REGISTRATION AGREEMENT
REGISTRATION AGREEMENT dated as of February 22, 2001 among
Sideware Systems, Inc., a Canadian corporation (the "Company"), and
each of the investors listed on the signature pages hereto (each a
"Purchaser" and collectively, the "Purchasers"). Capitalized terms
used herein but not otherwise defined shall have the meaning ascribed
to them in the Subscription Agreement (defined below).
W I T N E S S E T H:
WHEREAS, the Company and Purchasers have entered into a
Subscription Agreement, dated as of the date hereof (the "Subscription
Agreement"), pursuant to which Purchasers collectively purchased an
aggregate of up to 50 Units, each Unit consists of 131,579 common
shares without par value (the "Common Shares") and 131,579 common
stock purchase warrants (the "Warrants"), with each Warrant entitling
the holder to purchase one additional common share (the "Warrant
Shares"). The Common Shares and the Warrant Shares are hereinafter
referred to as "Registrable Stock";
NOW, THEREFORE, in consideration of the respective covenants and
conditions of the parties set forth herein and in the Subscription
Agreement, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Registration of Registrable Stock.
(a) Filing of Registration Statement. The Company shall
use its best efforts to prepare and file within 45 days after the
Closing Date, a registration statement on Form S-1 or Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (collectively, the "Securities
Act") covering the offering and sale of the Registrable Stock by the
Purchasers in privately negotiated transactions, "brokers'
transactions" or in transactions directly with a "market maker," as
such terms are defined in paragraphs (f) and (g) of Rule 144 under the
Securities Act ("Brokers' Transactions").
(b) Effectiveness; Amendments. The Company shall use its
reasonable best efforts (including responding to SEC comments within 10
business days after receipt of such comments) to file and cause to be
declared effective within the earlier of 90 days from the Closing Date
hereof or five business days after receiving a no-review status from
the SEC (the "Effective Date") and, except as set forth below, to
remain effective under the Securities Act, the Registration Statement
and will prepare and file with the SEC any amendments or post-effective
amendments as may be necessary to keep the Registration Statement
effective under the Securities Act. The Company will promptly notify
the Purchasers in writing of the date on which the Registration
Statement is declared effective. Notwithstanding the foregoing, (i) the
Company shall not be required to keep the Registration Statement
effective for purposes of the
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sale of Registrable Stock thereunder at
any time after the earlier of (A) the date on which all shares of
Registrable Stock have been sold or are no longer outstanding, (B) the
date as of which the Purchasers shall be able to make use of the safe-
harbor provisions of Rule 144(k) under the Act (or any successor rule)
with respect to sales of Registrable Stock, and (C) the date which is
one year following the Closing Date (except that the one year
limitation of this item (C) shall only apply to the extent that the
Company is not eligible to utilize Form S-3; so long as the Company is
eligible to utilize Form S-3 following the one year anniversary of the
Closing Date, its registration obligations will continue until the
earlier of the dates set out in (A) and (B)), and (ii) the Company
shall not be obligated to keep the Registration Statement or the
prospectus included therein (the "Prospectus") current during any
period (A) of an aggregate up to 60 days per calendar year, but not to
exceed 20 consecutive trading days, if the Company's chief executive
officer advises the Purchasers that he has determined in good faith
that valid business reasons concerning a potential corporate
transaction make doing so inadvisable, or (B) when financial statements
do not satisfy the requirements of the last sentence of paragraph (b)
of Rule 3-12 of Regulation S-X (or any successor rule) to the extent,
and only to the extent, that the SEC interprets such sentence as being
applicable to the continued effectiveness of the Registration
Statement.
If the Registration Statement has not been declared
effective by the SEC on or prior to the Effective Date (such event, a
"Registration Default"), the exercise price for the Warrants will be
adjusted as follows:
(a) if the Registration Default continues for a period of less
than one month, the exercise price of the Warrants will be
reduced by 2.5%;
(b) if the Registration Default continues for a period of greater
than one month, but less than two months, the exercise price
of the Warrants will be reduced by 5%; and
(c) if the Registration Default continues for period of greater
than two months, the exercise price of the Warrants will be
reduced by 7.5%.
If the Registration Default continues beyond the date which is six
months following the Closing Date, then in addition to the
adjustments to the Warrant exercise price set out above, Company
shall pay liquidated damages ("Liquidated Damages") to each holder
of Registrable Stock equal to 1.5% of the aggregate dollar amount
originally invested by such holder as listed on Exhibit A to the
Subscription Agreement for each month that the Registration Default
continues beyond the six month anniversary date of the Closing Date
(with a pro rata share of the 1.5% Liquidated Damages being payable
to the extent that any Registration Default continues for a portion
of a month), but subject always to the limitation that in no event
shall the Liquidated Damages payable to any holder of Registered
Stock exceed 15% of the aggregate dollar amount originally invested
by such holder as listed on Exhibit A to the Subscription Agreement.
Following the cure of all Registration Defaults relating to any
particular Registrable Stock, the accrual of Liquidated Damages with
respect to such Registration Default will cease. The Company may
pay the Liquidated Damages required pursuant to this section either
in cash or (subject to obtaining any required regulatory approvals)
in shares of the Company's common stock, at the Company's option.
If paid in shares of the Company's common stock, such common stock
will be valued at the then current market price per share,
calculated on the basis of the average closing price for the
Company's common stock on the 10 trading days preceding the date on
which
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the Liquidated Damages become payable, or by such other
reasonable method as may be acceptable to the Toronto Stock
Exchange. The adjustments to the Warrant exercise price and the
Liquidated Damages provided by this section will be the only remedy
of the Purchasers in respect of a Registration Default. Without
limiting the generality of the foregoing, in no event shall the
Company be liable for any other damages, including without
limitation any damages based on loss of profits or on selling prices
which the Purchasers might have obtained for any Common Shares or
Warrant Shares but for the Registration Default.
(c) Copies of Documents. During the period that the
Company has agreed to use its reasonable best efforts to cause the
Registration Statement to remain effective (the "Effectiveness
Period"), the Company shall furnish to each Purchaser such number of
copies of the Registration Statement, the Prospectus and any amendments
and supplements thereto and any documents incorporated by reference in
the Registration Statement as such Purchaser shall reasonably request.
(d) Blue Sky Compliance. The Company shall register or
qualify or cooperate with the Purchasers in connection with the
notification, coordination, registration or qualification (or obtain
exemption from such registration or qualification) of the Registrable
Stock under such other securities or blue sky laws of such
jurisdictions in the United States as the Purchasers reasonably shall
request and do any and all other acts and things which may be
reasonably necessary to enable the Purchasers to consummate the
disposition of the Registrable Stock by them under the Registration
Statement in such jurisdictions during the Effectiveness Period;
provided, however, that in no event shall the Company be required to
qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified, to subject itself to taxation in any
jurisdiction where it has not theretofore done so or to take any action
which would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(e) Notification. During the Effectiveness Period, the
Company shall notify the Purchasers promptly, and (if requested by any
Purchaser) confirm such notice in writing, (i) of any request by the
SEC or any other regulatory authority for amendments or supplements to
the Registration Statement or the Prospectus or for additional
information relating thereto, (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose, (iii) of the
receipt by the Company of any notification or stop order with respect
to the suspension of the registration, qualification or exemption from
registration or qualification of any of the shares of Registrable Stock
covered by the Registration Statement for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose and
(iv) of the happening of any event which makes any statement made in
such Registration Statement or in the Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or which requires the making of any changes in
such Registration Statement or Prospectus so that such documents will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
(f) Supplements and Post-Effective Amendments. Subject to
the provisions of clause (ii) of the third sentence of Section 1(b)
above, during the Effectiveness Period,
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upon the occurrence of any
event contemplated by clause (i) or (iv) of paragraph (e) above, the
Company will prepare a supplement or post-effective amendment to the
Registration Statement or a supplement to the Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Stock being sold thereunder, the Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Listing. The Company shall cause the Registrable
Stock covered by the Registration Statement to be listed on each
securities exchange or securities quotation system, if any, on which
similar securities issued by the Company are then listed.
(h) Stock Certificates. The Company will cooperate with
the Purchasers to facilitate the timely preparation and delivery of
certificates representing Registrable Stock sold under the Registration
Statement, which certificates shall not have any restrictive legends.
2. Piggyback Registration. If at any time prior to the
second anniversary of the Closing Date the Company proposes to file a
registration statement under the Securities Act with respect to an
offering of Common Stock (except on Form S-4 or Form S-8 or any
successor forms thereto), for its own account, then the Company shall
give written notice of such proposed filing to the holders of
Registrable Stock as far in advance of the anticipated filing date as
is practicable (the "Piggyback Notice"). The Piggyback Notice shall
offer such holders the opportunity to register such amount of
Registrable Stock (but excluding any Registrable Stock which is then
saleable pursuant to Rule 144) as each such holder may request (a
"Piggyback Registration"); subject in all events to the agreement of
the underwriter or underwriters of the offering contemplated by such
registration statement that such shares of Registrable Stock can be
included in such registration statement without adversely affecting
such offering. Any reduction in the number of securities to be so
offered shall be (i) first, pro-rata among all security holders who are
exercising "piggyback" registration rights, based on the number of
registrable securities originally proposed to be sold by each of them,
and (ii) second, pro-rata among all security holders who are exercising
"demand" registration rights pursuant to a registration rights
agreement with the Company, based on the number of registrable
securities originally proposed to be sold by each of them.
3. Obligations of Purchasers. Following the filing of
the Registration Statement and during any period that the Registration
Statement is effective, each Purchaser shall:
(a) not effect any stabilization transactions or engage in
any stabilization activity in connection with the Company common shares
in contravention of Regulation M under the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(b) furnish each broker through whom any Purchaser offers
Registrable Stock such number of copies of the Prospectus as the broker
may require and otherwise comply with prospectus delivery requirements
under the Securities Act;
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(c) not (and shall not permit any Affiliated Purchaser (as
defined in Rule 10b-6 under the Exchange Act) to) bid for or purchase
for any account in which any Purchaser has a beneficial interest, or
attempt to induce any other person to purchase, any Company common
shares in contravention of Regulation M under the Exchange Act;
(d) cooperate with the Company as the Company fulfills its
obligations under Section 1(d) hereof;
(e) furnish such information concerning such Purchaser as
the Company may from time to time reasonably request;
(f) sell Registrable Stock only in privately negotiated
transactions or Brokers' Transactions; and
(g) not sell under the Registration Statement during any
period after the Company has provided notice to such Purchaser pursuant
to Section 1(e)(iv) above and until the Company provides to such
Purchaser notice that the Registration Statement no longer fails to
state a material fact required to be stated therein, misstates a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made not misleading.
4. Expenses. The Company shall be responsible for the
payment of (x) all registration and filing fees relating to
registration of the offering by the Purchasers of the Registrable
Stock, including, without limitation, registration and filing fees (A)
with respect to filings required to be made with the SEC or the
National Association of Securities Dealers and (B) with respect to
registrations and filings made under state securities or blue sky laws
and (y) any expenses incurred by the Company in connection with the
preparation of the Registration Statement and the Prospectus. The
Purchasers shall be responsible for the payment of fees and
disbursements of counsel to the Purchasers in connection with the
preparation of the Registration Statement and the Prospectus and fees
paid to brokers in connection with the sale of any of the Registrable
Stock.
5. Indemnification.
(a) Indemnity by the Company. The Company shall (i)
indemnify and hold harmless each Purchaser and each person who controls
such Purchaser, within the meaning of Section 15 of the Securities Act,
against any losses, claims, damages or liabilities ("Losses"), to which
each such indemnified party may become subject, under the Securities
Act or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or Prospectus, as amended or supplemented if the Company has
furnished any supplements or amendments thereto (if used during the
period the Company is required to keep the Registration Statement and
Prospectus current), or any document filed under a state securities or
blue sky law (collectively, "Registration Documents") or insofar as any
Losses (or actions in respect thereof) arise out of or are based upon
the omission or alleged omission to state in any Registration Document
a material fact required to be stated therein or necessary to make the
statements made therein (in the case of a prospectus, in the light of
the circumstances under
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which they were made), not misleading, and (ii)
reimburse each indemnified party for all legal or other expenses
reasonably incurred by it in connection with investigating or defending
any such Losses or actions, including any amounts paid in settlement of
any litigation, commenced or threatened, if such settlement is effected
with the prior written consent of the Company; provided, however, that
the Company shall not be liable for any Losses arising out of or based
upon any untrue statement or omission made in any Registration Document
in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Purchaser expressly for use in
the preparation of the Registration Document; and provided, further,
that the Company shall not be liable to a particular indemnified party
under the indemnity agreement in this Section 5(a) with respect to the
Prospectus, as amended or supplemented, to the extent that the Loss
arises from the sale of any shares of Registrable Stock by such
indemnified party to the person asserting Loss and to which there was
not sent or given, within the time required by the Securities Act, a
copy of the Prospectus as then amended or supplemented, if the Company
has previously furnished copies thereof to such indemnified party and
such Prospectus as then amended or supplemented has corrected the
misstatement or omission at issue.
(b) Indemnity by Purchasers. Each Purchaser shall,
severally and not jointly, (i) indemnify and hold harmless the Company,
any officer, director, employee or agent of the Company, and each other
person, if any, who controls the Company within the meaning of Section
15 of the Securities Act against any Losses to which each such
indemnified party may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Document,
or arise out of or are based upon the omission or alleged omission to
state in any Registration Document a material fact required to be
stated therein or necessary to make the statements made therein (in the
case of a prospectus, in the light of the circumstances under which
they were made,) not misleading, and (ii) reimburse each indemnified
party for all legal or other expenses reasonably incurred by it in
connection with investigating or defending any such Losses or action,
including any amounts paid in settlement of any litigation, commenced
or threatened, if such settlement is effected with the prior written
consent of such Purchaser; provided, however, that such indemnification
or reimbursement shall be payable only if, and to the extent that, any
Losses arise out of or are based upon an untrue statement or omission
made in any Registration Document in reliance upon and in conformity
with written information furnished to the Company by such Purchaser
expressly for use in the preparation thereof.
(c) Procedure for Indemnification. Promptly after receipt
by an indemnified party, under Section 5(a) or 5(b), of notice of the
commencement of any action, the indemnified party shall notify the
indemnifying party in writing of the commencement thereof, if a claim
in respect thereof is to be made against an indemnifying party under
any of these Sections; but the omission of such notice shall not
relieve the indemnifying party from liability which it may have to the
indemnified party under this Section 5, except to the extent that the
indemnifying party is actually prejudiced in any material respect by
such failure to give notice, and shall not relieve the indemnifying
party from any liability which it may have to any indemnified party
otherwise than under this Section 5. In case the event that an action
is brought against the indemnified party and such indemnified party
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and to the
extent that it chooses, to assume
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the defense thereof with counsel
reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof; provided however, that (i) if the indemnifying party
fails to take reasonable steps necessary to defend diligently the claim
within 20 days after receiving notice from the indemnified party that
the indemnified party believes it has failed to do so, or (ii) if the
indemnified party who is a defendant in any action or proceeding which
is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified
party which are not available to the indemnifying party, or (iii) if
representation of both parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct, the
indemnified party shall have the right to assume or continue its own
defense as set forth above. In no event shall the indemnifying party
be responsible for more than one firm of counsel for all indemnified
parties.
(d) Non-Exclusive Indemnity. Any indemnity agreements
contained herein shall be in addition to any other rights to
indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or
on behalf of any indemnified party.
(e) Contribution. If for any reason the foregoing
indemnity is unavailable, or is insufficient to hold harmless an
indemnified party, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such
losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission), or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law or provides a lesser sum to the indemnified party than the amount
hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative fault of the indemnifying party and the
indemnified party, but also the relative benefits received by the
indemnifying party on the one hand (taking into consideration the fact
that the provision of the registration rights hereunder served as an
inducement to the Purchasers to enter into the Subscription Agreement)
and the indemnified party on the other, as well as any other relevant
equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
6. Miscellaneous.
(a) Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
New York without giving effect to the choice of law principles thereof.
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(b) Entire Agreement; Amendment; Waiver. This Agreement:
(i) contains the entire agreement among the parties hereto with respect
to the subject matter hereof, (ii) supersedes all prior written
agreements and negotiations and oral understandings, if any, with
respect thereto, and (iii) may not be amended or supplemented except by
an instrument or counterparts thereof in writing signed by the Company
and each of the Purchasers. No waiver of any term or provision of this
Agreement shall be effective unless in writing signed by the party to
be charged. The waiver by any party of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
(c) Binding Effect. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns; provided, however, that no
party hereto may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written
consent of the other parties hereto.
(d) Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction
shall not affect the validity or enforceability of the remainder of
this Agreement in that jurisdiction or the validity or enforceability
of this Agreement, including that provision, in any other jurisdiction.
(e) Notices. All notices, requests, consents and other
communications to any party hereunder shall be in writing and shall be
given either by personal service, certified mail, return receipt
requested, overnight courier or telecopy, addressed as follows:
if to the Company, to:
Sideware Systems, Inc.
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxx, XX 00000
Facsimile No.: 000-000-0000
Attn: Xxxxx X. Xxxxxx, President & CEO
with a copy to:
Sideware Systems Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX X0X0X0
Facsimile No.: 604-688-0094
Attn: Xxxxx Xxxxxxxxxx, Chairman
if to any Purchaser, to the address shown for that
Purchaser on the Subscription agreement:
or to such other address as any party may hereafter specify to the
other parties hereto by notice sent in accordance with this Section
6(e). Each such notice, request or other communication shall be
effective when delivered at the address specified in this Section 6(e).
(f) Headings; Execution in Counterparts. The headings and
captions contained herein are for convenience of reference only and
shall not control or affect the
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meaning or construction of any
provision hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been executed by or
on behalf of each of the parties hereto as of the date first above
written.
SIDEWARE SYSTEMS, INC.
By: "Xxxxx Xxxxxxxxxx"
--------------------------
Name: Xxxxx Xxxxxxxxxx
Title: Chairman
PURCHASER
SDS Merchant Fund, LP
By: "Xxxxx Xxxxx"
---------------------------
Name: Xxxxx Xxxxx
Title: Managing Member
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