REGISTRATION RIGHTS AGREEMENT
REGISTRATION
RIGHTS AGREEMENT (the “Agreement”), dated as of the 12th day of December, 2006,
executed and delivered by DOCUMENT SECURITY SYSTEMS, INC., a New York
corporation (the “Company”), and XXXXXX, XXXXXX & XXXXXXXXX CAPITAL CORP.,
as agent for and on behalf of, the Holders (as defined below).
RECITALS
WHEREAS,
simultaneously with the execution and delivery of this Agreement, the Company,
pursuant to terms and conditions set forth in the Confidential Private Offering
Memorandum of the Company, dated December 12, 2006, including the exhibits
thereto and any and all supplements thereof and amendments thereto, and all
documents incorporated by reference therein (collectively, the (Memorandum”) is
offering for sale (the “Offering”) up to 130 units (the “Units”), each Unit
consisting of (i) 5,880 shares (“Shares”) of its Common Stock, par value $.02
per share (“Common Stock”) and (ii) Series B Common Stock Warrants (the
“Warrants”) to purchase up to an aggregate of 2,940 shares (the
“Warrant Shares”) of Common Stock;
WHEREAS,
Xxxxxx, Holden & Xxxxxxxxx Capital Corp. (“Xxxxxx”) is acting as placement
agent in connection with the Offering, and in connection therewith the investors
in the Offering whose names appear on Exhibit A annexed hereto as may be amended
during the Offering (“Holders”); and
WHEREAS,
the terms and conditions of the Offering provide for the execution and delivery
of this Agreement.
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged by the Company, the Company hereby agrees as
follows:
1. Automatic
Registration.
The
Company shall use its best efforts to file a registration statement
(“Registration Statement”) with the Securities and Exchange Commission under the
Securities Act of 1933 (the “Act”), on appropriate form, and such other
documents, including a prospectus, as may be necessary (in the opinion of
counsel for the Company), in order to comply with the provisions of the Act,
within 60 business days after the final closing of the Offering, so as to allow
for the resale under the Act by any Holder or combination of Holders of all
Registerable Shares (as defined in Section 2) held by all of the Holders, at
the
sole expense of the Company, so as to permit the public resale by the Holder
of
the Registerable Shares pursuant thereto.
2. Registerable
Shares.
For
purposes of this Agreement, the term “Registerable Shares” shall include” (a)
the Shares purchased as a component of the Units in the Offering; (b) any
securities issued or issuable with respect to the Warrants; or (c) Warrant
Shares; or (d) any other shares of Common Stock issued to the Holders by way
of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
Anything herein contained to the contrary notwithstanding, the provisions of
this Agreement shall not apply to, and the term “Registerable Shares” as used in
this Agreement shall not include, Shares of Common Stock or Warrant Shares
after
they have been sold by a Holder pursuant to an effective Registration Statement
under the Act or sold pursuant to Rule 144.
3. Additional
Covenants of the Company With Respect to Registration.
The
Company covenants and agrees as follows:
(a) In
connection with any registration under Section 1 above, the Company shall file
the Registration Statement no event later than 60 business days following the
final closing of the Offering, and use reasonable efforts to have such
Registration Statement declared effective at the earliest possible
time.
(b) In
connection with any registration of Registerable Shares pursuant to Section
1
above, the Company shall furnish each Holder of Registerable Shares included
in
a Registration Statement with such reasonable number of copies of such
Registration Statement, related preliminary prospectus and prospectus meeting
the requirements of the Act, and other documents necessary or incidental to
the
registration and public offering of such Registerable Shares, as shall be
reasonably requested by the Holder to permit the Holder to make a public
distribution of such Registerable Shares.
(c) Once
effective, the Company covenants and agrees to use its best efforts to maintain
the effectiveness of any Registration Statement until the earlier of (i) a
date
which is two years from the final closing date of the Offering, or (ii) the
date
that the Holders of the Registerable Shares receive an opinion of counsel to
the
Company that all of the Registerable Shares may be freely traded (without
limitation or restriction as to quantity or timing and without registration
under the Act) pursuant to Rule 144 or otherwise; provided, however, the Company
may suspend the use of any Registration Statement for a period not to exceed
45
days in any 12-month period for valid business reasons (not including avoidance
of the Company’s obligations hereunder), including the acquisition or
divestiture of assets, public filings with the SEC, pending corporate
developments and similar events.
(d) If
any
stop order shall be issued by the SEC in connection with any Registration
Statement filed pursuant to Sections 1 above, the Company will use its best
efforts to obtain the removal of such order.
(e) The
Company shall pay all costs, fees, and expenses in connection with all
Registration Statements filed pursuant to Section 1 above, including, without
limitation, the Company’s legal and accounting fees, printing expenses, and blue
sky fees and expenses; provided, however, that the Holders shall be solely
responsible for the fees of any counsel retained by the Holders in connection
with such registration and any transfer taxes or underwriting discounts,
commissions or fees applicable to the Registerable Shares sold by the Holders
pursuant thereto.
4. Indemnification.
(a) In
the
event of any registration of any the Registerable Shares under the Act, the
Company shall indemnify and hold harmless each Holder, the affiliates of each
such Holder, the directors, partners, officers, employees and agents of each
such Holder and any person who controls any such Holder within the meaning
of
the Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
against any and all losses, claims, damages or liabilities, joint or several,
to
which they or any of them may become subject under the Act, the Exchange Act
or
other Federal or State statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) caused by, arising out of or based on any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such securities were registered under the Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and agrees
to reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company will not be liable in any case to the extent that any
such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to
the Company by or on behalf of any such Holder specifically for inclusion
therein, (ii) the Company will not be liable to any indemnified party under
this
indemnity agreement with respect to any Registration Statement or Prospectus
to
the extent that any such loss, claim, damage or liability of such indemnified
party results from the use of the Prospectus during a period when the use of
the
Prospectus has been suspended in accordance with Section 3(c) hereof, provided
that the Holders received prior notice of such suspension; and (iii) the Company
shall not be liable to any indemnified party with respect to any preliminary
Prospectus to the extent that any such loss, claim, damage or liability of
such
indemnified party results from the fact that such indemnified party sold
Registerable Securities to a person as to whom there was not sent or given,
at
or prior to the written confirmation of such sale, a copy of the Prospectus
or
of the Prospectus as then amended or supplemented in any case where such
delivery is required by the Act, if the loss, claim, damage or liability of
such
indemnified party results from an untrue statement or omission of a material
fact contained in the preliminary Prospectus which was corrected in the
Prospectus or in the Prospectus as then amended or supplemented.
2
(b) Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in the preceding subdivisions
of this Section 4, such indemnified party will, if a claim in respect thereof
is
to be made against an indemnifying party, give written notice to the latter
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 the preceding subdivisions of this Section 4, except
to
the extent that the indemnifying party is materially prejudiced by such failure
to give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party’s reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that the indemnifying party may wish, 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 other than reasonable costs of
investigation. Notwithstanding the indemnifying party’s election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel),
and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen
by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants
in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnified party shall
not
settle or compromise any action for which it seeks indemnification or
contribution hereunder without the prior written consent of the indemnifying
party, which consent shall not be unreasonably withheld. An indemnifying party
will not, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
3
(c) The
provisions of this Section 4 shall remain in full force and effect regardless
of
any investigation made by or on behalf of any Holder or the Company or any
other
persons who are entitled to indemnification pursuant to the provisions of this
Section 4, and shall survive the sale by a Holder of Registerable Shares
pursuant to the Registration Statement.
5. Amendments.
This
Agreement may not be amended, modified or supplemented, and waivers of or
consents to departures from the provisions of this Agreement may not be given,
unless it would not have an adverse effect upon the rights of any of the Holders
and the Company has obtained the written consent of Holders then holding a
majority of the Registerable Shares.
6. Notices.
Except
as otherwise provided in this Agreement, all notices, requests and other
communications (which shall include publication) to any person provided for
hereunder shall be in writing and shall be given by hand delivery, registered
or
certified mail or by any courier providing overnight delivery (i) if to the
Company, Xxxxxx or the initial Holder, at the address set forth in the
Subscription Agreement and (ii) if to a subsequent Holder, to the address set
forth on the books and records of the Company. All such notices, requests or
communications shall not be effective until received.
7. Assignment.
This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of Holder shall also be for the benefit of and enforceable by any subsequent
holder of the Registerable Shares. Holder agrees, by accepting any portion
of
the Registerable Shares after the date hereof, to the provisions of this
Agreement.
8. Governing
Law.
(a) THIS
AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS
OF
THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
(b) Each
of
the Company and Holder hereby irrevocably and unconditionally consents to submit
to the exclusive jurisdiction of any State Court in New York County, New York
and the United States District Court for the Southern District of New York
(the
“NY Courts”) for any litigation arising out of or relating to this Agreement and
the transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying
of
venue of any such litigation in the NY Courts and agrees not to plead or claim
that such litigation brought in any NY Courts has been brought in an
inconvenient forum.
9. Counterparts.
This
Agreement may be executed by facsimile and may be signed simultaneously in
any
number of counterparts, each of which shall be deemed an original, but all
such
counterparts shall together constitute one and the same instrument.
10. Entire
Agreement.
This
Agreement embodies the entire agreement of between the Company relating to
the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
11. Severability.
If any
provision of this Agreement, or the application of such provisions to any person
or circumstance, shall be held invalid, the remainder of this Agreement, or
the
application of such provision to persons or circumstances other than those
to
which it is held invalid, shall not be affected thereby.
4
12. Third
Party Beneficiaries.
The
Holders from time to time shall each be a third party beneficiary of the
agreements of the Company contained herein.
13. Headings.
The
headings which are contained in this Agreement are for the sole purpose of
convenience of reference, and shall not limit or otherwise affect the
interpretation of any of the provisions hereof.
14. Further
Assurances.
The
Company will from time to time after the date hereof take any and all actions,
and execute, acknowledge and deliver any and all documents and instruments,
at
its cost and expense, as any Holder may from time to time reasonably request
in
order to more fully perfect or protect the rights intended to be granted to
it
hereunder.
15. Interpretation.
As used
in this Agreement, unless the context otherwise requires: words describing
the
singular number shall include the plural and vice versa; words denoting any
gender shall include all genders; words denoting natural persons shall include
corporations, partnerships and other entities, and vice versa; and the words
“hereof”, “herein” and “hereunder”, and words of similar import, shall refer to
this Agreement as a whole, and not to any particular provision of this
Agreement.
16. Waiver.
The
failure of the Company or any Holder to at any time enforce any of the
provisions of this Agreement shall not be deemed or construed to be a waiver
of
any such provision, nor to in any way affect the validity of this Agreement
or
any provision hereof or the right of the Company or any Holder to thereafter
enforce each and every provision of this Agreement.
[signature
page appears next]
5
IN
WITNESS WHEREOF, the undersigned has duly executed and delivered this Agreement
as of the date first above written.
| DOCUMENT SECURITY SYSTEMS, INC. | ||
| |
|
|
| By: | ||
|
Name: Xxxxxxx Xxxxx Title:
Chief Executive Officer
|
||
Accepted
and Agreed
As
Agent
on Behalf of the Holders:
XXXXXX,
XXXXXX & XXXXXXXXX CAPITAL CORP.
By:
Name:
Title:
EXHIBIT
A
LIST
OF HOLDERS
