ANNEX IV
TO
SUBSCRIPTION
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October __, 1996 (this
"Agreement"), is made by and between GRAPHIX ZONE, INC., a Delaware corporation
(the "Company"), and the person named on the signature page hereto (the "Initial
Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
October __, 1996, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor _______ shares (the "Preferred Shares") of Preferred Stock of the
Company as provided in the Subscription Agreement, which shares of Preferred
Stock are convertible into shares (the "Conversion Shares") of Common Stock,
$.01 par value (the "Common Stock"), of the Company, and warrants (the
"Warrants") to purchase shares (the "Warrant Shares") of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription 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"), and applicable state securities laws with respect to the
Conversion Shares and the Warrant Shares;
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.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "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").
(iii) "Registrable Securities" means the Conversion Shares, the
Warrant Shares and any shares of Common Stock issuable to any Investor as a
dividend on Preferred Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 15 days after the date of the closing under the
Subscription Agreement (the "Closing Date"), file with the SEC a Registration
Statement on Form S-1 covering at least _______* shares of Common Stock as
Registrable Securities, and which Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Shares and exercise of the
Warrants to prevent dilution resulting from stock splits, stock dividends or
similar transactions or by reason of changes in the conversion price of the
Preferred Shares and the exercise price of the Warrants in accordance with the
respective terms thereof. If at any time the number of shares of Common Stock
included in the Registration Statement required to be filed as provided in the
first sentence of this Section 2(a) shall be insufficient to cover the number of
shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares and the unexercised Warrants, then promptly, but in no event
later than 15 days after such insufficiency shall occur, the Company shall file
with the SEC an additional Registration Statement on Form S-1 (which shall
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* Insert total number of shares issuable upon (1) exercise of Warrants into
number of shares equal to the conversion shares set forth in (2) divided by
5 and (2) conversion of the Preferred Stock at lesser of (x) 80% of average
closing bid prices for 5 trading days or (y) $3.375.
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not constitute a post-effective amendment to the Registration Statement required
to be filed pursuant to the first sentence of this Section 2(a)) or other
applicable form covering such number of shares of Common Stock as shall be
sufficient to permit such conversion and exercise. For all purposes of this
Agreement (other than Section 2(c) hereof) such additional Registration
Statement shall be deemed to be the Registration Statement required to be filed
by the Company pursuant to Section 2(a) of this Agreement, and the Company and
the Investors shall have the same rights and obligations (other than Section
2(c) hereof) with respect to such additional Registration Statement as they
shall have with respect to the initial Registration Statement required to be
filed by the Company pursuant to this Section 2(a).
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering
the Registrable Securities which is required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within 60 days after the Closing Date,
then the Company will make payments to the Initial Investor in such amounts and
at such times as shall be determined pursuant to this Section 2(c). The amount
to be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%), and (2) in the case of the second
Computation Date and each Computation Date thereafter, three percent (3%), in
each case of the aggregate subscription price paid by the Initial Investor for
the Preferred Shares and the Warrants pursuant to the Subscription Agreement
(each, a "Periodic Amount"); PROVIDED, HOWEVER, that if any Computation Date is
less than 30 days subsequent to another Computation Date, then the Periodic
Amount payable on the later Computation Date shall be pro rated. The Periodic
Amount shall be paid by the Company within five business days after each
Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment
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of any Periodic Amount in cash to deliver to the Initial Investor shares of
Common Stock having an Aggregate Market Value equal to the amount of the
Periodic Amount if, but only if, such shares are freely tradable by the Initial
Investor without any restriction under the Securities Act or any state
securities or "blue sky" law. In addition to any other rights or remedies the
Initial Investor may have under this Agreement, the Initial Investor shall have
the right from time to time to provide written notice to the Escrow Agent
appointed pursuant to the Joint Escrow Instructions, in accordance with Section
1(b) of the Joint Escrow Instructions, with a copy to the Company, whereupon in
each such instance the Initial Investor shall be entitled to release of a
portion of the funds held by the Escrow Agent to be applied to amounts due from
the Company hereunder.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid of such security for each
trading day in such period on the principal trading market for such security, as
reported by such market.
"Computation Date" means (1) the date which is 60 days after the
Closing Date, unless the Registration Statement theretofore has been declared
effective by the SEC, (2) if the Registration Statement has not theretofore been
declared effective by the SEC, each date which is 30 days after a Computation
Date and (3) if the Registration Statement has not been declared effective by
the SEC within 60 days after the Closing Date, the date on which the
Registration Statement is declared effective by the SEC.
"Measurement Period" means the period of five consecutive trading days
for the Common Stock ending on (or, if such Computation Date is not a trading
day, on the last trading day preceding) each Computation Date.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under Section 2(a)
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hereof written notice of such determination and if, within twenty (20) days
after receipt of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock (which limitation may be the exclusion of all
shares of Common Stock proposed to be included for all selling stockholders)
which may be included in the Registration Statement because, in such
underwriter(s)' judgment, such limitation is necessary to effect an orderly
public distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion, if any, of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder. Any exclusion of Registrable Securities shall be made pro rata among
the Investors seeking to include Registrable Securities, in proportion to the
number of Registrable Securities sought to be included by such Investors;
PROVIDED, HOWEVER, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities the holders of
which are not entitled by right to inclusion of securities in such Registration
Statement; and PROVIDED FURTHER, HOWEVER, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. The obligations of the Company
under Section 2(a) hereof may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
Section 2(a) hereof for two registrations; PROVIDED, HOWEVER, that any Investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(d) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded.
(e) ELIGIBILITY FOR FORM S-3. The Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible for the use of Form S-3 at the earliest possible date and so as
to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) use its best efforts to cause the Registration Statement to become
effective as soon as reasonably possible after such filing, and keep the
Registration Statement effective
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pursuant to Rule 415 at all times until the later of (1) in the case of any
Registrable Securities, the earlier of (i) such date as is three years after the
Closing Date and (ii) the date on which all Registrable Securities have been
sold by the Investors under circumstances in which the buyers may resell such
Registrable Securities without registration under the Securities Act and, (2) in
the case of Registrable Securities that are Warrant Shares, the later of (i) the
date which is three years after the date such Registration Statement if first
ordered effective by the SEC (but in no event later than the date on which all
Registrable Securities that are Warrant Shares have been sold by the Investors
under circumstances in which the buyers may resell the Registrable Securities
that are Warrant Shares without registration under the Securities Act), in case
the Warrants have been exercised in full on a net exercise basis and (ii) the
date which is three years after the latest exercise of the Warrants for cash
(but in no event later than the date on which all Registrable Securities that
are Warrant Shares have been sold by the Investors under circumstances in which
the buyers may resell the Registrable Securities that are Warrant Shares without
registration under the Securities Act) (the "Termination Date"), 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; PROVIDED, HOWEVER, that, subject to the
conditions set forth in Section 4(a) below, each Investor may notify the Company
in writing that it wishes to exclude all or a portion of its Registrable
Securities from such Registration Statement;
(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 until the
Termination Date, and, during such 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) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
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relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary 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;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the Termination Date, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times until the Termination Date and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event,
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 to correct such untrue statement or
omission, and deliver such number of copies of such supplement or
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amendment to each Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event,
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 any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or
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other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction or (iii) the information in such Records 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 confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor 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 its 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 an Investor provided to
the Company pursuant to Section 4(e) hereof unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction or (iv) 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 an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "national market system security" 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 National Market System (so long as the Company is able
to meet the criteria therefor) or, if, despite the Company's best efforts to
satisfy the preceding clause (i) or (ii), the Company is unsuccessful in
satisfying the
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preceding clause (i) or (ii), to secure listing on a national securities
exchange or NASDAQ authorization and quotation for such Registrable Securities
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. ("NASD") as such with respect to such Registrable Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three 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
instruction in the form attached hereto as EXHIBIT 1 (without substantive
additions thereto) and an opinion of such counsel in the form attached hereto as
EXHIBIT 2 (without substantive additions thereto); and
(o) 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:
(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 any of such Investor's
Registrable
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Securities are eligible for inclusion in the Registration Statement. If within
five (5) 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;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, 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;
(d) 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), 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; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable
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Securities, in each case to the extent not payable by the Company pursuant to
the terms of this Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
fees, discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company; PROVIDED, HOWEVER, that the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (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 any preliminary prospectus if used
prior to the effective date of such Registration Statement, or 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,
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the Exchange Act or any state securities law (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(d) with respect to the number of legal
counsel, the Company shall reimburse the Investors and each such underwriter or
controlling person, 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): (I) shall not 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 any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; and (III) shall not 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. 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) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses
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reasonably incurred by them in connection with investigating or defending any
such Claim; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
as does not exceed the amount, if any, by which (1) the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement exceed (2) the purchase price paid by such Investor for
the Registrable Securities sold by such Investor pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) 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
Indemnified Person or the Indemnified Party, as the case may be; PROVIDED,
HOWEVER, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay for only one separate legal counsel for the
Investors; such legal counsel shall be
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selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
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 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) 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 EXCHANGE ACT. With a view to making available to
the Investors 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 the
Investors 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 each Investor so long as such Investor owns Registrable
Securities, promptly upon written request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
-15-
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 transferees or assignees of all or
any portion of such securities 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, and (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.
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 majority in interest of the Registrable Securities. 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 in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Graphix Zone, Inc., 00
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000, Attention: President
(telephone line facsimile No. (000) 000-0000), and (ii) if to any 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), and shall be effective, when personally delivered,
-16-
upon receipt and, when so sent by certified mail, four days after deposit with
the United States Postal Service.
(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 enforced, governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) 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.
(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 hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay. So long as the
Company files a Registration Statement in a timely manner as required by
Sections 2(a) and 3(a) and uses its best efforts to obtain effectiveness of such
Registration Statement and otherwise complies with its obligations under this
Agreement with respect to such Registration Statement, the Company shall not be
deemed to be
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in breach of this Agreement by reason of delay in the effectiveness of such
Registration Statement arising from any review thereof by the staff of the SEC,
it being understood and agreed that in such case the Company shall not be liable
to any Investor for consequential damages under this Section 11(i) but that in
such circumstances the Company shall be obligated to make payments pursuant to
Section 2(c) of this Agreement.
(j) This Agreement may be executed in two 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.
-18-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
GRAPHIX ZONE, INC.
By
---------------------------------
Name:
Title:
INITIAL INVESTOR:
-----------------------------------
By
---------------------------------
Name:
Title:
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EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Company Letterhead]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value (the "Common Stock"), of Graphix Zone, Inc., a Delaware
corporation (the "Company"), represented by certificate numbers _______ and
_______ for an aggregate of _______ shares (the "Outstanding Shares") of Common
Stock presently registered in the name of [Name of Investor] upon surrender of
such certificate to you, notwithstanding the legend appearing on such
certificates, (2)]* to issue shares (the "Conversion Shares") of Common Stock to
or upon the order of the holder from time to time on conversion of the shares
(the "Preferred Shares") of Series A Convertible Preferred Stock, $.01 par
value, of the Company, issued by the Company upon surrender to you for
conversion of certificates for Preferred Shares and a properly completed and
duly executed Notice of Conversion in the form enclosed herewith and (3) to
issue shares (the "Warrant Shares") of Common Stock on exercise of the Common
Stock Purchase Warrants (the "Warrants") to or upon the order of the registered
holder from time to time upon surrender to you by such registered holder for
exercise of Warrants and a properly completed and duly executed form of
subscription in the form enclosed herewith. [The transfer or re-registration of
the certificates for the Outstanding Shares by you should be made at such time
as you are requested to do so by the record holder of the Outstanding Shares.
The certificate issued upon such transfer or re-registration should be
registered in such name as requested by the holder of record of the certificate
surrendered to you and should not bear any legend which would restrict the
transfer of the shares represented thereby. In addition, you are hereby
directed to remove any stop-transfer instruction relating to the Outstanding
Shares.]* Certificates for the Conversion Shares and the Warrant Shares should
not bear any restrictive legend and should not be subject to any stop-transfer
restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of ____________________ as
-------------------------
* Omit if no conversions of Preferred Stock or no exercises of Warrants have
occurred before SEC registration is declared effective.
1-1
to registration of [the Outstanding Shares,]* the Conversion Shares and the
Warrants Shares under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
GRAPHIX ZONE, INC.
By:
-------------------------------
Name:
Title:
-------------------------
* Omit if no conversions of Preferred Stock or no exercises of Warrants have
occurred before SEC registration is declared effective.
1-2
EXHIBIT 2
TO
REGISTRATION
RIGHTS
AGREEMENT
[LETTERHEAD OF XXXXX & XXXXXX L.L.P.]
[DATE]
U. S. Stock Transfer Corporation
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
GRAPHIX ZONE, INC.
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Graphix Zone, Inc., a Delaware corporation (the
"Company"), and we understand that [NAME OF INVESTOR] (the "Holder") has
purchased from the Company (1) an aggregate of _____ shares (the "Preferred
Shares") of the Company's Series A Convertible Preferred Stock, $.01 par value
(the "Preferred Stock") convertible into shares of Common Stock, $.01 par value
(the "Common Stock"), and warrants to purchase shares of Common Stock (the
"Warrants"). The Preferred Shares and the Warrants were purchased by the Holder
pursuant to a Subscription Agreement, dated as of October ___, 1996, between the
Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of October ___, 1996, between the
Company and the Holder (the "Registration Rights Agreement") entered into in
connection with the purchase by the Holder of the Preferred Shares and the
Warrants pursuant to the Subscription Agreement, the Company agreed with the
Holder, among other things, to register for resale by the Holder shares (the
"Common Shares") of Common Stock issuable upon conversion of the Preferred
Shares and on exercise of the Warrants under the Securities Act of 1933, as
amended (the "Securities Act"), upon the terms provided in the Registration
Rights Agreement. In connection with the exercise by the Holder of its
registration rights under the Registration Rights Agreement, on ___________, the
Company filed a Registration Statement on Form S-1 (File No. 333-_________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Common Shares, which names the Holder as a selling
stockholder thereunder. [IF NOTICE FROM SEC IS AVAILABLE: THE COMPANY HAS
RECEIVED A NOTICE FROM THE SEC THAT THE REGISTRATION STATEMENT HAS BEEN DECLARED
EFFECTIVE. A COPY OF SUCH NOTICE IS ATTACHED HERETO.]
2-1
As counsel for the Company and for purposes of this opinion, we have
made such legal and factual examinations and inquiries as we have deemed
advisable and have examined, among other things, originals or copies identified
to our satisfaction as being true copies, of those corporate records,
certificates, documents and other instruments which, in our judgment, we
considered necessary or appropriate to enable us to render the opinion expressed
below. For these purposes, we have relied upon certificates provided by public
officials and by officers of the Company as to certain factual matters and have
made no independent investigation thereof. We have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to the original documents of documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of the
latter documents.
Based on the foregoing, we are of the opinion that the Registration
Statement covering the Common Shares has become effective under the Securities
Act, and to our knowledge, no stop orders suspending the effectiveness of the
Registration Statement have been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act.
The opinion set forth above is effective as of the date hereof and is
subject to change and qualification by reason of change of law and
circumstances, lapse of time and other matters. We express no opinion as to
rights, obligations or other matters subsequent to the date hereof, and we
assume no obligation to advise you or any other person or entity of any changes
to our opinion subsequent to the date hereof. This opinion is being furnished to
you solely for your information in connection with the above-referenced
transaction. Accordingly, this opinion may not be used, circulated, filed,
quoted from or otherwise referred to or relied upon for any other purpose
without our express prior written consent.
Very truly yours,
XXXXX & XXXXXX L.L.P.
cc: [NAME OF INVESTOR]
2-2
