EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of May 7, 2002, is made and entered into by and between Water
Star, Inc., an entity organized and existing under the laws of
the State of Nevada (the "Company"), and Brighton Opportunity
Fund, L.P. a limited partnership organized under the laws of
California.(the "Investor").
WHEREAS, the Company and the Investor have entered into that
certain Stock Purchase Agreement, dated as of the date hereof
(the "Stock Purchase Agreement"), pursuant to which the Company
will issue, from time to time, to the Investor up to $10,000,000
worth of shares of Common Stock, no par value per share, of the
Company (the "Common Stock");
WHEREAS, pursuant to the terms of, and in partial
consideration for, the Investor's agreement to enter into the
Stock Purchase Agreement, the Company has agreed to provide the
Investor with certain registration rights with respect to the
shares issued to the Investor and any additional shares of Common
Stock issued or distributed to the Investor by way of a dividend,
stock split, or other distribution in respect of the Shares, or
acquired by way of any rights offering or similar offering made
in respect of the shares;
NOW, THEREFORE, in consideration of the premises, the
representations, warranties, covenants and agreements contained
herein and in the Stock Purchase Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, intending to be legally bound hereby, the
parties hereto agree as follows (capitalized terms used herein
and not defined herein shall have the respective meanings
ascribed to them in the Stock Purchase Agreement):
ARTICLE I REGISTRATION RIGHTS
Section 1.1 REGISTRATION STATEMENTS.
a. Filing of Registration Statements. The Company
shall register for resale all Registrable Securities issued or
issuable to the Investor pursuant to the Stock Purchase
Agreement. Subject to the terms and conditions of this
Agreement, the Company shall effect such registration in the
manner provided in either (i) or (ii) below. The Company shall
file with the SEC either:
(i) a registration statement (the "Initial
Registration Statement") on Form S-3, if use of such form is then
available to the Company pursuant to the rules of the SEC and, if
not, such form promulgated by the SEC for which the Company
qualifies, that counsel for the Company shall deem appropriate
and which form shall be available for the sale of the shares of
Common Stock purchased by the Investor through the Early Put (the
"Initial Shares"). The aggregate number of shares to be
registered under the Initial Registration Statement shall be
equal to two hundred percent (200%) of the Initial Shares. Prior
to any subsequent put, the Company shall file with the SEC a
registration statement (the "Subsequent Registration Statement"
and together with the Initial Registration Statement, the
"Registration Statements") on such form promulgated by the SEC
for which the Company qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for the
sale of the shares of Common Stock to be purchased by the
Investor. The aggregate number of shares to be registered under
the Subsequent Registration Statement shall be equal to 125% of
(X-Y)/Z, where X is the Maximum Commitment Amount, Y is the
Investment Amount of the Early Put and Z is 90% of the Minimum
Bid Price; or
(ii) a registration statement (the "Combined
Registration Statement") on Form S-3, if use of such form is then
available to the Company pursuant to the rules of the SEC and, if
not, on such form promulgated by the SEC for which the Company
qualifies, that counsel for the Company shall deem appropriate
and which form shall be available for the sale of all Put Shares
issued or issuable pursuant to the terms of the Stock Purchase
Agreement. The aggregate number of shares to be registered under
the Combined Registration Statement shall be equal to 125% of
A/B, where A is the Maximum Commitment Amount and B is 92% of the
Minimum Bid Price.
b. Effectiveness of the Registration Statements. The
Company shall use its best efforts either: (i) to have the
Initial Registration Statement declared effective by the SEC in
no event later than ninety (90) calendar days after the
Subscription Date and to have the Subsequent Registration
Statement declared effective by the SEC in no event later than
120 calendar days after the Subscription Date, or (ii) to have
the Combined Registration Statement declared effective by the SEC
in no event later than ninety (120) calendar days after the
Subscription Date. The Company shall ensure that all Registration
Statements remain in effect for a period ending 180 days
following the earlier of termination of the Commitment Period and
termination of the Investor's obligations pursuant to Section 2.4
of the Stock Purchase Agreement; provided that such period shall
be extended one day for each day after the applicable Effective
Date, that any Registration Statement covering shares purchased
by the Investor is not effective during the period such
Registration Statement is required to be effective pursuant to
this Agreement; and provided further that the Company shall not
be required to ensure that any Registration Statement covering
shares purchased by the Investor remain in effect for such 180
day period if the shares registered thereunder shall have become
freely tradable pursuant to Rule 144(k) of the Securities Act or
have otherwise been sold.
c. Failure to Obtain or Maintain Effectiveness of
Registration Statements. In the event the Company fails for any
reason to obtain the effectiveness of any Registration Statement
within the time periods set forth in Section 1.1(b) (a "Tardy
Registration Statement") or in the event that the Company fails
for any reason to maintain the effectiveness of any Registration
Statement (or the underlying prospectus) covering shares held by
the Investor(an "Ineffective Registration Statement" together
with a Tardy Registration Statement, a "Failed Registration
Statement") (unless the Registrable Securities covered by such
Registration Statement shall have become freely tradable pursuant
to Rule 144(k) of the Securities Act or have been otherwise
sold), for a period ending 180 days following the earlier of
termination of the Commitment Period and termination of the
Investor's obligations pursuant to Section 2.4 of the Stock
Purchase Agreement (provided that such period shall be extended
one day for each day after the applicable Effective Date, that
the Registration Statement covering shares purchased by the
Investor, is not effective during the period such Registration
Statement is required to be effective pursuant to this
Agreement), at any time during any period of such ineffectiveness
(an "Ineffective Period"), then, in either event the Company
shall pay to the Investor in immediately available funds into an
account designated by the Investor an amount equal to two percent
(2.0%) of the aggregate Purchase Price of all of the Registrable
Securities under any such Failed Registration Statement then held
by the Investor for each calendar month and for each portion of a
calendar month, pro rata, during an Ineffective Period. Such
payments shall be made on the first Trading Day after the
earliest to occur of (i) the expiration of the applicable
Ineffective Period and (ii) the last day of each calendar month
during an Ineffective Period.
d. Restricted Period. While in possession of
material non-public information received from the Company, the
Investor shall not dispose of any Registrable Securities until
such information is disclosed to the public (a "Restricted
Period"); provided that, if such Restricted Period exceeds one
hundred twenty (120) days, the liquidated damages described in
Section 1.1(c) hereof shall be increased to three percent (3.0%)
until such restricted Period shall have elapsed.
e. Liquidated Damages. The Company and the Investor
hereby acknowledge and agree that the sums payable under
subsections 1.1(c) and 1.1(d) hereof shall constitute liquidated
damages and not penalties. The parties further acknowledge that
(i) the amount of loss or damages likely to be incurred is
incapable or is difficult to estimate precisely, (ii) the amounts
specified in such subsections bear a reasonable proportion and
are not plainly or grossly disproportionate to the probable loss
likely to be incurred in connection with any failure by the
Company to obtain or maintain the effectiveness of a Registration
Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the
uncertainty and cost of litigation regarding the question of
actual damages, and (iv) the Company and the Investor are
sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE II REGISTRATION PROCEDURES
Section 2.1. FILINGS; INFORMATION. The Company will
effect the registration of the Registrable Securities in
accordance with the intended methods of disposition thereof as
furnished to the Company by any proposed seller of such
Registrable Securities. Without limiting the foregoing, the
Company in each such case will do the following as expeditiously
as possible, but in no event later than the deadline, if any,
prescribed therefor in this Agreement:
a. The Company shall (i) prepare and file with the
SEC the Registration Statement(s) covering the shares as
described in subsection 1.1(a) above; (ii) use its best efforts
to cause such filed Registration Statement(s) to become and
remain effective (pursuant to Rule 415 under the Securities Act
or otherwise) for the period prescribed by Section 1.1(b); (iii)
prepare and file with the SEC such amendments and supplements to
each Registration Statement and the prospectus used in connection
therewith as may be necessary to keep each Registration Statement
effective for the time period prescribed by Section 1.1(b); and
(iv) comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by each
Registration Statement during such period in accordance with the
intended methods of disposition by the Investor set forth in each
Registration Statement.
b. The Company shall file all necessary amendments to
each Registration Statement in order to effectuate the purpose of
this Agreement and the Stock Purchase Agreement.
c. Five (5) Trading Days prior to filing each
Registration Statement or prospectus, or any amendment or
supplement thereto (excluding amendments deemed to result from
the filing of documents incorporated by reference therein), the
Company shall deliver to the Investor and one firm of counsel
representing the Investor, in accordance with the notice
provisions of Section 4.8, copies of such Registration Statement
as proposed to be filed, together with exhibits thereto, which
documents will be subject to review and comment by the Investor
and such counsel, and thereafter deliver to the Investor and such
counsel, in accordance with the notice provisions of Section 4.8,
such number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such Registration
Statement (including each preliminary prospectus) and such other
documents or information as the Investor or counsel may
reasonably request in order to facilitate the disposition of the
Registrable Securities.
d. The Company shall deliver, in accordance with the
notice provisions of Section 4.8, to each broker as directed by
the Investor such number of conformed copies of such Registration
Statement and of each amendment and supplement thereto (in each
case including all exhibits and documents incorporated by
reference), such number of copies of the prospectus contained in
such Registration Statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act
relating to the Registrable Securities, and such other documents,
as may be reasonably requested to facilitate the disposition of
the Registrable Securities.
e. After the filing of each Registration Statement,
the Company shall promptly notify the Investor of any stop order
issued or threatened by the SEC in connection therewith and take
all commercially reasonable actions required to prevent the entry
of such stop order or to remove it if entered.
f. The Company shall use its best efforts to (i)
register or qualify the Registrable Securities under such other
securities or blue sky laws of such jurisdictions in the United
States as the Investor may reasonably (in light of its intended
plan of distribution) request, and (ii) cause the Registrable
Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may
be necessary by virtue of the business and operations of the
Company and do any and all other acts and things that may be
reasonably necessary or advisable to enable the Investor to
consummate the disposition of the Registrable Securities;
provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph
(f), subject itself to taxation in any such jurisdiction, or
consent or subject itself to general service of process in any
such jurisdiction.
g. The Company shall immediately notify the Investor,
but in no event later than two (2) business days by facsimile and
by overnight courier, upon the occurrence of any of the following
events in respect of a Registration Statement or related
prospectus in respect of an offering of Registrable Securities:
(i) receipt of any request for additional information by the SEC
or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt 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;
(iv) the happening of any event that makes any statement made in
such Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or
documents so that, in the case of a Registration Statement, 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 not misleading, and that
in the case of the related prospectus, 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 the light of the circumstances under which
they were made, not misleading; (v) the declaration by the SEC of
the effectiveness of a Registration Statement; and (vi) the
Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and
the Company shall promptly make available to the Investor any
such supplement or amendment to the related prospectus.
h. The Company shall enter into customary agreements
and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of such Registrable
Securities (whereupon the Investor may, at its option, require
that any or all of the representations, warranties and covenants
of the Company also be made to and for the benefit of the
Investor).
i. The Company shall make available to the Investor
(and will deliver to Investor's counsel), subject to restrictions
imposed by the United States federal government or any agency or
instrumentality thereof, copies of all correspondence between the
SEC and the Company, concerning any Registration Statement, and,
except during a Blackout Period, will also make available for
inspection by the Investor and any attorney, accountant or other
professional retained by the Investor (collectively, the
"Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company(collectively,
the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the
Company's officers and employees to supply all information
reasonably requested by any Inspectors in connection with any
Registration Statement. Records that the Company determines, in
good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in any
Registration Statement or (ii) the disclosure or release of such
Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a
subpoena or other order from a court of competent jurisdiction or
other process; provided, however, that prior to any disclosure or
release pursuant to clause (ii), the Inspectors shall provide the
Company with prompt notice of any such request or requirement so
that the Company may seek an appropriate protective order or
waive such Inspectors' obligation not to disclose such Records;
and, provided, further, that if failing the entry of a protective
order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel,
are compelled to disclose such Records, the Inspectors may
disclose that portion of the Records that counsel has advised the
Inspectors that the Inspectors are compelled to disclose. The
Investor agrees that information obtained by it solely as a
result of such inspections (not including any information
obtained from a third party who, insofar as is known to the
Investor after reasonable inquiry, is not prohibited from
providing such information by a contractual, legal or fiduciary
obligation to the Company) shall be deemed confidential and shall
not be used by it as the basis for any market transactions in the
securities of the Company or its affiliates unless and until such
information is made generally available to the public. The
Investor further agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential.
j. To the extent required by law or reasonably
necessary to effect a sale of Registrable Securities in
accordance with prevailing business practices at the time of any
sale of Registrable Securities pursuant to a Registration
Statement, the Company shall deliver to the Investor a signed
counterpart, addressed to the Investor, of (1) an opinion or
opinions of counsel to the Company and (2) a comfort letter or
comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of
the type customarily covered by opinions of comfort letters, as
the case maybe, as the Investor therefor reasonably requests.
k. The Company shall otherwise comply with all
applicable rules and regulations of the SEC, including, without
limitation, compliance with applicable reporting requirements
under the Exchange Act.
l. The Company shall appoint a transfer agent and
registrar for all of the class that includes the Registrable
Securities covered by a Registration Statement not later than the
effective date of a Registration Statement.
m. The Company may require the Investor to furnish
promptly in writing to the Company such information as may be
legally required in connection with any registration including,
without limitation, all such information as maybe requested by
the SEC or the National Association of Securities Dealers. The
Investor agrees to provide such information requested in
connection with any registration within five (5) Trading Days
after receiving such written request and the Company shall not be
responsible for any delays in obtaining or maintaining the
effectiveness of a Registration Statement caused by the
Investor's failure to timely provide such information. Each
seller of Registrable Securities shall notify the Company as
promptly as practicable of any inaccuracy or change in
information previously furnished by such seller to the Company or
of the occurrence of any event, in either case as a result of
which any prospectus relating to the Registrable Securities
contains or would contain an untrue statement of a material fact
regarding such seller or its intended method of disposition of
such Registrable Securities or omits to state any material fact
regarding such seller or such seller's intended method of
disposition of such Registrable Securities required to be stated
therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
and promptly furnish to the Company any additional information
required to correct and update any previously furnished
information or required so that such prospectus shall not
contain, with respect to such seller or the disposition of such
Registrable Securities, 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 the light of the
circumstances under which they were made, not misleading.
Section 2.2. REGISTRATION EXPENSES. In connection with
each Registration Statement, the Company shall pay all
registration expenses incurred in connection with the
registration thereunder (the "Registration Expenses"), including,
without limitation: (i) all registration, filing, securities
exchange listing and fees required by the National Association of
Securities Dealers, (ii) all registration, filing, qualification
and other fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel
in connection with blue sky qualifications of the Registrable
Securities required hereby), (iii) all of the Company's word
processing, duplicating, printing, messenger and delivery
expenses, (iv) the Company's internal expenses(including, without
limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees
and expenses incurred by the Company in connection with the
listing of the Registrable Securities, (vi) reasonable fees and
disbursements of counsel for the Company and customary fees and
expenses for independent certified public accountants retained by
the Company (including the expenses of any special audits or
comfort letters or costs associated with the delivery by
independent certified public accountants of such special audit(s)
or comfort letter(s) requested pursuant to Section 2.1(j)
hereof), (vii) the fees and expenses of any special experts
retained by the Company in connection with such registration,
(viii) premiums and other costs of policies of insurance
purchased at the discretion of the Company against liabilities
arising out of any public offering of the Registrable Securities
being registered, and (ix) any fees and disbursements of
underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting fees, discounts, transfer
taxes or commissions, if any, attributable to the sale of
Registrable Securities, which shall be payable by each holder of
Registrable Securities pro rata on the basis of the number of
Registrable Securities of each such holder that are included in a
registration under this Agreement.
Section 2.3. BLACKOUT PERIOD. Investor agrees by
acquisition of Registrable Securities that, upon receipt of
written notice from the Company of the occurrence of any event of
the kind described in Section 2.1(g)(iv), for a period not to
exceed 120 days (a "Blackout Period") the Investor shall
forthwith discontinue the Investor's offer of the Registrable
Securities pursuant to the Registration Statement relating to
such Registrable Securities until the Investor shall have
received copies of the supplemented or amended prospectus
contemplated by Section 2.1(g)(iv) and, if so directed by the
Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in the
Investor's possession, of the prospectus relating to such
Registrable Securities at the time of receipt of such notice. In
the event that any Investor uses a prospectus in connection with
the offering and sale of any of the Registrable Securities
covered by such prospectus, such Investor will use only the
latest version of such prospectus provided by the Company to the
Investor.
ARTICLE III INDEMNIFICATION AND CONTRIBUTION
Section 3.1. INDEMNIFICATION BY THE COMPANY.
a The Company agrees to indemnify and hold harmless
the Investor, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity,
if any, who controls the Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act,
together with the partners, Affiliates, officers, directors,
employees and duly authorized agents of such controlling Person
or entity(collectively, the "Controlling Persons"), from and
against any and all losses, claims, damages, liabilities, costs
and expenses (including, without limitation, any and all
reasonable attorneys' fees and disbursements and costs and
expenses of investigating and defending any such claim and any
and all amounts paid in settlement of, any action, suit or
proceeding between any of the indemnified parties and any
indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted) (collectively,
"Damages"), joint or several, and any action or proceeding in
respect thereof to which the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents, and
any Controlling Person, may become subject under the Securities
Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, as and when incurred,
insofar as such Damages (or actions or proceedings in respect
thereof) (i) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact
contained in any Registration Statement, or in any preliminary
prospectus, final prospectus, summary prospectus, documents filed
under the Exchange Act and deemed to be incorporated by reference
into any Registration Statement, application or other document
executed by or on behalf other Company or based on written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Registrable Securities under
the securities or blue sky laws thereof or filed with the SEC,
amendment or supplement relating to the Registrable Securities or
(ii) arise out of, or are based upon, any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and shall reimburse the Investor, its partners,
affiliates, officers, directors, employees and duly authorized
agents, and each such Controlling Person, for any legal and other
expenses reasonably incurred by the Investor, its partners,
affiliates, officers, directors, employees and duly authorized
agents, or any such Controlling Person, as incurred, in
investigating or defending or preparing to defend against any
such Damages or actions or proceedings; provided, however, that
the Company shall not be liable to the extent that any such
Damages arise out of the Investor's failure to send or give a
copy of the final prospectus or supplement to the persons
asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person
if such statement or omission was corrected in such final
prospectus or supplement; provided, further, that the Company
shall not be liable to the extent that any such Damages arise out
of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such
Registration Statement, or any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information
furnished to the Company by the Investor or any other person who
participates as a seller or as an underwriter in the offering or
sale of such securities, in either case, in any questionnaire or
other request by the Company, or otherwise specifically stating
that it is for use in the preparation thereof.
b. The Investor agrees to indemnify and hold harmless
the Company, its partners, affiliates, officers, directors,
employees and duly authorized agents, and the Controlling
Persons, from and against any and all Damages, joint or several,
and any action or proceeding in respect thereof to which the
Company, its partners, affiliates, officers, directors, employees
and duly authorized agents, and any Controlling Person, may
become subject under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law
or otherwise, as and when incurred, insofar as such Damages (or
actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement or alleged untrue statement of a
material fact provided in writing to the Company by the Investor
expressly for use in any Registration Statement, preliminary
prospectus, final prospectus or summary prospectus of the Company
filed in any jurisdiction in order to qualify the Registrable
Securities under the securities or blue sky laws thereof or filed
with the SEC and shall reimburse the Company, its partners,
affiliates, officers, directors, employees and duly authorized
agents, and each such Controlling Person, for any legal and other
expenses reasonably incurred by the Company, its partners,
affiliates, officers, directors, employees and duly authorized
agents, or any such Controlling Person, as incurred, in
investigating or defending or preparing to defend against any
such Damages or actions or proceedings; provided, however, that
the Investor shall not be liable to the extent that any such
Damages arise out of the Company's failure to send or give a copy
of the final prospectus or supplement to the persons asserting an
untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such person if such statement
or omission was corrected in such final prospectus or supplement;
provided, further, that the Investor shall not be liable to the
extent that any such Damages arise out of or are based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, or any such
preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement made by the Company or any other person
who participates as a seller or as an underwriter in the offering
or sale of such securities.
Section 3.2. METHOD OF ASSERTING INDEMNIFICATION CLAIMS.
All claims for indemnification by any Indemnified Party (as
defined below) under Section 3.1 shall be asserted and resolved
as follows:
a. In the event any claim or demand in respect of
which any person claiming indemnification under any provision of
Section 3.1 (an "Indemnified Party") might seek indemnity under
Section 3.1 is asserted against or sought to be collected from
such Indemnified Party by a person other than the Company, the
Investor or any affiliate of the Company (a "Third Party
Claim"),the Indemnified Party shall deliver a written
notification, enclosing a copy of all papers served, if any, and
specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 3.1 against any
person (the "Indemnifying Party"), together with the amount or,
if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim (a "Claim
Notice") with reasonable promptness to the Indemnifying Party. If
the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice
of such Third Party Claim, the Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to such
Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such failure
of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending
thirty (30)calendar days following receipt by the Indemnifying
Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the
Indemnified Party under Section 3.1 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Indemnified Party with respect to the
Third Party Claim pursuant to this Section 3.2(a), then the
Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole
cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to
a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified
Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified Party
shall not be indemnified in full pursuant to Section 3.1). The
Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole
cost and expense of the Indemnified Party, at any time prior to
the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause (i), file any motion, answer or
other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third
Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (i), and except as
provided in the preceding sentence, the Indemnified Party shall
bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right
to indemnity under Section 3.1 with respect to such Third Party
Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Third Party Claim pursuant to Section
3.2(a), or if the Indemnifying Party gives such notice but fails
to prosecute vigorously and diligently or settle the Third Party
Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party
shall have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party(with
the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by
the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability
hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause(iii) below,
the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this
clause (ii) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party
shall reimburse the Indemnifying Party in full for all reasonable
costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause (ii),
and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation. (iii) If the Indemnifying
Party notifies the Indemnified Party that it does not dispute its
liability or the amount of its liability to the Indemnified Party
with respect to the Third Party Claim under Section 3.1 or fails
to notify the Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party with respect to such Third
Party Claim, the Damages in the amount specified in the Claim
Notice shall be conclusively deemed a liability of the
Indemnifying Party under Section 3.1 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within the period of
thirty (30) calendar days immediately following the Dispute
Period, such dispute shall be resolved by arbitration in
accordance with Section 3.3.
b. In the event any Indemnified Party should have a
claim under Section 3.1 against the Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall
deliver a written notification of a claim for indemnity under
Section 3.1 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of
such claim (an "Indemnity Notice") with reasonable promptness to
the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If
the Indemnifying Party notifies the Indemnified Party that it
does not dispute the claim or the amount of the claim described
in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes
the claim or the amount of the claim described in such Indemnity
Notice, the Damages in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 3.1 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within the period of
thirty (30) calendar days immediately following the Dispute
Period, such dispute shall be resolved by arbitration in
accordance with Section 3.3.
Section 3.3. ARBITRATION. Any dispute under this Agreement
(including, without limitation, pursuant Section 3.2) or the
Warrants shall be submitted to arbitration and shall be finally
and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the
Company, on the one hand, and the Investor and/or any other
Indemnified Party, on the other hand, shall select one (1) member
and the third member shall be selected by mutual agreement of the
other members, or if the other members fail to reach agreement on
a third member within twenty (20) days after their selection,
such third member shall thereafter be selected by the American
Arbitration Association upon application made to it for such
purpose by the other members. The Board of Arbitration shall meet
on consecutive business days in Los Angeles, California or such
other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and
render a decision in writing(concurred in by a majority of the
members of the Board of Arbitration). In connection with
rendering its decision, the Board of Arbitration shall adopt and
follow such rules and procedures as a majority of the members of
the Board of Arbitration deems necessary or appropriate. To the
extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following
commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to
the Company and the Investor and/or any other Indemnified Party.
Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period)
shall be final, binding and conclusive on the Company and the
Investor and/or any other Indemnified Party and entitled to be
enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The non-prevailing party to
any arbitration shall bear the expense of both parties in
relation thereto, including but not limited to the parties'
attorneys' fees, if any, and the expenses and fees of the Board
of Arbitration.
Section 3.4. OTHER INDEMNIFICATION . Indemnification
similar to that specified in the preceding paragraphs of this
Article 3 (with appropriate modifications) shall be given by the
Company with respect to any required registration or other
qualification of securities under any federal or state law or
regulation of any governmental authority other than the
Securities Act. The provisions of this Article III shall be in
addition to any other rights to indemnification, contribution or
other remedies which an Indemnified Party may have pursuant to
law, equity, contract or otherwise.
Section 3.5. CONTRIBUTION. If the indemnification and
reimbursement obligations provided for in any section of this
Article III is unavailable or insufficient to hold harmless the
Indemnified Parties in respect of any Damages referred to herein,
then the 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 Damages as between
the Company on the one hand and the Investor or seller on the
other, in such proportion as is appropriate to reflect the
relative fault of the Company and of the Investor or seller in
connection with such statements or omissions, as well as other
equitable considerations. The relative fault of the Company on
the one hand and of the Investor or seller on the other shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just
and equitable if contribution pursuant to this Section 3.4 were
determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as
a result of the Damages referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding the
provisions of this Section 3.4, the Investor or seller shall in
no event be required to contribute any amount in excess of the
amount by which the total price at which the Registrable
Securities of the Investor or seller were sold to the public
(less underwriting discounts and commissions) exceeds the amount
of any damages which the Investor or seller has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the 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.
ARTICLE IV MISCELLANEOUS
Section 4.1. OUTSTANDING REGISTRATION RIGHTS. The Company
represents and warrants to the Investor that there is not in
effect on the date hereof any other agreement by the Company
pursuant to which any holders of securities of the Company have a
right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of
any jurisdiction.
Section 4.2. TERM. The registration rights provided to
the holders of Registrable Securities hereunder shall terminate
at such time as all Registrable Securities have been issued and
have ceased to be Registrable Securities. Notwithstanding the
foregoing, paragraphs (c) and (d) of Section 1.1, Article III,
Section 4.8, and Section 4.9 shall survive the termination of
this Agreement.
Section 4.3. RULE 144. If the Company is required to file
reports under the Exchange Act, the Company will file in a timely
manner, information, documents and reports in compliance with the
Securities Act and the Exchange Act and will, at its expense,
promptly take such further action as holders of Registrable
Securities may reasonably request to enable such holders of
Registrable Securities to sell Registrable Securities without
registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act
("Rule 144"), as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC.
If at any time the Company is not required to file such reports,
it will, at its expense, forthwith upon the written request of
any holder of Registrable Securities who intends to make a sale
under Rule 144, make available adequate current public
information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144 or such other information as
necessary to permit sales pursuant to Rule 144. Upon the request
of the Investor, the Company will deliver to the Investor a
written statement, signed by the Company's principal financial
officer, as to whether it has complied with such requirements.
This Section 4.3 shall terminate at the same time as the
registration rights as provided in Section 4.2.
Section 4.4. CERTIFICATE. The Company will, at its
expense, forthwith upon the request of any holder of Registrable
Securities, deliver to such holder a certificate, signed by the
Company's principal financial officer, stating (a)the Company's
name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the
Company's Commission file number, (d) the number of shares of
each class of stock outstanding as shown by the most recent
report or statement published by the Company, and (e) whether the
Company has filed the reports required to be filed under the
Exchange Act for a period of at least ninety (90) days prior to
the date of such certificate and in addition has filed the most
recent annual report required to be filed thereunder.
Section 4.5. AMENDMENT AND MODIFICATION. Any provision of
this Agreement may be waived, provided that such waiver is set
forth in a writing executed by both parties to this Agreement.
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 Company has obtained the written consent
of the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any
provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities
whose securities are being sold pursuant to a Registration
Statement and does not directly or indirectly affect the rights
of other holders of Registrable Securities may be given by
holders of at least a majority of the Registrable Securities
being sold by such holders; provided that the provisions of this
sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding
sentence. No course of dealing between or among any Person having
any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any
rights or obligations of any person under or by reason of this
Agreement.
Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT.
This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The Investor may assign its
rights under this Agreement to any subsequent holder the
Registrable Securities, provided that the Company shall have the
right to require any holder of Registrable Securities to execute
a counterpart of this Agreement and agree to be bound by the
provisions of this Agreement as a condition to such holder's
claim to any rights hereunder. This Agreement, together with the
Stock Purchase Agreement, the Warrants and the exhibits and
schedules to such agreements together set forth the entire
agreement and understanding between the parties as to the subject
matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
Section 4.7. SEPARABILITY. In the event that any
provision of this Agreement or the application of any provision
hereof is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall not be affected except to the extent
necessary to delete such illegal, invalid or unenforceable
provision unless that provision held invalid shall substantially
impair the benefits of the remaining portions of this Agreement.
Section 4.8 NOTICES. All notices, demands, requests,
consents, approvals, and other communications required or
permitted hereunder shall be in writing and shall be (i)
deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (ii) delivered by reputable air
courier service with charges prepaid, or (iii) transmitted by
hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified
most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on
a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company:
with a copy Water Star, Inc.
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If to the Investor: Brighton Opportunity Fund
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with a copy to: Jeffer, Mangels, ▇▇▇▇▇▇ & Marmaro LLP
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Either party hereto may from time to time change its address
or facsimile number for notices under this Section 4.8 by giving
at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.
Section 4.9. GOVERNING LAW. This Agreement shall be
construed under the laws of the State of California, without
giving effect to conflict of law provisions.
Section 4.10. HEADINGS. The headings in this Agreement are
for convenience of reference only and shall not constitute a part
of this Agreement, nor shall they affect their meaning,
construction or effect.
Section 4.11. COUNTERPARTS. This Agreement may be executed
in multiple counterparts, each of which shall be deemed to be an
original instrument and all of which together shall constitute
one and the same instrument.
Section 4.12. FURTHER ASSURANCES. Each party shall
cooperate and take such action as may be reasonably requested by
another party in order to carry out the provisions and purposes
of this Agreement and the transactions contemplated hereby.
Section 4.13. ABSENCE OF PRESUMPTION. This Agreement shall
be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 4.14. REMEDIES. In the event of a breach or a
threatened breach by any party to this Agreement of its
obligations under this Agreement, any party injured or to be
injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in
this Agreement and granted by law. The parties agree that the
provisions of this Agreement shall be specifically enforceable,
it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision may be
inadequate compensation for any loss.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be executed by the undersigned,
there unto duly authorized, as of the date first set forth above.
WATER STAR, INC.
By:/s/
Name ▇. ▇. ▇▇▇▇▇▇▇
Title President
BRIGHTON OPPORTUNITY FUND, L.P.
By Its General Partner
/s/ For Brighton
Name Tisno Onggara
Title General Partner