EXHIBIT 99.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of August 8, 2005, among MDI, Inc., a Delaware corporation
(the "Company"), and the purchasers signatory hereto (each such purchaser is a
"Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial
Registration Statement required to be filed hereunder, the 90th
calendar day following the date hereof (the 120th calendar day in the
case of a "full review" by the Commission) and, with respect to any
additional Registration Statements which may be required pursuant to
Section 3(c), the 90th calendar day following the date on which the
Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder; provided,
however, in the event the Company is notified by the Commission that
one of the above Registration Statements will not be reviewed or is no
longer subject to further review and comments, the Effectiveness Date
as to such Registration Statement shall be the fifth Trading Day
following the date on which the Company is so notified if such date
precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 30th calendar day following the date
hereof and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 30th day following
the date on which the Company first knows, or reasonably should have
known that such additional Registration Statement is required
hereunder.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
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"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in
Section 2(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means all of (i) the Shares issuable,
(ii) the Warrant Shares issuable, together with any shares of Common
Stock issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing and (iii) shares issuable to the placement agent pursuant to
the warrant issuable to such placement agent.
"Registration Statement" means the registration statements
required to be filed hereunder and any additional registration
statements contemplated by Section 3(c), including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"Rule 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"Selling Shareholder Questionnaire" shall have the meaning set
forth in Section 3(a).
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2. Shelf Registration.
(a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering
the resale of 130% of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if the Company
is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders) substantially the "Plan of
Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event
prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective
under the Securities Act until all Registrable Securities covered by
such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and
the affected Holders (the "Effectiveness Period"). The Company shall
telephonically request effectiveness of a Registration Statement as of
5:00 pm Eastern Time on a Trading Day. The Company shall immediately
notify the Holders via facsimile of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date
requested for effectiveness of a Registration Statement. The Company
shall, by 9:30 am Eastern Time on the Trading Day after the Effective
Date (as defined in the Purchase Agreement), file a Form 424(b)(5) with
the Commission. Failure to so notify the Holder within 1 Trading Day of
such notification shall be deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files a Registration Statement
without affording the Holders the opportunity to review and comment on
the same as required by Section 3(a), the Company shall not be deemed
to have satisfied this clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not be
"reviewed," or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 calendar days after
the receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required
to be filed hereunder is not declared effective by the Commission by
its Effectiveness Date, or (v) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it is required to
be effective, or the Holders are not permitted to utilize the
Prospectus therein to resell such Registrable Securities for 10
consecutive calendar days but no more than an aggregate of 15 calendar
days during any 12-month period (which need not be consecutive Trading
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Days) (any such failure or breach being referred to as an "Event", and
for purposes of clause (i) or (iv) the date on which such Event occurs,
or for purposes of clause (ii) the date on which such five Trading Day
period is exceeded, or for purposes of clause (iii) the date which such
10 calendar day period is exceeded, or for purposes of clause (v) the
date on which such 10 or 15 calendar day period, as applicable, is
exceeded being referred to as "Event Date"), then in addition to any
other rights the Holders may have hereunder or under applicable law, on
each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each
Holder an amount in cash, as partial liquidated damages and not as a
penalty, equal to 2% of the aggregate purchase price paid by such
Holder pursuant to the Purchase Agreement for any Registrable
Securities then held by such Holder. If the Company fails to pay any
partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial
liquidated damages pursuant to the terms hereof shall apply on a daily
pro-rata basis for any portion of a month prior to the cure of an
Event.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than five Trading Days prior to the filing of
each Registration Statement or any related Prospectus or any amendment
or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the
Company shall, (i) furnish to each Holder copies of all such documents
proposed to be filed, which documents (other than those incorporated or
deemed to be incorporated by reference) will be subject to the review
of such Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries
as shall be necessary, in the reasonable opinion of respective counsel
to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or
any such Prospectus or any amendments or supplements thereto to which
the Holders of a majority of the Registrable Securities shall
reasonably object in good faith, provided that, the Company is notified
of such objection in writing no later than 5 Trading Days after the
Holders have been so furnished copies of such documents. Each Holder
agrees to furnish to the Company a completed Questionnaire in the form
attached to this Agreement as Annex B (a "Selling Shareholder
Questionnaire") not less than two Trading Days prior to the Filing Date
or by the end of the fourth Trading Day following the date on which
such Holder receives draft materials in accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
a Registration Statement continuously
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effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale
under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required
Prospectus supplement (subject to the terms of this Agreement), and as
so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable
period in accordance (subject to the terms of this Agreement) with the
intended methods of disposition by the Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of
Registrable Securities at any time exceeds 90% of the number of shares
of Common Stock then registered in a Registration Statement, then the
Company shall file as soon as reasonably practicable but in any case
prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than 130% of
the number of such Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold
(which notice shall, pursuant to clauses (ii) through (vi) hereof, be
accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five Trading
Days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following
the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be
filed; (B) when the Commission notifies the Company whether there will
be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written
responses thereto to each of the Holders); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement covering any or all of
the Registrable Securities or the initiation of any Proceedings for
that purpose; (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for
such purpose; (v) of the occurrence of any event or passage of time
that makes the financial statements included in a Registration
Statement ineligible for inclusion therein or any statement made in a
Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated
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therein by reference untrue in any material respect or that requires
any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company,
makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus; provided that
any and all of such information shall remain confidential to each
Holder until such information otherwise becomes public, unless
disclosure by a Holder is required by law; provided, further,
notwithstanding each Holder's agreement to keep such information
confidential, the Holders make no acknowledgement that any such
information is material, non-public information.
(e) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of a Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f) Furnish to each Holder, without charge, at least one
conformed copy of each such Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the
extent requested by such Person, and all exhibits to the extent
requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents
with the Commission.
(g) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons
may reasonably request in connection with resales by the Holder of
Registrable Securities. Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto,
except after the giving on any notice pursuant to Section 3(d).
(h) If NASDR Rule 2710 requires any broker-dealer to make a
filing prior to executing a sale by a Holder, the Company shall (i)
make an Issuer Filing with the NASDR, Inc. Corporate Financing
Department pursuant to NASDR Rule 2710(b)(10)(A)(i), (ii) respond
within five Trading Days to any comments received from NASDR in
connection therewith, and (iii) pay the filing fee required in
connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder,
use its commercially reasonable efforts to register or qualify or
cooperate with the selling Holders in connection with the registration
or qualification (or exemption from the Registration or qualification)
of such Registrable Securities for the resale by the Holder
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under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder reasonably requests in writing, to keep
each registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by each
Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where
it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general
consent to service of process in any such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free,
to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request.
(k) Upon the occurrence of any event contemplated by this
Section 3, as promptly as reasonably possible under the circumstances
taking into account the Company's good faith assessment of any adverse
consequences to the Company and its stockholders of the premature
disclosure of such event, prepare a supplement or amendment, including
a post-effective amendment, to a Registration Statement or a supplement
to the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither a Registration Statement nor
such Prospectus will contain an 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
under which they were made, not misleading. If the Company notifies the
Holders in accordance with clauses (ii) through (vi) of Section 3(d)
above to suspend the use of any Prospectus until the requisite changes
to such Prospectus have been made, then the Holders shall suspend use
of such Prospectus. The Company will use its best efforts to ensure
that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under
this Section 3(k) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial liquidated
damages pursuant to Section 2(b), for a period not to exceed 60 days
(which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to
the Company a certified statement as to the number of shares of Common
Stock beneficially owned by such Holder and, if required by the
Commission, the person thereof that has voting and dispositive control
over the Shares. During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time as to such Holder
only shall be tolled and any Event that may otherwise occur solely
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because of such delay shall be suspended as to such Holder only, until
such information is delivered to the Company.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as requested by the Holders) and (C) if not
previously paid by the Company in connection with an Issuer Filing, with respect
to any filing that may be required to be made by any broker through which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in a Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents, brokers
(including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a
margin call of Common Stock), investment advisors and employees of each
of them, each Person who controls any such Holder (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material fact
contained in a Registration Statement, any Prospectus or any form of
prospectus or in any
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amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they
were made) not misleading, except to the extent, but only to the
extent, that (i) such untrue statements or omissions are based solely
upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that
such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or
in any amendment or supplement thereto (it being understood that the
Holder has approved Annex A hereto for this purpose) or (ii) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(d). The Company
shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the
transactions contemplated by this Agreement of which the Company is
aware.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the
Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (i) to the
extent, but only to the extent, that such untrue statement or omission
is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) to the extent that (1) such untrue
statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution
of Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in a Registration Statement
(it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of
an event of the type specified in Section 3(d)(ii)-(vi), the use by
such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of
the net proceeds received by
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such Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall have
the right to assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations
or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further
review) that such failure shall have prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses;
(2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of
the Indemnifying Party, the Indemnifying Party shall not have the right
to assume the defense thereof and the reasonable fees and expenses of
one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party,
effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees
and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred,
within ten Trading Days of written notice thereof to the Indemnifying
Party; provided, that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the
relative faults of the parties.
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(d) Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party
shall contribute to the amount paid or payable by such Indemnified
Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses
as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has
been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable
by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys' or other reasonable fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance
with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined
by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
except in the case of fraud by such Holder.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action
for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
11
(b) No Piggyback on Registrations. Except as set forth on
Schedule 6(b) attached hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the initial
Registration Statement other than the Registrable Securities. No Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company. The Company shall not
file any other registration statements until the initial Registration
Statement required hereunder is declared effective by the Commission,
provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements already filed.
(c) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act
as applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind
described in Section 3(d), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of
any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration
Statement. The Company will use its best efforts to ensure that the use
of the Prospectus may be resumed as promptly as it practicable. The
Company agrees and acknowledges that any periods during which the
Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section
2(b).
(e) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other
than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) 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 the stock
option or other employee benefit plans, then the Company shall send to
each Holder a written notice of such determination and, if within
fifteen days after the date of such notice, any such Holder shall so
request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Holder
requests to be registered; provided, however, that, the Company shall
not be required to register any Registrable Securities pursuant to this
Section 6(e) that are eligible for resale pursuant to Rule 144(k)
promulgated under the Securities Act or that are the subject of a then
effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the
12
same shall be in writing and signed by the Company and each Holder of
the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof
with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however,
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the
immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be
delivered as set forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. Except as set forth on Schedule 6(i), neither the Company nor
any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any signature
is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth
13
herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any
other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by
any Holder pursuant hereto or thereto, shall be deemed to constitute
the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in
any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be
entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not
be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
*************************
14
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
MDI, INC.
By:
--------------------------------
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
15
[SIGNATURE PAGE OF HOLDERS TO MDII RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
16
ANNEX A
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common
stock ("Common Stock") of MDI, Inc., a Delaware corporation (the "Company") and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on the Trading Market or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A Selling Stockholder may use any one or more of the following methods
when selling shares:
o ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt
to sell the shares as agent but may position and
resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale
by the broker-dealer for its account;
o an exchange distribution in accordance with the rules
of the applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the
effective date of the registration statement of which
this prospectus is a part;
o broker-dealers may agree with the Selling
Stockholders to sell a specified number of such
shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other
hedging transactions, whether through an options
exchange or otherwise; or
o any other method permitted pursuant to applicable
law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage
17
commission in compliance with NASDR Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the Common Stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the Common Stock short and deliver these
securities to close out their short positions, or loan or pledge the Common
Stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each Selling Stockholder has advised us that they have not entered into any
written or oral agreements, understandings or arrangements with any underwriter
or broker-dealer regarding the sale of the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or
18
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the Common Stock for the
applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the Common Stock by the Selling Stockholders or
any other person. We will make copies of this prospectus available to the
Selling Stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
19
ANNEX B
MDI, INC.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.01 per
share (the "Common Stock"), of MDI, Inc., a Delaware corporation (the
"Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
August [__________, 2005 (the "Registration Rights Agreement"), among the
Company and the Purchasers named therein. A copy of the Registration Rights
Agreement is available from the Company upon request at the address set forth
below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
20
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the
questionnaire):
--------------------------------------------------------------
2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
-------------------------------------------------------------------
Fax:
-------------------------------------------------------------------------
Contact Person:
--------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
(a) Type and Number of Registrable Securities beneficially owned:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
21
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable
Securities as compensation for investment banking services to
the Company.
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify
that you bought the Registrable Securities in the ordinary
course of business, and at the time of the purchase of the
Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
--------------------------------------------------------------
--------------------------------------------------------------
22
6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
--------------------- ------------------------
By:
--------------------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
23
