EXHIBIT 10.36
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December ___,
2003 (this "Agreement"), is made by and between NEW VISUAL CORPORATION, a Utah
corporation with headquarters located at 0000 Xxxxxx Xxxx, Xxxxx 000, Xxx Xxxxx,
XX 00000 (the "Company"), and each entity named on a signature page hereto
(each, an "Initial Investor") (each agreement with an Initial Investor being
deemed a separate and independent agreement between the Company and such Initial
Investor, except that each Initial Investor acknowledges and consents to the
rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of December 31, 2003, between the
Initial Investor and the Company (the "Securities Purchase Agreement";
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Securities Purchase Agreement), the Company has agreed to issue
and sell to the Initial Investors the Debentures and the Warrants; and
WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Conversion Shares"; which term, for purposes of this Agreement,
shall include shares of Common Stock of the Company issuable in lieu of accrued
interest through the Maturity Date of the Debentures, as that term is defined in
and as contemplated by the Debentures) upon the terms and subject to the
conditions contained in the Debentures; and
WHEREAS, the Warrant Shares may be issued upon the exercise of
the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Registrable Securities (as defined
below);
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Company Counsel" means Aboudi & Xxxxxxxxxx.
"Closing Date" shall mean the Initial Closing Date.
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"Effective Date" means the date the SEC declares a
Registration Statement covering Registrable Securities and otherwise meeting the
conditions contemplated hereby to be effective.
"Held Shares Value" means, for shares of Common Stock acquired
by the Investor upon a conversion of a Debenture within the thirty (30) days
preceding the Restricted Sale Date, but not yet sold by the Investor, the
principal amount of the Debentures converted into such Conversion Shares;
provided, however, that if the Investor effected more than one such conversion
during such thirty (30) day period and sold less than all of such shares, the
sold shares shall be deemed to be derived first from the conversions in the
sequence of such conversions (that is, for example, until the number of shares
from the first of such conversions have been sold, all shares shall be deemed to
be from the first conversion; thereafter, from the second conversion until all
such shares are sold).
"Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Debentures or
Registrable Securities.
"Payment Shares" means shares of Common Stock issued by the
Company as provided in Section 2(b) below.
"Permitted Suspension Period" means up to two periods during
any consecutive 12-month period during which the Holder's right to sell
Registrable Securities under the Registration Statement is suspended, each of
which suspension period shall neither (i) be for more than fifteen (15) days nor
(ii) begin less than ten (10) business days after the last day of the preceding
suspension (whether or not such last day was during or after a Permitted
Suspension Period).
"Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
"Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the SEC.
"Registrable Securities" means, collectively, the Conversion
Shares, the Warrant Shares, the Additional Shares and the Payment Shares.
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"Registration Statement" means a registration statement of the
Company under the Securities Act covering Registrable Securities on Form SB-2,
if the Company is then eligible to file using such form, and if not eligible, on
Form S-1 or other appropriate form.
"Required Effective Date" means, initially, the Initial
Required Effective Date or the Increased Required Effective Date (as those terms
are defined below), as the case may be.
"Restricted Sale Date" means the first date, other than a date
during a Permitted Suspension Period (as defined below), on which the Investor
is restricted from making sales of Registrable Securities covered by any
previously effective Registration Statement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC, as soon
as practicable after the Closing Date but no later than thirty (30) days after
the Initial Closing Date (the "Required Filing Date"), a Registration Statement
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities.
Notwithstanding the requirement to register all Registrable Securities, the
Company's obligation to register the Registrable Securities shall initially be
satisfied by the registration of the Initial Number of Shares to Be Registered
(as defined below). The "Initial Number of Shares to Be Registered" is a number
of shares of Common Stock which is at least equal to one hundred fifty percent
(150%) of the sum of (x) the number of shares into which the Debentures and all
interest thereon through their respective Maturity Dates would be convertible at
the time of filing of such Registration Statement (assuming for such purposes
that all Debentures, including the Additional Debentures, had been issued, had
been eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such issuance, eligibility, accrual
of interest or conversion had in fact occurred as of such date) and (y) the
number of Warrant Shares covered by the Warrants (assuming for such purposes
that all the Warrants, including the Additional Warrants, had been issued, had
been eligible to be exercised and had been exercised for the issuance of Warrant
Shares in accordance with their terms, whether or not such issuance, eligibility
or exercise had in fact occurred as of such date). Unless otherwise specifically
agreed to in writing in advance by the Lender, the Registration Statement (W)
shall include only (1) the Registrable Securities, (2) the shares issuable on
exercise of warrants issued to the Finder in connection with the transactions
contemplated by the Transaction Agreements, and (3) the shares issued or
issuable in connection with the transactions consummated on or about October 31,
2003 (including shares issuable upon the exercise of warrants issued to the
Finder in such transaction), and (X) shall also state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Debentures to prevent dilution resulting from stock splits, or
stock dividends.
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(ii) The Company will use its reasonable best efforts to cause
such Registration Statement to be declared effective on a date (the "Initial
Required Effective Date") which is no later than the earlier of (Y) five (5)
days after oral or written notice by the SEC that it may be declared effective
or (Z) ninety (90) days after the Initial Closing Date.
(iii) If at any time (an "Increased Registered Shares Date"),
the number of shares of Common Stock represented by the Registrable Securities,
issued or to be issued as contemplated by the Transaction Agreements, exceeds
eighty percent (80%) of the aggregate number of shares of Common Stock then
registered or sought to be registered in a Registration Statement which has not
yet been declared effective, the Company shall either
(X) amend the relevant Registration Statement filed by the Company
pursuant to the preceding provisions of this Section 2, if such
Registration Statement has not been declared effective by the SEC at
that time, to register the Increased Number of Shares to Be Registered
(as defined below). The "Increased Number of Shares to Be Registered"
is a number of shares of Common Stock which is at least equal to (A)
the number of shares theretofore issued on conversion of the Debentures
(including any interest paid on conversion by the issuance of
Conversion Shares) and on exercise of the Warrants, plus (B) (I) one
hundred fifty percent (150%) of (II) the sum of (x) the number of
shares into which the unconverted Debentures and all interest thereon
through their respective Maturity Dates would be convertible at the
time of filing of such Registration Statement or amendment (assuming
for such purposes that all Debentures, including the Additional
Debentures, reduced by any previously converted Debentures, had been
issued, had been eligible to be converted, and had been converted, into
Conversion Shares in accordance with their terms, whether or not such
issuance, eligibility, accrual of interest or conversion had in fact
occurred as of such date) and (y) the number of Warrant Shares covered
by the unexercised Warrants (assuming for such purposes that all the
Warrants, including the Additional Warrants, reduced by any exercised
Warrants, had been issued, had been eligible to be exercised and had
been exercised for the issuance of Warrant Shares in accordance with
their terms, whether or not such issuance, eligibility or exercise had
in fact occurred as of such date), or
(Y) if such Registration Statement has been declared effective by the
SEC at that time, file with the SEC an additional Registration
Statement (an "Additional Registration Statement") to register the
number of shares equal to the excess of the Increased Number of Shares
to Be Registered over the aggregate number of shares of Common Stock
already registered.
The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (each, an "Increased Required
Effective Date") which is no later than (q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Initial Required
Effective Date and (r) with respect to an Additional Registration Statement, the
earlier of (I) five (5) days after notice by the SEC that it may be declared
effective or (II) thirty (30) days after the Increased Registered Shares Date.
(b) PAYMENTS BY THE COMPANY.
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(i) If the Registration Statement covering the Registrable
Securities is not filed as contemplated by this Agreement with the SEC by the
Required Filing Date, the Company will make payment to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(b).
(ii) If the Registration Statement covering the Registrable
Securities is not effective by the relevant Required Effective Date or if there
is a Restricted Sale Date, then the Company will make payments to the Initial
Investor in such amounts and at such times as shall be determined pursuant to
this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Debentures for the
period from the date following the relevant Required Filing Date or the Required
Effective Date or a Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The "Periodic Amount Percentage" means (A) two percent (2%) of the Purchase
Price of all Debentures for such period to the first relevant Computation Date
after the relevant Required Filing Date, Required Effective Date or Restricted
Sale Date, as the case may be, and (B) three percent (3%) of the Purchase Price
of all Debentures to each Computation Date thereafter. Anything in the preceding
provisions of this paragraph (iii) to the contrary notwithstanding, after the
relevant Effective Date the Purchase Price shall be deemed to refer to the sum
of (X) the principal amount of all Debentures not yet converted and (Y) the Held
Shares Value. By way of illustration and not in limitation of the foregoing, if
the Registration Statement is filed on or before the Required Filing Date, but
is not declared effective until seventy-five (75) days after the Initial
Required Effective Date, the Periodic Amount will aggregate eight percent (8%)
of the Purchase Price of the Debentures (2% for days 1-30, plus 3% for days
31-60, plus 3% for days 61-75).
(iv) Each Periodic Amount, if any, will be payable by the
Company, except as provided in the other provisions of the immediately
succeeding subparagraph (v), in cash or other immediately available funds to the
Investor (1) on the day after the Required Filing Date, the Required Effective
Date or a Restricted Sale Date, as the case may be, and (2) on the earlier of
(A) each thirtieth day thereafter, (B) the third business day after the date the
Registration Statement is filed or is declared effective, or (C) the third
business day after the Registration Statement has its restrictions removed after
the relevant Effective Date, in each case without requiring demand therefor by
the Investor.
(v) Notwithstanding the provisions of the immediately
preceding subparagraph (iv),
(A) at the option of the Company, exercisable in its discretion on the
date the Periodic Amount is due; provided, however, that the Company
may exercise this discretion if, but only if the Effective Date is
within one hundred fifty (150) days after the Closing Date and the
Registration Statement covering the Payment Shares is then effective;
or
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(B) at the option of the Investor, exercisable in its sole and absolute
discretion by written notice to the Company at any time before the
Periodic Amount is paid,
all or a portion of the Periodic Amount shall be paid by the issuance of
additional shares of Common Stock to the Investor ("Payment Shares") in an
amount equal to the Periodic Amount being paid thereby divided by the then
applicable Conversion Price; provided, further that the Delivery Date for the
Payment Shares shall be three (3) business days after the date the Periodic
Amount is due (if the election is made by the Company) or after the Investor
gives the notice contemplated by clause (ii) of this subparagraph.
(vi) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended or the shares of the Company's stock are not listed on the Principal
Trading Market, may be difficult to ascertain. The parties agree that the
amounts payable pursuant to the foregoing provisions of this Section 2(b)
represent a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of such damages.
(vii) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the filing or effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel.
(viii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, the Required
Effective Date or a Restricted Sale Date, as the case may be, or (2) the date
after the Required Filing Date, the Required Effective Date or Restricted Sale
Date on which the Registration Statement is filed (with respect to payments due
as contemplated by Section 2(b)(i) hereof) or is declared effective or has its
restrictions removed or the shares of the Company's stock are listed on the
Principal Trading Market (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be, and (B) each date which is the
earlier of (1) thirty (30) days after the previous Computation Date or (2) the
date after the previous Computation Date on which the Registration Statement is
filed (with respect to payments due as contemplated by Section 2(b)(i) hereof)
or is declared effective or has its restrictions removed or the shares of the
Company's stock are listed on the Principal Trading Market (with respect to
payments due as contemplated by Section 2(b)(ii) hereof), as the case may be.
(ix) Anything in the preceding provisions of this Section 2(b)
to the contrary notwithstanding, if, but only if, the Registration Statement is
declared effective within thirty (30) days following the Initial Required
Effective Date,
(A) the provisions of Section 2(b)(i) shall not apply; and
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(B) the provisions of Section 2(b)(ii) shall not apply to the fact that
the Registration Statement was initially declared effective after the
Initial Required Effective Date;
and the Company will not have any obligation to pay any Periodic Amount to the
Investor with respect thereto; provided, however, that the provisions of Section
2(b)(ii) shall continue to apply to all other events described therein.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earlier of (i) the date when the
Investors may sell all Registrable Securities under Rule 144 without volume or
other restrictions or limits or (ii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall 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 in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Permit a single firm of counsel designated by the Initial
Investors (which, until further notice, shall be deemed to be Xxxxxxx & Prager
LLP, Attn: Xxxxxx Xxxxxxx, Esq., which firm has requested to receive such
notification; each, an "Investor's Counsel") to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
(but not less than three (3) business days) prior to their filing with the SEC,
and not file any document in a form to which such counsel reasonably objects;
(d) Notify each Investor and the Investor's Counsel and any
managing underwriters immediately (and, in the case of (i)(A) below, not less
than three (3) business days prior to such filing) and (if requested by any such
person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
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representative of the Company receives on its behalf) any oral or written
comments from the SEC in respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
proceedings for that purpose; (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it 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. In addition, the Company shall communicate with the
Investor's Counsel with regard to its proposed written responses to the comments
contemplated in clause (C) of this Section 3(d), so that, to the extent
practicable, the Investors shall have the opportunity to comment thereon;
(e) Furnish to each Investor and to Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits 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, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
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(h) Comply with Regulation FD or any similar rule or
regulation regarding the dissemination of information regarding the Company, and
in furtherance of the foregoing, and not in limitation thereof, not disclose to
the Investor any non-public material information regarding the Company;
(i) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing that the effectiveness of the
Registration Statement is suspended for any reason, whether due to a Potential
Material Event or otherwise, the Investors shall not offer or sell any
Registrable Securities, or engage in any other transaction involving or relating
to the Registrable Securities, from the time of the giving of such notice until
such Investor receives written notice from the Company that such the
effectiveness of the Registration Statement has been restored, whether because
the Potential Material Event has been disclosed to the public or it no longer
constitutes a Potential Material Event or otherwise; PROVIDED, HOWEVER, that the
Company may not so suspend the right to such holders of Registrable Securities
during the periods the Registration Statement is required to be in effect other
than during a Permitted Suspension Period (and the applicable provisions of
Section 2(b) shall apply with respect to any such suspension other than during a
Permitted Suspension Period);
(j) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the Principal Trading Market within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the Principal Trading
Market;
(k) Provide a transfer agent ("Transfer Agent") and registrar,
which may be a single entity, for the Registrable Securities not later than the
initial Effective Date;
(l) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within five (5) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the Transfer Agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel, which shall include, without limitation, directions to the
Transfer Agent to issue certificates of Registrable Securities(including
certificates for Registrable Securities to be issued after the Effective Date
and replacement certificates for Registrable Securities previously issued)
without legends or other restrictions, subject to compliance with applicable law
and other rules and regulations, including, without limitation, prospectus
delivery requirements; and
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(m) Take all other reasonable administrative steps and actions
(including the participation of Company counsel) necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement; provided, however, that the foregoing does not
require that the Company take any steps whatsoever regarding the identification
or selection of a broker to sell the Registrable Securities, the identification
of buyers of the Registrable Securities, or the negotiation of the sale terms of
the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(b) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f),
(g) or (i) above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f), (g) or (i),
and, if so directed by the Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other
than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. In addition, a fee for a single
counsel for the Investors (as a group and not individually) equal to $4,000 for
the review of each Registration Statement and $2,000 for the review of each
post-effective amendment to a Registration Statement shall be borne by the
Company.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor, and
each Lender Control Person (each, an "Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
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arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or 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, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively
referred to as "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to any Claim
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of such Indemnified Party expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(b) hereof; (II) be available to the extent such Claim is based on a
failure of the Investor to deliver or cause to be delivered the prospectus made
available by the Company or the amendment or supplement thereto made available
by the Company; (III) be available to the extent such Claim is based on the
delivery of a prospectus by the Investor after receiving notice from the Company
under Section 3(f), (g) or (i) hereof (other than a notice regarding the
effectiveness of the Registration Statement or any amendment or supplement
thereto), or (IV) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. The Investor will
indemnify the Company and its officers, directors and agents (each, an
"Indemnified Party") against any claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Investor, expressly for use in
connection with the preparation of the Registration Statement or the amendment
or supplement thereto, subject to such limitations and conditions as are
applicable to the indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
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satisfactory to the indemnifying party (provided such counsel shall not have a
conflict of interest with the Indemnified Party and provided that all defenses
available to the Indemnified Party can be maintained without prejudicing the
rights of the indemnifying party). In case any such action is brought against
any Indemnified Party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such Indemnified Party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such Indemnified Party under this Section 6 for any legal or other
reasonable out-of-pocket expenses subsequently incurred by such Indemnified
Party in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel as provided above. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Party under this Section 6, except to the extent
that the indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) except where the seller has committed fraud (other
than a fraud by reason of the information included or omitted from the
Registration Statement as to which the Company has not given notice as
contemplated under Section 3 hereof) or intentional misconduct, contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER SECURITIES ACT AND EXCHANGE ACT. With a view
to making available to Investor the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit Investor to sell securities of the Company to the public without
Registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
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(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) if not available on the SEC's XXXXX
system, a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the Investor to sell such
securities pursuant to Rule 144 without Registration; and
(d) at the request of any Investor holding Registrable
Securities (a "Holder"), give its Transfer Agent instructions (supported by an
opinion of Company counsel, if required or requested by the Transfer Agent) to
the effect that, upon the Transfer Agent's receipt from such Holder of
(i) a certificate (a "Rule 144 Certificate") certifying (A) that the
Holder's holding period (as determined in accordance with the
provisions of Rule 144) for the shares of Registrable Securities which
the Holder proposes to sell (the "Securities Being Sold") is not less
than (1) year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii) an opinion of counsel acceptable to the Company (for which
purposes it is agreed that the initial Investor's Counsel shall be
deemed acceptable if not given by Company Counsel) that, based on the
Rule 144 Certificate, Securities Being Sold may be sold pursuant to the
provisions of Rule 144, even in the absence of an effective
Registration Statement,
the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent's books and records (except to the extent any such
legend or restriction results from facts other than the identity of the Holder,
as the seller or transferor thereof, or the status, including any relevant
legends or restrictions, of the shares of the Securities Being Sold while held
by the Holder). If the Transfer Agent reasonably requires any additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investor to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debentures) only if the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, (b) the securities with respect to which such registration rights are
being transferred or assigned, and (c) written evidence of the transferee's
assumption of the Investor's obligations under this Agreement.
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10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a eighty (80%) percent interest of the Registrable Securities (as
calculated by the stated value of the then outstanding Debentures). Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Securities Purchase Agreement, (i) if
to the Company or to the Initial Investor, to their respective address
contemplated by the Securities Purchase Agreement, and (ii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
County of New York or the state courts of the State of New York sitting in the
County of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON COVENIENS, to the bringing of any
such proceeding in such jurisdictions.
(e) The Company and the Investor hereby waive a trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other in respect of any matter arising out of or in
connection with this Agreement or any of the other Transaction Agreements.
14
(f) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(g) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(h) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(j) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(k) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(l) This Agreement (including to the extent relevant the
provisions of other Transaction Agreements) constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
COMPANY:
NEW VISUAL CORPORATION
By: ________________________________
Name: ______________________________
Title: _____________________________
INITIAL INVESTOR:
------------------------------------
[PRINT NAME OF INITIAL INVESTOR]
By: ________________________________
Name: ______________________________
Title: _____________________________
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