REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 23, 2000 (this
"Agreement"), is made by and between XXXXXXXX.XXX, a California corporation,
with headquarters located at 000 Xxxxxx Xxxxxx, Xxxxxxxxxx, XX 00000 (the
"Company"), and each entity named on a signature page hereto (each, an "Initial
Investor") (each agreement with an Initial Investor being deemed a separate and
independent agreement between the Company and such Initial Investor, except that
each Initial Investor acknowledges and consents to the rights granted to each
other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of June 23, 2000, between the Initial Investor and
the Company (the "Securities Purchase Agreement"; terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to the Initial Investor
shares of Series A-1 and Series A-2 Convertible Preferred Stock of the Company
having an aggregate stated value of $5,000,000 (collectively, the "Preferred
Stock"); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock (which term, for purposes of this Agreement,
shall include Periodic Amount Shares, as defined below) is convertible into
shares of Common Stock (the "Conversion Shares"; which term, for purposes of
this Agreement, shall include shares of Common Stock of the Company issuable in
lieu of accrued dividends through the respective maturity dates of the Preferred
Stock as contemplated by the Preferred Stock) upon the terms and subject to the
conditions contained in the Certificate of Determination and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Preferred Stock, Warrants or
Registrable Securities.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(d) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(e) "Registration Statement" means a registration statement of the Company
under the Securities Act covering Registrable Securities on Form S-3, if the
Company is then eligible to file using such form, and if not eligible, on Form
SB-2 or other appropriate form.
(f) "Required Effective Date" means the relevant Initial Required Effective
Date or Increased Required Effective Date (as those terms are defined below).
(g) "Effective Date" means the date the SEC declares a Registration
Statement covering Registrable Securities and otherwise meeting the conditions
contemplated hereby to be effective.
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2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as
possible after the Initial Closing Date but no later than thirty (30) days
after the Initial Closing Date (the "Required Filing Date"), either a
Registration Statement or an amendment to an existing Registration
Statement, in either event registering for resale by the Investor a
sufficient number of shares of Common Stock for the Initial Investors to
sell the Registrable Securities, but in no event less than the number of
shares equal to the sum of (A) two hundred percent (200%) of the number of
shares into which the Preferred Stock and all dividends thereon through the
third annual anniversary of their issuance would be convertible at the time
of filing of such Registration Statement (assuming for such purposes that
all shares of Initial Preferred Stock and the maximum number of Additional
Preferred Stock had been issued, had been eligible to be converted, and had
been converted, into Conversion Shares in accordance with their terms,
whether or not such issuance, accrual of dividends, eligibility or
conversion had in fact occurred as of such date) and (B) the number of
shares which would be issued upon exercise of all of the Warrants issued
and to be issued as contemplated by the Securities Purchase Agreement at
the time of filing of the Registration Statement (assuming for such
purposes that the maximum number of Additional Preferred Stock had been
issued and all Warrants had been issued, were eligible to be exercised and
had been exercised in accordance with their terms, whether or not such
issuance, eligibility or exercise had in fact occurred as of such date) (or
such lesser number as may be required by the SEC). The Registration
Statement (W) shall include only the Registrable Securities and the shares
specifically listed on Exhibit 1 annexed hereto, and (X) shall also state
that, in accordance with Rule 416 and 457 under the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock and the exercise
of the Warrants to prevent dilution resulting from stock splits, or stock
dividends. The Company will use its reasonable best efforts to cause such
Registration Statement to be declared effective on a date (the "Initial
Required Effective Date") which is no later than the earlier of (Y) five
(5) days after oral or written notice by the SEC that it may be declared
effective or (Z) one hundred twenty (120) days after the Initial Closing
Date.
(ii) If at any time (an "Increased Registered Shares Date"), the
number of shares of Common Stock represented by the Registrable Shares,
issued or to be issued as contemplated by the Transaction Agreements,
exceeds eighty percent (80%) of the aggregate number of shares of Common
Stock then registered, the Company shall either (X) amend the relevant
Registration Statement filed by the Company pursuant to the preceding
provisions of this Section 2, if such Registration Statement has not been
declared effective by the SEC at that time, to register, in the aggregate,
at least the number of shares (the "Increased Shares Amount") equal to (A)
(I) the number of shares theretofore issued on conversion of the Preferred
Stock (including any dividends paid on conversion by the issuance of
Conversion Shares) plus (II) two hundred percent (200%) of the
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number of shares into which the unconverted Preferred Stock and all
dividends thereon through the thirty six (36) month anniversary of the
Closing Date would be convertible at the date of such filing (assuming for
such purposes that all such shares of Preferred Stock had been issued, had
been eligible to be converted, and had been converted, into Conversion
Shares in accordance with their terms, whether or not such issuance,
accrual of dividends, eligibility or conversion had in fact occurred as of
such date) and (B) the number of shares which would be issued upon exercise
of all of the Warrants (assuming for such purposes that all Warrants had
been issued, had been eligible to be exercised and had been exercised in
accordance with their terms, whether or not such issuance, eligibility or
exercise had in fact occurred as of such date), or (Y) if such Registration
Statement has been declared effective by the SEC at that time, file with
the SEC an additional Registration Statement (an "Additional Registration
Statement") to register the number of shares equal to the excess of the
Increased Shares Amount over the aggregate number of shares of Common Stock
already registered. The Company will use its reasonable best efforts to
cause such Registration Statement to be declared effective on a date (each,
an "Increased Required Effective Date") which is no later than (Q) with
respect to a Registration Statement under clause (X) of this subparagraph
(ii), the Initial Required Effective Date and (R) with respect to an
Additional Registration Statement, the earlier of (I) five (5) days after
notice by the SEC that it may be declared effective or (II) forty- five
(45) days after the Increased Registered Shares Date.
(iii) To the extent that any of the Registrable Securities are not
included in any effective Registration Statement prior to the Additional
Closing Date, the Company shall prepare and file either a Registration
Statement or an amendment to an existing Registration Statement,
registering such Registrable Securities. The provisions of this Agreement,
including, but not limited to, the provisions of Section 2(a)(i) hereof,
apply separately with respect to such Registration Statement, except that
(i) references to the Initial Closing Date shall be deemed to refer to the
Additional Closing Date, and (ii) clause (Z) of Section 2(a)(i) shall read
"ninety (90) days after the Additional Closing Date."
(iv) The aggregate number of shares registered for the Investors in
each Registration Statement or amendment thereto shall be allocated among
the Investors on a pro rata basis among them according to their relative
Registrable Shares included in such Registration Statement).
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC by the Required Filing
Date, the Company will make payment to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section
2(b).
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(ii) If the Registration Statement covering the Registrable
Securities is not effective by the relevant Required Effective Date or if
the Investor is restricted from making sales of Registrable Securities
covered by any previously effective Registration Statement at any time
(the date such restriction commences, a "Restricted Sale Date") after the
relevant Effective Date other than during a Permitted Suspension Period
(as defined below), then the Company will make payments to the Initial
Investor in such amounts and at such times as shall be determined pursuant
to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to
the Initial Investor shall be determined as of each Computation Date (as
defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Preferred Stock
for the period from the date following the relevant Required Filing Date or
the Required Effective Date or Restricted Sale Date, as the case may be, to
the first relevant Computation Date, and thereafter to each subsequent
Computation Date. The "Periodic Amount Percentage" means (A) one percent
(1.0%) of the Purchase Price of all Preferred Stock for the first 30 days
after the relevant date; (B) two percent (2%) of the Purchase Price of all
Preferred Stock to each Computation Date thereafter. Anything in the
preceding provisions of this paragraph (iii) to the contrary
notwithstanding, after the relevant Effective Date the Purchase Price shall
be deemed to refer to the sum of (X) the principal amount of all Preferred
Stock not yet converted and (Y) the Held Shares Value (as defined below).
The "Held Shares Value" means, for shares acquired by the Investor upon a
conversion within the thirty (30) days preceding the Restricted Sale Date,
but not yet sold by the Investor, the principal amount of the Preferred
Stock converted into such Conversion Shares; provided, however, that if the
Investor effected more than one conversion during such thirty (30) day
period and sold less than all of such shares, the sold shares shall be
deemed to be derived first from the conversions in the sequence of such
conversions (that is, for example, until the number of shares from the
first of such conversions have been sold, all shares shall be deemed to be
from the first conversion; thereafter, from the second conversion until all
such shares are sold). By way of illustration and not in limitation of the
foregoing, if the Registration Statement is timely filed but is not
declared effective until one hundred ninety (190) days after the Initial
Closing Date, the Periodic Amount will aggregate five percent (5%) of the
Purchase Price of the Preferred Stock theretofore issued (1% for days
121-150, plus 2% for days 151-180, plus 2% for days 181-195).
(iv) Each Periodic Amount will be payable by the Company, except as
provided in the other provisions of this subparagraph (iv), in cash or
other immediately available funds to the Investor (1) on the day after the
Required Filing Date or the Required Effective Date, as the case may be,
and (2) on the earlier of (A) each thirtieth day thereafter, (B) the third
business day after the date the Registration Statement is filed or is
declared effective, or (C) the third business day after the Registration
Statement has its restrictions removed after the relevant Effective Date,
as the case may be, in each case without requiring demand therefor by the
Investor. Notwithstanding the provisions of the first sentence of this
subparagraph (iv), at the option of the Investor, exercisable in its sole
and absolute discretion by written notice to the Company at any time before
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the Periodic Amount is paid, all or a portion of the Periodic Amount shall
be paid by the issuance of additional shares of Series A-1 or Series A-2
Preferred Stock to the Investor ("Periodic Amount Shares") having a stated
value equal to the Periodic Amount being paid thereby. The Periodic Amount
Shares shall be of the same series as the shares for which the Periodic
Amount is computed.
(v) The parties acknowledge that the damages which may be incurred
by the Investor if the Registration Statement is not filed by the Required
Filing Date or the Registration Statement has not been declared effective
by a Required Effective Date, including if the right to sell Registrable
Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the
Periodic Amounts represent a reasonable estimate on the part of the
parties, as of the date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable (i) to the extent
any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel, (ii) in the event all of the Registrable
Securities may be sold pursuant to Rule 144 or another available exemption
under the Act without volume or other restrictions or limits or (iii) with
respect to a Permitted Suspension Period.
(vii) "Computation Date" means (A) the date which is the earlier of
(1) thirty (30) days after the Required Filing Date, any relevant Required
Effective Date or a Restricted Sale Date, as the case may be, or (2) the
date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or is
declared effective or has its restrictions removed (with respect to
payments due as contemplated by Section 2(b)(ii) hereof), as the case may
be, and (B) each date which is the earlier of (1) thirty (30) days after
the previous Computation Date or (2) the date after the previous
Computation Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC by the Required Filing Date a
Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause such Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is
three (3) years after the last day of the calendar month following the month in
which the relevant Effective Date occurs, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 without volume or other
restrictions or
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limits or (iii) the date the Investors no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) Permit a single firm of counsel designated by the Initial Investors to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects;
(d) Notify each Investor and such Investor's legal counsel identified to
the Company and which has requested by written notice to the Company that it
receive such notification (which, until further notice, shall be deemed to be
Xxxxxxx & Prager LLP, Attn: Xxxxxx Xxxxxxx, Esq., which firm has requested to
receive such notification; each, an "Investor's Counsel"), and any managing
underwriters immediately (and, in the case of (i)(A) below, not less than three
(3) business days prior to such filing) and (if requested by any such person)
confirm such notice in writing no later than one (1) business day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post- effective
amendment to the Registration Statement is proposed to be filed; (B) whenever
the SEC notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a representative
of the Company receives on its behalf) any oral or written comments from the SEC
in respect of a Registration Statement (copies or, in the case of oral comments,
summaries of such comments shall be promptly furnished by the Company to the
Investors); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from
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qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose; and (vi) of
the occurrence of any event that to the best knowledge of the Company makes any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In addition, the
Company shall furnish the Investor's Counsel with copies of all intended written
responses to the comments contemplated in clause (C) of this Section 3(d) not
later than one (1) business day in advance of the filing of such responses with
the SEC so that the Investors shall have the opportunity to comment thereon;
(e) Furnish to each Investor and such Investor's Counsel (i) promptly after
the same is prepared and publicly distributed, filed with the SEC, or received
by the Company, one (1) copy of the Registration Statement, each preliminary
prospectus and prospectus, and each amendment or supplement thereto, and (ii)
such number of copies of a prospectus, and all amendments and supplements
thereto and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Investor;
(f) As promptly as practicable after becoming aware thereof, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives
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written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material
Event; provided, however, that the Company may not so suspend the right to such
holders of Registrable Securities during the periods the Registration Statement
is required to be in effect other than during a Permitted Suspension Period (and
the applicable provisions of Section 2(b) shall apply with respect to any such
suspension other than during a Permitted Suspension Period) . The term
"Permitted Suspension Period" means up to two such suspension periods during any
consecutive 12-month period, each of which suspension period shall not either
(i) be for more than ten (10) days or (ii) begin less than ten (10) business
days after the last day of the preceding suspension (whether or not such last
day was during or after a Permitted Suspension Period); provided further that
the Company shall, if lawful to do so, provide the Investor with at least two
(2) business days' notice of the existence (but not the substance of) a
Potential Material Event;
(i) Use its reasonable efforts to secure and maintain the designation of
all the Registrable Securities covered by the Registration Statement on the
"Nasdaq/SmallCap Market" of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the quotation of the Registrable Securities on The Nasdaq/SmallCap Market;
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the initial Effective Date.
(k) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within five (5) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
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(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor has any Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or 3(g),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. In addition, a fee for a single
counsel for the Investors (as a group and not individually) equal to $4,500 for
the review of each Registration Statement and $2,000 for each post-effective
amendment to a Registration Statement, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
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(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
after such prospectus was made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the prospectus made available by
the Company or the amendment or supplement thereto made available by the
Company; (III) be available to the extent such Claim is based on the delivery of
a prospectus by the Investor after receiving notice from the Company under
Section 3(f), (g) or (h) hereof (other than a notice regarding the effectiveness
of the Registration Statement or any amendment or supplement thereto), or (IV)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Each Investor will indemnify the Company and
its officers, directors and agents (each, an "Indemnified Person" or
"Indemnified Party") against any claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Investor, expressly for use in
connection with the preparation of the Registration Statement or the amendment
or supplement thereto, subject to such limitations
11
and conditions as are applicable to the Indemnification provided by the Company
to this Section 6. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party provided such counsel is of the opinion that all defenses
available to the Indemnified Party can be maintained without prejudicing the
rights of the indemnifying party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault
12
standards set forth in Section 6; (b) no seller of Registrable Securities guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof) or
intentional misconduct, contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Securities Act and Exchange Act. With a view to making
available to Investor the benefits of Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at any time
permit Investor to sell securities of the Company to the public without
Registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to Investor so long as Investor owns Registrable Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company and (iii) such
other information as may be reasonably requested to permit Investor to sell such
securities pursuant to Rule 144 without Registration.
(d) The Company will, at the request of any Holder of Registrable
Securities, upon receipt from such Holder of a certificate certifying (i) that
such Holder has held such Registrable Securities for a period of not less than
one (1) year, (ii) that such Holder has not been an affiliate (as defined in
Rule 144) of the company for more than the ninety (90) preceding days, and (iii)
as to such other matters as may be appropriate in accordance with such Rule,
remove from the stock certificate representing such Registrable Securities that
portion of any restrictive legend which relates to the registration provisions
of the Securities Act, provided, however, counsel to Investor may provide such
instructions and opinion to the transfer agent regarding the removal of the
restrictive legend.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted
13
Preferred Stock or unexercised Warrant) only if: (a) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein, and (e) such transfer of Registrable Securities is completed
and disclosed to the Company prior to the initial Effective Date or involves the
transfer of Registrable Securities resulting from the conversion of Preferred
Stock having a stated value of at least $200,000. In the event of any delay in
filing or effectiveness of the Registration Statement as a result of such
assignment, the Company shall not be liable for any damages arising from such
delay, or the payments set forth in Section 2(b) hereof arising from such delay.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a eighty (80%) percent
interest of the Registrable Securities (as calculated by the stated value of the
Preferred Stock without any reference to the Warrant Shares). Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be given in
the manner contemplated by the Securities Purchase Agreement, (i) if to the
Company or to the Initial Investor, to their respective address contemplated by
the Securities Purchase Agreement, and (ii) if to any other Investor, at such
address as such Investor shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given in accordance
with this Section 11(b).
14
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, either party hereto shall reimburse the other
party for any reasonable legal fees and disbursements incurred by such party in
enforcement of or protection of any of its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
15
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
XXXXXXXX.XXX
By:
-------------------------------------------
Name: Xxxx Xxxxx
----------------------------------------
Title: Chief Executive Officer
---------------------------------------
INITIAL INVESTOR:
----------------------------------------------
[Print Name of Initial Investor]
By:
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
17
EXHIBIT 1
Shares Permitted to Be Included in Registration Statement
Shares of
Shareholder Name Common Stock Owned/Description of Right to Acquire
---------------- ------------ -------------------------------------
Union Xxxxxxxx X,X 130,000 Warrants, to be issued on the Initial
or its designees Closing Date, with piggy back
registration rights
Xxxxxxx & Prager LLP 20,000 Warrants, to be issued on the Initial
or its designees Closing Date, with piggy back
registration rights
