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EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of June 10, 1999, among eSOFT, Inc., a Delaware corporation
(the "Company"), and the parties who have executed this Agreement and whose
names appear on Schedule I hereto (each party listed on Schedule I hereto is
sometimes individually referred to herein as a "Purchaser" and all such parties
are sometimes collectively referred to herein as 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 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" has the meaning set forth in Section 3(p).
"Affiliate" has the meaning set forth in Rule 12b-2 of the
Exchange Act.
"Aggregate Price" has the meaning set forth in Section 2(d).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall mean the First Closing Date as such term
is defined in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value
$0.01 per share.
"Debentures" means the Company's 5% convertible debentures
issuable at the First Closing pursuant to the Purchase Agreement.
"Effectiveness Date" means the earlier of (i) the 120th day
following the Closing Date, or (ii) the tenth (10th) day after the Company has
received notice (written or oral) from the Commission that the Commission Staff
will not be reviewing the Registration Statement or has no further comments on
the Registration Statement.
"Effectiveness Period" has the meaning set forth in Section
2(a).
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Event" has the meaning set forth in Section 2(d).
"Filing Date" means as soon as practicable but in no event
later than the twenty-fifth (25th) day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 5(c).
"Indemnifying Party" has the meaning set forth in Section
5(c).
"Initial Registration Statement" has the meaning set forth in
Section 2(a).
"Losses" has the meaning set forth in Section 5(a).
"Material Condition" has the meaning set forth in Section
3(k).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock
issued or issuable upon (i) conversion of or with respect to the Debentures,
(ii) payment of dividends or any other payments in respect of the Debentures,
(iii) exercise of the Warrants and (iv) any shares of the Company's capital
stock issued with respect to (i), (ii) or (iii) as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise.
"Registration Delay Payment" has the meaning set forth in
Section 2(d).
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"Registration Statement" means the Initial Registration
Statement and any additional registration statements contemplated by Sections
2(a), 2(b) and 7(d), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Trading Day" means a day on which Nasdaq (or such other
securities market on which the Common Stock is listed) is open for trading.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and exercise of the Warrants.
"Underwritten Registration" or "Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the warrants issuable pursuant to the
Purchase Agreement.
2. Registration Requirements.
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a Registration Statement (the "Initial Registration
Statement") which shall cover all Registrable Securities for an offering to be
made on a continuous basis pursuant to a "Shelf" registration statement under
Rule 415. The Initial Registration Statement shall be on Form S-3 or any
successor form (except if the Company is not then eligible to register for
resale the Registrable Securities on Form S-3, in which case such registration
shall be on another
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appropriate form in accordance herewith, subject to the reasonable consent of
the original Holders of the Registrable Securities). The Company shall (i) not
permit any securities other than the Registrable Securities to be included in
the Initial Registration Statement and (ii) use its best efforts to cause the
Initial Registration Statement to be declared effective under the Securities Act
as promptly as possible after the filing thereof, but in any event on or prior
to the Effectiveness Date, and to keep such Initial Registration Statement
continuously effective under the Securities Act until the date which is four (4)
years after the date that such Initial Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Initial Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144 as determined by counsel to the
Company pursuant to a written opinion letter, addressed to the Holders and the
Company's transfer agent to such effect (the "Effectiveness Period"). The number
of shares of Common Stock initially included in the Initial Registration
Statement shall be no less than 120% of the aggregate number of shares of Common
Stock that are then issuable upon conversion of the Debentures (based on the
Conversion Price (as defined in the Debentures) as would then be in effect at
such time) and the exercise of the Warrants, without regard to any limitation on
the Purchasers' ability to convert the Debentures or exercise the Warrants. If,
at any time within the 45-day period preceding a reset or adjustment
(hereinafter in this Section 2(a), a "reset") of the Conversion Price pursuant
to the terms of the Debentures, the closing bid price per share of the Common
Stock on Nasdaq (or any Subsequent Market (as defined in the Debentures) on
which the Common Stock is then listed or quoted, or if there is no such price on
such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date) is less than $3.00 for any consecutive
five (5) Trading Day period, the Company shall be required to file within ten
(10) Business Days after such fifth (5th) Trading Day a Registration Statement
covering the greater of (A) the product of (i) 1.2 and (ii) the aggregate number
of Underlying Shares that would be issuable based on a Conversion Price equal to
the average closing bid price during such five (5) Trading Day period, less the
number of Underlying Shares for which a Registration Statement is then effective
and (B) the aggregate number of Underlying Shares, calculated as if the
Conversion Price was reset on such fifth (5th) day pursuant to the terms of the
Debentures, less the number of Underlying Shares for which a Registration
Statement is then effective; provided, however, that if on the actual reset date
(pursuant to the Debentures) the Registration Statements are insufficient to
register all Underlying Shares (after giving effect to such reset), the Company
shall immediately, but in no more than ten (10) Business Days thereafter, file a
Registration Statement sufficient to register such additional shares of Common
Stock.
(b) In addition to the Initial Registration Statement, if the
Holders of a majority of the Registrable Securities covered by a Registration
Statement so elect on or after November 1, 1999 an offering of Registrable
Securities pursuant to such Registration Statement may be effected on no more
than two (2) occasions in the form of an Underwritten Offering. In such event,
and if the managing underwriters advise the Company and such Holders in writing
that in their opinion the amount of Registrable Securities proposed to be sold
in such Underwritten Offering exceeds the amount of Registrable Securities which
can be sold in such Underwritten Offering, there shall be included in such
Underwritten Offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold, and such amount shall be
allocated pro rata among the Holders proposing to sell Registrable Securities in
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such Underwritten Offering. In case the Company shall receive from any Holder or
the Holders of Registrable Securities a written request or requests pursuant to
this Section 2(b) that the Company effect a registration on Form S-3 (or any
successor to Form S-3) or any similar short-form registration statement and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(ii) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2(b):
(A) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders;
(B) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than
one million dollars ($1,000,000);
(C) if within thirty (30) days of receipt of a
written request from any Holder or Holders pursuant to this Section
2(b), the Company gives notice to such Holder or Holders of the
Company's intention to make a public offering within ninety (90) days;
(D) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 registration to be
effected at such time, in which event the Company shall have the right
to defer the filing of the Form S-3 Registration Statement for a period
of not more than ninety (90) days after receipt of the request of the
Holder or the Holders under this Section 2(b); provided, that such
right to delay a request shall be exercised by the Company not more
than once in any twelve (12) month period; or
(E) if the Company has, within the nine (9) month
period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 2(b).
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by
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the Holders of a majority of the Registrable Securities included in such
offering, and such investment banker shall be reasonably acceptable to the
Company. No Holder may participate in any Underwritten Offering hereunder unless
such Holder (i) agrees to sell its Registrable Securities on the basis provided
in any underwriting agreements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such arrangements.
(d) If (i) the Initial Registration Statement covering all the
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the Commission on or before the
Filing Date or (B) declared effective by the Commission on or before the
applicable Effectiveness Date, (ii) on any day after the Registration Statement
has been declared effective by the Commission (A) sales of all the Registrable
Securities required to be included on a Registration Statement cannot be made
pursuant to the Registration Statement (including, without limitation, because
of a failure to keep the Registration Statement effective, but not including any
days on which sales may not be made due to the application of Section 3(k)
hereof, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, or to register sufficient shares of
Common Stock) or (B) the Common Stock is not listed or included for quotation on
the Nasdaq SmallCap Market or the Nasdaq National Market of the Nasdaq Stock
Market ("Nasdaq"), the New York Stock Exchange ("NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation or (iii)
the Company shall otherwise fail to file a Registration Statement required by
Section 2(a), (each such event specified in (i), (ii) and (iii) above, an
"Event"), then, as liquidated damages and not as a penalty, the Company shall
pay to each Holder an amount in cash (a "Registration Delay Payment") equal to
the purchase price of the Debentures as set forth in Schedule I of the Purchase
Agreement (the "Aggregate Price") multiplied by two hundredths (.020) times the
sum of: (i) the number of months (prorated for partial months) after the end of
the Effectiveness Date and prior to the date the Registration Statement is
declared effective by the Commission; (ii) the number of months (prorated for
partial months) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the Prospectus in accordance with the terms of this
Agreement, or otherwise, but not including any days on which sales may not be
made due to the application of Section 3(k) hereof and also not including any
days when the direct, proximate cause of said Event was the act or failure to
act of one or more Holders); and (iii) the number of months (prorated for
partial months) that the Common Stock is not listed or included for quotation on
Nasdaq, NYSE or AMEX or that trading thereon is halted after the Registration
Statement has been declared effective. Notwithstanding the foregoing, the
parties hereto agree that an Event shall be deemed not to have occurred to the
extent the direct, proximate cause of said Event was the act or failure to act
of one or more of the Holders. The Company shall pay any Registration Delay
Payments to each Holder in cash on the last Business Day of each month during
which an Event has occurred and is continuing. In the event the Company fails to
make a Registration Delay Payment in a timely manner, such Registration Delay
Payment shall bear interest at the rate of 2.0% per month (prorated for partial
months) until paid in full. The parties hereto agree that the Registration Delay
Payments provided for in this Section 2(d) constitute a
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reasonable estimate of the damages that may be incurred by upon the occurrence
of an Event. The provisions of this Section 2(d) shall in no way be deemed to
limit the rights of the Holders to pursue all legal and equitable remedies and
to recover full damages in the event of a breach by the Company of its
obligations under this Agreement. In the event of such breach, the Holders shall
be permitted to pursue all remedies as provided for in Section 7(a) below. If,
however, an Event occurs and the direct, proximate cause of said Event was not
the act or failure to act by the Company or its agents, the Holders' remedies
shall be limited to enforcement of the payment of the applicable Registration
Delay Payments.
(e) The Company represents and warrants that it meets the
registrant eligibility and transaction requirements for the use of Form S-3 for
the registration of the resale of Registrable Securities by the Purchasers and
any other Holders and the Company shall file all reports required to be filed by
the Company with the Commission in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. Registration Procedures.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date a Registration Statement on Form S-3 or its successor form (or if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3 such registration shall be on another appropriate form in
accordance herewith (which shall include a Plan of Distribution substantially in
the form of Exhibit A annexed hereto, unless in connection with an Underwritten
Offering) or in connection with an Underwritten Offering hereunder, such other
form agreed to by the Company and by a majority-in-interest of Holders of
Registrable Securities to be covered by such Registration Statement) (except if
otherwise directed by the Holders), and cause the Registration Statement to
become effective and (subject to Section 3(k) hereof) to remain effective as
provided herein; provided, however, that not less than three (3) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall, if reasonably practicable
(i) furnish to the Holders, their Special Counsel and any managing underwriters,
copies of all such documents proposed to be filed (including documents
incorporated by reference), which documents will be subject to the review of
such Holders, their Special Counsel and such managing underwriters and (ii)
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to such Holders and such underwriters,
to conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel or any managing underwriters shall
reasonably object, and will not request acceleration of such Registration
Statement without prior notice to such counsel. The sections of such
Registration Statement covering information with respect to the Holders, the
Holders' beneficial ownership of securities of the Company or the Holders'
intended method of
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disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Holders.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement (subject to Section 3(k) hereof)
continuously effective 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, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the 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 the
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 the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover 100% of the Registrable Securities issued or issuable
upon conversion of the Debentures and exercise of the Warrants, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover 110%
of the Registrable Securities, in each case, as soon as reasonably practicable,
but in any event within twenty (20) Business Days after the necessity therefor
arises (based on the Conversion Price of the Debentures and other relevant
factors on which the Company reasonably elects to rely). The Company shall use
its commercially reasonable best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as reasonably practicable
following the filing thereof. The provisions of Section 2(d) above shall be
applicable with respect to such obligation, with the one hundred twenty (120)
days running from the day after the date on which the Company reasonably first
determines (or reasonably should have determined) the need therefor.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than ten (10) days prior to
such filing and, in the case of (i)(C) below, not later than the first Business
Day after effectiveness) and (if requested by any such Person) confirm such
notice in writing no later than two (2) Business Days following the day (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the 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 and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements
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to the Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose; (iv) if at any time any
of the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) 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; (vi) of the occurrence of any event that makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and (vii) of the occurrence of a Material Condition (as
defined in Section 3(k) below).
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as the Company reasonably agrees should be included therein and (ii)
make all required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
action pursuant to this Section 3(e) that would, in the opinion of counsel for
the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel, and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the
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offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, their Special Counsel, and any underwriters in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the state
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable law and 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
managing underwriters or Holders may request at least two (2) Business Days
prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Subject to the last sentence of this Section 3(k), the
Company may by written notice require that the Holders immediately cease sales
of Registrable Securities (for a period not to exceed twenty-two (22)
consecutive Trading Days in any one instance and for a period not to exceed
forty-four (44) Trading Days in any twelve-month period) pursuant to a
Registration Statement at any time that (i) the Company becomes engaged in a
business activity or negotiation which is not disclosed in a Registration
Statement (or the prospectus included therein) which the Company reasonably
believes must be disclosed therein under applicable law and which the Company
desires to keep confidential for business purposes, (ii) the Company determines
that a particular disclosure so determined to be required to be disclosed
therein would be premature or would adversely affect the Company or its business
or prospects or (iii) the Registration Statement can no longer be used under the
existing rules and regulations
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promulgated under the Securities Act (each of (i), (ii) or (iii), a "Material
Condition"). The Company shall not be required to disclose to the Holders which
of the reasons specified in (i), (ii) or (iii) above is the basis for requiring
a suspension of sales due to the occurrence of a Material Condition. The Company
will use its commercially reasonable best efforts to ensure that the use of the
Registration Statement (and the prospectus included therein) may be resumed as
soon as it is practicable. The Company may not suspend sales of Registrable
Securities under a Registration Statement pursuant to this Section 3(k) more
than twice during any twelve-month period.
(l) Cause all Registrable Securities relating to such
Registration Statement to be listed or included for quotation on Nasdaq and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(m) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to the managing underwriters, if any, or in the case of
non-Underwritten Offerings, if reasonably requested by the selling Holders,
obtain and deliver copies thereof to such selling Holders, of opinions of
counsel to the Company and updates thereof addressed to each such underwriter,
in form, scope and substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, and, in the case of
non-Underwritten Offerings, at such time as the selling Holders may reasonably
request, obtain and deliver copies to the Holders and the managing underwriters,
if any, of "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if required, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each of the underwriters, if any, in form and substance
as are customary in connection with Underwritten Offerings; (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling Holders and the
underwriters, if any, than those set forth in Section 5 (or such other
provisions and procedures acceptable to the managing underwriters, if any, and
holders of a majority of Registrable Securities participating in such
Underwritten Offering); and (v) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations
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and warranties made pursuant to clause 3(1)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that if any information is determined
in good faith by the Company in writing to be of a confidential nature at the
time of delivery of such information, then prior to delivery of such
information, the Company and the Holders shall enter into a confidentiality
agreement reasonably acceptable to the Company and the Holders providing that
such information shall be kept confidential, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities (provided, however, that the
Company shall be given notice of any such pending disclosure so that the Company
may seek a protective order); (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality agreement with the
Company.
(o) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its
securityholders earning statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 not later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of the Registration Statement, which statement shall
conform to the requirements of Rule 158.
(p) The Company may require each selling Holder to furnish to
the Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Xxxxxxxxxxxx
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Xxxxxxxxx, (xxx) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning a Holder is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Holder prior to
making such disclosure, and allow the Holder, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v), 3(c)(vi) or 3(c)(vii), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(j) or Section 3(k), 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.
Notwithstanding anything to the contrary contained herein, the Company shall
cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of a Holder in accordance with the terms of the Securities Purchase
Agreement in connection with any sale of Registrable Securities with respect to
which a Holder has entered into a contract for sale prior to the Holder's
receipt of a notice from the Company of the happening of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or
3(c)(vii) and for which the Holder has not yet settled.
(q) The Company agrees to respond fully and completely to any
and all comments on a Registration Statement received from the Commission staff
as promptly as possible but, for non-Underwritten Offerings, in no event later
than ten (10) Business Days of the receipt of such comments, regardless of
whether such comments are in oral or written form.
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(r) Within two (2) Business Days after a Registration
Statement which covers applicable Registrable Securities is ordered effective by
the Commission, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Holders whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the Commission in the form attached hereto as Exhibit B.
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 pursuant to an Underwritten Offering and whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with Nasdaq
and each other securities exchange or market on which Registrable Securities are
required hereunder to be listed and (B) in compliance with state securities or
Blue Sky laws (including, without limitation, reasonable fees and disbursements
of counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. The Holders shall pay all
underwriting discounts, brokerage fees, selling commissions and all fees and
disbursements of counsel for 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 (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), 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
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who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all joint or several losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, "Losses"), as incurred, arising out of or
relating to (i) any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
Prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made),
except to the extent, but only to the extent, that such untrue statements or
omissions are based solely upon and in conformity with information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company 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
the Registration Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto (provided that the Company amended any
disclosure with respect to the method of distribution upon written notice from
the Holders that such section of the Prospectus should be revised in any way) or
(ii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, or any other law, rule or regulation (including, without
limitation, any state securities law) relating to the offer or sale of
Registrable Securities. The Company shall not, however, be liable for any Losses
arising from any sale of Registrable Securities by a Holder with respect to any
untrue or alleged untrue statement of material fact or omission or alleged
omission of material fact if such statement or omission was made in a
preliminary Prospectus and the applicable purchaser did not receive a copy of
the final Prospectus (or any amendment or supplement thereto) at or prior to the
confirmation of the sale of the Registrable Securities in any case where such
delivery is required by the Securities Act and the untrue or alleged untrue
statement of material fact or omission or alleged omission of material fact
contained in such preliminary Prospectus was corrected in the final Prospectus
(or any amendment or supplement thereto), unless the failure to deliver such
final Prospectus (as amended or supplemented) was a result of noncompliance by
the Company with Section 3(g) of this Agreement. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.
(b) Indemnification by the Holders. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
officers, directors, 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 officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all Losses, as incurred, arising solely out of or based solely
upon any untrue statement of a
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material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent, that
such untrue statement or omission is contained in any information so furnished
in writing by such Holder to the Company specifically for inclusion in the
Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus 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 the Registration Statement, such
Prospectus or such form of prospectus; provided, however, that the indemnity
agreement contained in this Section 5(b) shall not apply to amounts paid in
settlement of any Losses if such settlement is effected without the prior
written consent of such Holder, which consent shall not be unreasonably
withheld. 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.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnification
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify
the Person from whom indemnification is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, however, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Indemnified Parties unless: (i) the Indemnifying Party has
agreed in writing to pay such fees and expenses; (ii) 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 (iii) 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
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). It is
understood that the Indemnifying Parties shall not, in respect of the legal fees
and expenses of any Indemnified Party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any
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local counsel) for all Indemnified Parties under Section 5(a) or 5(b) hereof who
are parties to such proceeding or proceedings. 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.
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 by the Indemnifying Party to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a court of competent jurisdiction to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
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 were available to such party in
accordance with its terms. In no event shall any selling Holder be required to
contribute an amount under this Section 5(d) in excess of the net proceeds
received by such Holder upon sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such contribution obligation.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
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meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnification and contribution agreements contained in
this Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
6. Rule 144.
As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or l5(d) of the Exchange
Act and to make and keep public information available, as those terms are
defined in Rule 144 promulgated under the Securities Act. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Person to
sell Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions referred to in the
Purchase Agreement. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed in Schedule 2.1(r) of the Purchase Agreement, 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. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subordinated in all respects to the rights in
full of the Holders set forth in Section 2 herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement. This Agreement,
together with the Purchase Agreement, contains the entire
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understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
(c) No Piggyback on Registrations. Except as disclosed on
Schedule 2.1(r) of the Purchase Agreement, neither the Company nor any of its
securityholders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statements and the Company
shall not after the date hereof enter into any agreement providing such right to
any of its securityholders, unless the right so granted is subordinated in all
respects to the rights in full of the Holders set forth herein, and is not
otherwise in conflict or inconsistent with the provisions of this Agreement.
(d) Piggy-Back Registrations. Except as provided herein if, at
any time when there is not an effective Registration Statement covering the
Registrable Securities, 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 a registration relating solely to (i) equity securities
issuable in connection with stock option or other employee benefit plans, (ii)
equity or debt securities other than Common Stock or (iii) equity securities to
be issued solely in connection with any acquisition of any Person, the Company
shall send to each Holder of Registrable Securities written notice of such
determination and, if within ten (10) days after receipt of such notice, any
such Holder shall so request in writing (which request shall specify the
Registrable Securities intended to be disposed of by the Purchasers), the
Company will use reasonable efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered, provided that if
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4), and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities being registered
pursuant to this Section 7(d) for the same period as the delay in registering
such other securities. The Company shall include in such registration statement
all or any part of such Registrable Securities such Holder requests to be
registered; provided, however, that the Company shall not be required to
register any Registrable Securities pursuant to this Section 7(d) that are
eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of
an Underwritten Offering, if the managing underwriter should reasonably object
to the inclusion of the Registrable Securities in such registration statement,
then if the Company after consultation with the managing underwriter's
representative should reasonably determine that the inclusion of such
Registrable Securities would adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer Registrable Securities then proposed to be
sold by the Holders, then (x) the number of Registrable Securities of the
Holders included in such registration statement shall be reduced pro rata among
such Holders (based upon the number of
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Registrable Securities owned by such Holders) or (y) none of the Registrable
Securities of the Holders shall be included in such registration statement if
the Company, after consultation with the managing underwriter, recommends the
inclusion of none of such Registrable Securities; provided, however, that if
securities are being offered for the account of other Persons as well as the
Company, such reduction shall not represent a greater fraction of the number of
Registrable Securities owned by the Holders than the fraction of similar
reductions imposed on such other Persons (other than the Company).
Notwithstanding the foregoing, the Company shall not file any registration
statement under the Securities Act (other than on Form S-4 or Form S-8 or Form
S-3 for resale of private placement securities) relating to the offer and sale
of any equity securities of the Company, or offer or sell any equity securities
of the Company in a transaction exempt from registration pursuant to Regulation
S under the Securities Act, until such time as the Initial Registration
Statement has been effective for a period of thirty (30) days, which period
shall be tolled if the effectiveness of the Initial Registration Statement is
suspended for any reason whatsoever. No Holder shall be entitled to exercise any
right provided for in this Section 7(d) after five (5) years following the First
Closing Date.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds (2/3) of the then outstanding Registrable
Securities; provided, however, that for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company (other than any Holder or transferees or
successors or assigns thereof if such Holder is deemed to be an Affiliate solely
by reason of its holdings of such Registrable Securities) are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority 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.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and shall be deemed to have been delivered (a)
upon receipt, when delivered personally, (b) upon receipt, when sent by
facsimile, provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party (if received
before 7:00 p.m. EST where such notice is received) or the first Business Day
following such delivery (if received on or after 7:00 p.m. EST where such notice
is received) or (c) one (1) Business Day after deposit with a nationally
recognized overnight courier, in each case properly addressed to the party to
receive the same. The address and facsimile numbers for such communications
shall be:
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(i) if to the Company :
eSOFT, Inc.
000 Xxxxxxxxxxx Xxxx. #000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxx
President and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
0000 Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(ii) if to the Purchasers:
Xxxxx Xxxxxxx Strategic Growth Fund, Ltd.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
Xxxxx Xxxxxxx Strategic Growth Fund, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
21
22
Each party shall provide written notice to the other parties
of any change in address or facsimile number in accordance with the provisions
hereof.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement. In addition, the rights
of each Holder hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by each Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (A) the name and address of such
transferee or assignee and (B) the securities with respect to which such
registration rights are being transferred or assigned; (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws; (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement; and (v) such transfer or assignment shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(i) Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and the
Purchasers as its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York,
without regard to principles of conflicts of law. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, 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 such suit, action or proceeding is
improper. 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 to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing
22
23
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
(j) Cumulative Remedies. Except as expressly provided in
Section 2(d) hereof, the remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Titles and Headings; References. The titles and headings
in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. References in this Agreement to Sections
are to Sections of this Agreement, unless otherwise expressly provided.
(m) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
23
24
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
eSOFT, INC.
By: /s/ Xxxxxxx Xxxx
-----------------------------------
Name: Xxxxxxx Xxxx
Title: President and Chief Executive
Officer
XXXXX XXXXXXX STRATEGIC GROWTH FUND, LTD.
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name: Xxxx Xxxxxx
Title: Principal
XXXXX XXXXXXX STRATEGIC GROWTH FUND, L.P.
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name: Xxxx Xxxxxx
Title: Principal
25
SCHEDULE I
Company:
eSOFT, INC.
000 Xxxxxxxxxxx Xxxx., #000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxx
President and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Purchasers:
XXXXX XXXXXXX STRATEGIC GROWTH FUND, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
XXXXX XXXXXXX STRATEGIC GROWTH FUND, LTD.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
2
26
EXHIBIT A
PLAN OF DISTRIBUTION
The Company is registering the Registrable Securities on
behalf of the Holder. As used herein, the term Holder means the holder of the
Registrable Securities and includes donees and pledgees selling Registrable
Securities received from a named Holder after the date of this Prospectus. All
costs, expenses and fees in connection with the registration of the Registrable
Securities offered hereby will be borne by the Company. Brokerage commissions
and similar selling expenses, if any, attributable to the sale of Registrable
Securities will be borne by the Holders. Sales of Registrable Securities may be
effected by Holders from time to time in one or more types of transactions
(which may include block transactions) on Nasdaq, in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the Registrable Securities, through short sales of Registrable
Securities, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may
or may not involve brokers or dealers. The Holders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities, nor
is there an underwriter or coordinated broker acting in connection with the
proposed sale of Registrable Securities by the Holders.
The Holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of the Registrable Securities or of securities convertible into or
exchangeable for the Registrable Securities in the course of hedging positions
they assume with the Holders. The Holders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealers or other financial institutions of
Registrable Securities offered by this Prospectus, which Registrable Securities
such broker-dealer or other financial institution may resell pursuant to this
Prospectus (as amended or supplemented to reflect such transaction).
The Holders may effect such transactions by selling
Registrable Securities directly to purchasers or to or through broker-dealers,
which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Holders and/or the purchasers of Registrable Securities for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Holders and any broker-dealers that act in connection with
the sale of Registrable Securities might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by such broker-dealers and any profit on the resale of the Registrable
Securities sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act. The Company has
agreed to indemnify each Holder against certain liabilities, including
liabilities arising under the Securities Act. The Holders may agree to indemnify
any agent, dealer or broker-dealer that
27
participates in transactions involving sales of the Registrable Securities
against certain liabilities, including liabilities arising under the Securities
Act.
The Holders will be subject to the prospectus delivery
requirements of the Securities Act. The Company has informed the Holders that
the anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to their sales in the market.
The Holders also may resell all or a portion of the
Registrable Securities in open market transactions in reliance upon Rule 144
under the Securities Act, provided they meet the criteria and conform to the
requirements of such Rule.
Upon the Company being notified by a Holder that any material
arrangement has been entered into with a broker-dealer for the sale of
Registrable Securities through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this Prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such Holder and
of the participating broker-dealer(s), (ii) the number of Registrable Securities
involved, (iii) the initial price at which such Registrable Securities were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this Prospectus and (vi) other facts material to the transactions.
In addition, upon the Company being notified by a Holder that a donee or pledgee
intends to sell more than 500 Registrable Securities, a supplement to this
Prospectus will be filed.
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28
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attention:
Re: eSOFT, Inc.
Ladies and Gentlemen:
We are counsel to eSOFT, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders its 5% convertible
debentures (the "Debentures"), convertible into shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), and Warrants (the "the
Warrants") to acquire shares of Common Stock. Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the "Registration Rights Agreement") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the shares of Common
Stock issuable upon conversion of the Debentures and exercise of the Warrants,
under the Securities Act of 1933, as amended (the "1933 Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on
_______________, 1999, the Company filed a Registration Statement on Form S-3
(File No. 333-_____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member
of the SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS].
Very truly yours,
[ISSUER'S COUNSEL]
CC: [LIST NAMES OF HOLDERS]
1
