REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (this “Agreement”),
is
entered into as of September 16, 2005 by and between Electric Aquagenics
Unlimited, Inc., a Delaware corporation (the “Company”),
and
Water Science, LLC, a Florida limited liability company (the “Investor”).
RECITALS
WHEREAS,
the
Investor is the holder of a $3,000,000 Senior Secured Convertible Preferred
Note
(the “Note”)
convertible into shares of the Company’s common stock, par value $.0001 per
share (the “Common
Stock”);
WHEREAS,
the
Investor is the holder of a Warrant to purchase 2,000,000 shares of the
Company’s Common Stock expiring on September 16, 2008 (the “Warrant”);
and
WHEREAS,
the
Company and the Investor deem it to be in their respective best interests
to set
forth the rights of the Investor in connection with the sale of shares of
Common
Stock issuable upon conversion of the Note or upon exercise of the Warrant
(the
“Registrable
Shares”)
and
are entering into this Agreement as a condition to and in connection with
the
Subscription Agreement entered into by and between the Investor and the Company
on the date hereof (the “Subscription
Agreement”).
NOW,
THEREFORE, in
consideration of the premises and other good and valuable consideration,
the
receipt and sufficiency of which are hereby acknowledged, each of the parties
hereto hereby agrees as follows:
AGREEMENT
1. Registration
Rights.
(a) Within
180 (but no later than 360 days) after the date hereof, the Company shall
prepare and file with the Securities and Exchange Commission (the “SEC”),
a
registration statement and such other documents as may be necessary, and
use its
best efforts to have such registration statement declared effective as soon
as
reasonably practicable after such filing, so as to permit the registered
resale
of the Registrable Shares, for a period of two (2) years following the issuance
of the last Registrable Share. The Company will include in such registration
statement the information required under the Securities Act of 1933, as amended
(the “Securities
Act”)
to be
so included concerning the Investor, as provided by the Investor pursuant
to
this Agreement and any other agreements between the parties, including any
changes in such information that may be provided by the Investor in writing
to
the Company from time to time.
(b) In
the
event that the Company does not file a registration statement to register
the
Registrable Shares with the SEC within 180 (but no later than 360 days) after
the date hereof, or within such period as extended by such additional number
of
days as are solely and directly attributable to any delay caused by any act
or
failure to act by the Investor or its counsel, the Company will be required
to
pay a penalty to the Investor equal to one percent (1%) of the purchase price
for the Investor’s Registrable Shares, and an additional one percent (1%) for
each 30-day period during which such registration statement is not
filed.
(c) Notwithstanding
the foregoing provisions of this Section 1, the Company may voluntarily suspend
the effectiveness of any such registration statement for a limited time,
which
in no event shall be longer than 60 days in any three-month period and no
longer
than 120 days in any twelve month period, if the Company has been advised
in
writing by counsel or underwriters to the Company that the offering of any
Registrable Shares pursuant to the registration statement would materially
adversely affect, or would be improper in view of (or improper without
disclosure in a prospectus), a proposed financing, reorganization,
recapitalization, merger, consolidation, or similar transaction involving
the
Company, in which case the Company shall keep such registration statement
effective for an additional period of time beyond two (2) years following
the
last issuance of a Registrable Share equal to the number of days the
effectiveness thereof is suspended pursuant to this provision. The Company
shall
notify the Investor to such effect, and, upon receipt of such notice, the
Investor shall immediately discontinue any sales of Registrable Shares pursuant
to such registration statement until the Investor has received copies of
a
supplemented or amended prospectus or until the Investor is advised in writing
by the Company that the then current prospectus may be used and has received
copies of any additional or supplemental filings that are incorporated or
deemed
incorporated by reference in such prospectus.
(d) If
any
event occurs that would cause any such registration statement to contain
a
material misstatement or omission or not to be effective and usable during
the
period that such registration statement is required to be effective and usable,
the Company shall promptly notify the Investor of such event and, if requested,
the Investor shall immediately cease making offers of Registrable Shares
and
return all prospectuses to the Company. The Company shall promptly file an
amendment to the registration statement to correct such misstatement or omission
and use its commercially reasonable efforts to cause such amendment to be
declared effective as soon as practicable thereafter. The Company shall promptly
provide the Investor with revised prospectuses and, following receipt of
the
revised prospectuses, the Investor shall be free to resume making offers
of the
Registrable Shares. In the event of such an occurrence, the Company shall
keep
such registration statement effective for an additional period of time beyond
two (2) years following the last issuance of a Registrable Share equal to
the
number of days the effectiveness thereof is suspended pursuant to this
provision.
(e) Notwithstanding
any provision contained herein to the contrary, the Company’s obligation to
include, or continue to include, Registrable Shares in any such registration
statement under this Section 1 shall terminate to the extent such shares
are
eligible for resale under Rule 144(k) promulgated under the Securities
Act.
(f) If
and
whenever the Company is required by the provisions of this Agreement to use
its
commercially reasonable efforts to effect the registration of the Registrable
Shares under the Securities Act for the account of the Investor, the Company
will, as promptly as possible:
(i) prepare
and file with the SEC a registration statement complying with applicable
requirements under the Securities Act with respect to such securities and
use
its commercially reasonable efforts to cause such registration statement
to
become and remain effective;
(ii) prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to
keep such registration statement effective and to comply with the requirements
of the Securities Act and the rules and regulations promulgated by the SEC
thereunder relating to the sale or other disposition of the securities covered
by such registration statement; and
(iii) furnish
to the Investor such numbers of copies of a prospectus complying with the
requirements of the Securities Act, and such other documents as the Investor
may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by the Investor, but the Investor shall not
be
entitled to use any selling materials other than a prospectus and such other
materials as may be approved by the Company, which approval will not be
unreasonably withheld.
(g) The
expenses incurred by the Company in connection with action taken by the Company
to comply with this Section 1, including, without limitation, all registration
and filing fees, printing and delivery expenses, accounting fees, fees and
disbursements of counsel to the Company, consultant and expert fees, and
premiums for liability insurance, if the Company chooses to obtain such
insurance, obtained in connection with a registration statement filed to
effect
such compliance and all expenses, including counsel fees, of complying with
any
state securities laws, shall be paid by the Company. All fees and disbursements
of any counsel, experts, or consultants employed by the Investor shall be
borne
by the Investor. The Company shall not be obligated in any way in connection
with any registration pursuant to this Section 1 for any selling commissions
or
discounts payable by the Investor to any underwriter or broker of securities
to
be sold by the Investor. The Investor agrees that any such selling commissions
or discounts shall be borne by the Investor.
(h) The
Company will indemnify and hold harmless the Investor, its officers, directors
and each underwriter of such securities, and any person who controls the
Investor or underwriter within the meaning of Section 15 of the Securities
Act
(each an “Investor
Indemnified Party”),
against all claims, actions, losses, damages, liabilities and expenses, joint
or
several, to which any of such persons may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement of any material
fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise
out of or are based upon the omission to state therein 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, and will reimburse
such Investor Indemnified Party for any legal and any other expenses reasonably
incurred by such Investor Indemnified Party in connection with investigating
or
defending any such loss, claim, damage, liability, or action; provided,
however,
that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises directly out of or is based
primarily upon an untrue statement or omission made in said registration
statement, said preliminary prospectus or said prospectus, or said amendment
or
supplement in reliance upon and in conformity with written information furnished
to the Company by the Investor or such underwriter specifically for use in
the
preparation thereof.
(i) At
any
time when a prospectus relating to the Registrable Shares is required to
be
delivered under the Securities Act, the Company will notify the Investor
of the
happening of any event, upon the notification or awareness of such event
by an
executive officer of the Company, as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated
therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing.
(j) In
the
event of any registration of any securities under the Securities Act pursuant
to
this Section 1, the Investor agrees to indemnify and hold harmless the Company,
its officers, directors and any person who controls the Company within the
meaning of Section 15 of the Securities Act (each a “Company
Indemnified Party”),
against any losses, claims, damages, liabilities, or actions, joint or several,
to which a Company Indemnified Party may become subject under the Securities
Act
or otherwise, insofar as such losses, claims, damages, liabilities, or actions
arise out of or are based upon any untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or
arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent that any such loss, claim, damage, liability,
or
action arises out of or is based upon an untrue statement or omission made
in
said registration statement, preliminary prospectus or prospectus or amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by the Investor or any affiliate (as defined in
the
Securities Act) of the Investor specifically for use in the preparation
thereof.
(k) Any
party
entitled to indemnification hereunder will (i) give prompt written notice
to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (ii) unless in such indemnified party’s reasonable judgment, based upon
advise of counsel, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnified party will not be subject to any liability for any settlement
made
by the indemnifying party without its consent (which consent may not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects
not to, assume the defense of a claim will not be obligated to pay the fees
and
expenses of more than one counsel for all parties indemnified by such
indemnifying party, based upon advise of counsel, with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(l) With
a
view to making available to the Investor the benefits of Rule 144 promulgated
under the Securities Act, the Company agrees that it will use its commercially
reasonable efforts to maintain registration of its Common Stock under Section
12
or 15 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
and
to file with the SEC in a timely manner all reports and other documents required
to be filed by an issuer of securities registered under the Exchange Act
so as
to maintain the availability of Rule 144. Upon the request of any record
owner,
the Company will deliver to such owner a written statement as to whether
it has
complied with the reporting requirements of Rule 144.
2. Representations
and Warranties of the Investor.
The
Investor hereby represents and warrants to the Company as follows:
(a) The
Investor is acquiring the Registrable Shares for its own account, for investment
and not with a view to, or for resale in connection with, any distribution
or
public offering thereof within the meaning of the Securities Act, and applicable
state securities laws.
(b) The
Investor acknowledges that the certificate(s) representing the Registrable
Shares acquired by the Investor shall bear a restrictive legend substantially
as
follows:
THIS
SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933
(THE “ACT”) OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD
UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE PROVISIONS OF
FEDERAL
AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL
BE
MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL
NOT BE
REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION
HAS BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER
APPROPRIATE STATE SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION,
QUALIFICATION OR APPROVAL IS NOT REQUIRED.
(c) The
Investor acknowledges that the Registrable Shares will be “restricted
securities” within the meaning of Rule 144 under the Securities Act, are subject
to restrictions on transferability and resale and may not be transferred
or
resold except as permitted under the Securities Act and applicable state
securities laws, pursuant to registration or exemption therefrom. The Investor
is aware that the Investor may be required to bear the financial risks of
this
investment for an indefinite period of time.
(d) The
Investor further represents and warrants that the Investor is an “accredited
investor” within the meaning of Rule 501(a) of Regulation D under the Securities
Act, and the Investor has executed the Certificate of Accredited Investor
Status, attached hereto as Exhibit
A.
(e) The
Investor has full power and authority to execute and deliver this Agreement,
(ii) the execution and delivery by the Investor of this Agreement and the
performance by it of its obligations hereunder have been authorized by all
necessary action of the Investor, (iii) this Subscription Agreement has been
duly and validly executed and delivered by the Investor and constitutes the
legal, valid and binding obligation of the Investor, and (iv) this Agreement
is
enforceable against the Investor in accordance with its terms.
3. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Investor as follows:
(a) The
Company is duly incorporated, validly existing and in good standing under
the
laws of its state of incorporation, and is duly qualified to do business
as a
foreign corporation in all jurisdictions in which the failure to be so qualified
would materially and adversely affect the business or financial condition,
properties or operations of the Company.
(b) The
Company has duly authorized the issuance and sale of the Registrable Shares
in
accordance with the terms of this Agreement (as described herein) by all
requisite corporate action, including the authorization of the Company’s Board
of Directors of the issuance and sale of the Registrable Shares in accordance
herewith, and the execution, delivery and performance of any other agreements
and instruments executed in connection herewith. This Agreement constitutes
a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained
herein may be limited by applicable federal or state securities
laws.
4. Survival;
Indemnification.
All
representations, warranties, covenants and the indemnification obligations
contained in this Agreement shall survive (i) the acceptance of this Agreement
by the Company, (ii) changes in the transactions, documents and instruments
described herein which are not material or which are to the benefit of the
Investor, and (iii) the death or disability of the Investor. The Investor
understands the meaning and legal consequences of the representations,
warranties and covenants in Section 2 hereof and that the Company has relied
upon such representations, warranties and covenants in determining the
Investor’s qualification and suitability to purchase Registrable Shares. The
Investor hereby agrees to indemnify, defend and hold harmless the Company
and
its respective officers, directors, employees, agents and controlling persons,
from and against any and all losses, claims, damages, liabilities, expenses
(including attorneys’ fees and disbursements), judgments or amounts paid in
settlement of actions arising out of or resulting from the untruth of any
representation of the Investor herein or the breach of any warranty or covenant
of the Investor made herein. Notwithstanding the foregoing, no representation,
warranty, covenant or acknowledgment made herein by the Investor shall in
any
manner be deemed to constitute a waiver of any rights granted to it under
the
Securities Act or state securities laws or otherwise.
5. Notices.
All
notices and other communications provided for under this Note shall be in
writing (including by facsimile) and addressed, delivered or transmitted
in
accordance with Section 6.7 of the Subscription Agreement.
6. Assignability.
This
Agreement is not assignable by the Investor, and may not be modified, waived
or
terminated except by an instrument in writing signed by the party against
whom
enforcement of such modification, waiver or termination is sought.
7. Binding
Effect.
Except
as otherwise provided herein, this Agreement shall be binding upon and inure
to
the benefit of the parties and their respective heirs, executors,
administrators, successors, legal representatives and permitted assigns,
and the
agreements, representations, warranties and acknowledgments contained herein
shall be deemed to be made by and be binding upon such heirs, executors,
administrators, successors, legal representatives and permitted
assigns.
8. Obligations
Irrevocable.
The
obligations of the Investor shall be irrevocable, except with the consent
of the
Company, until the issuance of the Registrable Shares; provided,
however,
that
the Investor may revoke the subscription hereunder at any time prior to the
Company’s acceptance of same.
9. Entire
Agreement.
This
Agreement constitutes the entire agreement of the Investor and the Company
relating to the matters contained herein, superseding all prior contracts
or
agreements, whether oral or written.
10. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Delaware, without regard to the principles of conflicts of law thereof
that would require the application of the laws of any jurisdiction other
than
Delaware.
11. Severability.
If any
provision of this Agreement or the application thereof to the Investor or
any
circumstance shall be held invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such provision to other subscriptions
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
12. Headings.
The
headings in this Agreement are inserted for convenience and identification
only
and are not intended to describe, interpret, define, or limit the scope,
extent
or intent of this Agreement or any provision hereof.
13. Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed and delivered shall be deemed to be an original and all of which
together shall be deemed to be one and the same agreement.
(Remainder
of Page Intentionally Left Blank)
IN
WITNESS WHEREOF, the parties have caused the execution of this Agreement
by
their duly authorized representatives as of the day and the year first above
written.
| ELECTRIC AQUAGENICS, INC. | ||
| |
|
|
| By: | /s/ | |
|
Name: |
||
| Title: | ||
| WATER SCIENCE, LLC | ||
| |
|
|
| By: | /s/ | |
|
Name: Xxxxx Xxxxxxx |
||
| Title: Sole Member | ||
Exhibit
A
CERTIFICATE
OF ACCREDITED INVESTOR STATUS
The
undersigned is an “accredited investor,” as that term is defined in Regulation D
under the Securities Act of 1933, as amended (the “Securities
Act”).
The
undersigned has checked the box below indicating the basis on which the
undersigned is representing the undersigned’s status as an “accredited
investor”:
|
o
|
a
bank as defined in Section 3(a)(2) of the Securities Act, or any
savings
and loan association or other institution as defined in Section
3(a)(5)(A)
of the Securities Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15
of the
Securities Exchange Act of 1934, as amended; an insurance company
as
defined in Section 2(13) of the Securities Act; an investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act;
a small
business investment company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a
state, its
political subdivisions, or any agency or instrumentality of a state
or its
political subdivisions, for the benefit of its employees, and such
plan
has total assets in excess of $5,000,000; an employee benefit plan
within
the meaning of the Employee Retirement Income Security Act of 1974,
if the
investment decision is made by a plan fiduciary, as defined in
Section
3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons
that
are “accredited investors”;
|
|
o
|
a
private business development company as defined in Section 202(a)(22)
of
the Investment Advisers Act of
1940;
|
|
o
|
an
organization described in Section 501(c)(3) of the Internal Revenue
Code,
corporation, Massachusetts or similar business trust, or partnership,
not
formed for the specific purpose of acquiring the securities offered,
with
total assets in excess of
$5,000,000;
|
|
o
|
a
natural person whose individual net worth, or joint net worth with
the
undersigned’s spouse, at the time of this purchase exceeds
$1,000,000;
|
|
o
|
a
natural person who had an individual income in excess of $200,000
in each
of the two most recent years or joint income with the undersigned’s spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year;
|
|
o
|
a
trust with total assets in excess of $5,000,000, not formed for
the
specific purpose of acquiring the securities offered, whose purchase
is
directed by a person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits
and risks
of the prospective investment;
|
|
o
|
an
entity in which all of the equity holders are “accredited investors” by
virtue of their meeting one or more of the above standards;
or
|
|
o
|
an
individual who is a director or executive officer of Electric Aquagenics
Unlimited, Inc.
|
IN
WITNESS WHEREOF, the undersigned has executed this Certificate of Accredited
Investor Status effective as of the __ day of ,
2005.
| WATER SCIENCE, LLC | ||
| |
|
|
| By: | /s/ | |
|
Name: |
||
| Title: | ||
