REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), is
entered into in duplicate this date July 31, 2001, by and among Six
Forty-Nine, a Nevada corporation ("Seller") and Encore Ventures,
Inc., a Nevada corporation ("Company").
RECITALS
A. Simultaneously with the execution and delivery of this
Agreement, the Seller has agreed to sell to the Company certain
assets pursuant to a written Asset Purchase Agreement ("Asset
Purchase Agreement") in exchange for 12,892,300 shares of the
Company's $.001 par value common stock (the "Shares")
B. The Company desires to grant to the Seller registration
rights for the Shares on the terms and subject to the conditions
specified in this Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used in this
Agreement the term "Registrable Security" means the Shares until (i)
the Registration Statement (as that term is defined later in this
Agreement) has been declared effective by the Securities and Exchange
Commission ("Commission"), and all Shares have been disposed of
pursuant to the Registration Statement, (ii) all Shares have been
sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in effect) pursuant to the
Securities Act of 1933 ("Rule 144") are satisfied, (iii) all Shares
have been otherwise transferred to holders who may trade such
Securities without restriction pursuant to the Securities Act, and
the Company has delivered a new certificate or other evidence of
ownership for such Shares not bearing a restrictive legend or (iv)
such time as, in the opinion of counsel to the Company, all Shares
may be sold without any time, volume or manner limitations pursuant
to Rule 144(k) (or any similar provision then in effect) pursuant to
the Securities Act. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition
of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Company's $.001 par value common
stock ("Common Stock"), such adjustment shall be deemed to be made in
the definition of "Registrable Security" as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant
to this Agreement.
Section 2. Restrictions on Transfer. The Seller
acknowledges and understands that prior to the registration of the
Shares as provided herein, the Shares are "restricted securities" as
defined in Rule 144 promulgated pursuant to the Act. The Seller
agrees that no disposition or transfer of the Shares may be made by
Seller in the absence of (i) an opinion of counsel to the Seller, in
form and substance reasonably satisfactory to the Company, that such
transfer may be made without registration pursuant to the Securities
Act, or (ii) such registration.
1
With the intent of making available to the Seller the
benefits of Rule 144, the Company shall:
(a) comply with the provisions of Paragraph (c)(1) of
Rule 144 following the filing of the Registration Statement; and
(b) file with the Commission in a timely manner all
reports and other documents required to be filed with the Commission
pursuant to Section 13 or Section 15(d) pursuant to the Securities
Exchange Act of 1934 ("Exchange Act") by issuers subject to either of
those sections, irrespective of whether the Company is then subject
to such reporting requirements.
Section 3. Registration Rights With Respect to the Shares.
-----------------------------------------------
(a) The Company shall prepare and file with the
Commission a registration statement for the Shares (on Form SB-2)
pursuant to the Securities Act (the "Registration Statement"), at its
sole expense, no later than three (3) months from the closing of the
transaction contemplated by the Asset Purchase Agreement.
The Company shall use its best efforts to cause the
Registration Statement to become effective within a reasonable time
thereafter. The Company will notify the Seller of the effectiveness
of the Registration Statement no later than three (3) Trading Days of
such effectiveness.
(b) The Company will maintain the Registration
Statement or post-effective amendment filed pursuant to this Section
3 effective pursuant to the Securities Act until the earlier of (i)
the date that none of the Shares registered by the Registration
Statement are or may become issued and outstanding, (ii) the date
that all of the Shares have been sold pursuant to such Registration
Statement, (iii) the date the Seller receives an opinion of counsel
to the Company that the Shares may be sold pursuant to the provisions
of Rule 144 without limitation as to volume, (iv) all Shares have
been otherwise transferred to persons who may trade such shares
without restriction pursuant to the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for
the Shares not bearing a restrictive legend, or (v) all Shares may be
sold without any time, volume or manner limitations pursuant to Rule
144(k) or any similar provision then in effect pursuant to the
Securities Act in the opinion of counsel to the Company
("Effectiveness Period").
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the
preparation and filing of the Registration Statement pursuant to
Paragraph 3(a) of this Agreement and in complying with applicable
securities and Blue Sky Laws (including, without limitation, all
attorneys' fees of the Company) shall be paid by the Company. The
Seller shall pay the cost of underwriting and brokerage discounts,
fees and commissions, if any, applicable to the Shares and the fees and
2
expenses of Seller's counsel. The Company, at its expense, will
furnish the Seller with copies of the applicable Registration
Statement and the prospectus included therein and other related
documents in such quantities as may be reasonably requested by the
Seller.
(d) The Company shall not be required by this Section
3 to include any Shares in any registration statement which is to be
filed if, in the opinion of counsel for the Company, the proposed
offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which
are not "restricted securities", as defined in Rule 144.
(e) No provision of the Agreement shall preclude the
Company from selling securities pursuant to any registration
statement in which it is required to include the Shares pursuant to
this Section 3.
(f) If at any time or from time to time after the
effective date of any registration statement, the Company notifies
the Seller in writing of the existence of a Potential Material Event
(as defined in Section 3(g) of this Agreement), the Seller shall not
offer or sell any Shares or engage in any other transaction involving
or relating to the Shares, from the time of the giving of notice with
respect to a Potential Material Event until the Seller receives
written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a
Potential Material Event ("Blackout Period"). The Company shall, if
lawful, give the Seller notice in writing at least two (2) Trading
Days prior to the first day of any Blackout Period.
(g) "Potential Material Event" means either (a) the
possession by the Company of material information not appropriate for
disclosure in a registration statement, as determined in good faith
by the Chief Executive Officer or the Board of Directors of the
Company that disclosure of such information in a registration
statement would be detrimental to the business and affairs of the
Company; or (b) any material engagement or activity by the Company
which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of
Directors of the Company that the applicable registration statement
would be materially misleading absent the inclusion of such
information.
Section 4. Cooperation with Company. The Seller will
cooperate with the Company in all respects in connection with this
Agreement, including timely supplying all information reasonably
requested by the Company (which shall include all information
regarding the Seller and proposed manner of sale of the Registrable
Securities required to be disclosed in any registration statement)
and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable
Securities and entering into and performing the Seller's obligations
pursuant to any underwriting agreement, if an
3
offering of the Company's securities is an underwritten offering, in
usual and customary form, with the managing underwriter or underwriters
of such underwritten offering. Nothing in this Agreement shall obligate
any Seller to consent to be named as an underwriter in any registration
statement. The obligation of the Company to register the Registrable
Securities shall be absolute and unconditional as to those Shares
which the Commission will permit to be registered without naming the
Seller as an underwriter, and with the consent of the Seller to be
named as an underwriter, to all of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to
effect the registration of any of the Registrable Securities pursuant
to the Securities Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible, subject to
the Sellers assistance and cooperation as reasonably required with
respect to the Registration Statement:
(a) (i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
the Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities registered by the Registration
Statement (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated pursuant to the Securities
Act), and (ii) take all lawful action such that (A) the Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, considering the circumstances pursuant
to which those statements were made, not misleading, and (B) the
prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the
applicable registration period include 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, considering the
circumstances under which those statements were made, not misleading;
(b) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then
permitted under the rules of such Principal Market;
(c) notify the Seller at any time when a prospectus
relating Registrable Securities registered by the Registration
Statement is required to be delivered pursuant to the Securities Act,
of the happening of any event of which the Company has knowledge as a
result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
considering the circumstances then existing, and the Company shall
prepare and file a curative amendment pursuant to Section 5(a) as
quickly as commercially possible;
4
(d) as promptly as practicable after becoming aware
of such event, notify the Seller (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness
of the Registration Statement at the earliest possible time and take
all lawful action to effect the withdrawal, recession or removal of
such stop order or other suspension;
(g) cooperate with the Seller to facilitate the
timely preparation and delivery of certificates for the Registrable
Securities to be offered pursuant to the Registration Statement and
enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Seller
reasonably may request and registered in such names as the Seller may
request;
(h) take all such other lawful actions reasonably
necessary or appropriate to expedite and facilitate the disposition
by the Seller of the Registrable Securities in accordance with the
intended methods therefor provided in the prospectus which are
routine, ordinary and customary for issuers to perform in similar
circumstances;
(i) in the event of an underwritten offering,
promptly include or incorporate in a prospectus supplement or post-
effective amendment to the Registration Statement such information as
the managers of such offering shall reasonably agree should be
included therein and to which the Company does not reasonably object
and make all required filings of such prospectus supplement or post-
effective amendment as soon as practicable after the Company is
notified of the matters to be included or incorporated in such
prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for the Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the
Company shall indemnify and hold harmless the Seller and each person,
if any, who controls the Seller within the meaning of the Securities
Act against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to,
all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), to which the Seller may become
subject, pursuant to the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) result from or are based upon any untrue statement or
alleged untrue
5
statement of any material fact contained in the
Registration Statement, or any related final prospectus or amendment
or supplement thereto, result from or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable to
the extent, and only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by the Seller, its
counsel, affiliates or any underwriter, specifically for use in the
preparation thereof. This indemnification will be in addition to any
liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, the
Seller shall indemnify and hold harmless the Company, and each
officer and director of the Company or person, if any, who controls
the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees
and expenses) to which the Company or any such officer, director or
controlling person may become subject pursuant to the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) result from or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, or any related final
prospectus or amendment or supplement thereto, or result from or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity
with, information furnished to the Company by Seller, its counsel,
affiliates or any underwriter, specifically for use in the
preparation thereof. This indemnification will be in addition to any
liability which the Seller may otherwise have.
(c) Promptly after receipt by an indemnified party
pursuant to this Section 6 of notice of the commencement of any
action against such indemnified party, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party pursuant to this Section 6, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party, except to
the extent the failure of the indemnified party to provide such
written notification actually prejudices the ability of the
indemnifying party to defend such action. If any such action is
brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it
may desire, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions of
this Section 6 and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party
pursuant to this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation,
unless the indemnifying party shall not pursue the action to its
final conclusion. The indemnified parties as a group shall have the
right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the indemnifying party if the
6
indemnifying party has assumed the defense of the action. No
settlement of any action against an indemnified party shall be made
without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld if as such settlement
includes a full release of claims against the indemnified party.
Section 7. (a) Contribution. In order to provide for just
and equitable contribution pursuant to the Securities Act in any
event in which (i) the indemnified party makes a claim for
indemnification pursuant to Section 6 of this Agreement but is
judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such event, notwithstanding
the fact that the provisions of Section 6 of this Agreement provide
for indemnification in such event, or (ii) contribution pursuant to
the Securities Act may be required on the part of any indemnified
party, then the Company and the Seller shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses), in
either such event (after contribution from others) on the basis of
relative fault, as well as any other relevant equitable
considerations. The relative fault 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 the Company,
on the one hand, or the Seller, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Seller agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or
by any other method of allocation which does not consider the
equitable provisions specified in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to in
this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. 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.
(b) Notwithstanding any other provision of this Section 7,
in no event shall (i) the Seller be required to undertake liability
to any person pursuant to this Section 7 for any amounts in excess of
the dollar amount of the proceeds received by the Seller from the
sale of the Seller's Registrable Securities (after deducting any
fees, discounts and commissions applicable thereto) pursuant to the
Registration Statement pursuant to which such Registrable Securities
are registered pursuant to the Securities Act and (ii) any
underwriter be required to undertake liability to any person pursuant
to this Agreement for any amounts in excess of the aggregate
discount, commission or other compensation payable to such
underwriter with respect to the Registrable Securities underwritten
by it and distributed pursuant to the Registration Statement.
7
Section 8. Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted
by this Agreement shall be in writing and, unless otherwise specified
by this Agreement, shall be (i) hand delivered; (ii) deposited in the
mail, registered or certified, return receipt requested, postage
prepaid; (iii) delivered by reputable air courier service with
charges prepaid; or (iv) transmitted by facsimile machine, addressed
as set forth in the Asset Purchase Agreement 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
by this Agreement shall be deemed effective (a) upon hand delivery or
delivery by facsimile machine, with accurate confirmation generated
by the transmitting facsimile machine, at the address or number
designated in the Asset Purchase Agreement (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 first business day
following the date of sending by reputable courier service, fully
prepaid, addressed to such address, or (c) upon actual receipt of
such mailing, if mailed. Either party to this Agreement may from
time to time change its address or facsimile number for notices
pursuant to this Section 8 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the
other party to this Agreement.
Section 9. Assignment. This Agreement obligates and inures
to the benefit of the parties to this Agreement and their respective
heirs, successors and permitted assigns. The rights granted the
Seller pursuant to this Agreement may be assigned to any purchaser of
all of the Registrable Securities (or the rights thereto) from the
Seller, as otherwise permitted by the Asset Purchase Agreement.
Section 10. Additional Covenants of the Company. The
Company shall, at such time as it otherwise meets the requirements
for the use of a registration statement on Form S-3 for the purpose
of registering the Registrable Securities, file all reports and
information required to be filed by it with the Commission in a
timely manner and take all such other action so as to maintain such
eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute
an original, but all of which, when together shall constitute but one
and the same instrument, and shall become effective when one or more
counterparts have been signed by each party hereto and delivered to
the other parties. In lieu of the original, a facsimile transmission
or copy of the original shall be as effective and enforceable as the
original.
Section 12. Remedies. The remedies provided in this
Agreement are cumulative and not exclusive of any remedies provided
by law. If any term, provision, covenant or restriction of this
Agreement is determined by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and
8
restrictions set forth in this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated,
and the parties to this Agreement shall use their best efforts to
determine and utilize an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Seller in this Agreement
or otherwise prevents the Company from complying with all of its
obligations specified by this Agreement.
Section 14. Governmental Rules and Regulations. The Transaction
is and shall remain subject to any and all present and future orders,
rules and regulations of any duly constituted authority having
jurisdiction of the Transaction.
Section 15. Force Majeure. If any party is rendered
unable, completely or partially, by the occurrence of an event of
"force majeure" (hereinafter defined) to perform such party's
obligations created by the provisions of this Agreement, such party
shall give to the other party prompt written notice of the event of
"force majeure" with reasonably complete particulars concerning such
event; thereupon, the obligations of the party giving such notice, so
far as those obligations are affected by the event of "force
majeure," shall be suspended during, but no longer than, the
continuance of the event of "force majeure." The party affected by
such event of "force majeure" shall use all reasonable diligence to
resolve, eliminate and terminate the event of "force majeure" as
quickly as practicable. The requirement that an event of "force
majeure" shall be remedied with all reasonable dispatch as
hereinabove specified, shall not require the settlement of strikes,
lockouts or other labor difficulties by the party involved, contrary
to such party's wishes, and the resolution of any and all such
difficulties shall be handled entirely within the discretion of the
party concerned. The term "force majeure" as used herein shall be
defined as and mean any act of God, strike, civil disturbance,
lockout or other industrial disturbance, act of the public enemy,
war, blockage, public riot, earthquake, tornado, hurricane,
lightning, fire, epidemics, quarantine restrictions, public
demonstration, storm, flood, explosion, freight embargoes,
governmental action, governmental delay, restraint or inaction,
unavailability of equipment, default of a party's subcontractors or
suppliers, and any other cause or event, whether of the kind
enumerated specifically herein, or otherwise, which is not reasonably
within the control of the party claiming such suspension.
Section 16. Consent to Agreement. By executing this Agreement,
each party, for itself, represents such party has read or caused to be
read this Agreement in all particulars, and consents to the rights,
conditions, duties and responsibilities imposed upon such party as
specified in this Agreement. Each party represents, warrants and
covenants that such party executes and delivers this Agreement of its
own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents,
warrants, and covenants that such party executes this Agreement
acting on such party's own independent judgment.
9
Section 17. Headings. The headings in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 18. Governing Law, Arbitration. This Agreement
shall be governed by and construed in accordance with the laws of the
State of Nevada applicable to contracts made in Nevada by persons
domiciled in Las Vegas, Nevada and without regard to its principles
of conflicts of laws. Any dispute pursuant to this Agreement shall
be submitted to arbitration pursuant to the American Arbitration
Association ("AAA") in Las Vegas, Nevada and shall be finally and
conclusively determined by the decision of a board of arbitration
consisting of three (3) members ("Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration
shall cause its written decision to be delivered to all parties
involved in such dispute. 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 parties to such dispute, and entitled to be enforced to the
fullest extent permitted by law and entered in any court of competent
jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing
to participate in any proceeding pursuant to this Section 15 within
the time periods set forth in the AAA rules. The non-prevailing party
to any arbitration (as determined by the Board of Arbitration) shall
pay the expenses of the prevailing party, including reasonable
attorneys' fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where
such relief is available.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and
year first above written.
Encore Ventures, Inc.,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇
Its: President
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇
-------------------------------
Its: Secretary
10
Six Forty-Nine Inc.,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Its: President
By: /s/ ▇. ▇▇▇▇▇
-------------------------------
Its: Secretary
11