EXHIBIT 10.1
AMENDMENT NO. 1
TO AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE AGREEMENT AND
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED NOTE AND WARRANT PURCHASE
AGREEMENT AND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"AMENDMENT NO. 1") dated as of September 30, 2004 (the ("AMENDMENT DATE"), is by
and between TELENETICS CORPORATION, a California corporation (the "COMPANY"),
and the persons and entities listed on EXHIBIT A hereto who sign the signature
pages of this Amendment No. 1 (each a "PURCHASER" and collectively, the
"PURCHASERS"). All capitalized terms used but not otherwise defined in this
Amendment No. 1 shall have the meanings ascribed to them in the Amended and
Restated Note and Warrant Purchase Agreement dated as of March 1, 2003 (the
"PURCHASE AGREEMENT").
R E C I T A L S
---------------
A. As of January 23, 2002, March 1, 2002, and April 1, 2002, the
Company entered into Note and Warrant Purchase Agreements, Security Agreements,
Registration Rights Agreements, Senior Secured Convertible Promissory Notes and
Secured Convertible Promissory Notes (collectively, the "ORIGINAL NOTES"), and
Warrants to Purchase Shares of Common Stock (the "ORIGINAL WARRANTS") of the
Company (collectively, the "ORIGINAL DOCUMENTS") with the Purchasers.
B. As of March 1, 2003, the Company entered into the Purchase
Agreement, Amended and Restated Warrants to Purchase Shares of Common Stock,
Amended and Restated Security Agreements, Amended and Restated Registration
Rights Agreement, and Amended and Restated Secured Promissory Notes
(collectively, the "AMENDED DOCUMENTS") with the Purchasers that replaced the
Original Documents. The Amended and Restated Secured Promissory Notes, when
referred to separately from the Amended Documents, shall be referred to herein
as the "FIRST AMENDED NOTES."
C. The Company and the Purchasers acknowledge and agree that, due to a
variety of factors, the Company is experiencing cash flow problems that
negatively impact its ability to meet its obligations to the Purchasers. On or
about July 21, 2004, the Company, Dolphin Offshore Partners, L.P. and SDS
Merchant Fund, L.P. (on behalf of itself and the other Purchasers (as defined in
the Purchase Agreement)) executed into a Consent of Holders of Secured
Promissory Notes Due March 1, 2006 pursuant to which the Purchasers each waived
any default or other penalty provisions in the Amended Documents, which waiver
covers the period from May 15, 2004 through September 30, 2004.
D. The Company and the Purchasers agree that a restructuring of the
debt incurred by the Company pursuant to the Original Documents and the Amended
Documents will aid in the ability of the Company to meet its obligations to the
Purchasers. Each Purchaser agrees to surrender and deliver its First Amended
Note and in exchange therefor shall receive from the Company (i) a Second
Amended and Restated Secured Promissory Note (collectively, the "SECOND AMENDED
NOTES"), (ii) Principal Stock (as defined below) or warrants (the "ADDITIONAL
WARRANTS") to purchase Common Stock (the "ADDITIONAL WARRANT SHARES"), as the
case may be, as described in more detail below, and (iii) Inducement Stock (as
defined below).
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E. This Amendment No. 1 is intended to amend the Purchase Agreement
executed by the parties as part of the Amended Documents.
F. This Amendment No. 1 has been mutually negotiated between informed,
sophisticated, consensual parties over an extended period of time.
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Purchasers agree as follows:
A G R E E M E N T
-----------------
1. AMENDED AND RESTATED NOTES. Concurrently with a Purchaser's
execution of this Amendment No. 1, the Purchaser shall surrender and deliver to
the Company the First Amended Note that was issued to the Purchaser. Upon
surrender and delivery by the Purchasers of the First Amended Notes (and the
cancellation thereof), and the execution of this Amendment No. 1 by the parties,
the Company shall deliver to each Purchaser a Second Amended Note in a form
substantially similar to that attached hereto as EXHIBIT B. From the Amendment
Date, all references in the Purchase Agreement to a "NOTE" or "NOTES" shall
refer to (a) a Second Amended Note or the Second Amended Notes, as the case may
be, that has or have been issued to replace any First Amended Notes, and (b) any
remaining First Amended Notes. The Company and each Purchaser acknowledges and
agrees that the outstanding balance of principal and accrued but unpaid interest
on the Purchaser's First Amended Note is the amount set forth next to the
Purchaser's name on EXHIBIT A (the "ORIGINAL BALANCES"). The Company has agreed
to pay each Purchaser at least twenty percent (20%) of their respective Original
Balance by issuing a number of shares of Common Stock ("PRINCIPAL STOCK") or
Additional Warrants to purchase an equivalent number of Additional Warrant
Shares, as set forth next to each Purchaser's name on EXHIBIT A (no fractional
shares will be issued). The principal balance of each of the Second Amended
Notes shall equal at most eighty percent (80%) of the Purchasers' respective
Original Balances, as set forth next to the Purchasers' names on EXHIBIT A.
The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933 and the
rules and regulations promulgated thereunder (the "SECURITIES ACT"), including
Regulation D ("REGULATION D"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
2. ISSUANCE OF COMMON STOCK. As part of the consideration for entering
into this Amendment No. 1, as of the Amendment Date, the Company shall issue
additional shares of Common Stock (the "INDUCEMENT STOCK") to each of the
Purchasers in the amount set forth next to each Purchaser's name on EXHIBIT A.
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3. WAIVER OF PRIOR BREACHES, DEFAULTS, ETC. As part of the
consideration for entering into this Amendment No. 1 and receiving the
Inducement Stock, each of the Purchasers, as of May 15, 2004 and through and
including the Amendment Date, hereby waives any and all rights, remedies, causes
of action and any other claims that it may have against the Company relating to
any breach, default, penalty, failure to pay or any other transgression or
noncompliance on the part of the Company under the terms of the Original
Documents or the Amended Documents through the Amendment Date.
4. RELATION TO AMENDED DOCUMENTS. It is the intention of the Company
and the Purchasers that all references to a "Note" or the "Notes" in the Amended
Documents shall, from the Amendment Date, refer to the Second Amended Notes that
have been issued pursuant hereto and the remaining First Amended Notes, and that
all terms and conditions thereof and relevant thereto shall apply to those
Second Amended Notes and remaining First Amended Notes.
5. WARRANTS. As of the Amendment Date, the Company shall issue to those
Purchasers who have elected to receive Additional Warrants rather than Principal
Stock the Additional Warrants pursuant to a Warrant to Purchase Shares of Common
Stock Agreement in form substantially similar to that attached hereto as EXHIBIT
C.
6. REGISTRATION RIGHTS. Each Purchaser that receives shares of
Principal Stock, Inducement Stock or Additional Warrants pursuant to this
Amendment No. 1, shall have those certain piggyback registration rights and
related obligations set forth in EXHIBIT D to this Amendment No. 1. Pursuant to
Section 7(e) of the Amended and Restated Registration Rights Agreement, each
Purchaser hereby waives and consents to a departure from the provisions of
Section 7 of the Amended and Restated Registration Rights Agreement to the
extent that the "FILING DATE" as defined in the Amended and Restated
Registration Rights Agreement is hereby waived and extended such that the Filing
Date shall hereafter be deemed to be thirty (30) Business Days (as defined in
the Amended and Restated Registration Rights Agreement) after the Holders (as
defined in the Amended and Restated Registration Rights Agreement) of a majority
of the Registrable Securities have requested, in a signed writing delivered to
the Company, that the Company register at least a majority of the Registrable
Securities; provided, however, that the Filing Date may be no earlier than May
31, 2005. If each of the Purchasers, as the term Purchaser is defined in the
Amended and Restated Registration Rights Agreement, is a party to this Amendment
No. 1 or otherwise consents, then Section 7(e) of the Amended and Restated
Registration Rights Agreement shall hereby be deemed to be amended and restated
to read in its entirety as follows:
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed
by the Company and Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates.
7. LEGEND. Each certificate representing Common Stock, the Additional
Warrants and the Additional Warrant Shares shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or "BLUE SKY" laws):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR TELENETICS
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of
Inducement Stock, Principal Stock or Additional Warrant Shares, without the
legend set forth above if at such time, prior to making any transfer of any such
securities, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer or legend removal will not be
effected until: (a) the Company has notified such holder that either (i) in the
opinion of Company counsel, the registration of Inducement Stock, Principal
Stock or Additional Warrant Shares under the Securities Act is not required in
connection with such proposed transfer; or (ii) a registration statement under
the Securities Act covering such proposed disposition has been filed by the
Company with the Commission and has become effective under the Securities Act;
and (b) the Company has notified such holder that either: (i) in the opinion of
Company counsel, the registration or qualification under the securities or "BLUE
SKY" laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or "BLUE SKY"
laws has been effected. The Company will use its best efforts to respond to any
such notice from a holder within five (5) days. In the case of any proposed
transfer under this SECTION 7, the Company will use reasonable efforts to comply
with any such applicable state securities or "BLUE SKY" laws, but shall in no
event be required, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would subject it
to tax or to the general service of process in any state where it is not then
subject. The restrictions on transfer contained in SECTION 7 shall be in
addition to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of the Purchase Agreement.
8. ACCREDITED INVESTOR. Each Purchaser continues to be an accredited
investor (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Second Amended Notes, the Principal
Stock, the Additional Warrants, the Additional Warrant Shares and the Inducement
Stock, as the case may be. Each Purchaser acknowledges that an investment in
such securities is speculative and involves a high degree of risk.
9. INTEGRATION. SECTION 8.3 of the Purchase Agreement and the
integration clause contained therein shall, from the Amendment Date, be deemed
to include this Amendment No. 1.
10. ADDRESS CHANGE. The Company's address in SECTION 8.4 of the
Purchase Agreement is hereby changed to the following:
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Telenetics Corporation
00 Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
Attention: Chief Financial Officer
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
11. OTHER PROVISIONS UNCHANGED. All terms, conditions and provisions of
the Purchase Agreement not amended or otherwise affected by this Amendment No. 1
shall remain in full force and effect. If any conflict arises or exists between
the provisions of this Amendment No. 1 and the Purchase Agreement, this
Amendment No. 1 shall control.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed by their respective authorized officers as of the date first
above written.
COMPANY: TELENETICS CORPORATION
By: /S/ Xxxxx X. Xxxxx
--------------------------------------
Name: Xxxxx X. Xxxxx
Title: President
PURCHASERS: SDS CAPITAL GROUP SPC, LTD.
By: /S/ Xxxxx Xxxxx
--------------------------------------
Name: Xxxxx Xxxxx
Title: General Counsel
/S/ Xxxxxx Xxxx
-----------------------------------------
XXXXXX XXXX
-----------------------------------------
XXXX XXXXXXX
XXXX XXXXXX AND XXXXXXXX XXXXXX,
Joint Tenants with Right of Survivorship
By: /S/ Xxxx Xxxxxx
--------------------------------------
Name: Xxxx Xxxxxx
By: /S/ Xxxxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxxxx Xxxxxx
/S/ Xxxxx Xxxxxx
-----------------------------------------
XXXXX XXXXXX
[SIGNATURES CONTINUED ON NEXT PAGE]
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SHADOW CAPITAL LLC
By: /S/ B. Xxxx Xxxxxxxxxxxx
--------------------------------------
Name: B. Xxxx Xxxxxxxxxxxx
Title: Manager
DRAGON COEUR LLC II-D
By: /S/ X. X. Xxxxxx
--------------------------------------
Name: X. X. Xxxxxx
Title:
-----------------------------
-----------------------------------------
XXXXX RANDOM
-----------------------------------------
XXXXXX XXXXX
THE XXXXXXX X. XXXX, XX. TRUST
DATED APRIL 30, 2002
By:
--------------------------------------
Xxxxxxx X. Xxxx, Xx., Trustee
/S/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
XXXXXXX X. XXXXXXX
/S/ Xxxxxx X. Xxxxxxx
-----------------------------------------
XXXXXX X. XXXXXXX
[SIGNATURES CONTINUED ON NEXT PAGE]
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TAG KENT PARTNERS
By: /S/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: General Partner
-------------------------------------------
XXXXXXX X. BRAND
-------------------------------------------
XXXXXXX X. XXXXXXXX
/S/ Xxxxx Xxxxxx
-------------------------------------------
XXXXX XXXXXX
/S/ Xxxxx X. Xxxxx
-------------------------------------------
XXXXX X. XXXXX
-------------------------------------------
XXXX X. XXXXXXXXXXX TRUST
By: /S/ Xxxx X. Xxxxxxxxxxx
---------------------------------------
Xxxx X. Xxxxxxxxxxx, Trustee
DOLPHIN DIRECT EQUITY PARTNERS, L.P.
By: Dolphin Advisors, LLC, General Partner
By: /S/ Xxxxx X. Xxxxx
----------------------------------
Name: Xxxxx X. Xxxxx
Title: Managing Member
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EXHIBIT A
---------
LIST OF PURCHASERS
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
NUMBER OF
ADDITIONAL
WARRANT SHARES
UNDERLYING THE
ADDITIONAL
ORIGINAL NUMBER OF WARRANTS NUMBER OF
BALANCE SHARES OF ISSUED AS OF SHARES OF
(PRINCIPAL DOLLAR AMOUNT PRINCIPAL THE AMENDMENT INDUCEMENT
AND OF SECOND STOCK ISSUED DATE FOR STOCK ISSUED
NAMES AND INTEREST AS AMENDED AS OF THE PRINCIPAL AS OF
ADDRESSES OF PURCHASERS (1) OF 9-30-04)($) NOTE ($) AMENDMENT DATE REDUCTION AMENDMENT DATE
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
SDS Capital Group SPC, Ltd. 1,202,902.43 962,321.95 -0- 3,286,619 721,741
00 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxx Xxxx 36,359.67 29,087.74 99,343 -0- 21,816
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxx X. Xxxxxxx 36,359.67 29,087.74 99,343 -0- 21,816
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxx Xxxxxx and Xxxxxxxx Xxxxxx, 36,359.67 29,087.74 99,343 -0- 21,816
Joint Tenants with Right of
Survivorship
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxx Xxxxxx 36,359.67 29,087.74 99,343 -0- 21,816
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Shadow Capital LLC 36,359.67 29,087.74 99,343 -0- 21,816
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Dragon Coeur LLC II-D 72,719.31 58,175.45 198,687 -0- 43,632
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxx Random 18,179.83 14,543.87 49,672 -0- 10,908
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxx X. Xxxxx 18,179.83 14,543.87 49,672 -0- 10,908
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
The Xxxxxxx X. Xxxx Trust 18,179.83 14,543.87 49,672 -0- 10,908
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxxx X. Xxxxxxx 18,179.83 14,543.87 49,672 -0- 10,908
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxx X. Xxxxxxx 18,179.83 14,543.87 49,672 -0- 10,908
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Tag Kent Partners 81,798.68 65,438.95 223,494 -0- 49,079
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxxx X. Brand 16,760.57 13,408.46 45,794 -0- 10,056
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxxxx X. Xxxxxxxx 40,597.84 32,478.28 110,923 -0- 24,359
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxx Xxxxxx 22,513.09 18,010.48 61,511 -0- 13,508
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxxx X. Xxxxx 22,513.09 18,010.47 61,511 -0- 13,508
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Xxxx X. Xxxxxxxxxxx Trust 22,513.09 18,010.47 61,511 -0- 13,508
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
Dolphin Direct Equity Partners, L.P. 1,903,334.22 1,522,667.38 5,200,367 -0- 1,142,001
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, X.X. 00000
------------------------------------ -------------- -------------- ---------------- ---------------- ----------------
(1) Unless otherwise stated, the address of each Purchaser is c/o Taglich
Brothers, Inc., 0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000.
A-1
EXHIBIT B
FORM OF SECOND AMENDED AND RESTATED
SECURED PROMISSORY NOTE
[See Exhibit 10.2 to this Form 8-K]
B-1
EXHIBIT C
FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK
[See Exhibit 10.3 to this Form 8-K]
C-1
EXHIBIT D
REGISTRATION RIGHTS
1. PIGGY-BACK REGISTRATION. If at any time when there is not an effective
federal registration statement covering (i) Principal Stock, (ii) Inducement
Stock or (iii) Additional Warrant Shares (collectively, "SECURITIES"), the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Securities that are not then registered ("REGISTRABLE
SECURITIES") written notice of such determination and, if within ten (10) days
after receipt of such notice, any such Holder shall so request in writing,
(which request shall specify the Registrable Securities intended to be disposed
of by the Holders), the Company will cause the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the Holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration and
(ii) in the case of a determination to delay registering, shall be permitted to
delay registering any Registrable Securities being registered for the same
period as the delay in registering such other securities. The Company shall
include in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered; provided, however, that the
Company shall not be required to register any Registrable Securities that are
eligible for sale pursuant to Rule 144(k) of the Securities Act; and provided
further, that the Holder has promptly furnished in writing to the Company or the
Company's counsel such information as the Company or the Company's counsel shall
reasonably require in connection with the registration statement.
In the case of an underwritten public offering, if the managing
underwriter(s) or underwriter(s) should reasonably object to the inclusion of
the Registrable Securities in such registration statement, then if the Company
after consultation with the managing underwriter should reasonably determine
that the inclusion of such Registrable Securities, would adversely affect the
offering contemplated in such registration statement, and based on such
determination recommends inclusion in such registration statement of fewer or
none of the Registrable Securities of the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration), if the
D-1
Company after consultation with the underwriter(s) recommends the inclusion of
fewer Registrable Securities, or (y) none of the Registrable Securities of the
Holders shall be included in such registration statement, if the Company after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities; provided, however, that if securities are being offered
for the account of other persons or entities as well as the Company, such
reduction shall not represent a greater fraction of the number of Registrable
Securities intended to be offered by the Holders than the fraction of similar
reductions imposed on such other persons or entities (other than the Company).
2. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding
any termination of the Purchase Agreement, indemnify and hold harmless each
Holder, the officers, directors, agents, brokers (including brokers who offer
and sell Registrable Securities as principal as a result of a pledge or any
failure to perform under a margin call of the Company's common stock),
investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of
each such controlling person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "LOSSES") (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review), as incurred,
arising solely out of or based solely upon any untrue or alleged untrue
statement of a material fact contained in the registration statement, any
prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising solely out of or based solely upon
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder or such other Indemnified Party
(as defined below) furnished in writing to the Company by such Holder expressly
for use therein, which information was reasonably relied on by the Company for
use therein or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the registration statement, such prospectus or such form of prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by these registration
rights provisions.
(b) INDEMNIFICATION BY PURCHASERS. The Holders shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising solely out of or based solely upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement, any prospectus, or any form of prospectus or form of
prospectus or in any amendment or supplement thereto or in any preliminary
D-2
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any prospectus or supplement thereto, in the light of
the circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission or alleged untrue
statement or omission is contained in any information so furnished in writing by
such Holder or other Indemnified Party to the Company specifically for inclusion
in the registration statement or such prospectus and that such information was
reasonably relied upon by the Company for use in the registration statement,
such prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the registration statement, such
prospectus or such form of prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action, claim, suit,
investigation or proceeding (including without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or threatened
("PROCEEDING") is brought or asserted against any person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify
the person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing,
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
the Purchase Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel (which shall be reasonably
acceptable to the Indemnifying Party) that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
D-3
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with these registration rights provisions) shall be paid to the
Indemnified Party, as incurred, within ten (10) business days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification hereunder is
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in these registration
rights provisions, any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in these registration rights provisions was
available to such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in these
registration rights provisions are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.
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