REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 6,
2000 ("Agreement"), is made by and between ▇▇▇▇▇▇▇▇▇▇.▇▇▇, a California
corporation, with headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇
▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and each entity named on a signature page hereto
(each, an "Initial Investor") (each agreement with an Initial Investor being
deemed a separate and independent agreement between the Company and such Initial
Investor, except that each Initial Investor acknowledges and consents to the
rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of December 6, 2000, between the Initial
Investor and the Company (the "Securities Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor shares of Series A Convertible Preferred Stock of the Company
having an aggregate stated value of $6,000,000 (the "Preferred Stock"); and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock (which term, for purposes of this
Agreement, shall include Periodic Amount Shares, as defined below) is
convertible into shares of Common Stock (the "Conversion Shares"; which term,
for purposes of this Agreement, shall include shares of Common Stock of the
Company issuable upon conversion of the Preferred Stock issued in lieu of
accrued dividends as contemplated by the Preferred Stock) upon the terms and
subject to the conditions contained in the Certificate of Determination and the
Warrants may be exercised for the purchase of shares of Common Stock (the
"Warrant Shares") upon the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor 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
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
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 the
Initial Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Preferred Stock,
Warrants or Registrable Securities.
(b) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of 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 Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities 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").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act covering Registrable Securities on Form
S-3, if the Company is then eligible to file using such form, and if not
eligible, on Form SB-2 or other appropriate form.
(f) "Required Effective Date" means the relevant Initial
Required Effective Date or Increased Required Effective Date (as those terms are
defined below).
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon
as possible after the Initial Closing Date but no later than thirty (30) days
after the Initial Closing Date ("Required Filing Date"), either a Registration
Statement or an amendment to an existing Registration Statement, in either event
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities issued to the
Investor. Promptly upon receipt of shareholder approval to increase its
authorized capital stock and approving the transactions contemplated by the
Securities Purchase Agreement, the Company will either file an amendment to
existing Registration Statement or a new Registration Statement that would cover
in the aggregate with the first Registration Statement no less than the number
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of shares equal to the sum of (A)two hundred percent (200%) of the number of
shares into which the Preferred Stock and all dividends thereon through the
third annual anniversary of their issuance would be convertible at the time of
filing of such Registration Statement (assuming for such purposes that all
shares of Initial Preferred Stock and the maximum number of Additional Preferred
Stock had been issued, had been eligible to be converted, and had been
converted, into Conversion Shares in accordance with their terms, whether or not
such issuance, accrual of dividends, eligibility or conversion had in fact
occurred as of such date or such lesser number as may be required by the SEC)
and (B) the number of shares which would be issued upon exercise of all of the
Warrants issued pursuant to the Securities Purchase Agreement at the time of
filing of the Registration Statement (assuming for such purposes that the
maximum number of Additional Preferred Stock had been issued and all Warrants
had been issued, were eligible to be exercised and had been exercised in
accordance with their terms, whether or not such issuance, eligibility or
exercise had in fact occurred as of such date or such lesser number as may be
required by the SEC). The Registration Statement shall also state that, in
accordance with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock and the exercise of the Warrants to
prevent dilution resulting from stock splits, or stock dividends. The Company
will use its reasonable best efforts to cause such Registration Statement to be
declared effective on a date ("Initial Required Effective Date") which is no
later than the earlier of (Y) five (5) days after oral or written notice by the
SEC that it may be declared effective or (Z) one hundred twenty (120) days after
the Initial Closing Date. Except as set forth on Schedule 2a attached or as may
be consented to by the Initial Investor, the Registration Statement will only
include the Registrable Securities.
(ii) If at any time (an "Increased Registered Shares Date"),
the number of shares of Common Stock represented by the Registrable Shares,
issued or to be issued as contemplated by the Transaction Agreements, exceeds
eighty percent (80%) of the aggregate number of shares of Common Stock then
registered, the Company shall either (X) amend the relevant Registration
Statement filed by the Company pursuant to the preceding provisions of this
Section 2, if such Registration Statement has not been declared effective by the
SEC at that time, to register, in the aggregate, at least the number of shares
("Increased Shares Amount") equal to (A) (I) the number of shares theretofore
issued on conversion of the Preferred Stock (including any dividends paid on
conversion by the issuance of Conversion Shares) plus (II) two hundred percent
(200%) of the number of shares into which the unconverted Preferred Stock and
all dividends thereon through the thirty six (36) month anniversary of the
Closing Date would be convertible at the date of such filing (assuming for such
purposes that all such shares of Preferred Stock had been issued, had been
eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such issuance, accrual of dividends,
eligibility or conversion had in fact occurred as of such date or such lesser
number as may be required by the SEC) and (B) the number of shares which would
be issued upon exercise of all of the Warrants (assuming for such purposes that
all Warrants had been issued, had been eligible to be exercised and had been
exercised in accordance with their terms, whether or not such issuance,
eligibility or exercise had in fact occurred as of such date or such lesser
number as may be required by the SEC), or (Y) if such Registration Statement has
been declared effective by the SEC at that time, file with the SEC an additional
Registration Statement (an "Additional Registration Statement") to register the
number of shares equal to the excess of the Increased Shares Amount over the
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aggregate number of shares of Common Stock already registered. The Company will
use its reasonable best efforts to cause such Registration Statement to be
declared effective on a date (each, an "Increased Required Effective Date")
which is no later than (Q) with respect to a Registration Statement under clause
(X) of this subparagraph (ii), the Initial Required Effective Date and (R) with
respect to an Additional Registration Statement, the earlier of (I) five (5)
days after notice by the SEC that it may be declared effective or (I) sixty (60)
days after the Increased Registered Shares Date.
(iii) To the extent that any of the Registrable Securities are
not included in any effective Registration Statement prior to an Additional
Closing Date, the Company shall prepare and file either a Registration Statement
or an amendment to an existing Registration Statement, registering such
Registrable Securities. The provisions of this Agreement, including, but not
limited to, the provisions of Section 2(a)(i) hereof, apply separately with
respect to such Registration Statement, except that (i) references to the
Initial Closing Date shall be deemed to refer to the Additional Closing Date,
and (ii) clause (Z) of Section 2(a)(i) shall read "sixty (60) days after the
Additional Closing Date."
(iv) The aggregate number of shares registered for the
Investors in each Registration Statement or amendment thereto shall be allocated
among the Investors on a pro rata basis among them according to their relative
Registrable Shares included in such Registration Statement).
(v) For purposes of this Agreement, Registrable Securities
will cease to be Registrable Securities when they are eligible to be sold
pursuant to Rule 144(k) under the Act without limitation as to the amount of
securities to be sold or as to the manner of sale.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC by the Required Filing Date,
the Company will make payment to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable
Securities is not effective by the relevant Required Effective Date or if the
Investor is restricted from making sales of Registrable Securities covered by
any previously effective Registration Statement at any time (the date such
restriction commences, a "Restricted Sale Date") after the relevant Effective
Date other than during a Permitted Suspension Period (as defined below), then
the Company will make payments to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Preferred Stock for
the period from the date following the relevant Required Filing Date or the
Required Effective Date or Restricted Sale Date, as the case may be, to the
first relevant Computation Date, and thereafter to each subsequent Computation
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Date. The "Periodic Amount Percentage" means (A) one percent (1%) of the
Purchase Price of all Preferred Stock for the first 30 days after the relevant
date; (B) two percent (2%) of the Purchase Price of all Preferred Stock to each
Computation Date thereafter. Anything in the preceding provisions of this
paragraph (iii) to the contrary notwithstanding, after the Effective Date the
Purchase Price for such Preferred Stock shall be deemed to refer to the sum of
(X) the principal amount of all Preferred Stock not yet converted and (Y) the
Held Shares Value (as defined below). The "Held Shares Value" means, for shares
acquired by the Investor upon a conversion within the thirty (30) days preceding
the Restricted Sale Date, but not yet sold by the Investor, the principal amount
of the Preferred Stock converted into such Conversion Shares; provided, however,
that if the Investor effected more than one conversion during such thirty (30)
day period and sold less than all of such shares, the sold shares shall be
deemed to be derived first from the conversions in the sequence of such
conversions (that is, for example, until the number of shares from the first of
such conversions have been sold, all shares shall be deemed to be from the first
conversion; thereafter, from the second conversion until all such shares are
sold). By way of illustration and not in limitation of the foregoing, if the
Registration Statement is timely filed but is not declared effective until one
hundred ninety (190) days after the Initial Closing Date, the Periodic Amount
will aggregate five percent (5%) of the Purchase Price of the Preferred Stock
theretofore issued (1% for days 121-150, plus 2% for days 151-180, plus 2% for
days 181-195).
(iv) Each Periodic Amount will be payable by the Company, except
as provided in the other provisions of this subparagraph (iv), in cash or other
immediately available funds to the Investor (1) on the day after the Required
Filing Date or the Required Effective Date, as the case may be, and (2) on the
earlier of (A) each thirtieth day thereafter, (B) the third business day after
the date the Registration Statement is filed or is declared effective, or (C)
the third business day after the Registration Statement has its restrictions
removed after the Effective Date, as the case may be, in each case without
requiring demand therefor by the Investor. Notwithstanding the provisions of the
first sentence of this subparagraph (iv), at the option of the Investor,
exercisable in its sole and absolute discretion by written notice to the Company
at any time before the Periodic Amount is paid, all or a portion of the Periodic
Amount shall be paid by the issuance of additional shares of Series A Preferred
Stock to the Investor ("Periodic Amount Shares") having a stated value equal to
the Periodic Amount being paid thereby.
(v) The parties acknowledge that the damages which may be incurred
by the Investor if the Registration Statement is not filed by the Required
Filing Date or the Registration Statement has not been declared effective by a
Required Effective Date, including if the right to sell Registrable Securities
under a previously effective Registration Statement is suspended, may be
difficult to ascertain. The parties agree that the Periodic Amounts represent a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable (i) to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Initial Investor or its
counsel, (ii) in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the Act without volume
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or other restrictions or limits or (iii) with respect to a Permitted Suspension
Period or (iv) acts of God, fire, earthquakes, war, civil unrest, accident,
power fluctuations or outages, or other events beyond the control of the
Company.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is
three (3) years after the last day of the calendar month following the month in
which the relevant Effective Date occurs, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 without volume or other
restrictions or limits or (iii) the date the Investors no longer own any of the
Registrable Securities, 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, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
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 Statement;
(c) Permit a single firm of counsel designated by the Initial
Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects;
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(d) Notify each Investor and such Investor's legal counsel
identified to the Company and which has requested by written notice to the
Company that it receive such notification (which, until further notice, shall be
deemed to be ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq., which firm has
requested to receive such notification; each, an "Investor's Counsel"), and any
managing underwriters immediately (and, in the case of (i)(A) below, not less
than three (3) business days prior to such filing) and (if requested by any such
person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC in respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
proceedings for that purpose; (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor's
Counsel with copies of all intended written responses to the comments
contemplated in clause (C) of this Section 3(d) not later than one (1) business
day in advance of the filing of such responses with the SEC so that the
Investors shall have the opportunity to comment thereon;
(e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a 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;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor 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
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omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor 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; provided, however,
that the Company may not so suspend the right to such holders of Registrable
Securities during the periods the Registration Statement is required to be in
effect other than during a Permitted Suspension Period (and the applicable
provisions of Section 2(b) shall apply with respect to any such suspension other
than during a Permitted Suspension Period) . The term "Permitted Suspension
Period" means up to two such suspension periods during any consecutive 12-month
period, each of which suspension period shall not either (i) be for more than
ten (10) days or (ii) begin less than ten (10) days after the last day of the
preceding suspension (whether or not such last day was during or after a
Permitted Suspension Period); provided further that the Company shall, if lawful
to do so, provide the Investor with at least two (2) business days' notice of
the existence (but not the substance of) a Potential Material Event;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the American Stock Exchange within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on The American Stock
Exchange; 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. as such with respect to such Registrable Securities;
(j) 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;
(k) Cooperate with the Investors who hold Registrable
Securities being offered 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
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Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within five (5) 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 appropriate instruction and opinion
of such counsel; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the 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 ten (10) 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 (the "Requested
Information") if such Investor has any Registrable Securities included in the
Registration Statement. If at least two (2) business days prior to the filing
date the Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive 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 Statement 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 Statement; and
(c) 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), above, 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.
5. Expenses of Registration. All reasonable expenses (other
than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and qualifications
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fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. In addition, a fee for a single
counsel for the Investors (as a group and not individually) equal to $4,500 for
the review of each Registration Statement and $2,000 for each post-effective
amendment to a Registration Statement, 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
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or 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, (ii)
any untrue statement or alleged untrue statement of a material fact 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 Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any 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) shall not (I) 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 or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
after such prospectus was made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the prospectus made available by
the Company or the amendment or supplement thereto made available by the
Company; (III) be available to the extent such Claim is based on the delivery of
a prospectus by the Investor after receiving notice from the Company under
Section 3(f), (g) or (h) hereof (other than a notice regarding the effectiveness
of the Registration Statement or any amendment or supplement thereto), or (IV)
apply to amounts paid in settlement of any Claim if such settlement is effected
10
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Each Investor will indemnify the Company and
its officers, directors and agents (each, an "Indemnified Person" or
"Indemnified Party") against any claims 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 or on behalf of such Investor, expressly for use in
connection with the preparation of the Registration Statement or the amendment
or supplement thereto, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
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) 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. In case any such action is brought against any Indemnified Person
or 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 wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or 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 Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party provided such
counsel is of the opinion that all defenses available to the Indemnified Party
can be maintained without prejudicing the rights of the indemnifying party. 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 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 (a) no contribution shall be made under
11
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) except where the seller has committed fraud (other
than a fraud by reason of the information included or omitted from the
Registration Statement as to which the Company has not given notice as
contemplated under Section 3 hereof) or intentional misconduct, contribution 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.
8. Reports under Securities Act and Exchange Act. With a view
to making available to Investor the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit Investor 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 Securities Act and the Exchange
Act; and
(c) furnish to Investor, at Investor's request, so long as
Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
the Securities Act and the Exchange 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 Investor to sell such securities pursuant to Rule 144 without
Registration.
(d) The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than one (1) year, (ii) that such Holder has not been an
affiliate (as defined in Rule 144) of the company for more than the ninety (90)
preceding days, and (iii) as to such other matters as may be appropriate in
accordance with such Rule, remove from the stock certificate representing such
Registrable Securities that portion of any restrictive legend which relates to
the registration provisions of the Securities Act, provided, however, counsel to
Investor may provide such instructions and opinion to the transfer agent
regarding the removal of the restrictive legend.
9. Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Preferred Stock or
unexercised Warrant) only if: (a) 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, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
12
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein,
and (e) such transfer of Registrable Securities is completed and disclosed to
the Company prior to the initial Effective Date or involves the transfer of
Registrable Securities resulting from the conversion of Preferred Stock having a
stated value of at least $200,000. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(b) hereof arising from such delay.
10. Amendment of Registration Rights. Any provision 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 the written consent of the Company and Investors who
hold a majority interest of the Registrable Securities (as calculated by the
stated value of the Preferred Stock without any reference to the Warrant
Shares). Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
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) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Securities Purchase Agreement, (i) if
to the Company or to the Initial Investor, to their respective address
contemplated by the Securities Purchase Agreement, and (ii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b).
(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 governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
13
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, either party hereto shall
reimburse the other party for any reasonable legal fees and disbursements
incurred by such party in enforcement of or protection of any of its rights
under this Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
COMPANY:
▇▇▇▇▇▇▇▇▇▇.▇▇▇
By: ______________________________________
Name:
Title:
INITIAL INVESTOR:
__________________________________________
[Print Name of Initial Investor]
By: ______________________________________
Name:
Title:
15
Number of Shares
Underlying
Name Warrants or Options Description of Option or Warrant
----------------------------------- ------------------- --------------------------------------------------------
Each warrant is exercisable for one year from the
▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ 70,108 effective date of the Company's registration statement
at an exercise price of $1.50 per share.
Each warrant is exercisable for one year from the
Silhouette Investments, Ltd. 57,608 effective date of the Company's registration statement
at an exercise price of $1.50 per share.
Includes 90,000 shares of common stock issuable upon
The Del Mar Consulting Group, Inc. 90,000 exercise of options, which become exercisable when 80%
of the Company's outstanding publicly traded warrants
are exercised. One option to purchase 45,000 shares of
common stock is exercisable at an exercise price of
$11.00 per share and the remaining option to purchase
45,000 shares of common stock at an exercise price of
$15.00 per share. The options will expire on the
earlier of April 2004 or two years after the
termination of the consulting agreement
Includes immediately exercisable options to purchase
Shareholders Solutions, Inc. 175,000 an aggregate of 100,000 shares of common stock at an
exercise price of $10.00 per share and immediately
exercisable options to purchase 75,000 shares of
common stock at an exercise price of $10.00 per
share. All of these options will expire in October
2002.
ChannelSpace Entertainment, Inc. 833,333 Acquisition of assets pursuant to agreement.
16