REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (this "Agreement")
is
made and entered into as of February 8, 2007, by and among General Components,
Inc., a Nevada corporation (the "Company"),
and
the purchasers listed on Schedule
I
hereto
(the "Purchasers").
This
Agreement is being entered into pursuant to the Subscription
Agreement dated
as
of the date hereof among the Company and the Purchasers (the "Subscription
Agreement"),
the
terms of certain convertible notes (the “Convertible
Notes”)
aggregating $6,000,000 in principal amount made by the Company in favor of
the
holders of such Convertible Notes named on Schedule
II
hereto
(the “Converting
Purchasers”)
and
the terms of the September Convertible Notes, as defined below.
The
Company and the Holders hereby agree as follows:
1. Definitions.
Capitalized
terms used and not otherwise defined herein shall have the meanings given such
terms in the Subscription Agreement. As used in this Agreement, the following
terms shall have the following meanings:
"Advice"
shall
have meaning set forth in Section 3(m).
"Affiliate"
means,
with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person. For
the
purposes of this definition, "control,"
when
used with respect to any Person, means the possession, direct or indirect,
of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract
or
otherwise; and the terms of "affiliated,"
"controlling"
and
"controlled"
have
meanings correlative to the foregoing.
"Board"
shall
have meaning set forth in Section 3(n).
"Business
Day"
means
any day except Saturday, Sunday and any day which shall be a legal holiday
or a
day on which banking institutions in the State of New York generally are
authorized or required by law or other government actions to close.
"Commission"
means
the Securities and Exchange Commission.
"Common
Stock"
means
the Company's Common Stock, $0.001 par value per share.
"Effectiveness
Date"
means
with respect to the Registration Statement (A) the one hundred twentieth
(120th)
day
following the Stock Split Date (or in the event the Registration Statement
receives a “full review” by the Commission, the one hundred eightieth
(180th)
day
following the Stock Split Date);
provided that,
if the Effectiveness Date falls on a Saturday,
Sunday or any other day which shall be a legal holiday or a day on which the
Commission is authorized or required by law or other government actions to
close, the Effectiveness Date shall be the following Business Day.
"Effectiveness
Period"
shall
have the meaning set forth in Section 2.
"Event"
shall
have the meaning set forth in Section 7(d).
"Event
Date"
shall
have the meaning set forth in Section 7(d).
"Exchange
Act"
means
the Securities Exchange Act of 1934, as amended.
"Filing
Date"
means
the sixtieth (60th)
calendar day following the Stock Split Date; provided that,
if the Filing Date falls on a Saturday,
Sunday or any other day which shall be a legal holiday or a day on which the
Commission is authorized or required by law or other government actions to
close, the Filing Date shall be the following Business Day.
"Holder"
or
"Holders"
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
"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).
"Person"
means
an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"Preferred
Shares"
means
the shares of the Company’s Series B Preferred Stock issued to the Purchasers
pursuant to the Subscription Agreement and issued to the Converting Shareholders
pursuant to the automatic conversion of the Convertible Notes upon the closing
of the transactions contemplated by the Subscription Agreement.
"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 the 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 the Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such
Prospectus.
-2-
"Registrable
Securities"
means
(i) 150% of the number of shares of Common Stock issuable upon conversion of
the
Preferred Shares, (ii) 150% of the number of shares of Common Stock that may
be
issued as payment of dividends on the Preferred Shares during the first three
years following the issuance thereof and calculated with reference to the Market
Price of the Common Stock on the twentieth business day preceding the Filing
Date, (iii) the number of shares issuable upon exercise of the Warrants, and
(iv) the number of shares issuable upon conversion of the September Convertible
Notes.
"Registration
Statement"
means
the registration statements and any additional registration statements
contemplated by Section 2, 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 in such registration statement.
"Rule
144"
means
Rule 144 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 effect as
such
Rule.
"Rule
158"
means
Rule 158 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 effect as
such
Rule.
"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 effect as
such
Rule.
"Rule
415 Interpretative Position"
means
the then-current interpretation of the staff of the SEC regarding the
availability of Rule 415 for continuous or delayed offerings of securities
for
the account of selling securityholders.
"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 effect as
such
Rule.
"SEC"
shall have the meaning set forth in Section 2(a).
"Securities
Act"
means
the Securities Act of 1933, as amended.
"September
Convertible Notes"
means
the $165,000 aggregate principal amount of secured convertible notes issued
by
the Company on September 5, 2006 in favor of the holders of such notes named
on
Schedule III hereto.
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"Stock
Split Date"
means
the date on which the Company shall have effected a 1-for-10 reverse split
of
its Common Stock.
"Subsequent
Registration Statement"
shall
have the meaning set forth in Section 2(b).
"Warrants"
means
the warrants to purchase shares of Common Stock issued to the Converting
Shareholders in connection with their purchase of the Convertible Notes, the
warrants to purchase 16,375,000 shares of Common Stock issued to Broadband
Capital Management LLC by the Company on February 8, 2007 and the warrants
to
purchase 12,500,000 shares of Common Stock issued to Comtech Global Investments,
Inc. by the Company on February 8, 2007.
2. Resale
Registration.
(a) On
or
prior to the Filing Date the Company shall prepare and file with the Commission
a "resale" Registration Statement providing for the resale of the Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415; provided,
that
the Company shall only be required to register Registrable Securities up to
an
amount permitted to be registered by the Securities and Exchange Commission
(the
“SEC”)
pursuant to the Rule 415 Interpretative Position. The Registration Statement
shall be on Form SB-2 (except if the Company is not then eligible to register
for resale the Registrable Securities on Form SB-2, in which case such
registration shall be on another appropriate form in accordance with the
Securities Act and the rules promulgated thereunder). The Company shall (i)
not
permit any securities other than the Registrable Securities to be included
in
the Registration Statement and (ii) use its best efforts to cause the
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
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until such date as is the earlier of (x)
the
date when all Registrable Securities covered by such Registration Statement
have
been sold or (y) the date on which the Registrable Securities may be sold
without any restriction pursuant to Rule 144(k) as determined by the counsel
to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness
Period").
In
the event any Registrable Securities are excluded from such Registration
Statement due to the Rule 415 Interpretative Position, the Registrable
Securities to be excluded shall be allocated among all Holders on a pro rata
basis based on the total number of Registrable Securities proposed to be
included in such Registration Statement.
(b) In
the
event the Rule 415 Interpretative Position limits the number of Registrable
Securities that may be registered on the Registration Statement, then as soon
as
practicable following the sale of securities or the passage of time (as
appropriate in view of the Rule 415 Interpretative Position), the Company will
file one or more additional Registration Statements (each such Registration
Statement, a “Subsequent
Registration Statement”)
registering the Registrable Securities not registered on the Registration
Statement but in an amount permissable under the Rule 415 Interpretative
Position, until all of the Registrable Securities have been registered. The
Filing Date and Effectiveness Date of each such Subsequent Registration
Statement shall be, respectively, on or prior to the thirtieth (30th)
and
sixtieth (60th)
day
after the first day such Subsequent Registration Statement may be filed without
objection by the SEC based on its Rule 415 Interpretative
Position.
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3. Registration
Procedures.
In
connection with the Company's registration obligations hereunder, the Company
shall:
(a)
Prepare
and file with the Commission on or prior to the Filing Date, a Registration
Statement on Form SB-2 (or if the Company is not then eligible to register
for
resale the Registrable Securities on Form SB-2 such registration shall be on
another appropriate form in accordance with the Securities Act and the rules
promulgated thereunder) in accordance with the method or methods of distribution
thereof as specified in Exhibit A, and use its reasonable best efforts to cause
the Registration Statement to become effective and remain effective as provided
herein; provided,
however,
that
not less than five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated therein by reference), the
Company shall (i) furnish to the Holders, copies of all such documents proposed
to be filed, which documents (other than those incorporated by reference) will
be subject to the review of such Holders. The Company shall not file the
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 writing within three (3) Business Days of their receipt
thereof, provided, however, that if the Registration Statement is not filed
due
to the objection of the Holders the Company will not be deemed to have breached
the obligation to file the Registration Statement by the applicable Filing
Date.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements as necessary 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, and as so supplemented or amended to be filed pursuant to Rule
424
(or any similar provisions then in force) promulgated under the Securities
Act;
(iii) respond as promptly as possible, but in no event later than ten (10)
Business Days, to any comments received from the Commission with respect to
the
Registration Statement or any amendment thereto and upon request provide the
Holders copies of all correspondence from and to the Commission relating to
the
Registration Statement, provided that the Company need not provide any
correspondence that contains any material non-public information; 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 the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in
the
Registration Statement as so amended or in such Prospectus as so
supplemented.
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(c) Notify
the Holders of Registrable Securities to be sold (and, in the case of (i)(A)
below, not less than five (5) days prior to such filing) and (if requested
by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement
or
post-effective amendment to the Registration Statement is 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 and (C) with respect to the 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 the Registration Statement or Prospectus or
for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any
or
all of the Registrable Securities or the initiation of any Proceedings for
that
purpose; (iv) 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; and (v) of the occurrence of
any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case
of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(d) Use
its
commercially reasonable best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
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.
(e) Furnish
to each Holder upon request, without charge, at least one conformed copy of
each
Registration Statement and each amendment thereto after the filing of such
documents with the Commission.
(f) Deliver
to each Holder upon request, 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; and 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 in accordance with the plan of distribution described
therein.
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(g) Prior
to
any public offering of Registrable Securities, use its reasonable best efforts
to register or qualify or cooperate with the selling Holders in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as
any Holder requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do
any
and all other acts or things necessary or advisable to enable the disposition
in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided,
however,
that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it
is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(h) Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to a
Registration Statement, and to enable such Registrable Securities to be in
such
denominations and registered in such names as any Holder may request in writing
at least two (2) Business Days prior to any sale of Registrable
Securities.
(i) Upon
the
occurrence of any event contemplated by Section 3(c)(vi), as promptly as
practicable, prepare a supplement or amendment, including a post-effective
amendment, to the 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 the 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 the light
of the circumstances under which they were made, not misleading.
(j) Use
its
reasonable best efforts to cause all Registrable Securities relating to the
Registration Statement to be listed on the OTC Bulletin Board or
any
other securities exchange, quotation system or market, if any, on which similar
securities issued by the Company are then listed or traded as and when required
pursuant to the Subscription Agreement.
(k) Comply
in
all material respects with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act
and
Rule 158 not later than 45 days after the end of any 12-month period (or 90
days
after the end of any 12-month period if such period is a fiscal year) commencing
on the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.
-7-
(l) The
Company may require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as
is
required to be disclosed in the Registration Statement, and the Company may
exclude from such registration the Registrable Securities of any such Holder
who
fails to furnish such information within five days after receiving such
request.
Each
Holder covenants and agrees that (i) it will not sell any Registrable Securities
under the Registration Statement until it has received copies of the Prospectus
as then amended or supplemented as contemplated in Section 3(g) and notice
from
the Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration
Statement.
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(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), or 3(m), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder's receipt of the copies
of
the supplemented Prospectus and/or amended Registration Statement contemplated
by Section 3(i), 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.
(m) If
(i)
there is material non-public information regarding the Company which the
Company's Board of Directors (the "Board")
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available
to
the Company which the Board determines not to be in the Company's best interest
to disclose, or (iii) the Company is required to file a post-effective amendment
to the Registration Statement to incorporate the Company’s quarterly and annual
reports and audited financial statements on Forms 10-QSB and 10-KSB, then the
Company may on written notice to the Purchasers and the Converting Shareholders
(which notice will not disclose the content of any material non-public
information and will indicate the date of the beginning and end of the intended
period of suspension, if known) (x) postpone or suspend filing of a registration
statement for a period not to exceed twenty (20) consecutive days or (y)
postpone or suspend effectiveness of a registration statement for a period
not
to exceed twenty (20) consecutive days; provided that the Company may not
postpone or suspend effectiveness of a registration statement under this Section
3(n) for more than sixty (60) days in the aggregate during any three hundred
sixty (360) day period; provided,
however,
that no
such postponement or suspension shall be permitted for consecutive twenty (20)
day periods arising out of the same set of facts, circumstances or transactions.
The suspension and notice thereof described in this Section 3(m) shall be held
in strictest confidence and shall not be disclosed by the Purchasers or the
Converting Shareholders.
-8-
4. Registration
Expenses.
All
fees
and expenses incident to the performance of or compliance with this Agreement
by
the Company, except as and to the extent specified in this Section 4, shall
be
borne by the Company whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the 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 OTC Bulletin Board and
each
other securities exchange or market on which Registrable Securities are required
hereunder to be listed, if any (B) with respect to filing fees required to
be
paid to the National Association of Securities Dealers, Inc. and the NASD
Regulation, Inc. and (C) in compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of counsel
for
the Holders in connection with Blue Sky qualifications of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as the Holders of a majority
of Registrable Securities may reasonably designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the 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, including, without limitation, the Company's independent public
accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or
comfort letters). 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, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
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, costs of preparation and attorneys' fees) and
expenses (collectively, "Losses")
(as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising out of or relating to any untrue
or
alleged untrue statement of a material fact contained in the 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 (in the case of
any
Prospectus or form of prospectus or supplement thereto, in the 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 or such other Indemnified Party
furnished in writing to the Company by such Holder expressly for use therein
and
(ii) that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, allegedly untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of
any
Holder, underwriter, broker or other Person acting on behalf of holders of
the
Registrable Securities, from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Securities which are the subject
thereof, if a copy of such final prospectus had been made available to such
Person and such Holder, underwriter, broker or other Person acting on behalf
of
holders of the Registrable Securities and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Securities to such Person. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding
of
which the Company is aware in connection with the transactions contemplated
by
this Agreement.
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(b) Indemnification
by Holders.
Each
Holder shall, severally and not jointly, notwithstanding any termination of
this
Agreement, 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 and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising solely out of or based solely upon
any untrue statement of a material fact contained in the Registration Statement,
any Prospectus, or any form of prospectus, or arising solely out of or based
solely upon any 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 the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished by such Holder or other Indemnifying Party (as described below) to
the
Company specifically for inclusion in the Registration Statement or such
Prospectus. Notwithstanding anything to the contrary contained herein, each
Holder shall be liable under this Section 5(b) for only that amount as does
not
exceed the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement.
-10-
(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 promptly shall notify the Person from whom indemnity is sought
(the "Indemnifying
Party)
in
writing, and the Indemnifying Party shall 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
proximately and materially adversely 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; or (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 have been advised
by counsel (which shall be reasonably acceptable to the Indemnifying Party)
that
a 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
such 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 or delayed. 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.
All
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 (10) Business Days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake
to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution.
If a
claim for indemnification under Section 5(a) or 5(b) is unavailable to an
Indemnified Party because of a failure or refusal of a governmental authority
to
enforce such indemnification in accordance with its terms (by reason of public
policy or otherwise), then each Indemnifying Party, in lieu of indemnifying
such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other from the offering of
the
Warrants. If, but only if, the allocation provided by the foregoing sentence
is
not permitted by applicable law, the allocation of contribution shall be made
in
such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault, as
applicable, 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 Section 5(c), 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. In no event shall any selling Holder
be
required to contribute an amount under this Section 5(d) in excess of the net
proceeds received by such Holder upon sale of such Holder’s Registrable
Securities pursuant to the Registration Statement giving rise to such
contribution obligation.
-11-
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. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
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. Notwithstanding anything to the contrary contained herein, the Holders
shall be liable under this Section 5(d) for only that amount as does not exceed
the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement.
6. Rule
144.
As
long
as any Holder owns any Registrable Securities, Preferred Shares or Warrants,
if
the Company is not required to file reports pursuant to Section 13(a) or 15(d)
of the Exchange Act, it will prepare and furnish to the Holders and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well
as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act.
-12-
7. 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.
(b) No
Inconsistent Agreements.
Neither
the Company nor any of its subsidiaries has, as of the date hereof entered
into
and currently in effect, 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 is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Without limiting
the generality of the foregoing, without the written consent of the Holders
of a
majority of the then outstanding Registrable Securities, the Company shall
not
after the date hereof grant to any Person the right to request the Company
to
register any securities of the Company, under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of
the
Holders set forth herein, and are not otherwise in conflict with the provisions
of this Agreement.
(c) No
Piggyback on Registrations.
Neither
the Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto and the holders of the Convertible Notes) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to
any
of its securityholders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement. The Company shall
not file any other registration statements until the Registration Statement
required hereunder is declared effective by the Commission, provided that this
Section 7(c) shall not prohibit the Company from filing amendments to
registration statements already filed.
-13-
(d) Failure
to File Registration Statement and Other Events.
The
Company and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date
and
maintained in the manner contemplated herein during the Effectiveness Period
or
if certain other events occur. The Company and the Holders further agree
that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or prior to
the
Filing Date, or (B) the Registration Statement is not declared effective
by the
Commission on or prior to the Effectiveness Date, or (C) the Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities (other than Warrants)
at
any time prior to the expiration of the Effectiveness Period, without being
succeeded immediately by a subsequent Registration Statement filed with and
declared effective by the Commission, or (D) the Company has breached Section
3(m), or (E) trading in the Common Stock shall be suspended or if the Common
Stock is delisted from the OTC Bulletin Board (or other principal exchange
on
which the Common Stock is traded) for any reason for more than three (3)
Business Days in the aggregate (any such failure or breach being referred
to as
an "Event,"
and
for purposes of clauses (A) and (B) the date on which such Event occurs,
or for
purposes of clause (C) after more than fifteen (15) Business Days, or for
purposes of clause (E) the date on which such three (3) Business Day period
is
exceeded, being referred to as "Event
Date"),
the
Company shall pay an amount as liquidated damages to each Holder in cash
equal
to one percent (1.0%) for each calendar month (prorated for shorter periods)
of
the Holder’s initial investment in the Preferred Shares, Convertible Notes or
September Convertible Notes, as the case may be (“Liquidated
Damages”),
from
the Event Date until the applicable Event is cured. Notwithstanding anything
to
the contrary in this Section 7(d), if (i) any of the Events described in
clauses
(A), (B), or (C) shall have occurred, (ii) on or prior to the applicable
Event
Date, the Company shall have exercised its rights under Section 3(m) hereof
and
(iii) the postponement or suspension permitted pursuant to such Section 3(m)
shall remain effective as of such applicable Event Date, then the applicable
Event Date shall be deemed instead to occur on the second Business Day following
the termination of such postponement or suspension. Liquidated Damages payable
by the Company pursuant to this Section 7(d) shall be payable on the first
(1st)
business day of each thirty (30) day period following the Event Date.
Notwithstanding the foregoing, aggregate Liquidated Damages payable by the
Company pursuant to this Section 7(d) shall not exceed ten percent (10.0%)
of
the Holder’s initial investment in the Preferred Shares, Convertible Notes or
September Convertible Notes, as the case may be.
(e) 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 same shall be in writing
and
signed by the Company and the Holders of three-fourths (3/4) of the Registrable
Securities outstanding.
(f) Notices.
Any notice, demand, request, waiver or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice
is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses
for
such communications shall be:
-14-
|
If
to the Company:
|
Suite
1503
Sino
Plaza 000-000
Xxxxxxxxxx
Xxxx, Xxxxxxxx Xxx
Xxxx
Xxxx
Attention:
Chief Executive Officer
Tel
No.: (000) 0000 0000
Fax
No.: (000) 0000-0000
|
|
with
copies (which shall not constitute notice) to:
|
Loeb
& Loeb LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxxx X. Xxxxxxxx
Tel
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
|
If
to any Holder:
|
At
the address of such Holder set forth on Exhibit
A
to
this Agreement
|
Any
party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns and shall inure to the benefit of each
Holder and its successors and assigns. The Company may not assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of each Holder. Each Purchaser may assign its rights hereunder in the manner
and
to the Persons as permitted under the Subscription Agreement.
(h) Assignment
of Registration Rights.
The
rights of each Holder hereunder, including the right to have the Company
register for resale Registrable Securities in accordance with the terms of
this
Agreement, shall be automatically assignable by each Holder to any Affiliate
of
such Holder or any other Holder or
Affiliate of any other Holder
of
all or a portion of
the
Registrable Securities if: (i) the Holder agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished
to
the Company within a reasonable time after such assignment, (ii) the Company
is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee,
and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition of such securities by the transferee or assignees is restricted
under the Securities Act and applicable state securities laws, (iv) at or before
the time the Company receives the written notice contemplated by clause (ii)
of
this Section, the transferee or assignee agrees in writing with the Company
to
be bound by all of the provisions of this Agreement, and (v) such transfer
shall
have been made in accordance with the applicable requirements of the
Subscription Agreement. In addition, each Holder shall have the right to assign
its rights hereunder to any other Person with the prior written consent of
the
Company, which consent shall not be unreasonably withheld. The rights to
assignment shall apply to the Holders (and to subsequent) successors and
assigns.
-15-
(i) 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.
(j) Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be drafted. The
Company and the Holders agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum
non conveniens
or any
other argument that New York is not the proper venue. The Company and the
Holders irrevocably consent to personal jurisdiction in the state and federal
courts of the state of New York. The Company and the Holders consent to process
being served in any such suit, action or proceeding by mailing a copy thereof
to
such party at the address in effect for notices to it under this Agreement
and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 7(j) shall affect or limit any
right
to serve process in any other manner permitted by law. The Company and the
Holders hereby agree that the prevailing party in any suit, action or proceeding
arising out of or relating to the this Agreement or the Subscription Agreement,
shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party. The parties hereby waive all rights to a trial by
jury.
(k) Cumulative
Remedies.
The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
(l) Severability.
If any
term, provision, covenant or restriction of this Agreement is held to be
invalid, illegal, void or unenforceable in any respect, the remainder of the
terms, provisions, covenants and restrictions set forth 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 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.
-16-
(m) Headings.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(n) Shares
Held by the Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the
Company or its Affiliates (other than any Holder or transferees or successors
or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason
of
its holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-17-
IN
WITNESS WHEREOF, the Company has caused this Registration Rights Agreement
to be
duly executed by its authorized representatives as of the date first indicated
above.
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
-18-
Schedule
I
List
of Purchasers
|
X.X.
Xxxxxxxxx Towbin 401K PFS Sharing Plan FBO Xxxxxx Xxxx
|
|
Xxxxxxx
Xxxxxx
|
|
Xxxxxx
Xxxx
|
|
Xxxxxx
Xxxx ACF Cust Xxxxxxx Xxxx
|
|
Xxxxxx
Xxxx ACF Cust Xxxxx Xxxxxxxx Xxxx
|
|
CJF
Investment Trust
|
|
Xxxxxxxx
Xxxxxxxxx
|
|
West
Street Charitable Foundation
|
|
Xxxxxx
Xx Xxx Xxxxx
|
|
Xxxx
and Xxxxxxx Xxxxxxxxx
|
|
Xxxxxxx
Xxxxxx
|
|
Xxxxx
X. Xxxxxxx
|
|
Xxxxxxxx
X. Xxxxxxx Xx.
|
|
Xxxxxxx
Xxxxxxxx
|
|
Xxxxxxx
and Xxxxxx Xxxxxxx
|
|
Xxxxxx
Xxxxxxxx
|
|
Xxxxxxx
Xxxxxxxxx
|
|
Xxxx
X. Xxxxx
|
|
Xxxxx
Xxxxxxxxx
|
|
Xxxxxx
Xxxxxxxxx
|
|
Governing
Dynamics Investment, LLC
|
|
Xxxx
Xxxxx
|
|
Xxxxx
Xxxxxxxxxx
|
|
Xxxxxxx
X. Xxxxxxxx
|
|
Nite
Capital LP
|
|
Xxxxxx
Xxxxxx
|
|
Xxxx
Xxxxxx
|
|
Xxxxxxxx
Xxxxx-Xxxxx
|
|
Xxxxxx
International Limited
|
|
Xxxxx
Xxxxxxxx
|
|
Xxxxxx
Xxxx
|
|
Xxxxx
Xxxxxxx
|
|
Comtech
Global Investments, Inc.
|
|
Ashford
Capital LLC
|
|
Xxxx
Xxxxxx
|
|
Xxxx
Xxxxx Dong
|
|
Xxxxxxx
Xxxxxx
|
|
Xxxxx
X. Xxxxxxxx
|
|
Xxxx
Xxxxxxxx
|
|
Iroquois
Master Fund Ltd.
|
|
Xxxxx
Xxxxxxx
|
|
|
-19-
|
Cornix
Management LLC
|
|
Xxxx
Xxxxxxxxx
|
|
Xxxxxxx
X.X.
|
|
Xxxxx
Star LLC
|
|
Xxxxxxxx
Xxxxxxx Xxxxxx
|
|
Xxxxxx
Xxxxx
|
|
Xxxx
Xxx Xxxxx
|
|
Longview
Fund LP
|
|
Xxxxx
Xxxxxx
|
|
Xxxxxx
International Investments Limited
|
|
SAS
Hyperion LLC
|
|
Xxxxx
Xxxx
|
|
Xxxx
Xxxxxxx
|
|
Xxxxx
Xxxxx
|
|
Xxxxxxx
X. Xxxxxx
|
|
Xxx
& Xxx Xxxxxx, JT XXX
|
|
Xxxxxx
In
|
|
Xxx
X. Xxxxxxxx
|
|
Xxxxxxx
Xxxxx
|
-20-
Schedule
II
List
of Converting Purchasers
Comtech
Global Investments, Inc.
Shi
Xxx
Xxx
Longview
Fund
Blooming
Technology Investments Ltd.
Berrard
Holdings Limited Partnership
Xxxxxxx
Xxxxxxxx
-21-
Schedule
II
List
of
September Noteholders
Xxxxxx
Xxxxxx
Xxxx
Xxxx
Xxxx
Xxxxxxxxx
Xxxxxxx
Xxxxxxx
Xxxxxxx
X. Xxxxxx
Nite
Capital Management, LLC
-22-
