Registration Rights Agreement
Exhibit
10.16
This
Registration Rights Agreement (this “Agreement”)
sets
forth certain registration rights of purchasers (each, a “Purchaser”
and
collectively, the “Purchasers”)
of
shares of Series B Convertible Preferred Stock (“Shares”)
of
Cyber Merchants Exchange, Inc., a California corporation (the “Company”)
and
warrants (the “Investor
Warrants”)
to
purchase shares of the Company’s Common Stock (as defined herein) pursuant to
Subscription Agreements to which this Agreement is a part (each, a “Subscription
Agreement”
and
collectively, the “Subscription
Agreements”),
and
of Xxxxxxx Securities, LLC (“Xxxxxxx”)
to
which the Company has issued a warrant (the “Agent
Warrant”
and
together with the Investor Warrants, the “Warrants”)
to
purchase shares of the Company’s Common Stock.
1. Certain
Definitions.
As used
in this Agreement, the following terms shall have the following respective
meanings:
“Approved
Market”
means
the Nasdaq National Market, the Nasdaq Capital Market, the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. or the NASD’s OTC Bulletin
Board.
“Blackout
Period”
means,
with respect to a registration, a period:
(a) in
each
case commencing on the day immediately after the Company notifies the Holders
that they are required, pursuant to Section
4(f),
to
suspend offers and sales of Registrable Securities during which the Company,
in
the good faith judgment of its Board of Directors, determines (because of the
existence of, or in anticipation of, any acquisition, financing activity, or
other transaction involving the Company, or the unavailability for reasons
beyond the Company’s control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any
other
event or condition of similar significance to the Company) that the registration
and distribution of the Registrable Securities to be covered by such
registration statement, if any, would be seriously detrimental to the Company
and its shareholders and ending on the earlier of (1) the date upon which the
material non-public information commencing the Blackout Period is disclosed
to
the public or ceases to be material and (2) such time as the Company notifies
the selling Holders that the Company will no longer delay such filing of the
Registration Statement, recommence taking steps to make such Registration
Statement effective, or allow sales pursuant to such Registration Statement
to
resume; provided,
however,
that (i)
the Company shall limit its use of Blackout Periods described in the
clause
(a),
in the
aggregate, to 30 Trading Days in any 12-month period and (ii) no Blackout Period
pursuant to this clause
(a)
may
commence sooner than 60 days after the end of a prior such Blackout Period;
or
(b)
commencing
on the day immediately after the Company notifies the Holders that they are
required pursuant to Section
5
to
suspend offers and sales of Registrable Securities because, with respect to
a
registration statement on a form other than Form S-3, the Company reasonably
determines that, based on the advice of counsel, a post-effective amendment
to
the registration statement must be filed with the Commission in order to update
the audited financial statements in the registration statement, or the Company
elects, in its discretion, to file a post-effective amendment to such
registration statement for the purpose of converting it to a Form S-3 after
such
form becomes available for use by the Company, and, in either case, such
post-effective amendment is reviewed by the Commission, and ending at such
time
as the post-effective amendment is declared effective by the Commission;
provided,
however,
that (i)
the Company shall use its best efforts to promptly cause such post-effective
amendment to be declared effective by the Commission and (ii) the Company may
suspend effectiveness of a registration statement for a period not to exceed
75
consecutive days, provided that the Company may not suspend its obligation
under
this clause
(b)
for more
than 90 days in the aggregate during any 12 month period.
The
periods set forth in (a) and (b) above are not exclusive of each other. The
period set forth in (a) will be included in the calculation of the period set
forth in (b) and vice versa.
“Business
Day”
means
any day of the year, other than a Saturday, Sunday, or other day on which the
Commission is required or authorized to close.
“Closing
Date”
means
the date on which the closing of the offering contemplated by the Subscription
Agreements shall occur, or such other time as is mutually agreed between the
Company and the Purchasers for the closing of the sale referred to in Recital
A
above.
“Commission”
means
the Securities and Exchange Commission or any other federal agency at the time
administering the Securities Act.
“Common
Stock”
means
the common stock, no par value per share, of the Company and any and all shares
of capital stock or other equity securities of: (i) the Company which are added
to or exchanged or substituted for the Common Stock by reason of the declaration
of any stock dividend or stock split, the issuance of any distribution or the
reclassification, readjustment, recapitalization or other such modification
of
the capital structure of the Company; and (ii) any other corporation, now or
hereafter organized under the laws of any state or other governmental authority,
with which the Company is merged, which results from any consolidation or
reorganization to which the Company is a party, or to which is sold all or
substantially all of the shares or assets of the Company, if immediately after
such merger, consolidation, reorganization or sale, the Company or the
stockholders of the Company own equity securities having in the aggregate more
than 50% of the total voting power of such other corporation.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder.
“Family
Member”
means
(a) with respect to any individual, such individual’s spouse, any descendants
(whether natural or adopted), any trust all of the beneficial interests of
which
are owned by any of such individuals or by any of such individuals together
with
any organization described in Section 501(c)(3) of the Internal Revenue Code
of
1986, as amended, the estate of any such individual, and any corporation,
association, partnership or limited liability company all of the equity
interests of which are owned by those above described individuals, trusts or
organizations and (b) with respect to any trust, the owners of the beneficial
interests of such trust.
“Holder”
means
each Purchaser, Xxxxxxx, or any of such Purchaser’s respective successors and
Permitted Assigns who acquire rights in accordance with this Agreement with
respect to the Registrable Securities directly or indirectly from a Purchaser
or
Xxxxxxx, including from any Permitted Assignee.
“Inspector”
means
any attorney, accountant, or other agent retained by a Purchaser for the
purposes provided in Section
4(j).
“Majority
Holders”
means
at any time Holders of a majority of the Registrable Securities.
“Permitted
Assignee”
means
(a) with respect to a partnership, its partners or former partners in
accordance with their partnership interests, (b) with respect to a
corporation, its shareholders in accordance with their interest in the
corporation, (c) with respect to a limited liability company, its members
or former members in accordance with their interest in the limited liability
company, (d) with respect to an individual party, any Family Member of such
party, (e) an entity that is controlled by, controls, or is under common control
with a transferor, or (f) a party to this Agreement.
The
terms
“register,”
“registered,”
and
“registration”
refers
to a registration effected by preparing and filing a registration statement
in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
“Registrable
Securities”
means
a
number of shares of Common Stock equal to 100% of the shares of Common Stock
issued or issuable to each Purchaser upon conversion of the Shares or exercise
of the Investor Warrants issued to each pursuant to the Subscription Agreements
and issued or issuable to Xxxxxxx upon exercise of the Agent Warrant,
excluding
(i) any
Registrable Securities that have been publicly sold or may be sold immediately
without registration under the Securities Act either pursuant to Rule 144 of
the
Securities Act or otherwise; provided a legal opinion with respect to the
availability of Rule 144 for the resale of Regisgrable Securities received
upon
conversion of the Preferred Shares has been rendered by a law firm acceptable
to
both the Company and the Holder as evidence that Rule 144 is available for
such
Registrable Securities; (ii) any Registrable Securities sold by a person in
a
transaction pursuant to a registration statement filed under the Securities
Act
or (iii) any Registrable Securities that are at the time subject to an effective
registration statement under the Securities Act.
“Registration
Default Date”
means
the date which is 150 days following the Closing Date; provided,
however,
(i) if
the Registration Statement is not subject to review by the Commission’s staff
and the 150th
day
following the Closing Date falls during a Blackout Period, the Registration
Default Date shall be the date immediately following the last day of such
Blackout Period, and (ii) if the Registration Statement is subject to review
by
the Commission’s staff and the Company is unable to file necessary pre-effective
amendments to the Registration Statement with the Commission because of a
Blackout Period, the Registration Default Date shall be extended by the number
of calendar days that the Company is unable to file any such pre-effective
amendment during any such Blackout Period that occurs prior to the end of the
150-day period.
“Registration
Default Period”
means
the period following the Registration Default Date during which any Registration
Event occurs and is continuing.
“Registration
Event”
means
the occurrence of any of the following events:
(a) the
Company fails to file with the Commission the Registration Statement on or
before the Registration Filing Date pursuant to Section
3(a);
(b) the
Registration Statement covering Registrable Securities is not declared effective
by the Commission on or before the Registration Default Date;
(c) after
the
SEC Effective Date, sales cannot be made pursuant to the Registration Statement
for any reason (including without limitation by reason of a stop order, or
the
Company’s failure to update the Registration Statement) but except as (i)
excused pursuant to Section
3(a),
(ii)
for the reasons specified in clause
(d)
or (iii)
as otherwise permitted by this Agreement, including pursuant to a Blackout
Period and as provided in Section
5;
or
(d) the
Common Stock generally or the Registrable Securities specifically are not listed
or included for quotation on an Approved Market, or trading of the Common Stock
is suspended or halted on the Approved Market, which at the time constitutes
the
principal market for the Common Stock, for more than two full, consecutive
Trading Days; provided,
however,
a
Registration Event shall not be deemed to occur if all or substantially all
trading in equity securities (including the Common Stock) is suspended or halted
on the Approved Market for any length of time.
“Registration
Statement”
means
the registration statement required to be filed by the Company pursuant to
Section
3(a).
“Securities
Act”
means
the Securities Act of 1933, as amended, or any similar federal statute
promulgated in replacement thereof, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time.
“SEC
Effective Date”
means
the date the Registration Statement is declared effective by the
Commission.
“Trading
Day”
means
a
day on whichever (a) the national securities exchange, (b) the Nasdaq Stock
Market, or (c) such other securities market, in any such case which at the
time
constitutes the principal securities market for the Common Stock, is open for
general trading of securities.
2. Term.
This
Agreement shall continue in full force and effect for a period of two (2) years
from the date of the Subscription Agreement (the “Effective
Date”),
unless terminated sooner hereunder.
3. Registration.
(a) Shelf
Registration.
As
promptly as reasonably practicable after the date hereof, but in any event
not
later than 30 days after the Closing Date (the “Registration
Filing Date”),
the
Company shall file with the Commission a shelf registration statement pursuant
to Rule 415 promulgated under the Securities Act relating to the resale by
the
Holders of all of the Registrable Securities; provided,
however,
that
the Company shall not be obligated to effect any such registration,
qualification, or compliance pursuant to this Section
3(a),
or keep
such registration effective pursuant to Section
4:
(i) in
any particular jurisdiction in which the Company would be required to qualify
to
do business as a foreign corporation or as a dealer in securities under the
securities or blue sky laws of such jurisdiction or to execute a general consent
to service of process in effecting such registration, qualification or
compliance, in each case where it has not already done so; or (ii) during any
Blackout Period, in which case the Registration Filing Date shall be extended
to
the date immediately following the last day of such Blackout
Period.
(b) Piggyback
Registration.
If the
Company shall determine to register for sale for cash any of its Common Stock,
for its own account or for the account of others (other than the Holders),
other
than (i) a registration relating solely to employee benefit plans or securities
issued or issuable to employees, consultants (to the extent the securities
owned
or to be owned by such consultants could be registered on Form S-8) or any
of
their Family Members (including a registration on Form S-8) or (ii) a
registration relating solely to a Commission Rule 145 transaction, a
registration on Form S-4 in connection with a merger, acquisition, divestiture,
reorganization, or similar event, the Company shall promptly give to the Holders
written notice thereof (and in no event shall such notice be given less than
20
calendar days prior to the filing of such registration statement), and shall,
subject to Section
3(c),
include
in such registration (and any related qualification under blue sky laws or
other
compliance) (a “Piggyback
Registration”),
all
of the Registrable Securities specified in a written request or requests, made
within 10 calendar days after receipt of such written notice from the Company,
by any Holder or Holders. However, the Company may, without the consent of
the
Holders, withdraw such registration statement prior to its becoming effective
if
the Company or such other stockholders have elected to abandon the proposal
to
register the securities proposed to be registered thereby.
(c) Underwriting.
If a
Piggyback Registration is for a registered public offering involving an
underwriting, the Company shall so advise the Holders in writing or as a part
of
the written notice given pursuant to Section
3(b).
In such
event the right of any Holder to registration pursuant to Section
3(b)
shall be
conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other
stockholders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company or
selling stockholders, as applicable. Notwithstanding any other provision of
this
Section
3(c),
if the
underwriter or the Company determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may
exclude some or all Registrable Securities from such registration and
underwriting. The Company shall so advise all Holders (except those Holders
who
failed to timely elect to distribute their Registrable Securities through such
underwriting or have indicated to the Company their decision not to do so),
and
the number of shares of Registrable Securities that may be included in the
registration and underwriting, if any, shall be allocated among such Holders
as
follows:
(i)
In
the
event of a Piggyback Registration that is initiated by the Company, the number
of shares that may be included in the registration and underwriting shall be
allocated first to the Company and then, subject to obligations and commitments
existing as of the date hereof, to all selling stockholders, including the
Holders, who have requested to sell in the registration on a pro rata basis
according to the number of shares requested to be included; and
(ii)
In
the
event of a Piggyback Registration that is initiated by the exercise of demand
registration rights by a stockholder or stockholders of the Company (other
than
the Holders), then the number of shares that may be included in the registration
and underwriting shall be allocated first to such selling stockholders who
exercised such demand and then, subject to obligations and commitments existing
as of the date hereof, to all other selling stockholders, including the Holders,
who have requested to sell in the registration, on a pro rata basis according
to
the number of shares requested to be included.
No
Registrable Securities excluded from the underwriting by reason of the
underwriter’s marketing limitation shall be included in such registration. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration;
provided,
however,
that,
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.
(e) Other
Registrations.
Prior
to the SEC Effective Date the Company will not, without the prior written
consent of the Majority Holders, file or request the acceleration of any other
registration statement filed with the Commission, and during any time subsequent
to the SEC Effective Date when the Registration Statement for any reason is
not
available for use by any Holder for the resale of any Registrable Securities,
the Company shall not, without the prior written consent of the Majority
Holders, file any other registration statement or any amendment thereto with
the
Commission under the Securities Act or request the acceleration of the
effectiveness of any other registration statement previously filed with the
Commission, other than (A) any registration statement on Form S-8 or Form S-4
and (B) any registration statement or amendment which the Company is required
to
file or as to which the Company is required to request acceleration pursuant
to
any obligation in effect on the date of execution and delivery of this
Agreement. Notwithstanding the foregoing or anything contained herein to the
contrary, the
Company may include on the Registration Statement: (i)
2,000,000 shares of Common Stock which are currently outstanding and have been
granted piggyback registration rights, (ii) 7,104,160 shares of Common Stock
currently held by KI Equity Partners II, LLC (“KI Equity”) which do not have
piggyback registration rights, (iii) 2,850,000 shares of Common Stock to be
issued by the Company to Worldwide Gateway Co., Ltd. immediately prior to the
closing of a certain Exchange Agreement, dated July 7, 2006, by and among the
Company, KI Equity, Prime Fortune Enterprises Limited (“Prime Fortune”) and each
of the stockholders of Prime Fortune (the “Exchange Agreement”), (iv) shares of
Common Stock underlying the Series A Convertible Preferred stock to be issued
to
Hamptons Investment Group, Ltd. pursuant to the Exchange Agreement (or, if
converted, the shares of Common Stock issued upon conversion of thereof), and
(v) shares of Common Stock issued to the legal counsel of Infosmart Group
Limited for fees in connection with the Exchange Agreement.
(f) Failure
to File Registration Statement.
If a
Registration Event occurs, then the Company will make payments to each Purchaser
(“Registration Default Payments”), as partial liquidated damages for the damages
to the Purchaser by reason thereof, and not as a penalty, at a rate equal to
two
percent (2%) of the purchase price of the Shares held by such Purchaser per
month, for each calendar month of the Registration Default Period (pro rated
for
any period less than 30 days), subject to a cumulative maximum value of 14%
(the
“Registration Default Payment Cap”); provided,
however,
if a
Registration Event occurs (or is continuing) on a date more than one year after
the Purchaser acquired the Registrable Securities (and thus the one year holding
period under Rule 144(d) has elapsed), the partial liquidated damages shall
be
paid only with respect to that portion of a Purchaser’s Registrable Securities
that cannot then be immediately resold in reliance on Rule 144; provided a
legal
opinion with respect to the availability of Rule 144 for the resale of
Registrable Securities received upon conversion of the Preferred Shares has
been
rendered by a law firm acceptable to both the Company and the Holder as evidence
that Rule 144 is available for such Registrable Securities. Each such payment
shall be due and payable within five Business days after the end of each
calendar month of the Registration Default Period until the termination of
the
Registration Default Period and within five Business days after such
termination. Such payment shall be made in cash. The foregoing payments shall
be
in partial compensation to the Purchaser, and shall not constitute the
Purchaser’s exclusive remedy for such events. The Registration Default Period
shall terminate upon (i) the filing of the Registration Statement in the case
of
clause
(a)
of the
definition of “Registration Event,” (ii) the SEC Effective Date in the case of
clause
(b)
of the
definition of “Registration Event,” (iii) the ability of the Purchaser to effect
sales pursuant to the Registration Statement in the case of clause
(c)
of the
definition of “Registration Event,” (iv) the listing or inclusion
and/or trading
of the Common Stock on an Approved Market, as the case may be, in the case
of
clause
(d)
of the
definition of “Registration Event,” and (v) in the case of the events described
in clauses
(b)
and
(c)
of the
definition of “Registration Event,” the earlier termination of the Registration
Default Period. The amounts payable as partial liquidated damages pursuant
to
this paragraph shall be payable in lawful money of the United States. Amounts
payable as partial liquidated damages to each Purchaser hereunder with respect
to each share of Registrable Securities shall cease when the Purchaser no longer
holds such share of Registrable Securities or such share of Registrable
Securities can be immediately sold by the Purchaser in reliance on Rule 144;
provided a legal opinion with respect to the availability of Rule 144 for the
resale of Regisgrable Securities received upon conversion of the Preferred
Shares has been rendered by a law firm acceptable to both the Company and the
Holder as evidence that Rule 144 is available for such Registrable Securities.
4. Registration
Procedures.
In the
case of each registration, qualification, or compliance effected by the Company
pursuant to Section
3
hereof,
the Company will keep each Holder including securities therein reasonably
advised in writing (which may include e-mail) as to the initiation of each
registration, qualification, and compliance and as to the completion thereof.
At
its expense with respect to any registration statement filed pursuant to
Section
3,
the
Company will:
(a) prepare
and file with the Commission with respect to such Registrable Securities, a
registration statement on a form for which the Company then qualifies or which
counsel for the Company shall deem appropriate, and which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method(s) of distribution thereof, and use its commercially reasonable
efforts to cause such registration statement to become and remain effective
at
least for a period ending with the first to occur of (i) the sale of all
Registrable Securities covered by the registration statement, (ii) the
availability under Rule 144(k) for the Holder to immediately, freely resell
without restriction all Registrable Securities covered by the registration
statement; provided a legal opinion with respect to the availability of Rule
144
for the resale of Registrable Securities received upon conversion of the
Preferred Shares has been rendered by a law firm acceptable to both the Company
and the Holder as evidence that Rule 144 is available for such Registrable
Securities, and (iii) one year after a registration statement filed pursuant
to
Section
3(a)
is
declared effective by the Commission (in either case, the “Effectiveness
Period”);
provided,
however,
if at
the end of such one year period, any Holder is not able to immediately, freely
resell all Registrable Securities that it owns, the Effectiveness Period shall
continue until terminated pursuant to clause
(i)
or
(ii);
provided that no later than two Business days before filing with the Commission
a registration statement or prospectus or any amendments or supplements thereto,
the Company shall (i) furnish to each Holder a copy of the “Plan of
Distribution” and “Selling Shareholder” portions of the registration statement
and the other portions of such documents proposed to be filed that the Company
considers not to contain material, non-public information (excluding any
exhibits other than applicable underwriting documents), in substantially the
form proposed to be filed and (ii) notify each Holder of Registrable Securities
covered by such registration statement of any stop order issued or threatened
by
the Commission and take all reasonable actions required to prevent the entry
of
such stop order or to remove it if entered;
(b) if
a
registration statement is subject to review by the Commission, promptly respond
to all comments and diligently pursue resolution of any comments to the
satisfaction of the Commission;
(c) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective during the Effectiveness
Period (but in any event at least until expiration of the 90-day period referred
to in Section 4(3) of the Securities Act and Rule 174, or any successor thereto,
thereunder, if applicable), and comply with the provisions of the Securities
Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended method(s) of
disposition by the sellers thereof set forth in such registration
statement;
(d) furnish,
without charge, to each Holder of Registrable Securities covered by such
registration statement (i) a reasonable number of copies of such registration
statement (including any exhibits thereto other than exhibits incorporated
by
reference), each amendment and supplement thereto as such Holder may request,
(ii) such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any other prospectus filed
under Rule 424 under the Securities Act) as such Holders may request, in
conformity with the requirements of the Securities Act, and (iii) such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder, but only during
the Effectiveness Period;
(e) use
its
commercially reasonable best efforts to register or qualify such Registrable
Securities under such other applicable securities or blue sky laws of such
jurisdictions as any Holder of Registrable Securities covered by such
registration statement reasonably requests as may be necessary for the
marketability of the Registrable Securities (such request to be made by the
time
the applicable registration statement is deemed effective by the Commission)
and
do any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holder; provided
that the
Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such
jurisdiction;
(f) as
promptly as practicable after becoming aware of such event, notify each Holder
of such Registrable Securities at any time when a prospectus relating thereto
is
required to be delivered under the Securities Act of the happening of any event
which comes to the Company’s attention if as a result of such event the
prospectus included in such registration statement 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 and the
Company shall promptly prepare and furnish to such Holder a supplement or
amendment to such prospectus (or prepare and file appropriate reports under
the
Exchange Act) so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an 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 not misleading, unless suspension
of
the use of such prospectus otherwise is authorized herein or in the event of
a
Blackout Period, in which case no supplement or amendment need be furnished
(or
Exchange Act filing made) until the termination of such suspension or Blackout
Period;
(g) comply,
and continue to comply during the period that such registration statement is
effective under the Securities Act, in all material respects with the Securities
Act and the Exchange Act and with all applicable rules and regulations of the
Commission with respect to the disposition of all securities covered by such
registration statement, and make available to its security holders, as soon
as
reasonably practicable, an earnings statement covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning with
the
first full calendar month after the SEC Effective Date, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities
Act.
(h) as
promptly as practicable after becoming aware of such event, notify each Holder
of Registrable Securities being offered or sold pursuant to the Registration
Statement of the issuance by the Commission of any stop order or other
suspension of effectiveness of the Registration Statement at the earliest
possible time;
(i) permit
the Holders of Registrable Securities being included in the Registration
Statement and their legal counsel, at such Holders’ sole cost and expense
(except as otherwise specifically provided in Section
6)
to
review and have a reasonable opportunity to comment on the Registration
Statement and all amendments and supplements thereto at least two Business
Days
prior to their filing with the Commission and shall not file any such document
to which the Majority Holders reasonably object; provided that in the event
a
Holder fails to comment on the Registration Statement within the time period
specified above, such Holder shall be deemed to waive its rights with respect
to
reviewing and commenting on the Registration Statement provided in this Section
4(i);
(j)
make
available for inspection by any Holder and any Inspector retained by such
Holder, at such Holder’s sole expense, all records of the Company as shall be
reasonably necessary to enable such Holder to exercise its due diligence
responsibility, and cause the Company’s officers, directors, and employees to
supply all information which such Holder or any Inspector may reasonably request
for purposes of such due diligence; provided,
however, that
such
Holder shall hold in confidence and shall not make any disclosure of any record
or other information which the Company determines in good faith to be
confidential, and of which determination such Holder is so notified at the
time
such Holder receives such information, unless (i) the disclosure of such record
is necessary to avoid or correct a misstatement or omission in the Registration
Statement and a reasonable time prior to such disclosure the Holder shall have
informed the Company of the need to so correct such misstatement or omission
and
the Company shall have failed to correct such misstatement of omission, (ii)
the
release of such record is ordered pursuant to a subpoena or other order from
a
court or governmental body of competent jurisdiction or (iii) the information
in
such record has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not
be
required to disclose any confidential information in such records to any
Inspector until and unless such Inspector shall have entered into a
confidentiality agreement with the Company with respect thereto, substantially
in the form of this Section
4(j),
which
agreement shall permit such Inspector to disclose records to the Holder who
has
retained such Inspector. Each Holder agrees that it shall, upon learning that
disclosure of such records is sought in or by a court or governmental body
of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at the Company’s expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the records
deemed confidential. The Company shall hold in confidence and shall not make
any
disclosure of information concerning a Holder provided to the Company pursuant
to this Agreement unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) disclosure of such
information to the Staff of the Division of Corporation Finance is necessary
to
respond to comments raised by the Staff in its review of the Registration
Statement, (iii) disclosure of such information is necessary to avoid or correct
a misstatement or omission in the Registration Statement, (iv) release of such
information is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, or (v) such information has been
made generally available to the public other than by disclosure in violation
of
this or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning a Holder is sought in or by
a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Holder and allow such Holder, at such Holder’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information. Notwithstanding the foregoing, the
Company will not disclose to any Holder or Inspector any material non-public
information concerning the Company without the consent of such Holder or
Inspector. In the event any Holder or Inspector consents to and receives an
material non-public information concerning the Company, the Holder shall abide
by all laws and regulations relating to securities transactions while in
possession of material non-public information;
(k) use
its
best efforts to cause all the Registrable Securities covered by the Registration
Statement to be quoted on an Approved Market;
(l) provide
a
transfer agent and registrar, which may be a single entity, for the Registrable
Securities at all times;
(m) cooperate
with the Holders of Registrable Securities being offered pursuant to the
Registration Statement to issue and deliver certificates (not bearing any
restrictive legends) representing Registrable Securities sold pursuant to the
Registration Statement within five Trading Days after delivery of certificates
to the Company and enable such certificates to be in such denominations or
amounts as the Holders may reasonably request and registered in such names
as
the Holders may request;
(n) during
the Effectiveness Period, refrain from bidding for or purchasing any Common
Stock or any right to purchase Common Stock or attempting to induce any person
to purchase any such security or right if such bid, purchase or attempt would
in
any way limit the right of the Holders to sell Registrable Securities by reason
of the limitations set forth in Regulation M under the 1934 Act;
and
(o) take
all
other commercially reasonable actions necessary to expedite and facilitate
disposition by the Holders of the Registrable Securities pursuant to the
Registration Statement.
5. Suspension
of Offers and Sales.
Each
Holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4(f)
hereof
or of the commencement of a Blackout Period, such Holder shall discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder’s receipt of the copies
of the supplemented or amended prospectus contemplated by Section
4(f)
hereof
or notice of the end of the Blackout Period, and, if so directed by the Company,
such Holder shall deliver to the Company (at the Company’s expense) all copies
(including, without limitation, any and all drafts), other than permanent file
copies, then in such Holder’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period mentioned in
Section
4(a)(iii)
hereof
shall be extended by the greater of (i) ten Business days or (ii) the number
of
days during the period from and including the date of the giving of such notice
pursuant to Section
4(f)
hereof
to and including the date when each Holder of Registrable Securities covered
by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section
4(f)
hereof.
6. Registration
Expenses.
The
Company shall pay all expenses in connection with any registration, including,
without limitation, all registration, filing, stock exchange fees, printing
expenses, all fees and expenses of complying with securities or blue sky laws,
and the fees and disbursements of counsel for the Company and of its independent
accountants; provided that, in any underwritten registration, each party shall
pay for its own underwriting discounts and commissions and transfer taxes.
Except as provided above in Section
9,
the
Company shall not be responsible for the expenses of any attorney or other
advisor employed by a Holder of Registrable Securities.
7. Assignment
of Rights.
No
Holder may assign its rights under this Agreement to any party without the
prior
written consent of the Company; provided,
however,
that a
Holder may assign its rights under this Agreement without such restrictions
to a
Permitted Assignee as long as (a) such transfer or assignment is effected in
accordance with applicable securities laws; (b) such transferee or assignee
agrees in writing to become subject to the terms of this Agreement; (c) the
Company is given written notice by such Holder of such transfer or assignment,
stating the name and address of the transferee or assignee and identifying
the
Registrable Securities with respect to which such rights are being transferred
or assigned; and (d) such assignment is made, (I) prior to the registration
statement required to be filed pursuant to Section 3(a) hereof is first declared
effective by the Commission or (II) after such registration statement has been
declared effective but only if such registration statement is not available
to
be used by the selling shareholders set forth in such registration statement
to
sell shares of the Company’s common stock registered pursuant to such
registration statement.
8. Information
by Holder.
The
Holder or Holders of Registrable Securities included in any registration shall
furnish to the Company such information regarding such Holder or Holders and
the
distribution proposed by such Holder or Holders as the Company may request
in
writing within two (2) Business Days. In the event a Holder shall fail to
furnish such requested information to the
Company in accordance with this Section 8, the Company may exclude such Holder’s
Common Stock from the Registration Statement in its sole
discretion.
9. Indemnification.
(a) In
the
event of the offer and sale of Registrable Securities held by Holders under
the
Securities Act, the Company shall, and hereby does, indemnify and hold harmless,
to the fullest extent permitted by law, each Holder, its directors, officers,
partners, each other person who participates as an underwriter in the offering
or sale of such securities, and each other person, if any, who controls or
is
under common control with such Holder or any such underwriter within the meaning
of Section 15 of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, and expenses to which the Holder or any such
director, officer, partner or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein 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, and the Company shall
reimburse the Holder, and each such director, officer, partner, underwriter
and
controlling person for any legal or any other expenses reasonably incurred
by
them in connection with investigating, defending or settling any such loss,
claim, damage, liability, action or proceeding; provided that the Company shall
not be liable in any such case (i) to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement in
or
omission or alleged omission from such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by or on behalf of such
Holder specifically stating that it is for use in the preparation thereof or
(ii) if the person asserting any such loss, claim, damage, liability (or action
or proceeding in respect thereof) who purchased the Registrable Securities
that
are the subject thereof did not receive a copy of an amended preliminary
prospectus or the final prospectus (or the final prospectus as amended or
supplemented) at or prior to the written confirmation of the sale of such
Registrable Securities to such person because of the failure of such Holder
or
underwriter to so provide such amended preliminary or final prospectus and
the
untrue statement or alleged untrue statement or omission or alleged omission
of
a material fact made in such preliminary prospectus was corrected in the amended
preliminary or final prospectus (or the final prospectus as amended or
supplemented). Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holders, or any such director,
officer, partner, underwriter or controlling person and shall survive the
transfer of such shares by the Holder.
(b) As
a
condition to including any Registrable Securities to be offered by a Holder
in
any registration statement filed pursuant to this Agreement, each such Holder
agrees to be bound by the terms of this Section
9
and to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, against
any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement
or
alleged statement or omission or alleged omission was made in reliance upon
and
in conformity with written information about such Holder as a Holder of the
Company furnished to the Company, and such Holder shall reimburse the Company,
and each such director, officer, and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating,
defending, or settling and such loss, claim, damage, liability, action, or
proceeding; provided,
however,
that
such indemnity agreement found in this Section
9(b)
shall in
no event exceed the gross proceeds from the offering received by such Holder.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling person and shall survive the transfer by any Holder of such
shares.
(c) Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in Section
9(a)
or
(b)
hereof
(including any governmental action), such indemnified party shall, if a claim
in
respect thereof is to be made against an indemnifying party, give written notice
to the indemnifying party of the commencement of such action; provided that
the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under Section
9(a)
or
(b)
hereof,
except to the extent that the indemnifying party is actually prejudiced by
such
failure to give notice. In case any such action is brought against an
indemnified party, unless in the reasonable judgment of counsel to such
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the
latter in connection with the defense thereof, unless in such indemnified
party’s reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of
the
defenses thereof or the indemnifying party fails to defend such claim in a
diligent manner, other than reasonable costs of investigation. Neither an
indemnified nor an indemnifying party shall be liable for any settlement of
any
action or proceeding effected without its consent. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement, which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a
release from all liability in respect of such claim or litigation.
Notwithstanding anything to the contrary set forth herein, and without limiting
any of the rights set forth above, in any event any party shall have the right
to retain, at its own expense, counsel with respect to the defense of a
claim.
(d)
In
the
event that an indemnifying party does or is not permitted to assume the defense
of an action pursuant to Section
9(c)
or in
the case of the expense reimbursement obligation set forth in Section
9(a)
and
(b),
the
indemnification required by Section
9(a)
and
(b)
hereof
shall be made by periodic payments of the amount thereof during the course
of
the investigation or defense, as and when bills received or expenses, losses,
damages, or liabilities are incurred.
(e) If
the
indemnification provided for in this Section
9
is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall (i) contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
as is appropriate to reflect the proportionate relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission relates to information supplied
by the indemnifying party or the indemnified party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission), or (ii) if the allocation provided by
clause
(i)
above is
not permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, not only the proportionate
relative fault of the indemnifying party and the indemnified party, but also
the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, as well as any other relevant equitable
considerations. No indemnified party guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
(f) Other
Indemnification.
Indemnification similar to that specified in the preceding subsections of this
Section
9
(with
appropriate modifications) shall be given by the Company and each Holder of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation or
governmental authority other than the Securities Act.
10. Rule
144.
For
a
period of at least 24 months following the Closing Date,
the
Company will use its commercially reasonable best efforts (a) to timely file
all
reports required to be filed by the Company after the date hereof under the
Securities Act and the Exchange Act (including the reports pursuant to Section
13(a) or 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule
144) and the rules and regulations adopted by the Commission thereunder), (b)
if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell
shares of Common Stock under Rule 144, and (c) to take such further action
as
any holder of shares of Common Stock may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell shares of Common
Stock without registration under the Securities Act within the limitation of
the
exemptions provided by Rule 144, including causing its attorneys to issue and
deliver any appropriate legal opinion required to permit a Purchaser to sell
shares of Common Stock under Rule 144 upon receipt of appropriate documentation
relating to such sale, and causing its transfer agent to remove any stop-order
or restrictive transfer legend on such certificates.
11. Independent
Nature of Each Purchaser’s Obligations and Rights.
The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and each Purchaser shall not be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each Purchaser to purchase
Shares and Warrants and enter into this Agreement has been made by each
Purchaser independently of any other Purchaser. Nothing contained herein and
no
action taken by any Purchaser pursuant hereto, shall be deemed to constitute
such Purchasers as a partnership, an association, a joint venture, or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement. Each Purchaser acknowledges that
no
other Purchaser has acted as agent for the Purchaser in connection with making
its investment in Shares and that no other Purchaser will be acting as agent
of
the Purchaser in connection with monitoring its investment in the Shares or
enforcing its rights under this Agreement. Each Purchaser shall be entitled
to
independently protect and enforce its rights, including without limitation
the
rights arising out of this Agreement, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
12. Miscellaneous
(a) Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of California and the United States of America, both substantive and
remedial. Any
judicial proceeding brought against either of the parties to this agreement
or
any dispute arising out of this Agreement or any matter related hereto shall
be
brought in the state courts located in California or in the United States
District Court located in Los Angeles, California and, by its execution and
delivery of this agreement, each party to this Agreement accepts the
jurisdiction of such courts. The foregoing consent to jurisdiction shall not
be
deemed to confer rights on any person other than the parties to this
Agreement.
(b) Successors
and Assigns.
Except
as otherwise provided herein, the provisions hereof shall inure to the benefit
of, and be binding upon, the successors, Permitted Assigns, executors and
administrators of the parties hereto. In the event the Company merges with,
or
is otherwise acquired by, a direct or indirect subsidiary of a publicly traded
company, the Company shall condition the merger or acquisition on the assumption
by such parent company of the Company’s obligations under this Agreement.
(c) Entire
Agreement.
This
Agreement constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof.
(d) Notices,
etc.
All
notices or other communications which are required or permitted under this
Agreement shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, by electronic
mail, or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so delivered:
| If to the Company: | Cyber Merchants Exchange, Inc. |
|
|
5th Floor, QPL Industrial Building |
| 000-000 Xxxxxx Xxxx | |
| Xxxxx Xxx, Xxxx Xxxx | |
| Attn: Xxxx Xxxx, CEO | |
| (000) 0000-0000 telephone | |
| (000) 0000-0000 telecopy | |
| with a copy to: | Xxxxxxxx & Xxxxx LLP |
| 00000 Xxxxxxxx Xxxx., Xxxxx 000 | |
| Xxx Xxxxxxx, Xxxxxxxxxx 00000 | |
| Attn: Xxxxx X. Xxxxx, Esq. | |
| (000) 000-0000 telephone | |
| (000) 000-0000 telecopy | |
| If to the Purchasers: | To each Purchaser at the address |
| set forth on Exhibit A | |
| with a copy to | Xxxxxxx X. Xxxxxxx, President |
| Xxxxxxx Securities, LLC | |
| 0000 XXX Xxxxxxx, Xxxxx 0000 | |
| Xxxxxxxxx Xxxxxxx, Xxxxxxxx XXX 00000-0000 | |
| (000) 000-0000 telephone | |
| (000) 000-0000 telecopy | |
or
at
such other address as any party shall have furnished to the other parties in
writing.
(e) Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to any Holder
of any Registrable Securities, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such Holder
nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
Any
waiver, permit, consent or approval of any kind or character on the part of
any
Holder of any breach or default under this Agreement, or any waiver on the
part
of any Holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
(f) Severability.
In the
case any provision of this Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall
not
in any way be affected or impaired thereby.
(g) Amendments.
The
provisions of this Agreement may be amended at any time and from time to time,
and particular provisions of this Agreement may be waived, with and only with
an
agreement or consent in writing signed by the Company and by the holders of
a
75% majority of the number of shares of Registrable Securities outstanding
as of
the date of such amendment or waiver. The Purchasers acknowledge that by the
operation of this Section
12(h),
the
holders of a 75% majority of the outstanding Registrable Securities may have
the
right and power to diminish or eliminate all rights of the Purchasers under
this
Agreement.
(h) Limitation
on Subsequent Registration Rights.
After
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the Registrable Securities
then
outstanding, enter into any agreement with any holder or prospective holder
of
any securities of the Company that would grant such holder registration rights
senior to those granted to the Holders hereunder.
