder without the prior written consent of the other party.  Subject to the foregoing, this Agreement shall bind and inure to the benefit of the respective parties hereto, and their respective heirs, officers, directors, representatives, agents, successors, assigns, distributors, suppliers, vendors and customers.

8.           Enforcement:

8.1           In the event either party to this Agreement becomes aware or gains knowledge of any activity by a third party to this Agreement which may be reasonably construed as constituting an infringement of a Valid Claim in a License Patent in the Field, such party shall notify the other party of such activity within sixty (60) days of becoming aware of such activity.

8.2           LICENSOR shall have the right, but not the obligation, to commence legal action at its own expense to defend or prosecute infringements relating to the Licensed Patents in the Field.  Any settlement, consent judgment or other voluntary final disposition of the suit may be entered into with the consent of JJCPWW, which consent shall not be unreasonably withheld or delayed.  The total cost of any action commenced solely by LICENSOR shall be borne by LICENSOR, and LICENSOR shall retain any recovery or damages derived therefrom.

8.3           Should LICENSOR fail to successfully defend or prosecute infringements according to Article 8.2, or enter into a settlement, consent judgment or other voluntary disposition of suit, whereby a third party is permitted to practice under a License Patent, JJCPWW shall be entitled to reduce Earned Royalty payments to an amount equivalent to any royalty payment required to be paid by a third party, or terminate Earned Royalty payments in the event no payments are required to be paid by a third party.

8.4           In the event LICENSOR elects not to commence legal action as provided in Article 8.2 within ninety (90) days of receiving or providing notice of third party activity according to Article 8.1, JJCPWW shall have the option, at its sole discretion, and the right, but not the obligation, at its sole expense and with counsel of its own choice, to enforce the Licensed Patents against any infringer, including the right to file suit for patent infringement naming LICENSOR as a party, and the right to settle such suit with LICENSOR’s consent, which consent shall not be unreasonably withheld or delayed; or to suspend Earned Royalty payments until such time as LICENSOR commences legal action.  LICENSOR shall permit the use of its name in all such suits, sign all necessary papers, and do all reasonable things necessary, at JJCPWW’s expense, to facilitate the prosecution of such infringement suits.  JJCPWW shall incur no liability to LICENSOR as a consequence of such litigation, the conduct of such litigation or any unfavorable decision resulting from it, including any decision holding any of the Licensed Patents invalid or unenforceable.

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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    8.5           If JJCPWW undertakes the enforcement or defense of the Licensed Patents by litigation, JJCPWW may withhold up to ***** of the Earned Royalties otherwise thereafter due LICENSOR under Article 3.6 above and apply this withheld amount toward reimbursement of its expenses, including reasonable in-house and outside counsel attorneys’ fees, in connection with such litigation.  Any recovery of damages by JJCPWW for any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of JJCPWW relating to the suit, and next toward reimbursement of LICENSOR for any royalties withheld pursuant to this Article 8.5.  JJCPWW and LICENSOR shall share in equal amounts the balance remaining from any recoveries, by way of judgment, award, decree or settlement resulting from such suit.

8.6           In the event JJCPWW contests the validity of any Licensed Patents, JJCPWW shall continue to pay Earned Royalties and make other payments pursuant to this Agreement with respect to that License Patent as if such contest were not underway until the Licensed Patent is adjudicated invalid or unenforceable by a court of last resort.

9.           Patent Prosecution and Maintenance:

9.1           LICENSOR is solely responsible for the continued prosecution of any pending patent applications included in the Licensed Patents, as well as the prosecution of patent applications subsequently filed pursuant to Article 9.2 below.  LICENSOR shall also be solely responsible for the issuance of such applications after allowance.  JJCPWW shall not be obligated to pay or reimburse LICENSOR for costs or attorney fees in any interference, opposition or post-issuance proceeding in which the Licensed Patents may become involved.

9.2           LICENSOR shall not abandon, withdraw, allow to expire or discontinue prosecution of any of the Licensed Patents without first consulting with JJCPWW.

9.3           LICENSOR shall pay all government fees in any country required to maintain the Licensed Patents within the Territory.

9.4           Upon written request by JJCPWW, such request not to be made more than once in any consecutive six month period, LICENSOR shall provide JJCPWW with a report listing each issued, unexpired U.S. patent included in the Licensed Patents, a listing of the each pending U.S. patent application included in the Licensed Patents; and the status of each pending U.S. application included in the Licensed Patents.

10.           LICENSOR Representations and Warranties:

10.1           LICENSOR expressly warrants and represents that a) it either owns all of the right, title and interest in and to the Licensed Patents, or has the exclusive rights in the Licensed Patents necessary to grant the licenses under this Agreement; b)  it is empowered to grant the licenses and release granted herein; c)  it has no outstanding encumbrances or agreements, including any agreements with academic institutions, universities, whether written, oral or implied, which would be inconsistent with the licenses and release granted herein; and d) it is unaware of any information which would raise a substantial question of the validity of any of the Licensed Patents or Licensed Patent Applications.

10.2           LICENSOR covenants on behalf of itself, and any of its affiliates, not to assert any claim, or join, file, prosecute, institute or maintain any legal action, in law or equity, including but not limited to the institution of any suit or arbitration against JJCPWW, its affiliates or a party which acquires all right, title and interest in the business related to this Agreement, with respect to ***** and *****, or any patent that may be issued in the Territory with respect to all continuations, continuations-in-part, divisions, renewals, reissues, reexaminations, and extensions thereof. LICENSOR further agree that this covenant shall be binding upon any party to which it may grant rights in, or transfer ownership of, and that it will be liable for any damages to JJCPWW due to any such third party actions.

10.3             LICENSOR warrants that it will not sell or use, or cause to be sold or used, Licensed Products within the Field and within the Territory, and that it will not grant any rights or licenses to any third part permitting such third party to sell or use Licensed Products within the Field and within the Territory. For the avoidance of doubt, this Article 10.3 includes, without limitation, rights under ***** and *****, or any patent that may be issued in the Territory with respect to all continuations, continuations-in-part, divisions, renewals, reissues, reexaminations, and extensions thereof.

11.            Term and Termination

11.1           The Agreement shall continue in effect until the expiration of the last to expire of Licensed Patents that include a Valid Claim that covers a Licensed Product.  Expiration of this Agreement shall not relieve either party of any payment or other obligation that has accrued under the terms of this Agreement prior to such expiration. Upon expiration of the Agreement, JJCPWW and its Affiliates shall have the non-exclusive, royalty-free right to continue using any know-how that may be developed by LICENSOR prior to the expiration of this Agreement.

                 11.2           JJCPWW may terminate this Agreement at any time during the term of this Agreement upon ninety (90) days prior written notice to LICENSOR, and such termination shall become effective at the end of the ninety (90) day period.

11.3           Either party may terminate this Agreement upon ninety (90) days written notice for any material breach or default of the other party.  Such termination shall become effective at the end of the ninety (90) day period unless during such period the party in breach or default cures such breach or default. Notwithstanding the preceding sentence, from the date either party notifies the other party that it wishes to commence a proceeding in accordance with the dispute resolution procedures set forth herein, the running of the ninety (90) time period referred to in this paragraph for curing a breach shall be suspended with respect to the subject matter of the dispute, claim or controversy.

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

-8-

  

 

12.           Effect of Termination

12.1           Upon termination of this Agreement for any reason, nothing herein shall be construed to release either Party from any obligation that accrued prior to the effective date of such termination.

12.3           JJCPWW shall have the right to sell off any of such Licensed Product in its inventory and will be obligated to pay to LICENSOR all royalties due on such Licensed Products sold.

13           Dispute Resolution

13.1         Any controversy or claim arising out of or relating to this Agreement or the validity, inducement, or breach thereof, shall be settled by arbitration before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then pertaining, except where those rules conflict with this provision, in which case this provision controls.  The parties hereby consent to the jurisdiction of the federal district court for the district in which the arbitration is held for the enforcement of this provision and the entry of judgment on any award rendered hereunder.  Should such court for any reason lack jurisdiction, any court with jurisdiction shall enforce this clause and enter judgment on any award.  The arbitrator shall be an attorney who has at least fifteen (15) years of experience with a law firm or corporate law department of over twenty five (25) lawyers or was a judge of a court of general jurisdiction.  The arbitration shall be held in New York, New York and in rendering the award the arbitrator shall apply the substantive law of New Jersey, (except where that law conflicts with this clause), except that the interpretation and enforcement of this arbitration provision shall be governed by the Federal Arbitration Act.  The arbitrator shall be neutral, independent, disinterested, and impartial and shall abide by The Code of Ethics for Arbitrators in Commercial Disputes approved by the AAA.  Within forty five (45) days of initiation of arbitration, the parties shall reach agreement upon and thereafter follow procedures assuring that the arbitration will be concluded and the award rendered within no more than eight months from selection of the arbitrator.  Failing such agreement, the AAA will design and the parties will follow procedures that meet such a time schedule.  Each party has the right before or, if the arbitrator cannot hear the matter within an acceptable period, during the arbitration to seek and obtain from the appropriate court provisional remedies such as attachment, preliminary injunction, replevin, etc., to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration.  THE ARBITRATOR SHALL NOT AWARD ANY PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK SUCH DAMAGES.  NO PARTY MAY SEEK OR OBTAIN PREJUDGMENT INTEREST OR ATTORNEYS’ FEES OR COSTS.

13.2           Prior to commencement of arbitration, the parties must attempt to mediate their dispute using a professional mediator from AAA, the CPR Institute for Dispute Resolution, or like organization selected by agreement or, absent agreement, through selection procedures administered by the AAA.  Within a period of forty-five (45) days after the request for mediation, the parties agree to convene with the mediator, with business representatives present, for at least one session to attempt to resolve the matter.  In no event will mediation delay commencement of the arbitration for more than forty-five (45) days absent agreement of the parties or interfere with the availability of emergency relief.

13.3           All disputes arising out of or related to this Agreement, or the breach thereof, whether based on contract, tort, statute, or other theory of liability (“Disputes”), shall be resolved in accordance with this Article 13.  It is the intent of the parties that all disputes relating in any way to this Agreement should be resolved in accordance with this Article 13, including disputes that may involve the parent companies, subsidiaries, and affiliates under common control of any Party.

13.4         Notwithstanding anything to the contrary contained in this Article 13, in the event of any breach or threatened breach of this Agreement by either party that the other party believes in good faith will cause irreparable harm and damage to it, such party may seek an injunction and/or restraining order restraining such breach or threatened breach by the other party and such other remedies which shall be available to it in equity.

13.4           Except as provided in Article 13.1 above, the validity and interpretation of this Agreement and the legal relations of the parties to it shall be governed by the internal laws of the state of New Jersey.

14.            Trademarks:

14.1           JJCPWW shall have the right to market the Licensed Product under its own trademarks and tradenames and shall own any new trademarks it creates or elects to use in connection with the marketing or sales of Licensed Products.  LICENSOR is not granted nor should this Agreement be construed to grant any rights to LICENSOR with respect to JJCPWW.

14.2           JJCPWW is not granted nor should this Agreement be construed to grant any rights to JJCPWW under the NIMBUS trademark or other trademarks owned by LICENSOR.

 

 

  

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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15.           Taxes:

15.1           JJCPWW will make all payments to Licensor under this Agreement without deduction or withholding for taxes except to the extent that any such deduction or withholding is required by law in effect at the time of payment.

15.2           Any tax required to be withheld on amounts payable under this Agreement will promptly be paid by JJCPWW on behalf of Licensor to the appropriate governmental authority, and JJCPWW will furnish Licensor with proof of payment of such tax.  Any such tax required to be withheld will be an expense of and borne by Licensor.

15.3           JJCPWW and Licensor will cooperate with respect to all documentation required by any taxing authority or reasonably requested by JJCPWW to secure a reduction in the rate of applicable withholding taxes.

15.4           If JJCPWW had a duty to withhold taxes in connection with any payment it made to Licensor under this Agreement but JJCPWW failed to withhold, and such taxes were assessed against and paid by JJCPWW, then Licensor will indemnify and hold harmless JJCPWW from and against such taxes (including interest).  If JJCPWW makes a claim under this Section 15.4, it will comply with the obligations imposed by Article 15.2 as if JJCPWW had withheld taxes from a payment to Licensor.

16.           Miscellaneous Provisions:

16.1           Business Decisions:  All business decisions, including without limitation the design, manufacture, sale, price and promotion of the Licensed Product, shall be within the sole discretion of JJCPWW.

16.2         Confidentiality and Publicity: Neither party shall disclose the financial terms of this Agreement to an unaffiliated third party without the prior written approval of the other party, except for legal, financial, accounting or other similar advisors who have a need to know any of such terms and agrees to keep them confidential.  The confidentiality obligations of the parties under this Article 15 shall not extend to disclosure which is required by any governmental agency or regulatory body, court order or otherwise required by law, or to the extent required to preserve, exercise or enforce rights under this Agreement.  Furthermore, neither party will originate any publicity, news release, or other public announcement, written or oral, whether to the public press, to stockholders, or otherwise, relating to this Agreement, to any amendment hereto or to performance hereunder or the existence of an arrangement between the parties without the prior written approval of the other party.

16.3          Notices:  All notices hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one day after delivery to a nationally recognized overnight delivery service, charges prepaid, three days after sent by registered or certified mail, postage prepaid, or when receipt is confirmed if by, facsimile or other telegraphic means:

In the case of LICENSOR:

Quick-Med Technologies, Inc.

902 NW 4th Street

Gainesville, Florida 32601

Fax: 561-416-1390

Attn: Nam H. Nguyen, Chief Financial Officer

 

                 

In the case of JJCPWW:

Johnson & Johnson Consumer and Personal Products Worldwide, a Division of Johnson & Johnson Consumer Companies, Inc.

199 Grandview Drive

Skillman, New Jersey

Attn: Richard D'Souza, Chief Technology Officer

With a copy to:

Chief Patent Counsel

Johnson & Johnson

One Johnson & Johnson Plaza

New Brunswick, New Jersey 08933

Such addresses may be altered by written notice given in accordance with this Article 15.3.

 

 

 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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16.4           Force Majeure:      Any delays in or failures of performance by either party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party affected, including but not limited to:  acts of God; acts, regulations or laws of any government; strikes or other concerted acts of workers; fires; floods; explosions; riots; wars; rebellions; and sabotage; and any time for performance hereunder shall be extended by the actual time of delay caused by such occurrence.

16.5            LICENSOR Bankruptcy:  All rights and licenses granted under or pursuant to this Agreement by LICENSOR to JJCPWW are for all purposes of Article 365(n) of Title 11, U.S. Code (the “Bankruptcy Code”), licenses of rights to “intellectual property” as defined in the Bankruptcy Code.  The parties agree that JJCPWW, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code.  LICENSOR agrees during the term of this Agreement to create and maintain current copies or, if not amenable to copying, detailed descriptions or other appropriate embodiments, of all such licensed intellectual property.  If a case is commenced by or against LICENSOR under the Bankruptcy Code, then, unless and until this Agreement is rejected as provided in the Bankruptcy Code, LICENSOR (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a Bankruptcy Code trustee) shall either perform all of the obligations provided in this Agreement to be performed by LICENSOR or provide to JJCPWW all such intellectual property (including all embodiments thereof) held by LICENSOR and such successors and assigns, as JJCPWW may elect in a written request, immediately upon such request.  If a Bankruptcy Code case is commenced by or against LICENSOR, this Agreement is rejected as provided in the Bankruptcy Code and JJCPWW elects to retain its rights hereunder as provided in the Bankruptcy Code, then LICENSOR (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a Bankruptcy Code trustee) shall provide to JJCPWW all such intellectual property (including all embodiments thereof) held by LICENSOR and such successors and assigns immediately upon JJCPWW’s written request therefor. All rights, powers and remedies of JJCPWW provided under this Article are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity(including, without limitation, the Bankruptcy Code) in the event of any such commencement of a bankruptcy proceeding by or against LICENSOR.  JJCPWW, in addition to the rights, powers and remedies expressly provided herein, shall be entitled to exercise all other such rights and powers and resort to all other such remedies as may now or hereafter exist at law or in equity (including the Bankruptcy Code) in such event.

16.6          Relationship of Parties: The parties hereto are entering into this Agreement as independent contractors, and nothing herein is intended or shall be construed to create between the parties a relationship of principal and agent, partners, joint venturers or employer and employee.  Neither party shall hold itself out to others or seek to bind or commit the other party in any manner inconsistent with the foregoing provisions of this Article.

16.7  Severability: If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any applicable present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, then (a) such provision will be fully severable; (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never been a part hereof; (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom; and (d) in lieu of such illegal, invalid, or unenforceable provision, the parties hereto will negotiate in good faith and add as part of this Agreement a valid and enforceable provision as similar in substance to such illegal, invalid, or unenforceable provision as may be possible.

16.8         Integration: It is the mutual desire and intent of the parties to provide certainty as to their future rights and remedies against each other by defining the extent of their mutual undertakings as provided herein.  The parties have in this Agreement incorporated all representations, warranties, covenants, commitments and understandings on which they have relied in entering into this Agreement and, except as provided for herein, neither party has made any covenant or other commitment to the other concerning its future action.  Accordingly, this Agreement constitutes the entire agreement and understanding between the parties with respect to the matters contained herein, and there are no prior oral or written promises, representations, conditions, provisions or terms related thereto other than those set forth in this Agreement.  The parties may from time to time during the term of this Agreement modify any of its provisions by mutual agreement in writing.

16.9           LICENSOR and JJCPWW acknowledge and agree that they have been represented by or have had the opportunity to be represented by competent counsel with respect to this Agreement, that they have reviewed the terms of this Agreement and that they enter into this Agreement with full knowledge and understanding of its terms.

16.10        Headings: The inclusion of headings in this Agreement is for convenience only and shall not affect the construction or interpretation hereof.

This Agreement is signed on the dates set forth below by duly authorized representatives of JJCPWW and Quick-Med Technologies, Inc., respectively.

	
Quick-Med Technologies, Inc.

	
Johnson & Johnson Consumer and Personal Products Worldwide, a Division of Johnson & Johnson Consumer Companies, Inc.

By:           J. Ladd Greeno                                           By:           Richard D'Souza                                                      

J. LADD GREENO                                                                           RICHARD D'SOUZA

          Chief Executive Officer                  Chief Technology Officer

Date:           February 24, 2010                                                                       Date:           March 5, 2010 

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

  

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APPENDIX A

LICENSED PATENTS

*****

***** This material has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

  

-12-ex4_1.htm

 

 

 

 

 

 

 

 

 

CHEMBIO DIAGNOSTICS, INC.

 

 

the “Company”

 

 

and

 

 

ACTION STOCK TRANSFER CORP.

 

 

 

 

the “Rights Agent”

 

 

RIGHTS AGREEMENT

 

 

Dated as of March 8, 2010

 

 

 

  

  

  

 

 

TABLE OF CONTENTS

 

	
Section 1.

	
Certain Definitions

	
1

	
Section 2.

	
Appointment of Rights Agent

	
4

	
Section 3.

	
Issue of Right Certificates

	
4

	
Section 4.

	
Form of Right Certificates

	
6

	
Section 5.

	
Countersignature and Registration

	
6

	
Section 6.

	
Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates

	
7

	
Section 7.

	
Exercise of Rights; Purchase Price; Expiration Date of Rights

	
7

	
Section 8.

	
Cancellation and Destruction of Right Certificates

	
8

	
Section 9.

	
Availability of Preferred Shares

	
8

	
Section 10.

	
Preferred Shares Record Date

	
9

	
Section 11.

	
Adjustment of Purchase Price, Number of Shares or Number of Rights

	
9

	
Section 12.

	
Certificate of Adjusted Purchase Price or Number of Shares

	
13

	
Section 13.

	
Consolidation, Merger or Sale or Transfer of Assets or Earning Power

	
14

	
Section 14.

	
Fractional Rights and Fractional Shares

	
14

	
Section 15.

	
Rights of Action

	
15

	
Section 16.

	
Agreement of Right Holders

	
15

	
Section 17.

	
Right Certificate Holder Not Deemed a Stockholder

	
16

	
Section 18.

	
Concerning the Rights Agent

	
16

	
Section 19.

	
Merger or Consolidation or Change of Name of Rights Agent

	
16

	
Section 20.

	
Duties of Rights Agent

	
17

	
Section 21.

	
Change of Rights Agent

	
18

	
Section 22.

	
Issuance of New Rights Certificates

	
19

	
Section 23.

	
Redemption

	
19

	
Section 24.

	
Exchange

	
20

	
Section 25.

	
Notice of Certain Events

	
20

	
Section 26.

	
Notices

	
21

	
Section 27.

	
Supplements and Amendments

	
21

	
Section 28.

	
Successors

	
22

	
Section 29.

	
Periodic Review

	
22

	
Section 30.

	
Benefits of this Agreement

	
22

	
Section 31.

	
Severability

	
22

	
Section 32.

	
Governing Law

	
22

	
Section 33.

	
Counterparts

	
22

	
Section 34.

	
Descriptive Headings

	
23

	
Section 35.

	
Determinations and Actions by the Board of Directors

	
23

	
Signatures

	  	
24

	  	  	  
	
Exhibit A - Certificate of Designation of Preferred Shares

	  
	
Exhibit B - Form of Right Certificate

	  
	
Exhibit C - Summary of Rights to Purchase Preferred Shares

	  

 

 

 

 

  

  

  

 

RIGHTS AGREEMENT

 

 

RIGHTS AGREEMENT, dated as of March 8, 2010 between Chembio Diagnostics, Inc., a Nevada corporation (the “Company”) and Action Stock Transfer Corp., a Utah corporation (the “Rights Agent”).

 

 

The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a “Right”) for each Common Share (as hereinafter defined) of the Company outstanding on March 8, 2010 (the “Record Date”), each Right representing the right to purchase one one-thousandth of a Preferred Share (as hereinafter defined) upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined).

 

 

IN CONSIDERATION of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

 

 

Section 1.                    Certain Definitions.  For purposes of this Agreement, the following terms have the meanings indicated:

 

 

(a) “Acquiring Person” shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, whose Combined Ownership (as such term is hereinafter defined) of Common Shares of the Company equals 15% or more of the Common Shares of the Company then outstanding.  “Acquiring Person” shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any Person holding Common Shares for or pursuant to the terms of any such plan in a fiduciary capacity. Notwithstanding the foregoing, no Person shall become an “Acquiring Person” as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person and the derivative equity interest owned by such Person, together with all Affiliates and Associates of such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person, together with all Affiliates and Associates of such Person, shall have Combined Ownership of 15% of the Common Shares of the Company then outstanding by reason of an acquisition of Common Shares by the Company and shall, after such share acquisition by the Company, have Combined Ownership of any additional Common Shares of the Company (other than Common Shares issued by the Company as a dividend or distribution made pro rata to all holders of Common Shares), then (subject to the next sentence of this Section 1(a)) such Person shall be deemed to be an “Acquiring Person”. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an “Acquiring Person”, as defined pursuant to the foregoing provisions of this paragraph (a), has become such inadvertently, and such Person, if required by the Board of Directors in its sole discretion, divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an “Acquiring Person” for any purposes of this Agreement.

 

 

1

 

(b) “Affiliate” and “Associate” shall have the meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as in effect on the date of this Agreement.

 

 

(c) A Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own” and to have “beneficial ownership” of, any securities:

 

 

(i) which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly;

 

 

(ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time, compliance with regulatory requirements, fulfillment of a condition, or otherwise) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (1) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (2) securities which a Person or any of such Person’s Affiliates or Associates may be deemed to have the right to acquire pursuant to any merger or other acquisition agreement between the Company and such Person (or one or more of his or her Affiliates or Associates) if such agreement has been approved by the Board of Directors of the Company prior to there being an Acquiring Person; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

 

 

(iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any such Person’s Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the provison to Section 1(c)(ii)(B)) or disposing of any securities of the Company.

 

 

Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase “then outstanding” when used with reference to a Person’s Beneficial Ownership of securities of the Company shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder.

 

 

(d) “Business Day” shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in Nevada are authorized or obligated by law or executive order to close.

 

 

2

 

(e) “Close of business” on any given date shall mean 5:00 P.M., Eastern Standard Time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Eastern Standard Time, on the next succeeding Business Day.

 

 

(f) “Combined Ownership” shall mean the sum of a Person’s beneficial ownership, as a Beneficial Owner, and the Person’s derivative equity interest, as a Derivative Equity Owner, in Common Shares of the Company.  Notwithstanding the foregoing, for the purpose of determining a Person’s Combined Ownership, securities of the Company purchased under the following agreements shall not be included in the determination of a Person’s Combined Ownership: (i) the Securities Purchase Agreement dated January 26, 2005, by and among the Company and the purchasers identified on the signature pages thereto; (ii) the Securities Purchase Agreement dated June 29, 2006, by and among the Company and the purchasers identified on the signature pages thereto; (iii) the Securities Purchase Agreement dated September 29, 2006, by and among the Company and the purchasers identified on the signature pages thereto; and (iv) the Securities Purchase Agreement dated October 5, 2006, by and among the Company and the purchasers identified on the signature pages thereto.

 

 

(g) “Common Shares” when used with reference to the Company shall mean the shares of common stock, $0.01 par value per share, of the Company. “Common Shares” when used with reference to any Person other than the Company shall mean the capital stock (or equity interest, including any derivative equity interest thereto) with the greatest voting power (in relation to any other classes or series of capital stock (or equity interest, including any derivative equity interest thereto)) of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.

 

 

(h) "Derivative Equity Owner " shall mean a Person or any of such Person’s Affiliates or Associates that has entered into an agreement or arrangement of understanding with any other third-party or such third-party’s Affiliates or Associates to purchase Common Shares of the Company on behalf of such Person or any of such Person’s Affiliates or Associates, wherein such Person or any of such Person’s Affiliates or Associates own or are otherwise entitled to at least 80% of the economic benefits attributable to the Common Shares of the Company that are the subject of such agreement or arrangement of understanding, provided, however, that a Person shall not be deemed the “Derivative Equity Owner” of any options to purchase Common Shares of the Company if the strike price of such option is less than 50% of the current market value of the Common Shares of the Company at the time of determination of whether a Person is an Acquiring Person.

 

 

(i) “Distribution Date” shall have the meaning set forth in Section 3 hereof.

 

 

(j) “Final Expiration Date” shall have the meaning set forth in Section 7 hereof.

 

 

(k) “Person” shall mean any individual, firm, corporation, partnership (general or limited), limited liability company, trust, unincorporated association, or other entity, and shall include any successor (by merger or otherwise) of such entity.

 

 

(l) “Preferred Shares” shall mean shares of Junior Participating Preferred Stock, Series D, Par Value $0.01 per share, having the rights and preferences set forth in the Certificate of Designation attached as Exhibit A to this Agreement.

 

 

(m) “Redemption Date” shall have the meaning set forth in Section 7 hereof.

 

3

 

 

(n) “Shares Acquisition Date” shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such.

 

 

(o) “Stockholder Rights Plan Committee” shall mean a committee of the Board of Directors of the Company comprised of at least one (1) Director who is an “independent director” within the meaning of Rule 4200(a)(15) of the Nasdaq Marketplace Rules.

 

 

(p) “Subsidiary” of any Person shall mean any corporation, partnership (general or limited), limited liability company, trust, unincorporated association, or other entity of which a majority of the voting power of the voting equity securities or equity interest is beneficially owned, directly or indirectly, by such Person or is otherwise controlled by such Person.

 

 

(q)  “Volume Weighted Average Trading Price” or “VWAP” shall mean, for a designated period, the sum of sale prices for all shares traded during that period divided by the total aggregate number of shares traded during that period.

 

 

Section 2.                    Appointment of Rights Agent   The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable and, upon acceptance of such appointment by a co-Rights Agent, the provisions of this Agreement applicable to the Rights Agent shall be deemed also to apply to such co-Rights Agent.

 

 

Section 3.                    Issue of Right Certificates   (a) Until the earlier of (i) the close of business on the tenth Business Day after the Shares Acquisition Date and (ii) the later of (A) the close of business on the tenth Business Day (or such later date as may be determined by action of the Board of Directors prior to the close of business on the Distribution Date, as defined below) after the date that a tender or exchange offer or intention to commence a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any Person holding Common Shares for or pursuant to the terms of any such plan in a fiduciary capacity) is first published, announced, sent, or given within the meaning of Rule 14d-4(a) of the General Rules and Regulations under the Exchange Act, the consummation of which tender or exchange offer would result in any Person having Combined Ownership of Common Shares aggregating 15% or more of the then outstanding Common Shares, or (B) if such a tender or exchange offer has been published, announced, sent, or given before the date this Rights Agreement was entered into, then the close of business on the tenth Business Day after the date this Rights Agreement was entered into (or such later date as may be determined by action of the Board of Directors prior to the close of business on the Distribution Date; the earlier of such dates referred to in (i) and (ii) of this subsection (a), which date may include any such date which is after the date of this Agreement but prior to the issuance of the Rights, being herein referred to as the “Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the Rights will be transferable only in connection with the transfer of Common Shares (including a transfer to the Company). As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more Right Certificates, in substantially the form of Exhibit B hereto (a “Right Certificate”), evidencing one Right for each Common Share so held, subject to adjustment as provided herein. As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates.

 

 

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(b) As soon as practicable after the Record Date, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form of Exhibit C hereto (the “Summary of Rights”), by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Record Date at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of the Summary of Rights attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby.

 

 

(c) Rights shall, without any further action, be issued in respect of all Common Shares of the Company that become outstanding (whether originally issued or delivered from treasury) after the Record Date but prior to the earlier of the Distribution Date, the Redemption Date, or the Final Expiration Date. Certificates for Common Shares of the Company which become outstanding (whether originally issued or delivered from treasury) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

 

This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between CHEMBIO DIAGNOSTICS, INC., and ACTION STOCK TRANSFER CORP. dated as of March 8, 2010 (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of CHEMBIO DIAGNOSTICS, INC. Under certain circumstances, as set forth in the Rights Agreement, such rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. CHEMBIO DIAGNOSTICS, INC., will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefore. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who is, was, or becomes an Acquiring Person or any Affiliate or Associate therefore (as such terms are defined in the Rights Agreement) or specified transferees of such Acquiring Person (or Affiliate or Associate thereof), may become null and void and no longer transferable.

 

After the Record Date but prior to the earlier of the Distribution Date, the Redemption Date, and the Final Expiration Date, if new certificate(s) representing Common Shares of the Company are issued in connection with the transfer, split up, combination or exchange of certificate(s) representing Common Shares of the Company or if new certificate(s) representing Common Shares of the Company are issued to replace any certificate(s) that have been mutilated, destroyed, lost, or stolen, then such new certificate(s) shall bear the foregoing legend. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificates shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding.

 

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Notwithstanding this Section 3(c), the omission of a legend shall not affect the enforceability of any part of this Rights Agreement or the rights of any holder of the Rights.

 

 

Section 4.                    Form of Right Certificates   The Right Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Sections 22 and 24 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandth of a Preferred Share as shall be set forth therein at the price per one one-thousandth of a Preferred Share set forth therein (the “Purchase Price”), but the number of such one one-thousandth of a Preferred Share and the amount and type of any other securities, cash or other assets issuable upon exercise of Rights, and the Purchase Price shall be subject to adjustment as provided herein.

 

 

Section 5.                    Countersignature and Registration   The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Vice-Chairman of the Board, its President, any of its Senior Vice Presidents, the Chief Executive Officer, or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Company’s seal or a facsimile thereof, and shall be attested by the Secretary or any Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

 

 

Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.

 

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Section 6.                    Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates  Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-thousandth of a Preferred Share as the Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates.

 

 

Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of the Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company’s request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

 

 

Section 7.                    Exercise of Rights; Purchase Price; Expiration Date of Rights   (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-thousandth of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on November 30, 2015 (the “Final Expiration Date”), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the “Redemption Date”), or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof.

 

(b) The Purchase Price for each one one-thousandth of a Preferred Share (each such one one-thousandth of a share being a “Unit”) purchaseable upon the exercise of a Right shall initially be $5, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below.

 

(c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check, cashier’s check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing such number of Units of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate.

 

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(d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his or her duly authorized assigns, subject to the provisions of Section 14 hereof.

 

 

Section 8.                    Cancellation and Destruction of Right Certificates  All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof.  At the written request of the Company, the Rights Agent shall either (i) deliver all canceled Rights Certificates to the Company, or (ii) destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

 

 

Section 9.                    Availability of Preferred Shares  The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares.

 

 

The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company’s reasonable satisfaction that no such tax is due.

 

 

 

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Section 10.                    Preferred Shares Record Date   Each person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

 

 

Section 11.                    Adjustment of Purchase Price, Number of Shares or Number of Rights   The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

 

 

(a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (b) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Shares transfer books of the Company were open, he or she would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right.

 

 

(ii) Subject to Section 24 of this Agreement, in the event any Person becomes an Acquiring Person, each holder of a Right (other than Rights that have become void pursuant to this Section 11(a)(ii)) shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of Units of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement, such number of Units of Preferred Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of Units of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company’s Common Shares (determined pursuant to Section 11(d) hereof) on the date of the occurrence of such event. In the event that any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights.

 

 

 

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Notwithstanding anything in this Agreement to the contrary, from and after the time that any Person becomes an Acquiring Person, any Rights that are or were acquired or beneficially owned by (i) any Acquiring Person (or any Associate or Affiliate of such Acquiring Person), (ii) a transferee of an Acquiring Person (or any Affiliate or Associate of such Acquiring Person) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate or Associate of such Acquiring Person) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and who receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person (or any such Affiliate or Associate) to any Person with whom the Acquiring Person (or such Affiliate or Associate) has any continuing written or oral agreement, arrangement, or understanding regarding the Company, the transferred Rights, or Common Shares of the Company, or (B) a transfer that the Board of Directors has determined in good faith to be part of a plan, agreement, arrangement, or understanding that has a primary purpose or effect of the avoidance of this provision, shall be null and void without any further action, and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights acquired or beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominees of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void pursuant to the preceding sentence shall be canceled.

 

 

(b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares or securities convertible into Preferred Shares at a price per Preferred Share (or having a conversion price per share, if a security convertible into Preferred Shares) less than the then current per share market price of the Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

 

 

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(c) In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

 

 

(d) For the purpose of any computation hereunder, the “current per share market price” of any security (a “Security” for the purpose of this Section 11(d)) on any date shall be deemed to be the VWAP for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. If the Company is unable to determine the VWAP for a designated period of time, then the Company will use the average of the closing daily bid and asked prices during the designated period, as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the company. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. If the Preferred Shares are not publicly held or so listed or traded, “current per share market price” shall be conclusively deemed to be the current per share market price of the Common Shares as determined pursuant to the foregoing provisions of this Section 11(d) (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof), multiplied by one thousand. If neither the Common Shares nor the Preferred Shares are publicly held or so listed or traded, “current per share market price” shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent.

 

 

(e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one one-millionth of a Preferred Share or to the nearest ten- thousandth of any other share as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights.

 

 

 

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(f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares.

 

 

(g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandth of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

 

 

(h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandth of a Preferred Share (calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of one one-thousandth of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

 

 

(i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandth of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandth of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holder shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement.

 

 

(j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandth of a Preferred Share issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-thousandth of a Preferred Share which was expressed in the initial Right Certificates issued hereunder.

 

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(k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-thousandth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares at such adjusted Purchase Price.

 

 

(l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

 

 

(m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Preferred Shares, issuance wholly for cash of any Preferred Shares at less than the current market price, issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders.

 

 

(n) In the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the number of one one-thousandth of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of Units of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected.

 

 

Section 12.                    Certificate of Adjusted Purchase Price or Number of Shares   Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Shares or the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof.

 

 

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Section 13.                    Consolidation, Merger or Sale or Transfer of Assets or Earning Power   In the event, directly or indirectly, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its wholly owned Subsidiaries, then, and in each such case, proper provision shall be made so that (w) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price multiplied by the number of one one-thousandth of a Preferred Share for which a Right is then exercisable in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall equal the result obtained by (A) multiplying the then current Purchase Price by the number of Units of a Preferred Share for which a Right is then exercisable and dividing that product by (B) 50% of the then current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (x) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (y) the term “the Company” shall thereafter be deemed to refer to such issuer; and (z) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers.

 

 

Section 14.                    Fractional Rights and Fractional Shares   (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the VWAP of a whole Right. For the purposes of this Section 14(a), the VWAP of a whole Right shall be for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. If the Company is unable to determine the VWAP, then the Company will use the average of the closing bid and asked price as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.

 

 

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(b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-thousandth of a Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For the purpose of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise.

 

 

(c) The holder of a Right by the acceptance of the Right expressly waives his or her right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above).

 

 

Section 15.                    Rights of Action   All rights of action in respect of this Agreement, except the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his or her own behalf and for his or her own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his or her right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement.

 

 

Section 16.                    Agreement of Right Holders   Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

 

 

(a) prior to the Distribution Date, the Right will be transferable only in connection with the transfer of the Common Shares;

 

 

(b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and

 

 

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(c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.

 

 

Section 17.                    Right Certificate Holder Not Deemed a Stockholder   No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof.

 

 

Section 18.                    Concerning the Rights Agent   The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.

 

 

The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof.

 

 

Section 19.                    Merger or Consolidation or Change of Name of Rights Agent   Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

 

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In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at the time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

 

 

Section 20.                    Duties of Rights Agent   The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:

 

 

(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

 

 

(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by anyone of the Chairman of the Board, any Vice-Chairman of the Board, the President, the Chief Financial Officer, any Senior Vice President, the Secretary or the Treasurer of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

 

 

(c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct.

 

 

(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

 

 

(e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and non assessable.

 

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(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

 

 

(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, any Vice- Chairman of the Board, the President, the Chief Financial Officer, any Senior Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions.

 

 

(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or any other legal entity.

 

 

(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

 

 

(j) The provisions of Section 18 and this Section 20 shall survive termination of this Agreement, the exercise or expiration of the Rights and the resignation, replacement, or removal of the Rights Agent.

 

Section 21.                    Change of Rights Agent   The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Rights Certificates by first class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his or her Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

 

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Section 22.                    Issuance of New Rights Certificates   Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement.

 

 

Section 23.                    Redemption   (a) The Rights may be redeemed by action of the Board of Directors pursuant to paragraph (b) of this Section 23 and shall not be redeemed in any other manner.

 

 

(b) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) such time as any Person becomes an Acquiring Person and (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $0.0001 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price”). The redemption of the Rights by the Board of Directors may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish.

 

 

(c) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (b) of this Section 23 and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights pursuant to paragraph (b), the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Shares prior to the Distribution Date.

 

 

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Section 24.                    Exchange   (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Preferred Shares at an exchange ratio of two Units of a Preferred Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the “Exchange Ratio”). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any Person holding Common Shares for or pursuant to the terms of any such plan in a fiduciary capacity), together with all Affiliates and Associates of such Person, has Combined Ownership of 50% or more of the Common Shares of the Company then outstanding.

 

 

(b) Immediately upon the effective date of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to subsection (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent on the effective date of said action of the Board of Directors ordering the exchange of Rights. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.

 

 

Section 25.                    Notice of Certain Events   (a) In case the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and it Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination, or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purpose of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of the Preferred Shares or Common Shares, as the case may be, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares or Common Shares, as the case may be, for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Preferred Shares or Common Shares, as the case may be.

 

 

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(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such events which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

 

Section 26.                    Notices   Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

 

Chembio Diagnostics, Inc.

3661 Horseblock Road

Medford, NY 11763

Attention: Chief Executive Officer

 

Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Company) as follows:

 

ACTION STOCK TRANSFER CORP.

7069 S. Highland Drive, Suite 300

Salt Lake City, UT 84121

Attention:  Justeene Blankenship, President

 

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

 

Section 27.                    Supplements and Amendments   The Company, by action of its Board of Directors, may from time to time supplement or amend this Agreement without the approval of any holders of Rights to make any provision with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent whether or not it would adversely affect the holders of Rights; provided, however, that from and after a Distribution Date, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights (other than Rights that have become void pursuant to Section 11(a)(ii) hereof). Without limiting the foregoing, the Company, by action of its Board of Directors, may at any time prior to a Distribution Date amend this Agreement (A) to make the provisions of this Agreement inapplicable to a particular transaction by or with a Person that would or may otherwise become an Acquiring Person or to otherwise alter the terms and conditions of this Agreement as they may apply with respect to any such transaction, and (B) to lower the thresholds set forth in Sections 1(a) and 3(a). Upon delivery of a certificate from an appropriate officer of the Company and, if requested by the Rights Agent, an opinion of counsel that states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained herein to the contrary, the Rights Agent may, but shall not be obligated to, enter into any supplement or amendment that affects the Rights Agent’s own rights, duties, obligations, or immunities under this Agreement. Prior to the Distribution Date, the interests of holders of Rights shall be deemed coincident with the interests of the holders of Common Shares.

 

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Section 28.                    Successors   All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

 

 

Section 29.                    Periodic Review   The Stockholder Rights Plan Committee shall review and evaluate this Agreement in order to consider whether the maintenance of this Agreement continues to be in the interests of the Company and its stockholders. Such committee shall conduct such review periodically when, as and in such manner as the committee deems appropriate, after giving due regard to all relevant circumstances; provided, however, that the committee shall take such action at least once on the third year anniversary of this Agreement. Following each such review, the Stockholder Rights Plan Committee will report its conclusions to the full Board of Directors of the Company, including any recommendation in light thereof as to whether this Agreement should be modified or the Rights should be redeemed. The Stockholder Rights Plan Committee shall have the power to set its own agenda and to retain, at the expense of the Company, legal counsel, investment bankers or other advisors, in each case as chosen by the committee. The Stockholder Rights Plan Committee shall have the authority to review all information of the Company and to consider any and all factors it deems relevant to an evaluation of whether to maintain or modify this Agreement.

 

 

Section 30.                    Benefits of this Agreement   Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares).

 

 

Section 31.                    Severability   If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

 

 

Section 32.                    Governing Law   This Agreement and each Right and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Nevada and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State.

 

 

Section 33.                    Counterparts   This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument.

 

 

22

 

 

Section 34.                    Descriptive Headings   Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

 

Section 35.                    Determinations and Actions by the Board of Directors   For all purposes of this Agreement, any calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of outstanding Common Shares of which any Person has Combined Ownership, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in effect on the date hereof. Except as otherwise specifically provided herein, the Board of Directors shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors or to the Company hereunder, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power (i) to interpret the provisions of this Agreement, and (ii) to make all determinations deemed necessary or advisable for the administration of this Agreement. All such actions, calculations, interpretations, and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors or any member thereof to any liability to the holders of the Rights.

 

  

23

  

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written.

 

 

CHEMBIO DIAGNOSTICS, INC.

 

 

 

By: /s/ Lawrence A. Siebert

Lawrence A. Siebert

Chairman and Chief Executive Officer

 

 

ACTION STOCK TRANSFER CORP.

 

By: /s/ Justeene Blankenship

Justeene Blankenship

President

 

  

24

  

 

Exhibit A

 

 

CERTIFICATE OF DESIGNATION

 

 

of

 

 

JUNIOR PARTICIPATING PREFERRED STOCK, SERIES D

 

 

of

 

 

CHEMBIO DIAGNOSTICS, INC.

 

 

 

 

(Pursuant to NRS 78.1955 of the Nevada Revised Statutes)

 

 

CHEMBIO DIAGNOSTICS, INC., a corporation organized and existing under the laws of the State of Maryland (herein referred to as the “Company”), in accordance with the provisions of NRS 78.1955 of the Nevada Revised Statutes and ARTICLE FOURTH of the Company’s Articles of Incorporation, as amended, does hereby CERTIFY:

 

 

I. The Articles of Incorporation of the Company fixes the total number of shares of all classes of capital stock that the Company shall have the authority to issue Sixty Million (60,000,000) shares, of which Ten Million (10,000,000) shares shall be shares of preferred stock of the par value of $0.01 per share (“Preferred Stock”), and Fifty Million (50,000,000) shares shall be shares of common stock of the par value of $0.01 per share (“Common Stock”).

 

 

II. The Articles of Incorporation of the Company expressly grants to the Board of Directors of the Company authority to cause such shares of preferred stock to be issued from time to time, by resolution adopted prior to such issue, providing the voting powers, designations, preferences, rights and qualifications, limitations or restrictions applicable to such shares.

 

 

III. Pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Company, the Board of Directors, by actions duly taken on March 4, 2010, authorized and adopted the following resolution providing for an issue of a series of its preferred stock to be designated “Junior Participating Preferred Stock, Series D”:

 

 

RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company in accordance with the provisions of its Articles of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $0.01 per share, of the Company and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof as follows:

 

 

Section 1.                    Designation and Amount.  The shares of such series shall be designated as “Junior Participating Preferred Stock, Series D” (the “Series D Preferred Stock”), and the number of shares constituting the Series D Preferred Stock shall be Two Million (2,000,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series D Preferred stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series D Preferred Stock.

 

 

A-1

 

 

Section 2.                    Dividends and Distributions.

 

 

(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series D Preferred Stock with respect to dividends, the holders of shares of Series D Preferred Stock, in preference to the holders of Common Stock of the Company, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series D Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $0.10 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series D Preferred Stock. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

 

(B) The Company shall declare a dividend or distribution on the Series D Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.10 per share on the Series D Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

 

 

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series D Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series D Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series D Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series D Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.

 

 

A-2

 

 

Section 3.                    Voting Rights.  The holders of Series D Preferred Stock shall have the following voting rights:

 

 

(A) Subject to the provision for adjustment hereinafter set forth, each share of Series D Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

 

(B) Except as otherwise provided herein, in any other Certificates of Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series D Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company.

 

 

(C) Except as set forth herein, or as otherwise provided by law, holders of Series D Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

 

 

Section 4.                    Certain Restrictions.

 

 

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series D Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series D Preferred Stock outstanding shall have been paid in full, the Company shall not:

 

 

(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred Stock;

 

 

(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred Stock, except dividends paid ratably on the Series D Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

 

 

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred Stock provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series D Preferred; or

 

 

A-3

 

 

(iv) redeem or purchase or otherwise acquire for consideration any shares of Series D Preferred Stock, or any shares of stock ranking on a parity with the Series D Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

 

 

(B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

 

 

Section 5.                    Reacquired Shares.  Any shares of Series D Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of the Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Company’s Articles of Incorporation, or in any other Certificates of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law.

 

 

Section 6.                    Liquidation, Dissolution or Winding Up.  Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred Stock unless, prior thereto, the holders of shares of Series D Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment provided that the holders of shares of Series D Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (B) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred Stock, except distributions made ratable on the Series D Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

 

A-4

 

 

Section 7.                    Consolidation, Merger, etc.  In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series D Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series D Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

 

Section 8.                    No Redemption.  The shares of Series D Preferred Stock shall not be redeemable.

 

 

Section 9.                    Rank.  The Series D Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Company’s Preferred Stock.

 

 

Section 10.                    Amendment.  The Articles of Incorporation of the Company shall not be amended in any manner that would materially alter or change the powers, preferences or special rights of the Series D Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock, voting together as a single class.

 

 

IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Company by its President and Chief Executive Officer and attested by its Secretary this 8th day of March, 2010.

 

By:______________________________

Lawrence A. Siebert

Chairman and Chief Executive Officer

Attest:

	  	  	  
	
By:

	  	
________________________________

[                ]

Secretary

 

  

A-5

  

Exhibit B

 

 

Form of Right Certificate

 

 

Certificate No. R-      Rights

 

NOT EXERCISABLE AFTER NOVEMBER 30, 2015 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AND EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

 

Right Certificate

 

 

CHEMBIO DIAGNOSTICS, INC.

 

 

This certifies that      , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of March 8, 2010 (the “Rights Agreement”), between CHEMBIO DIAGNOSTICS, INC., a Nevada corporation (the “Company”), and ACTION STOCK TRANSFER CORP. (the “Rights Agent”), to purchase from the Company at any time after Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., Eastern Standard Time, on November 30, 2015, at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-thousandth share of the Company’s Junior Participating Preferred Stock Series D, par value $0.01 per share (“Preferred Shares”), of the Company, at an initial purchase price of $5 per one one-thousandth of a Preferred Share (the “Purchase Price”), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. As provided in the Rights Agreement, the Purchase Price, the number of Rights and the number of one one-thousandth of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

 

 

This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the Rights Agent.

 

 

This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.

 

 

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $0.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares.

 

 

B-1

 

 

No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a Preferred Share and which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.

 

 

No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings of other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement.

 

 

This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

 

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _______, [20__].

 

                  

	  	  	  
	
       ATTEST:

	  	
CHEMBIO DIAGNOSTICS, INC.

	  	  	
By

	  	  	  
	
       Countersigned:

	  	  Authorized Signature
	
       ACTION STOCK TRANSFER CORP.

	  	  
	
       By

	  	  
	  	  	  
	
       Authorized Signature

	  	  

 

Form of Reverse Side of Right Certificate

 

 

FORM OF ASSIGNMENT—

 

 

(To be executed by the registered holder if such holder desires to transfer the Right Certificate.)

 

 

FOR VALUE RECEIVED

 

 

hereby sells, assigns and transfers unto  _____________(Please print name and address of transferee)

 

 

B-2

 

 

this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of CHEMBIO DIAGNOSTICS, INC., with full power of substitution.

 

 

Dated:      , [200_]

 

 

Signature

 

 

Signature Guaranteed:

 

 

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. A notary public is not sufficient.

 

 

The undersigned hereby certifies that the Rights evidenced by this Right Certificate have not acquired and are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement.)

 

 

Signature

 

 

By

 

 

Authorized Signature

 

 

 

 

Form of Reverse Side of Certificate — continued

 

 

FORM OF ELECTION TO PURCHASE—

 

 

(To be executed if holder desires to exercise the Rights represented by the Right Certificate.)

 

 

To: CHEMBIO DIAGNOSTICS, INC.

 

 

The undersigned hereby irrevocably elects to exercise

 

 

Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of:

 

 

Please insert social security or other identifying number

 

 

(Please print name and address)

 

 

B-3

 

 

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

 

 

Please insert social security or other identifying number

 

 

(Please print name and address)

 

 

Dated:  _______, [20__]

 

 

Signature

 

 

Signature Guaranteed:

 

 

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.

 

 

Form of Reverse Side of Right Certificate – continued

 

 

The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not acquired or beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement).

 

 

Signature ___________________________

 

 

NOTICE—

 

 

The signature in the foregoing Forms of Assignment and Election must conform to the name written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.

 

 

In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, CHEMBIO DIAGNOSTICS, INC., and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored.

 

  

B-4

  

 

Exhibit C

 

 

SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES

 

 

On March 4, 2010, the Board of Directors of CHEMBIO DIAGNOSTICS, INC. (the “Company”) declared a dividend of one Preferred Share Purchase Right (a “Right”) for each outstanding share of common stock, par value $0.01 per share (the “Common Shares”), of the Company. The dividend is payable on March __, 2010 (the “Record Date”) to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Company’s Junior Participating Preferred Stock, Series D, par value $0.01 per share (“Preferred Shares”) at a price of $5 per one one-thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) between the Company and Action Stock Transfer Corp., as Rights Agent (the “Rights Agent”).

 

 

Until the earlier to occur of (i) the close of business on the 10th business day following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) whose beneficial ownership of Common Shares, when combined with the Acquiring Person’s derivative equity interest of Common Shares of the Company (“Combined Ownership”), equals 15%  or more of the outstanding Common Shares or (ii) the close of business on the 10th business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person) after the date that a tender or exchange offer or intention to commence a tender offer or exchange offer by any person or group is first published, announced, sent, or given, the consummation of which would result in the Combined Ownership by such person or group of 15% or more of such outstanding Common Shares (the earlier of such dates being called the “Distribution Date”), the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy of this Summary of Rights attached thereto.

 

 

The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the Record Date, upon transfer or new issuance of Common Shares will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares, outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (“Right Certificates”) will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.

 

 

The Rights are not exercisable until the Distribution Date. The Rights will expire on November 30, 2015 (the “Final Expiration Date”), unless the Final Expiration Date is extended or changed or unless the Rights are earlier redeemed by the Company, in each case, as described below.

 

 

 

C-1

 

The Purchase Price payable, and the number of Preferred Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights or warrants to subscribe for or purchase Preferred Shares at a price, or securities convertible into Preferred Shares with a conversion price, less than the then current market price of the Preferred Shares or (iii) upon the distribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above).

 

 

The number of outstanding Rights and the number of one one-thousandth of a Preferred Share issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or subdivisions, consolidations or combinations of the Common Shares occurring, in any such case, prior to the Distribution Date.

 

 

Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each holder of a Preferred Share will be entitled to a minimum preferential quarterly dividend payment equal to the greater of $0.10 per share or 1,000 times the dividend declared per Common Share. In the event of liquidation, each holder of a Preferred Share will be entitled to a payment of $1,000 per share provided that such holders shall be entitled to an aggregate payment of 1,000 times the payment made per Common Share. Each Preferred Share will have 1,000 votes, voting together with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in which Common Shares are exchanged, each Preferred Share will be entitled to receive 1,000 times the amount received per Common Share. These rights are protected by customary anti-dilution provisions.

 

 

Because of the nature of the Preferred Shares’ dividend and liquidation rights, the value of the one one-thousandth interest in a Preferred Share purchasable upon exercise of each Right should approximate the long term value of one Common Share.

 

 

In the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights acquired or beneficially owned by the Acquiring Person or an affiliate or associate or certain transferees of an Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Preferred Shares having a market value of two times the exercise price of the Right.

 

 

At any time after the acquisition by a person or group of affiliated or associated persons of Combined Ownership of 15% or more of the outstanding Common Shares and prior to the acquisition by such person or group of Combined Ownership of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of two one-thousandths of a Preferred Share per Right (subject to adjustment).

 

 

C-2

 

 

With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional Preferred Shares will be issued (other than fractions which are integral multiples of one one-thousandth of a Preferred Share and which may, at the election of the Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise.

 

 

At any time prior to the acquisition by a person or group of affiliated or associated persons of Combined Ownership of 15% or more of the outstanding Common Shares, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

 

 

The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to lower certain thresholds described above, except that from and after such Distribution Date no such amendment may adversely affect the interests of the holders of the Rights.

 

 

Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

 

 

On the third anniversary of the Rights Agreement, a committee comprised of at least one independent director of the Company (the “Stockholder Rights Plan Committee”) will review the Rights Agreement to determine whether the Rights Agreement remains in the interests of the Company and its stockholders. Following each such review, the Stockholder Rights Plan Committee will report its conclusions to the full Board of Directors of the Company, including any recommendation in light thereof as to whether the Rights Agreement should be modified or the Rights should be redeemed.

 

 

A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated March __, 2010. A copy of the Rights Agreement is available to shareholders of the Company free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference.

 

C-3

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