Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 3, 2005, among Interactive Systems Worldwide Inc., a
Delaware corporation (the "Company"), and the purchasers signatory hereto (each
such purchaser is a "Purchaser" and all such purchasers are, 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 Closing Date (120th calendar day following
the Closing Date in the event of a review of the Registration Statement
by the Commission, including a review of any SEC Reports incorporated
therein by reference) 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 pursuant to Section 3(c), 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).
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"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 45th calendar day following the
Closing Date, and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 15th
Trading Day following the date on which the Company first knows, or
reasonably should have known pursuant to Section 3(c), 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.
"Indemnified Party" shall have the meaning set forth in
Section 5(c) hereof.
"Indemnifying Party" shall have the meaning set forth in
Section 5(c) hereof.
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including costs of
preparation and reasonable attorneys' fees.
"Plan of Distribution" shall have the meaning set forth in
Section 2(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in a Registration
Statement (including 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, as of the date in question,
(i) all of the shares of Common Stock issuable upon conversion in full
of the shares of Preferred Stock, assuming for such purposes that all
of the Preferred Stock outstanding on the date of determination are
convertible at the lowest possible conversion price in effect since the
Closing Date, (ii) all shares issuable as dividends on the Preferred
Stock assuming all dividend payments are made in shares of Common Stock
and the Preferred Stock is held for at least 3 years, (iii) all Warrant
Shares, (iv) any securities issued or issuable upon any stock split,
dividend or other distribution recapitalization or similar event with
respect to the foregoing and (v) any additional shares issuable in
connection with any anti-dilution provisions in the Preferred Stock and
Warrants (in each case, without giving effect to any limitations on
conversion set forth in the Certificate of Designation or limitations
on exercise set forth in the Warrant).
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"Registration Statement" means the registration statements
required to be filed hereunder and any additional registration
statements contemplated by Section 3(c) (including registration
statements filed pursuant to Rule 462(b), as promulgated under the
Securities Act), 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.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Shareholder Questionnaire" shall have the meaning set
forth in Section 3(a).
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Stock and upon exercise of the
Warrants and issued and issuable in lieu of cash payment of dividends
on the Preferred Stock.
"Warrants" means the Common Stock purchase warrants issued to
the Purchasers pursuant to the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
Unless the context otherwise requires, the terms defined in
this Article 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural
forms of any of the terms defined herein. When a reference is made in
this Agreement to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The
use of any gender herein shall be deemed to include the neuter,
masculine and feminine genders wherever necessary or appropriate. When
any matter is disclosed (a) in any Transaction Document (including any
exhibit or schedule thereto), (b) any place in the Disclosure Schedule,
or (c) except with respect to Sections 3.1(g), 3.1(s), 3.1(u), 3.1(w),
3.1(dd), 3.1(ee), 3.1(gg), 3.1(hh), 3.1(ii), 3.1(jj) and 3.1(kk) of the
Purchase Agreement and with respect to Section 6(b) and Section 6(c) of
this Agreement, in the Company's most recent Form 10-KSB, the Proxy
Statement for the 2005 Annual Meeting of Shareholders, the forms 10-QSB
for the quarters ended December 31, 2004 and March 31, 2005, and all
press releases issued after the filing of the Form 10-QSB for the
quarter ended March 31, 2005 and prior to the Closing Date, such matter
shall be deemed to have been disclosed to all of the Holders for all
purposes pursuant to all of the Transaction Documents. If any period of
time for the performance under the Transaction Documents ends on a day
that is not a Trading Day, such period of time shall be automatically
extended to end at the end of the next succeeding Trading Day.
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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
for an offering to be made on a continuous basis pursuant to Rule 415
and covering the resale of 150% of the Registrable Securities on the
date of such filing. The Registration Statement shall be on Form S-3
(unless the Company is not then eligible to register for resale the
Registrable Securities for resale 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
commercially reasonable 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 applicable
Effectiveness Date, and shall use commercially reasonable 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 (or a letter of
direction or authorization from the counsel to the Company) to such
effect, addressed and acceptable to the Company's transfer agent (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 use its commercially
reasonable efforts, by 9:30 am Eastern Time on the Trading Day after
the Effective Date (as defined in the Purchase Agreement), to file a
prospectus supplement pursuant to Rule 424 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).
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(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 promptly after (but in any
event within 5 Trading Days) 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" (including a review of
any SEC Report incorporated therein by reference ) 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 15 Trading 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 more than 15 consecutive Trading
Days or an aggregate of 25 Trading Days during any 12-month period
(which need not be consecutive Trading 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 15 Trading Day period is
exceeded, or for purposes of clause (v) the date on which such 15 or 25
Trading 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 1.5% per
month, pro rata on a daily basis, of the Subscription Amount 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 12% 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
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. Notwithstanding anything to the contrary contained herein, as to
a Holder, no liquidated damages shall accrue or be payable by the
Company and no Event shall be deemed to have occurred during any period
when the failure by the Company to meet any deadline or perform any act
is caused solely as a result of such Holder's material breach of a
representation or warranty made by the Holder in the Transaction
Documents or such Holder's failure to materially comply with any of the
covenants or agreements under the Transaction Documents; provided,
however, the Company's obligations to use commercially reasonable
efforts to register for resale such Holder's Registrable Securities
hereunder shall continue in full force and effect during such periods
notwithstanding such Holder's breach.
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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 (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 be
available 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 and in good faith object,
provided, the Company is notified of such objection in writing no later
than 3 Trading Days after the Holders have been so furnished copies of
such documents. Notwithstanding the foregoing, in the event the Company
does not agree with any objection raised by any of the Holders, the
Company and the applicable Holder shall discuss the objection, after
which the Company shall be entitled to file any such Registration
Statement, Prospectus, amendment or supplement in the manner it deems
appropriate. Failure of any Holder to respond to any notice within the
time period required shall be deemed to be consent by such Holder. 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 5:30 p.m. New York time on 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 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.
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(c) During the Effectiveness Period, if the number of
Registrable Securities at any time exceeds 75% of the number of shares
of Common Stock then registered in a Registration Statement, 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 150% 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,
shall 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 promptly (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
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, that
notwithstanding each Holder's agreement to keep such information
confidential, the Holders make no acknowledgement that any such
information is material, non-public information.
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(e) 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).
(f) 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 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.
(g) 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.
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(h) Upon the occurrence of any event contemplated by
this Section 3(d), 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
commercially reasonable 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(h) to
suspend the availability of a Registration Statement and Prospectus,
subject to the payment of partial liquidated damages pursuant to
Section 2(b), if any, for a period not to exceed 90 days (which need
not be consecutive days) in any 12 month period.
(i) Comply in all material respects with all applicable
rules and regulations of the Commission.
(j) Use commercially reasonable 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.
(k) [INTENTIONALLY DELETED]
(l) The Company may require, at any time prior to the
third Trading Day prior to the Filing Date, 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 controlling person thereof that has voting and
dispositive control over the Securities, within three Trading days of
the Company's request. During any periods that the Company is unable to
meet its obligations under this Agreement with respect to the
registration of the Registrable Securities solely because any Holder
fails to furnish any such information requested by the Company 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 because of such delay
shall be suspended for up to 10 Trading Days as to all Holders until
such information is delivered to the Company and, as to such Holder
only, until such information is delivered to the Company.
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(m) If NASDR, Inc. 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 (as defined therein) 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.
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 (i) all registration and filing fees (including fees and
expenses (A) with respect to filings required to be made with the Principal
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 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, 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 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 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 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 (1) such untrue statements or omissions or
alleged untrue statements or omissions are based 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 or (it being understood that the Holder
has approved Annex A hereto for this purpose) 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(e). 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.
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(b) Indemnification by Holders. Each Holder shall,
severally and not jointly, and 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 each such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, arising out
of or relating to 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 solely out of or relating to: (i)
such Holder's failure to comply with the prospectus delivery
requirements of the Securities Act or (ii) 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 to the extent, but only to
the extent, such untrue statement or omission is contained in any
information so furnished in writing or required to be furnished by such
Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (1) such untrue
statements or omissions or alleged untrue statements or omissions are
based upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent
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(e). 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 such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. Each of the Holders shall notify the
Company promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which such Holder is aware.
11
(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, selected by the Indemnifying Party and 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 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;
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
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 expense of one
such counsel for each Holder 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.
12
Subject to the terms of this Agreement, 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,
promptly after 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 (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 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 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.
13
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.
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) 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 Holders of at least
66.66% of the 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 specific Holders and
that does not directly or indirectly affect the rights of other Holders
may be given by the specific 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.
(b) 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 materially and adversely affect the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. Except as set forth on Schedule 6(b), 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.
(c) No Piggyback on Registrations. Except as set forth
on Schedule 6(c) 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 Registration
Statement other than the Registrable Securities. 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(c) shall not prohibit the Company from
filing amendments to registration statements already filed.
14
(d) 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 the Registration Statement.
(e) 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 Sections 3(d)(ii) - (vi), 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
contemplated by Section 3(h), 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 may provide appropriate stop orders to enforce the
provisions of this paragraph. The Company agrees and acknowledges that
any period 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).
(f) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities (other than pursuant to
Section 3(d)) 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 stock option or other employee benefit plans, then
the Company shall send to each Holder written notice of such
determination and, if within five Trading Days after receipt 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,
that, the Company shall not be required to register any Registrable
Securities pursuant to this Section 6(f) 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.
(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.
15
(h) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior
written consent of all of the Holders of Registrable Securities. Any
Holder may assign its rights under this Agreement to any Person to whom
such Holder assigns or transfers any Securities; provided, however,
that no Holder may assign its rights to a competitor or potential
competitor of the Company.
(i) Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
(j) Governing Law; Venue; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Agreement (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting
in the City of New York, borough of Manhattan (the "New York Courts").
Each party hereby irrevocably submits to the exclusive jurisdiction of
the New York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of
this Agreement), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that the
New York Courts are an improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) 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 contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law. The parties hereto hereby irrevocably waive, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Agreement, then
the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
action or proceeding.
16
(k) Cumulative Remedies. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any provision of this Agreement is
held to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement
shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate
such substitute provision in this Agreement.
(m) Construction. 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. The
language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(n) Remedies. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of
damages, each of the Holders and the Company will be entitled to
specific performance under the Transaction Documents. The parties agree
that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the
foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy
at law would be adequate.
(o) Independent Nature of Holders' Obligations and
Rights. The obligations of each Holder under this Agreement are several
and not joint with the obligations of any other Holder, and no Holder
shall be responsible in any way for the performance of the obligations
of any other Holder under this Agreement. Nothing contained herein or
in any Transaction Document, and no action taken by any Holder pursuant
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 or as a
group with respect to such obligations or the transactions contemplated
by this Agreement. Each Holder shall be entitled to independently
protect and enforce its rights, including 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.
********************
17
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
INTERACTIVE SYSTEMS WORLDWIDE INC.
By: /s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title: President
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
18
[PURCHASER'S SIGNATURE PAGE TO ISWI RRA]
Name of Investing Entity: Iroquois Master Fund Ltd.
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxxxx Xxxx
Name of Authorized Signatory: Xxxxxxx Xxxx
Title of Authorized Signatory: Director
[SIGNATURE PAGES CONTINUE]
19
[PURCHASER'S SIGNATURE PAGE TO ISWI RRA]
Name of Investing Entity: Midsummer Investment, Ltd.
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx X. Xxxxxxx
Name of Authorized Signatory: Xxxxx X. Xxxxxxx
Title of Authorized Signatory: Managing Director, Midsummer Capital, LLC
(acting as investment manager of Midsummer Investment Ltd.)
[SIGNATURE PAGES CONTINUE]
20
[PURCHASER'S SIGNATURE PAGE TO ISWI RRA]
Name of Investing Entity: Omicron Master Trust
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx Xxxxxxxxx
Name of Authorized Signatory: Xxxxx Xxxxxxxxx
Title of Authorized Signatory: Managing Director
[SIGNATURE PAGES CONTINUE]
21
SCHEDULE 6(B)
See the Disclosure Schedule to the Securities Purchase Agreement for
references to registration rights provisions in outstanding warrants, warrants
to be issued to a placement agent pursuant to this transaction and registration
rights in the Company's Series A Preferred Stock.
22
SCHEDULE 6(c)
See the Disclosure Schedule to the Securities Purchase Agreement for
references to registration rights provisions in outstanding warrants, warrants
to be issued to a placement agent pursuant to this transaction and registration
rights in the Company's Series A Preferred Stock.
23
ANNEX A
PLAN OF DISTRIBUTION
The selling stockholders 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 any 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. The selling stockholders 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 broker dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
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, 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. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%). Broker dealers may agree to sell a specified
number of such shares at a stipulated price per share, and, to the extent such
broker dealer is unable to do so acting as agent for us or a selling
shareholder, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment. Broker dealers who acquire shares as
principal may thereafter resell such shares from time to time in transactions,
which may involve block transactions and sales to and through other broker
dealers, including transactions of the nature described above, in the over the
counter markets or otherwise at prices and on terms then prevailing at the time
of sale, at prices other than related to the then-current market price or in
negotiated transactions. In connection with such resales, broker-dealers may pay
to or receive from the purchasers such shares commissions as described above.
24
The selling stockholder may from time to time pledge or grant a
security interest in some or all of the common stock or Warrant owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
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. The selling stockholders have
informed the Company that none of them have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the common
stock.
The Company is required to pay all 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.
25
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, underwriters are
subject to certain statutory limitations, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act. 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.
We agreed to use commercially reasonable efforts 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 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.
The selling stockholders have agreed to comply with all rules and
regulations contained in Regulation M with respect to the purchase and resale of
the shares of Common Stock included for registration in this prospectus. The
selling stockholders have also agreed not to use any of the shares of Common
Stock included for registration in this prospectus to cover any short sales made
after the date of the securities purchase agreement and prior to the effective
date of the registration statement of which this prospectus is a part.
26
ANNEX B
INTERACTIVE SYSTEMS WORLDWIDE INC.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.001 per
share (the "Common Stock"), of Interactive Systems Worldwide 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.
27
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 you 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:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
28
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:
--------------------------------------------------------------
--------------------------------------------------------------
29
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 understands and acknowledges that the Commission
currently takes the position that the coverage of short sales of shares of the
Common Stock "against the box" prior to the Effective Date with the Registrable
Securities is a violation of Section 5 of the Securities Act, as set forth in
Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated August 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Accordingly, the undersigned hereby
agrees not to use any of the Registrable Securities to cover any short sales
made after the date of the Purchase Agreement and prior to the Effective Date.
In addition, the undersigned hereby agrees that it will comply with all of the
rules and restrictions contained in Regulation M promulgated under the Exchange
Act with respect to the purchase and sale of shares of Common Stock of the
Company.
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:
30
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
Xxxxxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
Phone: (000) 000-0000
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