EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October 9,
2003, is made by and among iSECUREtrac, Corp., a corporation organized under the
laws of Delaware (the "Company"), and the undersigned (together with their
affiliates, the "Initial Investors").
BACKGROUND
In connection with that certain Securities Purchase Agreement of even date
herewith by and among the Company and the Initial Investors (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
convertible promissory notes issued in respect thereof, the "Notes") that are
convertible into shares of the Company's common stock, $0.001 par value per
share (the "Common Stock"). The shares of Common Stock issuable upon conversion
or redemption of or otherwise pursuant to the Notes are referred to herein as
the "Conversion Shares."
To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, and to consummate the transactions contemplated thereby, 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.
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
Investors, intending to be legally bound, hereby agree as follows:
DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Investor" means the Initial Investors and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
"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").
"Registrable Securities" means (a) the Conversion Shares and (b) any
shares of capital stock issued or issuable, from time to time, as a distribution
on or in exchange for or otherwise with respect to any of the foregoing
(including the Notes), whether as default payments, on account of anti-dilution
or other adjustments or otherwise.
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"Registration Statement" means a registration statement of the
Company under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement.
REGISTRATION.
PIGGYBACK REGISTRATION. If at any time after the date hereof, Company
proposes to prepare file with the SEC a Registration Statement with respect to
any of its securities, Company shall, at that time (a "Required Filing Date")
file with the SEC on Form S-3 (or, if Form S-3 is not then available, on such
form of Registration Statement as is then available to effect a registration of
all of the Registrable Securities, subject to the consent of the Initial
Investors) covering the resale of 120% of the Registrable Securities, giving the
Initial Investors at least thirty (30) days prior written notice of its
intention. The Registration Statement filed hereunder, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Notes to prevent dilution resulting from stock splits,
stock dividends or similar transactions. The Registrable Securities included on
the Registration Statement shall be allocated among the Investors as set forth
in Section 11(k) hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission. Notwithstanding the
foregoing, the parties hereto agree that this Section 2(a) shall not apply to
that certain registration statement to be filed by Company pursuant to that
certain Share Exchange Agreement between Company and Tracking Systems
Corporation, dated August 28, 2003.
DEMAND REGISTRATION. If Company has not filed a Registration Statement
under the Securities Act within two (2) years after the Closing Date, Company
shall, upon sixty (60) days' prior written notice requesting registration under
the Securities Act of the Registrable Securities from Holders of more than fifty
percent (50%) of the aggregate principal amount of the Notes, at that time (also
a Required Filing Date) file with the SEC, on Form S-3 (or, if Form S-3 is not
then available, on such form of Registration Statement as is then available to
effect a registration of all of the Registrable Securities, subject to the
consent of the Initial Investors) covering the resale of 120% of the Registrable
Securities. The Registration Statement filed hereunder, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Notes to prevent dilution resulting from stock splits,
stock dividends or similar transactions. The Registrable Securities included on
the Registration Statement shall be allocated among the Investors as set forth
in Section 11(k) hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.
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PAYMENTS BY THE COMPANY. The Company shall use its best efforts to cause
the Registration Statement required to be filed pursuant to this Section 2 to
become effective as soon as practicable, but in no event later than the sixtieth
(60th) day following a Required Filing Date. At the time of effectiveness, the
Company shall ensure that such Registration Statement covers at least 120% of
the Registrable Securities issuable upon full conversion of the Notes (without
giving effect to any limitations on conversion contained in the Notes),
including, if necessary, by filing an amendment prior to the effective date of
the Registration Statement to increase the number of Registrable Securities
covered thereby. If (i) (A) the Registration Statement required to be filed
pursuant to this Section 2 is not filed with the SEC prior to a Required Filing
Date or declared effective by the SEC on or before the ninetieth (90th) day
following a Required Filing Date (the "Registration Deadline") or (B) any
Registration Statement required to be filed pursuant to Section 3(b) hereof is
not declared effective by the SEC on or before the sixtieth (60th) day following
the applicable Registration Trigger Date (as defined in Section 3(b) below), or
(ii) if, after any such Registration Statement has been declared effective by
the SEC, sales of any of the Registrable Securities required to be covered by
such Registration Statement (including any Registrable Securities required to be
registered pursuant to Section 3(b) hereof) cannot be made pursuant to such
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement or for any other reason outside the control of
the Investors) or (iii) the Common Stock is not listed or included for quotation
on the OTC Bulletin Board (the "Bulletin Board"), Nasdaq SmallCap Market (the
"SmallCap Market"), the Nasdaq National Market (the "National Market"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at
any time after the Registration Deadline hereunder, then the Company will make
payments to each Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
Investor an amount equal to the product of (i) the aggregate principal balance
of the Notes then outstanding (including, for this purpose, the principal
balance of any Notes that have been converted into Conversion Shares then held
by such Investor as if such Notes had not been so converted), multiplied by (ii)
(A) ten thousandths (.010), for each thirty (30) day period (or portion thereof)
up to the one hundred eightieth (180th) day, and (B) fifteen thousandths (.015),
for each thirty (30) day period (or portion thereof) from and after the one
hundred eightieth (180th) day, (w) after a Required Filing Date and prior to the
date the Registration Statement is filed with the SEC pursuant to Section 2(a)
or 2(b), (x) after the Registration Deadline and prior to the date the
Registration Statement filed pursuant to Section 2(a) or (b) is declared
effective by the SEC, (y) after the sixtieth (60th) day following a Registration
Trigger Date and prior to the date the Registration Statement filed pursuant to
Section 3(b) hereof is declared effective by the SEC, and (z) during which sales
of any Registrable Securities cannot be made pursuant to any such Registration
Statement after the Registration Statement has been declared effective or the
Common Stock is not listed or included for quotation on the Bulletin Board,
SmallCap Market, the National Market, NYSE or AMEX; provided, however, that, for
purpose of calculating the payment amount owed to any given Investor, there
shall be excluded from each such period any delays which are solely attributable
to changes required by such Investor in the Registration Statement with respect
to information relating to such Investor, including, without limitation, changes
to the plan of distribution (other than any corrections of Company mistakes with
respect to information previously provided by such Investor). All such amounts
required to be paid hereunder shall be paid in cash within five (5) days after
the end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30 day period.
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ELIGIBILITY FOR FORM S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the sale by
the Initial Investors and any other Investor of the Registrable Securities and
the Company shall file all reports and statements required to be filed by the
Company with the SEC in a timely manner so as to thereafter maintain such
eligibility for the use of Form S-3.
OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
The Company shall respond promptly to any and all comments made by the
staff of the SEC to any Registration Statement required to be filed hereunder,
and shall submit to the SEC, before the close of business on the business day
immediately following the business day on which the Company learns (either by
telephone or in writing) that no review of such Registration Statement will be
made by the SEC or that the staff of the SEC has no further comments on such
Registration Statement, as the case may be, a request for acceleration of the
effectiveness of such Registration Statement to a time and date as soon as
practicable. The Company shall keep such Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which all of the Registrable Securities may be immediately sold to the public
without registration or restriction pursuant to Rule 144(k) under the Securities
Act or any successor provision (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) (A) shall
comply in all material respects with the requirements of the Securities Act and
the rules and regulations of the SEC promulgated thereunder and (B) 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 not
misleading. The financial statements of the Company included in any such
Registration Statement or incorporated by reference therein (x) shall comply as
to form in all material respects with the applicable accounting requirements and
the published rules and regulations of the SEC applicable with respect thereto,
(y) shall be prepared in accordance with U.S. generally accepted accounting
principles, consistently applied during the periods involved (except as may be
otherwise indicated in such financial statements or the notes thereto or, in the
case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed on summary statements) and (z) fairly present in
all material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to immaterial year-end adjustments).
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The Company shall (i) prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to any Registration
Statement required to be filed hereunder and the prospectus used in connection
with any such Registration Statement as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and (ii) 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 any such 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
such Registration Statement. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Registration Trigger Date"), insufficient to cover 120% of the Registrable
Securities then issued or issuable (without giving effect to any limitations on
conversion the Notes), the Company shall provide each Investor written notice of
such Registration Trigger Date within three business days thereafter and shall
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover 120% of
the Registrable Securities then issued or issuable (without giving effect to any
limitations on conversion contained in the Notes) as of the Registration Trigger
Date, in each case, as soon as practicable, but in any event within 15 days
after the Registration Trigger Date. The Company shall cause such amendment(s)
and/or new Registration Statement(s) to become effective as soon as practicable
following the filing thereof.
The Company shall furnish to each Investor whose Registrable Securities
are included in a Registration Statement and such Investor's legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the SEC
or received by the Company, as applicable, one copy of the Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of the Registration
Statement required to be filed pursuant to Section 2, each letter written by or
on behalf of the Company to the SEC or the staff of the SEC (including, without
limitation, any request to accelerate the effectiveness of the Registration
Statement or amendment thereto), and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to the Registration Statement (other
than any portion thereof that contains information for which the Company has
sought confidential treatment), (ii) on the date of effectiveness of the
Registration Statement or any amendment thereto, a notice stating that the
Registration Statement or amendment has been declared effective, and (iii) such
number of copies of a prospectus, including a preliminary prospectus, all
amendments and supplements thereto and all such other documents as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
The Company shall use its best efforts to (i) register and qualify the
Registrable Securities covered by any Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as each
Investor who holds Registrable Securities being offered reasonably requests,
(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 during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, 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 (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause the Company undue expense or burden, or (E)
make any change in its Certificate of Incorporation, Bylaws or other
organizational documents, 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.
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As promptly as practicable after becoming aware of such event, the Company
shall (i) notify each Investor by telephone and facsimile of the happening of
any event, as a result of which the prospectus included in any Registration
Statement that includes Registrable Securities, 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 not misleading,
and (ii) promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
The Company shall use its best efforts (i) to prevent the issuance of any
stop order or other suspension of effectiveness of any Registration Statement
that includes Registrable Securities, and, if such an order is issued, to obtain
the withdrawal of such order at the earliest practicable moment (including in
each case by amending or supplementing such Registration Statement), and (ii) to
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
The Company shall permit a single firm of counsel designated by the
Initial Investors to review any Registration Statement required to be filed
hereunder and all amendments and supplements thereto a reasonable period of time
prior to its filing with the SEC, and not file any document in a form to which
such counsel reasonably objects.
The Company shall make generally available to its security holders as soon
as practicable, but in no event later than 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. The Company will be deemed to have
complied with its obligations under this Section 3(h) upon the Company's filing,
on an appropriate form, the appropriate report of the Company as required by the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "Exchange Act").
The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company 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 that includes such
Investor's Registrable Securities, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction, (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement, or (v) such Investor consents to the form and content of any
such disclosure. The Company shall, upon learning that disclosure of any
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 prior to making such disclosure, and cooperate with the Investor,
at the Investor's expense, in taking appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
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The Company shall use its best efforts to promptly cause all of the
Registrable Securities covered by any Registration Statement to be listed or
designated for quotation on the Bulletin Board, SmallCap Market, the National
Market, the NYSE, the AMEX or any other national securities exchange or
automated quotation system and on each additional national securities exchange
or automated quotation system on which securities of the same class or series
issued by the Company are then listed or quoted, if any, if the listing or
quotation of such Registrable Securities is then permitted under the rules of
such exchange or automated quotation system, and in any event, without limiting
the generality of the foregoing, to arrange for or maintain at least two market
makers to register with the National Association of Securities Dealers, Inc.
(the "NASD") as such with respect to the Registrable Securities.
The Company shall 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 required to be filed pursuant to Section 2 hereof.
The Company shall cooperate with any Investor who holds 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 any Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, and registered in such names,
as such Investor or the managing underwriter or underwriters, if any, may
reasonably request. Without limiting the generality of the foregoing, within
three business days after any Registration Statement that includes Registrable
Securities is declared effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to any Investor whose Registrable Securities
are included in such Registration Statement), an opinion of such counsel in the
form attached hereto as EXHIBIT A.
At the request of any Investor, the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
any Registration Statement required to be filed hereunder and the prospectus
used in connection with such Registration Statement as may be necessary in order
to change the plan of distribution set forth in such Registration Statement.
The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Exchange Act and the
rules and regulations thereunder promulgated by the SEC.)
From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company to
include any of their securities which are not Registrable Securities in the
Registration Statement required to be filed pursuant to Section 2(a), 2(b) or
3(b) hereof without the consent of the holders of a majority in interest of the
Registrable Securities.
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The Company shall make available for inspection by (i) each Investor, (ii)
any underwriter participating in any disposition pursuant to any Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by the Investors, and (iv) one firm of attorneys retained by all
such underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector to enable such 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 other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (A) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement, (B) the release of such Records is ordered pursuant
to a subpoena or other order from a court or government body of competent
jurisdiction, or (C) 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. Nothing herein shall be deemed to limit any Investor's ability
to sell Registrable Securities in a manner that is otherwise consistent with
applicable laws and regulations.
In the case of an underwritten public offering, at the request of any
Investor, the Company shall furnish, on the date of effectiveness of the
Registration Statement (i) an opinion, dated as of such date, from counsel
representing the Company addressed to any such Investor and in form, scope and
substance as is customarily given in an underwritten public offering and (ii) 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, if any, and any such Investor.
OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, each Investor
shall have the following obligations:
It shall be a condition precedent to the obligations of the Company to
effect 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 five trading 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.
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 any Registration
Statement required to be filed 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 such Registration Statement.
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Upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e) or 3(f) with respect to any Registration
Statement including Registrable Securities, each Investor shall immediately
discontinue disposition of Registrable Securities pursuant to such Registration
Statement until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(e) and 3(f), as applicable, 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. Notwithstanding the foregoing or anything to the contrary in this
Agreement, but subject to compliance with applicable laws, the Company shall
cause the transfer agent for the Registrable Securities to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Notes in connection with any sale of Registrable Securities with
respect to which any such Investor has entered into a contract for sale prior to
receipt of such notice and for which any such Investor has not yet settled.
No Investor may participate in any underwritten distribution hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below, and (iv) complies with all applicable laws
in connection therewith. Notwithstanding anything in this Section 4(d) to the
contrary, this Section 4(d) is not intended to limit any Investor's rights under
Sections 2(a), 2(b) or 3(b) hereof.
EXPENSES OF REGISTRATION.
All expenses (other than underwriting discounts and commissions) incurred by the
Company or the Investors in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 above (including, without
limitation, all registration, listing and qualification fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and up to
$10,000 of the fees and disbursements of one counsel selected by the Investors)
shall be borne by the Company. In addition, the Company shall pay each
Investor's costs and expenses (including legal fees) incurred in connection with
the enforcement of the rights of such Investor hereunder.
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INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration Statement
under this Agreement:
To the extent permitted by law, the Company shall indemnify, hold harmless
and defend (i) each Investor who holds such Registrable Securities, and (ii) the
directors, officers, partners, members, employees and agents of each such
Investor and each person, if any, who controls each such Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, an "Investor Indemnified Person"), against any joint or several losses,
claims, damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "Claims") to which any of
them may become subject insofar as such Claims arise out of or are based upon:
(A) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading, (B) 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 (C) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act or any other law (including, without
limitation, any state securities law), rule or regulation relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (A)
through (C), collectively, "Violations"). Subject to the restrictions set forth
in Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse each Investor and each other Investor Indemnified Person, promptly as
such expenses are incurred and are due and payable, for any reasonable 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): (x) 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 such Investor Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (y) 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; and (z) with respect
to any preliminary prospectus, shall not inure to the benefit of any Investor
Indemnified Person 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, if such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Investor Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation and such
Investor Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Investor Indemnified Person and shall survive the
transfer of the Registrable Securities by the Investors pursuant to Section 9
hereof.
224
In connection with any Registration Statement in which an Investor is
participating, (i) each such Investor shall, severally and not jointly,
indemnify, hold harmless and defend, 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, its employees and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, 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 within the meaning of the
Securities Act or the Exchange Act (each, a "Company Indemnified Person"),
against any Claims to which any of them may become subject insofar as such
Claims arise out of or are 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 (ii)
subject to the restrictions set forth in Section 6(c), such Investor shall
reimburse the Company Indemnified Persons, 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; provided, however, that the indemnification obligations 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; and provided, further, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
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
Company Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investor pursuant to Section 9 hereof. Notwithstanding
anything to the contrary contained herein, the indemnification obligations
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Company Indemnified Person 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.
Promptly after receipt by any party entitled to indemnification under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a Claim in respect
thereof is to 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 party;
provided, however, that such indemnifying party shall not be entitled to assume
such defense and an 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 party and the indemnifying
party would be inappropriate due to actual or potential conflicts of interest
between such indemnified party and any other party represented by such counsel
in such proceeding or the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party and
any such indemnified party reasonably determines that there may be legal
defenses available to such indemnified party that are in conflict with those
available to such indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the indemnified parties, and such legal counsel
shall be selected by Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates (if
the parties entitled to indemnification hereunder are Investor Indemnified
Persons) or by the Company (if the parties entitled to indemnification hereunder
are Company Indemnified Persons). 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 party under this Section 6, except to the extent that the
indemnifying party is actually 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.
225
CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party shall 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 as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, with respect to the Violation giving rise to the applicable
Claim; 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 person 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 (together with any indemnification or other obligations under this
Agreement) 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.
REPORTS UNDER THE 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:
file with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements and
the filing and availability of such reports and other documents is required for
the applicable provisions of Rule 144; and
furnish to each Investor so long as such Investor holds Notes or
Registrable Securities, promptly upon 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 such Investor to sell such securities under Rule 144 without
registration.
ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the Company
register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Notes or Registrable Securities 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 after such assignment, (b) the
Company is 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) 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) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (e) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement and the Notes. In addition,
and notwithstanding anything to the contrary contained in this Agreement, the
Securities Purchase Agreement, the Notes, or the Securities (as defined in the
Securities Purchase Agreement) may be pledged, and all rights of the Investor
under this Agreement or any other agreement or document related to the
transactions contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with an Investor's margin or
brokerage account.
226
AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor or its affiliates still owns
Notes or Registrable Securities) and the Investor(s) who hold a majority in
interest of the Registrable Securities or, in the case of a waiver, with the
written consent of the party charged with the enforcement of any such provision;
provided, however, that (a) no amendment hereto which restricts the ability of
an Investor to elect not to participate in an underwritten offering shall be
effective against any Investor which does not consent in writing to such
amendment; (b) no consideration shall be paid to an Investor by the Company in
connection with an amendment hereto unless each Investor similarly affected by
such amendment receives a pro rata amount of consideration from the Company; and
(c) unless an Investor otherwise agrees, each amendment hereto must similarly
affect each Investor. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
MISCELLANEOUS.
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.
Any notices required or permitted to be given under the terms of this
Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally, by responsible overnight carrier or by
confirmed facsimile, and shall be effective five days after being placed in the
mail, if mailed, or upon receipt or refusal of receipt, if delivered personally
or by responsible overnight carrier or confirmed facsimile, in each case
addressed to a party. The initial addresses for such communications shall be as
follows, and each party shall provide notice to the other parties of any change
in such party's address:
If to the Company:
iSECUREtrac, CORP.
0000 Xxxxx 000xx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxx, Chairman & Chief
Executive Officer
If to any Investor, to such address as such Investor shall have
provided in writing to the Company.
227
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.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in the State of Delaware. The Company irrevocably consents to the jurisdiction
of the United States federal courts and the state courts located in City and
County of San Francisco, California in any suit or proceeding based on or
arising under this Agreement and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding in such forum. The Company further agrees that service
of process upon the Company, mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect any Investor's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
This Agreement and the other Transaction Documents (including any
schedules and exhibits hereto and thereto) constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
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.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
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 facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
Unless other expressly provided herein, all consents, approvals and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by the Investors holding a majority in interest of the Registrable
Securities (determined as if all Notes then outstanding had been converted into
or exercised for Registrable Securities) held by all Investors.
228
The initial number of Registrable Securities included on any Registration
Statement filed pursuant to Section 2(a), 2(b) or 3(b), and each increase to the
number of Registrable Securities included thereon, shall be allocated pro rata
among the Investors based on the number of Registrable Securities held by each
Investor at the time of such establishment or increase, as the case may be. In
the event an Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the number of Registrable Securities included on a Registration Statement for
such transferor. Any shares of Common Stock included on a Registration Statement
and which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Investors, pro rata
based on the number of shares of Registrable Securities then held by such
Investors. For the avoidance of doubt, the number of Registrable Securities held
by any Investor shall be determined as if all Notes then outstanding were
converted into or exercised for Registrable Securities.
Each party to this Agreement has participated in the negotiation and
drafting of this Agreement. As such, the language used herein shall be deemed to
be the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction will be applied against any party to this
Agreement.
For purposes of this Agreement, the term "business day" means any day
other than a Saturday or Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law, regulation or executive
order to close, and the term "trading day" means any day on which the Bulletin
Board or, if the Common Stock is not then traded on the Bulletin Board, the
principal national securities exchange, automated quotation system or other
trading market where the Common Stock is then listed, quoted or traded, is open
for trading.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
229
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT - LTD]
IN WITNESS WHEREOF, the undersigned Initial Investor and the Company have
caused this Agreement to be duly executed as of the date first above written.
iSECUREtrac, Corp.
By:
----------------------------
Name: Xxxxxxx Xxx
Title: Chairman
INITIAL INVESTOR:
MicroCapital Fund Ltd.
By:
----------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: Vice President
230
EXHIBIT A
[Date]
[Transfer Agent]
RE: ISECURETRAC, CORP
Ladies and Gentlemen:
We are counsel to iSECUREtrac, Corp., a corporation organized under the laws of
the State of Delaware (the "Company"), and we understand that [Name of Investor]
(the "Holder") has purchased from the Company convertible promissory notes that
are convertible, directly or indirectly, into shares of the Company's common
stock, no par value per share (the "Common Stock"). Pursuant to a Registration
Rights Agreement, dated as of October ___, 2003, by and among the Company and
the signatories thereto (the "Registration Rights Agreement"), the Company
agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on _____________ ___, ____,
the Company filed a Registration Statement on Form S-___ (File No. 333-
_____________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder. The Registration Statement was
declared effective by the SEC on _____________, ____.
In connection with the foregoing, we advise you that a member of the SEC's staff
has advised us by telephone that the SEC has entered into an order declaring the
Registration Statement effective under the Securities Act at [time of
effectiveness] on [date of effectiveness], and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC.
Based on the foregoing, we are of the opinion that the Registrable Securities
are available for resale under the Securities Act pursuant to the Registration
Statement.
Very truly yours,
COUNSEL FOR ISECURETRAC, CORP.
cc: [Name of Investor]
231
