REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement") is made as of the day
of February, 1998, among and between XXXXXX XXXXX INCORPORATED, a Nevada
corporation (the "Company"), and the undersigned INVESTOR (the "Investor" or
collectively, with other Investors, the "Investors").
Premises
A. The Company has, contemporaneous with the execution of this Agreement,
issued and sold units (the "Units") to the Investor, each Unit consisting of 35
shares of preferred stock designated as the 1998 Series A Preferred Stock of the
Company, par value $0.001 (the "Preferred Stock"), and 7,000 common stock
purchase warrants (the "Warrants").
B. In order to induce the Investor to purchase, and the Company to issue,
the Units (consisting of Preferred Stock and Warrants), the Investors and the
Company hereby agree that this Agreement shall govern the rights of the parties
with respect to the ownership, transferability, and registration of the Units,
the Preferred Stock, the Warrants, the Conversion Shares, and the Warrant
Shares, as those terms are defined below.
Agreement
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by reference, and for and in consideration of the mutual promises and
covenants of the parties set forth herein, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Common Stock" shall mean the common stock of the Company, par
value $0.001.
(b) "Conversion Shares" means the Common Stock issuable on conversion
of the Preferred Stock.
(c) "Exchange Act" means the Securities Exchange Securities Act of
1934, as amended.
(d) "Holder" means the Investor or any permitted assignee of the
Investor, if the transfer to such assignee has been recorded in the
corporate books and records of the Company, in accordance with the
provisions of this Agreement.
(e) "Offering" refers to the private placement of the Units by the
Company.
(f) "Preferred Stock" means the preferred stock, par value $0.001, of
the Company that is designated as its "1998 Series A Preferred Stock."
(g) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration
or ordering of effectiveness of such registration statement or document.
(h) "Registrable Securities" means the Conversion Shares issuable on
conversion of the Preferred Stock and the Warrant Shares issuable on
exercise of the Warrants so long as such securities are "Restricted
Securities."
(i) "Registration Statement" means the registration statement to be
filed with the SEC by the Company under the terms of this Agreement.
(j) "Restricted Securities" means the Units, the shares of Preferred
Stock, and Warrants included therein, and the shares of Common Stock
issuable on conversion of the Preferred Stock and on exercise of the
Warrants until such time as such securities (i) have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering the transaction or (ii) have been held,
either separately or in the aggregate, to the extent tacking is permitted
under the Securities Act, for the period specified in subsection (k) of
Rule 144 (or any similar provision then in force) under the Securities Act,
so as to permit the sale of such shares under Rule 144.
(k) "Securities Act" means the Securities Act of 1933, as amended.
(l) "SEC" means the Securities and Exchange Commission.
(m) "Warrant Shares" means the shares of Common Stock issuable on
exercise of the Warrants.
2. Units. Each Unit consists of 35 shares of Preferred Stock and 7,000
Warrants.
(a) The Preferred Stock has the rights, privileges, and preferences
set forth in the Designation of Rights, Privileges and Preferences of the
1998 Series A Preferred Stock filed under the corporate laws of the state
of Nevada. Each share of Preferred Stock is convertible, at any time after
90 days subsequent to their issuance, into shares of Common Stock (the
"Conversion Shares"), subject to the registration requirements of the
Securities Act or the availability of an exemption from such registration
requirements which must be established to the reasonable satisfaction of
the Company and its legal counsel. On their issuance, the Conversion
Shares shall be Restricted Securities and shall bear on their face a legend
to the foregoing effect.
(b) Each Warrant gives the Holder the right to acquire a share of
Common Stock (the "Warrant Shares") at an exercise price of $4.50 per
share. Under the terms of the Warrants, they are exercisable at any time
before the earlier of July 30, 2000, or 30 days after the Company provides
written notice to the Holders if the closing price of the Common Stock of
the Company exceeds $6.50 for 20 consecutive trading days and a
registration statement covering the resale of the Common Stock issuable on
exercise has been effective for at least 90 days. The exercise of the
Warrants and the acquisition of the underlying Warrant Shares are subject
to the registration requirements of the Securities Act or the availability
of an exemption from such registration requirements, which must be
established to the reasonable satisfaction of the Company and its legal
counsel. On their issuance, the Warrant Shares shall be Restricted
Securities, and shall bear on their face a legend to the foregoing effect.
The holders of the Warrants, as such, shall not have rights as shareholders
of the Company.
3. Registration by the Company.
(a) The Units, the Preferred Stock, and the Warrants are Restricted
Securities and the Conversion Shares and Warrant Shares, when issued, shall
be Restricted Securities. The Company has no obligation to register the
Units, the Preferred Stock, or the Warrants or make any exemption from the
registration requirements of the Securities Act and applicable state
securities law available in order to permit the sale or transfer of the
Units, the Preferred Stock, or the Warrants by Investors.
(b) The Company agrees to register the resale by the Holders of the
Conversion Shares and the Warrant Shares and to bear all costs related to
such registration. On or before April 1, 1998, the Company will file an
appropriate Registration Statement with the SEC and will thereafter use
commercially reasonable best efforts to seek the effectiveness of such
registration statement within 120 days after the completion of the
Offering.
4. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall proceed
diligently and in good faith to:
(a) Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than two (2)
years from the date of exercise of the Warrants, or such shorter period
which will terminate when all securities covered by such Registration
Statement have been sold or withdrawn; cause the prospectus which is part
of the Registration Statement to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Securities Act; and comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in accordance
with the intended methods of disposition by the sellers thereof set forth
in such Registration Statement or supplement to the prospectus;
(b) Notify any Holder of Common Stock covered by the Registration
Statement (the "Selling Shareholders") when a prospectus is required to be
delivered under the Securities Act, when the Company becomes aware of the
happening of any event as a result of which the prospectus included in such
Registration Statement (as then in effect) contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein (in the case of the prospectus or any preliminary
prospectus, in light of the circumstances under which they were made) not
misleading and, as promptly as practicable thereafter, prepare and file
with the SEC and furnish to Selling Shareholders a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of
such securities, such prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(c) Enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
securities;
(d) Use its best efforts to cause all securities of Selling
Shareholders included in such Registration Statement to be listed, by the
date of the first sale of securities pursuant to such Registration
Statement, on each securities or trading exchange on which the Company's
securities of the same class are then listed or proposed to be listed, if
any;
(e) On or prior to the date on which the Registration Statement is
declare effective, use its best efforts to register or qualify, and
cooperate with Selling Shareholders, the underwriter or underwriters, if
any, and their counsel, in connection with the registration or
qualification of, the securities of Selling Shareholders covered by the
Registration Statement for offer and sale under the securities or blue sky
laws of each state and other jurisdiction of the United States as Selling
Shareholders or the underwriter reasonably requests in writing, to use its
best efforts to keep each such registration or qualification effective,
including through new filings, or amendment or renewals, during the period
such Registration Statement is required to be keep effective and to do any
and all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions of the securities of Selling
Shareholders covered by the Registration Statement; provided that, the
Company will not be required to (1) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (e), (2) consent to general service of process in any such
jurisdiction, or (3) subject itself to general taxation in any such
jurisdiction;
(f) Cooperate with Selling Shareholders and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
securities to be sold by Selling Shareholders under the Registration
Statement, and enable such securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if
any, or Selling Shareholders may request; and
(g) Use it best efforts to cause the securities of Selling
Shareholders covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the
United States as may be necessary to enable Selling Shareholders or the
underwriter or underwriters, if any, to consummate the disposition of such
securities.
5. Cooperation by the Holder.
(a) The Holder shall furnish to the Company in writing such
information and affidavits as the Company may reasonably require in
connection with any registration, qualification, or compliance with respect
to such securities. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement with respect
to the securities of any Selling Shareholder that such Selling Shareholder
shall furnish to the Company such information regarding the Selling
Shareholder, the securities to be registered and other securities in the
Company held, and the intended method of disposition of such securities as
shall be required to effect the registration of such securities.
(b) By exercising the Warrants, Holder shall be deemed to have
confirmed at the time of such exercise the continuing accuracy of the
information respecting their status as accredited investors and the
suitability of an investment in the Common Stock for them that is contained
herein, all except as such investors may then advise the Company in
writing. The Company may also require, as a condition precedent to
exercise, that Holder complete and deliver to the Company a suitability
letter containing representations and warranties regarding suitability of
the investment of like tenor to those contained herein.
(c) Holder, upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (b) of section
4.2, will forthwith discontinue disposition of the securities until their
receipt of copies of the supplemented or amended prospectus contemplated by
paragraph (b) of section 4.2 or until they are advised in writing (the
"Advice") by the Company that the use of the prospectus may be resumed, and
have received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, and, if so directed by the
Company, Holder will, or will request the managing underwriter or
underwriters, if any, to, deliver to the Company all copies, other than
permanent file copies then in their possession, of the prospectus covering
such securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time period mentioned in
paragraph (a) of section 4.2 shall be extended by the number of days during
the period from and including the date of the giving of such notice to and
including the date when Holder shall have received the copies of the
supplemented or amended prospectus contemplated by paragraph (b) of section
4.2 hereof or the Advice.
(d) At the end of any period during which the Company is obligated to
keep any Registration Statement current and effective (and any required
extensions), Holder shall discontinue sales of securities pursuant to such
Registration Statement upon receipt of notice from the Company of its
intention to remove from registration the securities covered by such
Registration Statement which remain unsold, and Holder shall notify the
Company of the number of securities registered which remain unsold promptly
after receipt of such notice from the Company.
(e) Holder acknowledge that the registration of the resale of the
securities or the availability of an exemption from registration in certain
states may impose certain limitations and conditions on the manner and
nature of such sales. The Company shall advise Holder in writing of such
registration or exemption and the related limitations and conditions from
time to time. Holder shall be solely responsible for his or her own
compliance with such limitations and conditions.
6. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications, including (without limitation) all registration, filing and
qualification fees, printer's and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company.
7. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
8. Indemnification. In the event any Registrable Securities are included
in a registration statement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder, and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities to which they may
become subject under the Securities Act, insofar as such losses, claims,
damages, or liabilities arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained
in such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act or any rule or regulation promulgated under
the Securities Act; and the Company will pay to each such Holder,
underwriter or controlling person, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter, or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities to which any of
the foregoing persons may become subject under the Securities Act or the
Exchange Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay any legal or other expenses
reasonably incurred by any person intended to be indemnified in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing provision, the Holder's indemnification obligation under this
subparagraph shall not exceed the amount received by such Holder on the
sale of securities pursuant to the registration statement.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this paragraph, deliver to the indemnifying
party a written notice of the commencement thereof, and the indemnifying
party shall have the right to participate in, and to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interest between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this paragraph, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this paragraph.
(d) If the indemnification provided for in this section is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing provision, the contribution
obligation of each Holder shall not exceed the amount received by that
Holder from the sale of securities pursuant to the registration statement.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this paragraph
shall survive the completion of any offering of Registrable Securities
pursuant to a registration statement.
9. Reports Under Exchange Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
the Conversion Shares issuable on conversion of the Preferred Stock, or the
Warrant Shares issuable on exercise of the Warrants, the Company agrees to:
(a) use commercially reasonable best efforts to make and keep public
information available, as those terms are understood and defined in SEC
Rule 144, at all times that there are shares of Common Stock issued and
outstanding that are Registrable Securities;
(b) use commercially reasonable best efforts to file with the SEC in
a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(c) use commercially reasonable efforts to furnish to any Holder, so
long as the Holder owns any Registrable Securities, forthwith upon request
(i) a written statement by the Company that it has complied with the
reporting requirements of SEC Rule 144, the Securities Act and the Exchange
Act, or that it qualifies as a registrant whose securities may be resold
pursuant to the appropriate registration form; (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company; and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of
the SEC which permits the selling of any such securities without
registration or pursuant to such form.
10. Transfer of Registration Rights. The rights and all related
obligations under this Agreement shall automatically be transferred to and
binding on any transferee or assignee of the Common Stock; provided that: (a)
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement; (c) the transfer or assignment is in
compliance with the Securities Act and applicable state securities law or an
exemption from the registration requirements of the Securities Act and
applicable state securities laws; and (d) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
11. "Market Stand-Off" Agreement. In order to facilitate the possibility
of future public offerings of Common Stock, Conversion Shares, and Warrant
Shares, such Conversion Shares and Warrant Shares will be subject to the
contractual restriction that, in the absence of the consent of the underwriter
for any such offering, (a) none of such shares shall be sold in any public
trading market for a period of 90 days after the effectiveness of any
underwritten public offering and (b) subsequent sales shall be limited to 1% of
the number of shares of Common Stock then issued and outstanding during any four
week period during the twelve weeks thereafter. Holders agree that during the
above restricted period they will not directly or indirectly sell, offer to
sell, contract to sell (including, without limitation, any short sale), grant
any option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) Conversion Shares or Warrant Shares at any time
during such period except securities included in such registration. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to such Conversion Shares or Warrant Shares of each
Holder, which shall be binding on any assignee or successor of such Holder (and
the shares or securities of every other person subject to the foregoing
restriction), until the end of such restricted period.
12. Miscellaneous.
(a) Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties (including permitted
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(b) This Agreement shall be governed by and construed under the laws
of the state of Nevada.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(d) The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
(e) Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit
with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten days' advance written notice to
the other parties. For the purposes of any notice required to be given to
Holders, the Company can rely on the address for the registered holder of
the securities in question as reflected on its stock transfer records and
such notice shall be deemed adequate notice to the original or any
subsequent Holder.
(f) If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
(g) The parties hereby specifically acknowledge that monetary damages
for breach of this Agreement may be difficult to determine and/or
inadequate to compensate the parties for such breach and hereby agree that,
in the event of any breach, the parties, in addition to any other remedies
they may have under the terms of this Agreement or at law, shall have the
right to bring an action in equity for an injunction against the breach or
threatened breach or seeking specific performance of the obligations of the
other party under the terms of this Agreement.
(h) Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least two-thirds
of the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each
Holder of any Registrable Securities then outstanding, each future holder
of all such Registrable Securities, and the Company.
(i) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from
this Agreement, and the balance the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with
its terms.
(j) All shares of Registrable Securities held or acquired by
affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
(k) This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
The Company:
XXXXXX XXXXX INCORPORATED
By
Xxxxxx Xxxxxxxxxx, President
Address: 0000 Xxxx 000 Xxxxx
Xxxxx, Xxxx 00000
INVESTOR:
By
Address:
