REGISTRATION RIGHTS AGREEMENT
Exhibit
10.5
Registration
Rights Agreement by AFP Imaging Corporation,
This
Registration Rights Agreement (this “Agreement”)
is made
as of April 13, 2007 by AFP Imaging Corporation, a New York corporation
(the “Company”),
for
the benefit of the Holders (as such term is hereinafter defined). The Company
hereby confirms that the rights granted under this Agreement constitute a
material inducement to the Holders to enter into the Loan Agreement (as such
term is hereinafter defined), make Loans from time to time thereunder, and/or
acquire or hold Conversion Shares and/or Warrant Shares (as such terms are
hereinafter defined). Each Holder, by its participation or request to
participate in any Registration effected pursuant to this Agreement, shall
be
deemed to have confirmed such Holder’s agreement to comply with the applicable
provisions of this Agreement.
NOW,
THEREFORE, the Company hereby agrees, in favor of the Holders, as
follows:
1. Definitions.
In
addition to those terms defined elsewhere in this Agreement, the following
terms
shall have the following meanings wherever used in this Agreement:
“Act”
shall
mean the Securities Act of 1933, as amended, and any successor statute from
time
to time.
“Affiliate”
shall
mean, with respect to any person, any other person controlling, controlled
by or
under common control with the first person.
“Board”
shall
mean the Board of Directors of the Company.
“Common
Stock”
shall
mean the authorized common stock of the Company.
“Company”
shall
mean AFP Imaging Corporation, and shall include any successor
thereto.
“Conversion
Shares”
shall
mean the Common Stock and/or other securities issued and/or issuable from time
to time upon conversion of the Term Note (in whole or in part), and any
additional or other Shares issued in respect of any of the foregoing Shares
by
reason of any stock split, stock dividend, merger, share exchange,
recapitalization or other such event.
“Costs
and Expenses”
shall
mean all of the costs and expenses relating to any subject Registration
Statement, including but not limited to registration, filing and qualification
fees, blue sky expenses, costs of listing any Shares on any exchange or other
trading media, and printing expenses, fees and disbursements of counsel and
accountants to the Company, and reasonable fees and disbursements of a single
counsel to the Holders; provided,
however,
that
underwriting discounts and commissions attributable solely to the securities
registered for the benefit of Holders, fees and disbursements of any additional
counsel to Holders, and all other expenses attributable solely to Holders shall
be borne by each subject Holder.
“Exchange
Act”
shall
mean the Securities Exchange Act of 1934, as amended, and any successor statute
from time to time.
“Holders”
shall
mean, collectively, all Persons holding Registrable Shares from time to
time.
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“Loan
Agreement”
shall
mean the Revolving Credit and Term Loan Agreement of even date herewith by
and
between ComVest Capital, LLC and the Company, as the same may be amended,
modified, supplemented and/or restated from time to time in accordance with
the
provisions thereof.
“Loans”
shall
mean the loans extended to the Company from time to time under and pursuant
to
the Loan Agreement.
“Person”
shall
mean any individual, corporation, partnership, limited partnership, limited
liability company, trust, or other entity of any kind ,and any government or
department or agency thereof.
“Registrable
Shares”
shall
mean all Shares, excluding any Shares which may then be sold by the Holder
thereof pursuant to Rule 144(k) promulgated under the Act.
“Registration”
shall
mean any registration of Common Stock pursuant to a registration statement
filed
by the Company with the SEC in respect of any class of Common Stock,
other than
a
registration statement in respect of employee stock options or other employee
benefit plans or in respect of any merger, consolidation, acquisition or like
combination, whether on Form X-0, Xxxx X-0 or any equivalent form of
registration then in effect.
“Registration
Period”
shall
mean, with respect to a Registration Statement, the period of time from the
effective date of such Registration Statement until such date as is the earlier
of (a) the date on which all of the Registrable Securities covered by such
Registration Statement shall have been sold to the public, or (b) the date
on which the Conversion Shares and the Warrant Shares issued or issuable upon
cashless exercise of the Warrant in accordance with Section 1.3 of the Warrant
(in the opinion of counsel to the Company evidenced by a written opinion issued
to the Holders in form reasonably acceptable to the Holders) may be immediately
sold without restriction (including, without limitation, as to volume
restrictions) by each Holder thereof without registration under the
Act.
“Registration
Statement”
shall
mean any registration statement filed or to be filed by the Company in respect
of any Registration.
“SEC”
shall
mean the United States Securities and Exchange Commission, or any successor
agency or agencies performing the functions thereof.
“Shares”
shall
mean (a) the Conversion Shares issued and/or issuable from time to time, (b)
the
Warrant Shares issued and/or issuable from time to time, and (c) any additional
or other shares of common stock of the Company issued in respect of any of
the
foregoing Shares by reason of any stock split, stock dividend, merger, share
exchange, recapitalization or other such event.
“Term
Note”
shall
have the meaning ascribed thereto in the Loan Agreement, and shall include
any
replacement promissory note(s) therefor.
“Warrants”
shall
mean the warrants to purchase Shares, issued by the Company pursuant to the
Loan
Agreement, including any and all warrants issued in replacement of the original
such warrants.
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“Warrant
Shares”
shall
mean the Common Stock and/or other securities issued and/or issuable from time
to time upon exercise of any of the Warrants, and any additional or other Shares
issued in respect of any of the foregoing Shares by reason of any stock split,
stock dividend, merger, share exchange, recapitalization or other such
event.
2. Shelf
Registration.
(a) The
Company shall prepare and file with the SEC, not later than one hundred fifty
(150) days after the date of this Agreement, a Registration Statement or
Registration Statements (as necessary) on a form that is appropriate under
the
Act (and, if available, pursuant to Rule 415 promulgated under the Act),
covering the resale of all of the Registrable Securities, in an amount
sufficient to cover the resale of all Conversion Shares, Warrant Shares and
additional shares of Common Stock issuable pursuant to the anti-dilution
provisions of the Term Note and the Warrants.
(b) The
Company shall use its best efforts to cause the Registration Statement(s)
required by this Section 2 to be declared effective under the Act as promptly
as
possible after the filing thereof, but in any event not later than two hundred
seventy (270) days after the date of this Agreement.
(c) If
(i) the Registration Statement required by this Section 2 is not filed
within one hundred fifty (150) days after the date of this Agreement, or is
not
declared effective under the Act within two hundred seventy (270) days after
the
date of this Agreement, or (ii) the Registration Statement required by this
Section 2 shall cease to be available for use by the Holders as selling
stockholders (A) as provided under Section 2(f) below where such
unavailability continues for a period in excess of five (5) days beyond the
allowed time period, or (B) for any other reason including, without
limitation, by reason of a stop order, a material misstatement or omission
in
such Registration Statement or the information contained in such Registration
Statement having become outdated and continues to be unavailable for a period
in
excess of thirty (30) days (which need not be consecutive days) in any twelve
(12) month period, then the Company shall pay to the Holders, ratably in
proportion to the number of Registrable Shares held by the respective Holders,
a
cash fee equal to the product of $1,000 multiplied by the number of calendar
days during which any of the events described in clauses (i) or (ii) above
occurs and is continuing (the “Blackout
Period”);
provided,
however,
that the
aggregate of such fees payable under this Section 2(c) shall not exceed
$500,000; and further provided,
that the
Company shall not be liable to pay any fees under this Section 2(c) to the
extent that the occurrence of the events described in clauses (i) or (ii) above
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
information furnished to the Company by a Holder for inclusion in the
Registration Statement. Each such payment shall be due within five (5) days
after the end of each 30-day period of the Blackout Period until the termination
of the Blackout Period and within five (5) days after such termination. The
Blackout Period shall terminate upon the filing or effectiveness (as the case
may be) of the Registration Statement in the case of clause (i) above and upon
notice from the Company that the Registration Statement is again available
in
the case of clause (ii) above.
(d) The
Company shall use its best efforts to keep each Registration Statement under
this Section 2 effective at all times during the applicable Registration
Period.
(e) If
any
offering pursuant to a Registration Statement pursuant to this Section 2
involves an underwritten offering (which may only be with the consent of the
Company, which shall not be unreasonably withheld or delayed), the Holders
(acting by a majority in interest) shall have the right to select legal counsel
and an investment banker or bankers and manager or managers to administer to
the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
(f) If
the
Registrable Securities are registered for resale under an effective Registration
Statement, the Holders shall cease any distribution of such Shares under such
Registration Statement:
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(i) for
a
period of up to six (6) months if (A) such distribution would require the public
disclosure of material non-public information concerning any transaction or
negotiations involving the Company or any of its Affiliates that, in the
reasonable judgment of the Company’s Board of Directors, would materially
interfere with such transaction or negotiations, or (B) such distribution would
otherwise require premature disclosure of information that, in the reasonable
judgment of the Company’s Board of Directors, would adversely affect or
otherwise be detrimental to the Company; provided
that the
Company shall not invoke this clause (i) more than once in any twelve (12)
month
period or for more than six (6) months in any such twelve (12) month period;
(ii) not
more
than once in any twelve (12) month period, for up to 60 days, upon the request
of the Company if the Company proposes to file a Registration Statement under
the Act for the offering and sale of securities for its own account in an
underwritten offering and the managing underwriter therefor shall advise the
Company in writing that in its opinion the continued distribution of the
Registrable Securities would adversely affect the offering of the securities
proposed to be registered for the account of the Company; and
(iii) for
a
period of up to sixty (60) days after the filing of the Company’s annual report
on Form 10-K or other event that requires the filing of a post-effective
amendment to any Registration Statement hereunder, so long as the Company has
filed and is during such period actively pursuing effectiveness of such
post-effective amendment with the staff of the SEC.
The
Company shall promptly notify the Holders in writing at such time as (x) such
transactions or negotiations have been otherwise publicly disclosed or
terminated, or (y) such non-public information has been publicly disclosed
or
counsel to the Company has determined that such disclosure is not required
due
to subsequent events.
(g) The
Company shall (i) permit the Holders’ counsel to review (A) such
Registration Statement, and all amendments and supplements thereto, in each
case
to the extent of any information with respect to the Holders, their and their
Affiliates’ beneficial ownership of securities of the Company, and their
intended method of disposition of Registrable Securities, and (B) all requests
for acceleration or effectiveness thereof and any correspondence between the
Company and the SEC relating to the Registration Statement (collectively, the
“Registration
Documents”),
for a
reasonable period of time prior to their filing with the SEC, (ii) not file
(or send) any Registration Documents in a form to which such counsel reasonably
objects, and (iii) not request acceleration of such Registration Statement
without prior notice to such counsel. The sections of such Registration
Statement covering information with respect to the Holders, their and their
Affiliates’ beneficial ownership of securities of the Company, and their
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by the Holders.
(h) The
Registration Statement pursuant to this Section 2 shall not include any
securities other than Registrable Shares.
(i) The
Company shall bear all of the Costs and Expenses of the Registration pursuant
to
this Section 2.
3. Piggyback
Registration.
In the
event that the Company shall propose a Registration at any time when a
Registration Statement is not effective pursuant to Section 2 above, then the
Company shall give to each Holder written notice (the “Registration
Notice”)
of such
proposed Registration (which notice shall include a statement of the proposed
filing date thereof, the underwriters and/or managing underwriters of the
subject offering, and any other known material information relating to the
proposed Registration) not less than twenty (20) or more than sixty (60) days
prior to the filing of the subject Registration Statement, and shall, subject
to
the limitations provided in this Section 3, include in such Registration
Statement all or a portion of the Registrable Shares owned by and/or issuable
to
each Holder, as and to the extent that such Holder may request same to be so
included by means of written notice given to the Company within ten (10) days
after the Company’s giving of the Registration Notice. Each Holder shall be
permitted to withdraw all or any part of its Registrable Shares from a
Registration Statement by written notice to the Company given at any time prior
to the effective date of the Registration Statement. The Company shall bear
all
of the Costs and Expenses of any Registration described in this Section 3;
provided,
however,
that
each Holder shall pay, pro rata
based
upon the number of its Registrable Shares included therein, the underwriters’
discounts, commissions and compensation attributable solely to the inclusion
of
such Registrable Shares in the overall public offering. Notwithstanding anything
to the contrary contained herein, the Company’s obligation to include a Holder’s
Registrable Shares in any such Registration Statement shall be subject, at
the
option of the Company, to the following further conditions:
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(a) The
distribution for the account of such Holder shall be underwritten by the same
underwriters (if any) who are underwriting the distribution of the securities
for the account of the Company and/or any other persons whose securities are
covered by such Registration Statement, and shall be made at the same
underwriter discount or commission applicable to the distribution of the
securities for the account of the Company and/or any other persons whose
securities are covered by such Registration Statement; and such Holder shall
enter into an agreement with such underwriters containing customary
indemnification and other provisions;
(b) If
at any
time after giving the Registration Notice, and prior to the effective date
of
the Registration Statement filed in connection with such Registration Notice,
the Company shall determine for any reason not to proceed with the subject
Registration, the Company may, at its election, give written notice of such
determination to the Holders and, thereupon, shall be relieved of its obligation
to register any of the Holders’ Registrable Shares in connection with such
Registration;
(c) In
connection with an underwritten public offering pursuant to a Registration
Statement under this Section 3, if and only if the managing underwriter(s)
thereof shall advise the Company in writing that, due to adverse market
conditions or the potential adverse impact on the offering to be made for the
account of the Company, the securities to be included in such Registration
will
not include all of the Registrable Shares requested to be so included by the
Holders, then the Company will promptly furnish each such Holder with a copy
of
such written statement and may require, by written notice to each such Holder
accompanying such written statement, that the distribution of all or a specified
portion of such Registrable Shares be excluded from such distribution (with
any
such “cutback” to be allocated among the subject Holders (and, if applicable,
any other holders of Common Stock to be included in such Registration) in
proportion to the relative number of shares of Common Stock requested by such
Persons to be included in such Registration); and
(d) The
Company shall not be obligated to effect any registration of Shares incidental
to the registration of any of its securities in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock option
or
other employee benefit plans.
4. Registration
Procedures.
In the
case of each Registration effected by the Company in which Registrable Shares
are to be sold for the account of any Holder, the Company, at its sole cost
and
expense (exclusive of items excluded in the proviso to the definition of “Costs
and Expenses” above), will use its best efforts to:
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(a) prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus included therein as may be necessary to effect
and
maintain the effectiveness of such Registration Statement, until the completion
of the distribution of the Registrable Shares included therein, as may be
required by the applicable rules and regulations of the SEC and the instructions
applicable to the form of such Registration Statement, and furnish to the
Holders of the Registrable Shares covered thereby copies of any such supplement
or amendment not less than three (3) Business Days prior to the date first
used
and/or filed with the SEC; and comply with the provisions of the Act with
respect to the disposition of all the Shares to be included in such Registration
Statement;
(b) provide
(i) the Holders of the Registrable Shares to be included in such Registration
Statement, (ii) the underwriters (which term, for purposes of this Agreement,
shall include a person deemed to be an underwriter within the meaning of Section
2(11) of the Act, if any, thereof, (iii) the sales or placement agent, if any,
therefor, (iv) one counsel for such underwriters or agent, and (v) not more
than
one counsel for all the Holders of such Registrable Shares, the reasonable
opportunity review such Registration Statement, each prospectus included therein
or filed with the SEC, and each amendment or supplement thereto, in each case
to
the extent of any disclosures regarding the Holders, their and their Affiliates’
beneficial ownership of securities of the Company, and their intended method
of
disposition of the Registrable Shares included in such Registration Statement
(or any amendment to any such information previously included in such
Registration Statement (including any amendment or supplement thereto) or any
prospectus included therein);
(c) for
a
reasonable period prior to the filing of such Registration Statement, and not
more than once in any calendar quarter throughout the period specified above,
make available for inspection by the Persons referred to in Section 4(b) above
such financial and other information and books and records of the Company,
and
cause the officers, directors, employees, counsel and independent certified
public accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to
in
such Section 4(b), to conduct a reasonable investigation within the meaning
of
the Act; provided,
however,
that
each such party shall be required to maintain in confidence and not disclose
to
any other person or entity any information or records reasonably designated
by
the Company in writing as being confidential, until such time as and to the
extent that (i) such information becomes a matter of public record or generally
available to the public (whether by virtue of its inclusion in such Registration
Statement or otherwise, other than by reason of a breach hereof), (ii) such
party shall be required to disclose such information pursuant to the subpoena
or
order of any court or other governmental agency or body having jurisdiction
over
the matter, or (iii) such information is required to be set forth in such
Registration Statement or the prospectus included therein or in an amendment
to
such Registration Statement or an amendment or supplement to such prospectus
in
order that such Registration Statement, prospectus, amendment or supplement,
as
the case may be, does not include an untrue statement of a material fact or
omit
to state therein a material fact required to be stated therein or necessary
to
make the statements therein not misleading; and
further provided,
that the
Company need not make such information available, nor need it cause any officer,
director or employee to respond to such inquiry, unless each such Holder of
Registrable Shares to be included in a Registration Statement hereunder, upon
the Company’s request, executes and delivers to the Company a specific
undertaking to substantially the same effect contained in the preceding
proviso;
(d) promptly
notify in writing the Holders of Registrable Shares to be included in a
Registration Statement hereunder, the sales or placement agent, if any, therefor
and the managing underwriter of the securities being sold, (i) when such
Registration Statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective amendment, when
the
same has become effective, (ii) of any comments by the SEC and by the blue
sky
or securities commission or regulator of any state with respect thereto or
any
request by the SEC for amendments or supplements to such Registration Statement
or the prospectus or for additional information, (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of such registration
statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of
the
qualification of any Shares for sale in any jurisdiction or the initiation
or
threatening of any proceeding for such purpose, or (v) if it shall be the case,
at any time when a prospectus is required to be delivered under the Act, that
such Registration Statement, prospectus, or any document incorporated by
reference in any of the foregoing contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
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(e) obtain
the
withdrawal of any order suspending the effectiveness of such Registration
Statement or any post-effective amendment thereto at the earliest practicable
date;
(f) if
requested by any managing underwriter or underwriter, any placement or sales
agent or any Holder of Registrable Shares to be included in a Registration
Statement, promptly incorporate in a prospectus, prospectus supplement or
post-effective amendment such information as is required by the applicable
rules
and regulations of the SEC and as such managing underwriter or underwriters,
such agent or such Holder may reasonably specify should be included therein
relating to the terms of the sale of the Registrable Shares included thereunder,
including, without limitation, information with respect to the number of
Registrable Shares being sold by such Holder or agent or to such underwriters,
the name and description of such Holder, the offering price of such Registrable
Shares and any discount, commission or other compensation payable in respect
thereof, the purchase price being paid therefor by such underwriters and with
respect to any other terms of the offering of the Registrable Shares to be
sold
in such offering; and make all required filings of such prospectus, prospectus
supplement or post-effective amendment promptly after notification of the
matters to be incorporated in such prospectus, prospectus supplement or
post-effective amendment;
(g) furnish
to
each Holder of Registrable Shares to be included in such Registration Statement
hereunder, each placement or sales agent, if any, therefor, each underwriter,
if
any, thereof and the counsel referred to in Section 4(b) an executed copy of
such Registration Statement, each such amendment and supplement thereto (in
each
case excluding all exhibits and documents incorporated by reference) and such
number of copies of the Registration Statement (excluding exhibits thereto
and
documents incorporated by reference therein unless specifically so requested
by
such Holder, agent or underwriter, as the case may be) and the prospectus
included in such Registration Statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the Act,
as
such Holder, agent, if any, and underwriter, if any, may reasonably request
in
order to facilitate the disposition of the Shares owned by such Holder, sold
by
such agent or underwritten by such underwriter and to permit such Holder, agent
and underwriter to satisfy the prospectus delivery requirements of the Act;
and
the Company hereby consents to the use of such prospectus and any amendment
or
supplement thereto by each such Holder and by any such agent and underwriter,
in
each case in the form most recently provided to such person by the Company,
in
connection with the offering and sale of the Shares covered by the prospectus
(including such preliminary and summary prospectus) or any supplement or
amendment thereto;
(h) timely
(i)
register or qualify (to the extent legally required) the Shares to be included
in such registration statement under such other securities laws or blue sky
laws
of such jurisdictions to be designated by the Holders of a majority of such
Shares participating in such registration and each placement or sales agent,
if
any, therefor and underwriter, if any, thereof, as any Holder and each
underwriter, if any, of the securities being sold shall reasonably request,
(ii)
keep such registrations or qualifications in effect and comply with such laws
so
as to permit the continuance of offers, sales and dealings therein in such
jurisdictions for so long as may be necessary to enable such Holder, agent
or
underwriter to complete its distribution of the Registrable Shares pursuant
to
such Registration Statement, and (iii) take any and all such actions as may
be
reasonably necessary or advisable to enable such Holder, agent, if any, and
underwriter to consummate the disposition in such jurisdictions of such Shares;
provided,
however,
that the
Company shall not be required for any such purpose to (A) qualify generally
to
do business as a foreign corporation or a broker-dealer in any jurisdiction
wherein it would not otherwise be required to qualify but for the requirements
of this Section 4(h), (B) subject itself to taxation in any such jurisdiction,
or (C) consent to general service of process in any such
jurisdiction;
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(i) cooperate
with the Holders of the Registrable Shares to be included in a Registration
Statement hereunder and the managing underwriter(s) to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to
be
sold, which certificates shall be printed, lithographed or engraved, or produced
by any combination of such methods, in customary form to permit the transfer
thereof through the Company’s transfer agent; and enable such Registrable Shares
to be in such denominations and registered in such names as the managing
underwriter(s) may request at least two (2) business days prior to any sale
of
the Registrable Shares;
(j) provide
a
CUSIP number for all Shares, not later than the effective date of the
Registration Statement;
(k) in
the
event that Registrable Securities included in any Registration Statement are
to
be sold to or through any underwriter or placement or sales agent, (i) make
such
representations and warranties to the Holders of such Registrable Shares and
the
placement or sales agent, if any, therefor and the underwriters, if any, thereof
in form, substance and scope as are customarily made in connection with any
offering of equity securities pursuant to any appropriate agreement and/or
in a
registration statement filed on the form applicable to such Registration
Statement; (ii) if so requested by any such underwriter or placement or sales
agent, obtain an opinion of counsel to the Company in customary form and
covering such matters, of the type customarily covered by such an opinion,
as
the managing underwriters, if any, and/or the placement or sales agent may
reasonably request, addressed to such Holders and the placement or sales agent,
if any, therefor and the underwriters, if any, thereof and dated the effective
date of such Registration Statement (and if such Registration Statement
contemplates an underwritten offering of a part or of all of the Shares included
in such Registration Statement, dated the date of the closing under the
underwriting agreement relating thereto) (it being agreed that the matters
to be
covered by such opinion shall include, without limitation, the due organization
of the Company and its subsidiaries, if any; the qualification of the Company
and its subsidiaries, if any, to transact business as foreign entities; the
due
authorization, execution and delivery of this Agreement and of any underwriting
agreement; the absence, to such counsel’s knowledge, of pending or threatened
material legal or governmental proceedings involving the Company or any
subsidiary; the absence of a known breach by the Company or its subsidiaries
of,
or a default under, agreements binding the Company or any subsidiary; the
absence of governmental approvals required to be obtained in connection with
the
Registration Statement, the offering and sale of the Shares, this Agreement
or
any underwriting agreement; the compliance as to form of such Registration
Statement and any documents incorporated by reference therein with the
requirements of the Act; and the effectiveness of such Registration Statement
under the Act); (iii) if so requested by any such underwriter or placement
or
sales agent, obtain a “cold comfort” letter or letters from the independent
certified public accountants of the Company addressed to the Holders and the
placement or sales agent, if any, therefor and the underwriters, if any,
thereof, dated (A) the effective date of such Registration Statement, and (B)
the effective date of the most recent (or, if so stated in the request therefor,
the next) prospectus supplement to the prospectus included in such Registration
Statement or post-effective amendment to such Registration Statement which
includes unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such prospectus
(and, if such Registration Statement contemplates an underwritten offering
pursuant to any prospectus supplement to the prospectus included in such
Registration Statement or post-effective amendment to such Registration
Statement which includes unaudited or audited financial statements as of a
date
or for a period subsequent to that of the latest such statements included in
such prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and covering
such matters of the type customarily covered by letters of such type; (iv)
deliver such documents and certificates, including officers’ certificates, as
may be customary and reasonably requested by Holders of at least a majority
of
the Registrable Shares being sold and the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence the accuracy
of the representations and warranties made pursuant to clause (i) above and
the
compliance with or satisfaction of any agreements or conditions contained in
the
underwriting agreement or other agreement entered into by the Company; and
(v)
undertake such obligations relating to expense reimbursement, indemnification
and contribution as are provided in Sections 2, 3 and 5 hereof;
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(l) notify
in
writing each Holder of Registrable Shares of any proposal by the Company to
amend or waive any provision of this Agreement and of any amendment or waiver
effected pursuant thereto, each of which notices shall contain the text of
the
amendment or waiver proposed or effected, as the case may be;
(m) engage
to
act on behalf of the Company, with respect to the Registrable Shares to be
so
registered, a registrar and transfer agent having such duties and
responsibilities (including, without limitation, registration of transfers
and
maintenance of stock registers) as are customarily discharged by such an agent,
and to enter into such agreements and to offer such indemnities as are customary
in respect thereof; and
(n) otherwise
comply with all applicable rules and regulations of the SEC, and make available
to the Holders, as soon as practicable, but in any event not later than 18
months after the effective date of such Registration Statement, an earnings
statement covering a period of at least twelve months which shall satisfy the
provisions of Section 6(a) of the Act (including, at the option of the Company,
pursuant to Rule 158 thereunder).
5. Indemnification
by the Company.
(a) The
Company shall indemnify each Holder and its Affiliates from and against any
claim, loss, cost, charge or liability of any kind, including amounts paid
in
settlement and reasonable attorneys’ fees, which may be incurred by the Holder
or Affiliate as a result of any breach of any representation or warranty or
covenant of the Company contained in this Agreement or in any certificate
delivered on the closing date of any public offering of Shares.
(b) The
Company shall indemnify and hold harmless each Holder and its Affiliates, any
underwriter (as defined in the Act) for any Holder, each officer and director
of
a Holder, legal counsel and accountants for a Holder, and each person, if any,
who controls a Holder or such underwriter within the meaning of the Act, against
any losses, expenses, claims, damages or liabilities, joint or several, to
which
such Holder or any such Affiliate, underwriter, officer, director or controlling
person becomes subject, under the Act or any rule or regulation thereunder
or
otherwise, insofar as such losses, expenses, claims, damages or liabilities
(or
actions in respect thereof) (i) are caused by any untrue statement or alleged
untrue statement of any material fact contained in any preliminary prospectus
(if used prior to the effective date of the Registration Statement), or
contained, on the effective date thereof, in any Registration Statement in
which
Registrable Shares were included, the prospectus contained therein, any
amendment or supplement thereto, or any other document related to such
Registration Statement, or (ii) arise out of or are based upon the omission
or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) arise
out
of any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to actions or omissions otherwise
required of the Company in connection with such registration. The Company shall
reimburse each Holder and any such Affiliate, underwriter, officer, director
or
controlling person for any legal or other expenses reasonably incurred by such
Holder, or any such officer, director, underwriter or controlling person in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided,
however,
that the
Company shall not be liable to any such persons in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished
to
the Company in writing by such Person expressly for inclusion in any of the
foregoing documents. This indemnity shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld or delayed.
6. Further
Obligations of Holders.
The
obligations of the Company with respect to any particular Holder are subject
to
such Holder’s agreement to the following (which such Holder shall specifically
confirm in writing to the Company upon the Company’s request in connection with
any Registration Statement):
(a) Such
Holder shall furnish in writing to the Company all information concerning such
Holder and its and its Affiliates’ holdings of securities of the Company and its
Affiliates, and the intended method of disposition of the Registrable Securities
included in such Registration Statement, as shall be reasonably required in
connection with the preparation and filing of any Registration Statement
covering any of such Holder’s Registrable Shares.
(b) Such
Holder shall indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed a Registration Statement, each person (if
any) who controls the Company within the meaning of the Act, and any underwriter
(as defined in the Act) for the Company, against any losses, claims, damages
or
liabilities to which the Company or any such director, officer, controlling
person or underwriter may become subject under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) are caused by any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus (if used prior to the effective date of the Registration Statement),
or contained, on the effective date thereof, in any Registration Statement
in
which such Holder’s Registrable Shares were included, the prospectus contained
therein, any amendment or supplement thereto, or any other document related
to
such Registration Statement, or (ii) arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and
in conformity with information furnished to the Company by such Holder in
writing expressly for inclusion in any of the foregoing documents. In no event
shall any Holder be required to pay indemnification hereunder (or contribution
under Section 7(d) below) in an aggregate amount in excess of the net proceeds
received by such Holder in the subject offering. This indemnity shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the subject Holder,
which consent shall not be unreasonably withheld or delayed.
9
7. Additional
Provisions.
(a) Each
Holder and each other Person indemnified pursuant to Section 5 above shall,
in
the event that it receives notice of the commencement of any action against
it
which is based upon an alleged act or omission which, if proven, would result
in
the Company’s having to indemnify it pursuant to Section 5 above, promptly
notify the Company, in writing, of the commencement of such action and permit
the Company, if the Company so notifies such Holder within twenty (20) days
after receipt by the Company of notice of the commencement of the action, to
participate in and to assume the defense of such action with counsel reasonably
satisfactory to such Holder; provided,
however,
that
such Holder or other indemnified person shall be entitled to retain its own
counsel at its own expense (except that the indemnifying party shall bear the
expense of such separate counsel if representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of
interest). The failure to notify the Company promptly of the commencement of
any
such action shall not relieve the Company of any liability to indemnify such
Holder or such other indemnified person, as the case may be, under Section
5
above, except to the extent that the Company shall be actually prejudiced or
shall suffer any loss by reason of such failure to give notice, and shall not
relieve the Company of any other liabilities which it may have under this or
any
other agreement.
(b) The
Company and each other Person indemnified pursuant to Section 6 above shall,
in
the event that it receives notice of the commencement of any action against
it
which is based upon an alleged act or omission which, if proven, would result
in
any Holder having to indemnify it pursuant to Section 6 above, promptly notify
such Holder, in writing, of the commencement of such action and permit such
Holder, if such Holder so notifies the Company within twenty (20) days after
receipt by such Holder of notice of the commencement of the action, to
participate in and to assume the defense of such action with counsel reasonably
satisfactory to the Company; provided,
however,
that the
Company or other indemnified person shall be entitled to retain its own counsel
at the Company’s expense. The failure to notify any Holder promptly of the
commencement of any such action shall not relieve such Holder of liability
to
indemnify the Company or such other indemnified person, as the case may be,
under Section 6 above, except to the extent that the subject Holder shall be
actually prejudiced or shall suffer any loss by reason of such failure to give
notice, and shall not relieve such Holder of any other liabilities which it
may
have under this or any other agreement.
(c) No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified person who is party to such claim
or
litigation, consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant
or
plaintiff to such indemnified person of a release from all liability in respect
to such claim or litigation. Each such indemnified person shall furnish such
information regarding itself or the claim in question as an indemnifying party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting
therefrom.
(d) If
the
indemnification provided for in Section 5 and 6 is unavailable or insufficient
to hold harmless an indemnified party, then, subject to the limits set forth
in
Section 6(b) above, each indemnifying party shall contribute to the amount
paid
or payable by such indemnified party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof)
referred to in Sections 5 and 6, in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the sellers of Shares
on
the other hand in connection with statements or omissions which resulted in
such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) or expenses, as well as any other relevant equitable considerations.
The relative fault shall be 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 Company or the sellers of Shares and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Holders agree that it
would not be just and equitable if contributions pursuant to this Section 7(d)
were to be determined by pro rata allocation (even if all sellers of Shares
were
treated as one entity for such purpose) or by another method of allocation
which
does not take account of the equitable considerations referred to in the first
sentence of this Section 7(d). The amount paid by an indemnified person as
a
result of the expenses, claims, losses, damages or liabilities (or actions
or
proceedings in respect thereof) referred to in the first sentence of this
Section 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified person in connection with investigating or
defending any claim, action or proceeding which is the subject of this Section
7(d). No person guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the Act) shall be entitled to contribution from any person
who
was not guilty of such fraudulent misrepresentation. The obligations of sellers
of Shares to contribute pursuant to this Section 7(d) shall be several in
proportion to the respective amounts of Shares sold by them pursuant to a
Registration Statement.
10
8. Rule
144 Information.
For so
long as the Company shall remain a reporting company under the Exchange Act,
the
Company will at all times use its best efforts to keep publicly available
adequate current public information with respect to the Company of the type
and
in the manner specified in Rule 144(c) promulgated under the Act.
9. Limitations
on Subsequent Registration Rights.
From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Shares then
outstanding and/or issuable, enter into any agreement with any holder or
prospective holder of any securities of the Company which would require the
Company to include such securities in any Registration filed under Section
2
above, or would grant to such holder or prospective holder priority over the
Holders in the event of any “cutback” described in Section 3(c)
above.
10. Notices.
All
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be given by personal delivery,
by
telecopier (with confirmation of receipt), by recognized overnight courier
service (with all charges prepaid or billed to the account of the sender),
or by
certified or registered mail, return receipt requested, and with postage
prepaid, addressed (a) if to the Company, at its office at 000 Xxxxxxxxxx
Xxxx, Xxxxxxxx, Xxx Xxxx 00000, Attention: Chief Financial Officer, Telecopier:
(000) 000-0000, or such other address or telecopier number as shall have been
specified by the Company to the Holders by written notice, or (b) if to any
Holder, at his, her or its address or telecopier number as same appears on
the
records of the Company. All notices shall be deemed to have been given either
at
the time of the delivery or telecopy (with confirmation of receipt) thereof,
or,
if sent by overnight courier, on the next business day following delivery
thereof to the overnight courier service, or, if mailed, at the completion
of
the third business day following the time of such mailing.
11. Waiver
and Amendment.
No
waiver, amendment or modification of this Agreement or of any provision hereof
shall be valid unless evidenced by a writing duly executed by the Company and
Holders holding, in the aggregate, a majority of the Registrable Shares then
outstanding and/or issuable. No waiver of any default hereunder shall be deemed
a waiver of any other, prior or subsequent default hereunder.
12. Governing
Law.
This
Agreement shall (irrespective of the place where it is executed and delivered)
be governed, construed and controlled by and under the substantive laws of
the
State of New York, without regard to conflicts of law principles.
11
13. Binding
Effect.
This
Agreement shall binding upon and shall inure to benefit of the Company and
the
Holders and their respective successors in interest from time to
time.
14. Captions.
The
captions and Section headings used in this Agreement are for convenience only,
and shall not affect the construction or interpretation of this Agreement or
any
of the provisions hereof.
15. Gender.
All
pronouns used in this Agreement in the masculine, feminine or neuter gender
shall, as the context may allow, also refer to each other gender.
16. Entire
Agreement.
This
Agreement constitutes the sole and entire agreement and understanding between
the parties hereto as to the subject matter hereof, and supersedes all prior
discussions, agreements and understandings of every kind and nature between
them
as to such subject matter.
17. Reliance
and Benefit.
This
Agreement is intended to benefit, and may be relied upon by, all Holders from
time to time, as if such Holders were expressly named herein, party hereto
and
signatory hereon.
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remainder of this page is intentionally blank]
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IN
WITNESS WHEREOF,
the
Company has executed this Agreement as of the date first set forth
above.
AFP
IMAGING CORPORATION
By:
/s/
Xxxxx Xxxxxx
Name:
Xxxxx Xxxxxx
Title:
Chairman of the Board
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