EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 17,
2002, by and among NetStaff, Inc., an Indiana corporation, with its headquarters
located at 000 Xxxxxxx Xxxxxx, Xxxxxx Xxxx, Xxx Xxxx 00000 (the "COMPANY"), and
each of the undersigned (together with their respective affiliates and any
assignee or transferee of all of their respective rights hereunder, the "INITIAL
INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) convertible debentures
in the aggregate principal amount up to One Million, Two Hundred Thousand
Dollars ($1,200,000) (the "DEBENTURES") that are convertible into shares of the
Company's common stock (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in such Debentures and (ii) warrants (the
"WARRANTS") to acquire up to Three Million, Six Hundred Thousand (3,600,000)
shares of Common Stock, upon the terms and conditions and subject to the
limitations and conditions set forth in the Warrants dated May 17, 2002; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion
Shares issued or issuable upon conversion or otherwise pursuant to the
Debentures and the Additional Debentures (as defined in the Securities Purchase
Agreement) (including, without limitation, Damage Shares (as defined in the
Debenture) issued or issuable and shares of Common Stock issued or issuable in
respect of interest or in redemption of the Debentures in accordance with the
terms thereof) and Warrant Shares issued or issuable upon exercise or otherwise
pursuant to the Warrants and the Additional Warrants (as defined in the
Securities Purchase Agreement) issued or issuable and any shares of capital
stock issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration
statement of the Company under the 0000 Xxx.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement or Convertible Debenture.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on
or prior to sixty (60) days from the date of Closing (as defined in the
Securities Purchase Agreement) (the "FILING DATE"), file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Debentures and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the rules
and regulations promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Debentures and exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The number
of shares of Common Stock initially included in such Registration Statement
shall be no less than two (2) times the sum of (i) the number of Conversion
Shares that are then issuable upon conversion of the Debentures and Additional
Debentures (based on the Variable Conversion Price as would then be in effect
and assuming the Variable Conversion Price is the Conversion Price at such time)
plus (ii) the number of Warrant Shares that are then issuable upon exercise of
the Warrants and the Additional Warrants, without regard to any limitation on
the Investor's ability to convert the Debentures and the Additional Debentures
or exercise the Warrants and the Additional Warrants. The Company acknowledges
that the number of shares initially included in the Registration Statement
represents a good faith estimate of the maximum number of shares issuable upon
conversion of the Debentures and the Additional Warrants and upon exercise of
the Warrants and the Additional Warrants.
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
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c. PAYMENTS BY THE COMPANY. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not filed by the Filing Date or declared effective by the SEC on or prior to
one hundred twenty (120) days from the date of Closing, or (ii) after the
Registration Statement has been declared effective by the SEC, sales of all of
the Registrable Securities cannot be made pursuant to the Registration
Statement, or (iii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ
SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation, or (iv)
the Common Stock ceases to be traded on the Over-the-Counter Bulletin Board (the
"OTC BB") prior to being listed or included for quotation on one of the
aforementioned markets, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Debentures or Registrable
Securities an amount equal to the then outstanding principal amount of the
Debentures (and, in the case of holders of Registrable Securities, the principal
amount of Debentures from which such Registrable Securities were converted)
("OUTSTANDING PRINCIPAL AMOUNT") multiplied by the Applicable Percentage (as
defined below) times the sum of: (i) the number of months (prorated for partial
months) after the Filing Date or the end of the aforementioned one hundred
twenty (120) day period and prior to the date the Registration Statement is
declared effective by the SEC, provided, however, that there shall be excluded
from such period any delays which are solely attributable to changes required by
the Investors in the Registration Statement with respect to information relating
to the Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of the
Registration Statement pursuant to Section 3(h) below in a reasonably prompt
manner; (ii) the number of months (prorated for partial months) that sales of
all of the Registrable Securities 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 included
therein in accordance with the terms of this Agreement, but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the OTC BB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or
that trading thereon is halted after the Registration Statement has been
declared effective. The term "APPLICABLE PERCENTAGE" means two hundredths (.02)
with respect to the first thirty (30) days of any calculation under clause (i)
of the sentence in which the term is used, and two hundredths (.02) for any
other purpose. (For example, if the Registration Statement becomes effective one
(1) month after the end of such thirty-day period, the Company would pay $2,000
for each $100,000 of Outstanding Principal Amount. If thereafter, sales could
not be made pursuant to the Registration Statement for an additional period of
one (1) month, the Company would pay an additional $2,000 for each $100,000 of
Outstanding Principal Amount.) Such amounts shall be paid in cash or, at each
Investor's option, in shares of Common Stock priced at the average of the lowest
three (3) Trading Prices (as defined in the Debentures) during the twenty (20)
trading days prior to the payment date.
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d. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall determine to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, HOWEVER, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and PROVIDED,
FURTHER, HOWEVER, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
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e. ELIGIBILITY FOR FORM SB-2 OR FORM S-1: CONVERSION TO FORM
S-3. The Company represents and warrants that it meets the requirements for the
use of Form SB-2 or Form S-1 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities. The Company
agrees to file all reports required to be filed by the Company with the SEC in a
timely manner so as to become eligible, and thereafter to maintain its
eligibility, for the use of Form S-3. Not later than five (5) business days
after the Company first meets the registration eligibility and transaction
requirements for the use of Form S-3 (or any successor form) for registration of
the offer and sale by the Initial Investors and any other Investors of
Registrable Securities, the Company shall file a Registration Statement on Form
S-3 (or such successor form) with respect to the Registrable Securities covered
by the Registration Statement on Form SB-2 or Form S-1, whichever is applicable,
filed pursuant to Section 2(a) (and include in such Registration Statement on
Form S-3 the information required by Rule 429 under the 0000 Xxx) or convert the
Registration Statement on Form SB-2 or Form S-1, whichever is applicable, filed
pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933 Act
and use its best efforts to have such Registration Statement (or such amendment)
declared effective as soon as reasonably practicable thereafter.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than the Filing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing but in no
event later than one hundred twenty (120) days from the date of Closing), and
keep the Registration Statement effective pursuant to Rule 415 at all times
until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold to the public without registration or restriction (including
without limitation as to volume by each holder thereof) under the 1933 Act (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
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 not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all 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 all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
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(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof, but in any event
within sixty (60) days after the date on which the Company reasonably first
determines (or reasonably should have determined) the need therefor. The
provisions of Section 2(c) above shall be applicable with respect to such
obligation, with the one hundred twenty (120) days running from the day the
Company reasonably first determines (or reasonably should have determined) the
need therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly (but in no event less than five (5) business days) before
the same is filed with the SEC, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC (which comments shall promptly be made available
to the Investors upon request), with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable, shall promptly file an acceleration request as soon as
practicable (but in no event more than two (2) business days) following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review and shall promptly file with the SEC a
final prospectus as soon as practicable (but in no event more than two (2)
business days) following receipt by the Company from the SEC of an order
declaring the Registration Statement effective. In the event of a breach by the
Company of the provisions of this Section 3(c), the Company will be required to
make payments pursuant to Section 2(c) hereof.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; PROVIDED, HOWEVER, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
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service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of
the Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10) consecutive
trading days (or a total of not more than fifteen (15) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, in the best interests of the Company (an
"ALLOWED DELAY"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. At least five (5) days prior to their filing with the SEC
the Company shall permit a single firm of counsel designated by the Initial
Investors to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof), and not file any document in a form to which such counsel reasonably
objects 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 Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
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i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 0000 Xxx) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
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l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor 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 Registration Statement, (iii) 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 an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation, of all the Registrable
Securities covered by the Registration Statement on Nasdaq or, if not eligible
for Nasdaq, on Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq
SmallCap, on the OTC BB and, without limiting the generality of the foregoing,
to arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. At the request of the holders of a majority-in-interest of
the Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
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q. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities of the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority-in-interest of the
Registrable Securities.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
10
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any
underwriter (as defined in the 0000 Xxx) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
11
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
12
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
13
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor 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 assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
14
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
NetStaff, Inc.
c/o MAT Trading Corp.
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxx, President
Facsimile: 000-000-0000
With copy to:
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
15
With a copy to:
000 Xxxxx Xxxxxx, Xxxxx Xx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW
YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
e. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
f. This Agreement, the Warrants and the Securities Purchase
Agreement (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
16
g. Subject to the requirements of Section 9 hereof, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
h. The headings in this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
i. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
j. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
k. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Debentures then outstanding have been converted into for
Registrable Securities.
l. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations under
this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of any of the provisions under this Agreement,
that each Investor shall be entitled, in addition to all other available
remedies in law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and without any bond or
other security being required.
m. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
NETSTAFF, INC.
/S/ XXXX X. XXXXXXX
-------------------------------------
Xxxx X. Xxxxxxx
President
AJW PARTNERS, LLC
By: SMS Group, LLC
/S/ XXXXX X. XXXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxxx
Manager
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/S/ XXXXX X. XXXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxxx
Manager
AJW/NEW MILLENNIUM OFFSHORE, LTD.
By: First Street Manager II, LLC
/S/ XXXXX X. XXXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxxx
Manager
PEGASUS CAPITAL PARTNERS, LLC
By: Pegasus Manager, LLC
/S/ XXXXX X. XXXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxxx
Manager
18
