Exhibit 7
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered into
as of April 17, 2006 among ▇▇▇▇▇▇ Electronics, Inc., a New York corporation
(the "Company"), and the several parties signatory hereto.
This Agreement is made pursuant to the Consulting Agreement dated the date
hereof between Trinity Investment Partners, LLC and the Company and the
Employment Agreement dated as of the date hereof between D. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and the Company (collectively the "Transaction Documents").
The Company and each Purchaser hereby agrees as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement dated as of the date hereof between
the Company and the parties thereto (the "Purchase Agreement") shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 90th calendar day following
the Filing Date and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 60th
calendar day following the date on which the Company first knows, or
reasonably should have known, that such additional Registration Statement
is required hereunder; provided, however, in the event the Company is
notified by the Commission that one of the above Registration Statements
will not be reviewed or is no longer subject to further review and
comments, the Effectiveness Date as to such Registration Statement shall
be the fifth Trading Day following the date on which the Company is so
notified if such date precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the earlier of (i) the 190th calendar day
following the date on which the final registration statement filed
pursuant to the Registration Rights Agreement dated as of the date hereof
among the Company and the several purchasers signatory thereto (the
"Purchasers' Registration Rights Agreement") which registers all remaining
Registrable Securities thereunder is declared effective or (ii) one year
from the Closing Date and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 30th day
following the date on which the Company first
knows, or reasonably should have known that such additional Registration
Statement is required hereunder.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in Section
2(a).
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of
the Registrable Securities covered by a Registration Statement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means, as of the date in question, (i) all
of the shares of Common Stock issued, or shares of Common Stock issuable
upon exercise of options or warrants issued, in each case pursuant to the
Transaction Documents (ii) any additional shares issuable in connection
with any anti-dilution provisions associated with such options or warrants
and (iii) any securities issued or issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to
the foregoing.
"Registration Statement" means the registration statements required
to be filed hereunder and any additional registration statements
contemplated by Section 3(c), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set forth
in Section 3(a).
2. Shelf Registration
(a) On or within 10 calendar days prior to each Filing Date, the
Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering the resale of 130% of the Registrable Securities on
such date for an offering to be made on a continuous basis pursuant to
Rule 415; provided, however, that if 130% of the Registrable Securities
hereunder shall equal or exceed 30% of the issued and outstanding Common
Stock of the Company on the actual filing date of the initial Registration
Statement, the initial Registration Statement shall register a number of
shares of Common Stock which is equal to 30% of the issued and outstanding
shares of Common Stock of the Company on such actual filing date minus
10,000 shares of Common Stock, and the remaining Registrable Securities
shall be subject to Section 3(c). In such event, the number of Registrable
Securities to be registered for each Holder shall be reduced pro-rata
among all Holders and each Holder shall have the right to designate which
of its Registrable Securities shall be omitted from the initial
Registration Statement (i.e. no Warrant Shares and all Conversion Shares).
The Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on
Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith) and shall contain (unless otherwise directed
by at least an 85% majority in interest of the Holders) substantially the
"Plan of Distribution" attached hereto as Annex A. Subject to the terms of
this Agreement, the Company shall use its best commercial efforts to cause
a Registration Statement to be declared effective under the Securities Act
as promptly as possible after the filing thereof, but in any event prior
to the applicable Effectiveness Date, and shall use its best commercial
efforts to keep such Registration Statement continuously effective under
the Securities Act until all Registrable Securities covered by such
Registration Statement have been sold, or may be sold without volume
restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 pm Eastern Time on a
Trading Day. The Company shall immediately notify the Holders via
facsimile of the effectiveness of a Registration Statement on the same
Trading Day that the Company telephonically confirms effectiveness with
the Commission, which shall be the date requested for effectiveness of a
Registration Statement. The Company shall, by 9:30 am Eastern Time on the
Trading Day after the Effective Date (as defined in the Purchase
Agreement), file a final Prospectus with the
Commission as required by Rule 424. Failure to so notify the Holder within
1 Trading Day of such notification of effectiveness or failure to file a
final Prospectus as aforesaid shall be deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act, within five Trading Days of the date
that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that a Registration Statement will not be "reviewed," or
not subject to further review, or (iii) prior to its Effectiveness Date,
the Company fails to file a pre-effective amendment and otherwise respond
in writing to comments made by the Commission in respect of such
Registration Statement within 10 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required
in order for a Registration Statement to be declared effective, or (iv) a
Registration Statement filed or required to be filed hereunder is not
declared effective by the Commission by its Effectiveness Date, or (v)
after the Effectiveness Date, a Registration Statement ceases for any
reason to remain continuously effective as to all Registrable Securities
for which it is required to be effective, or the Holders are otherwise not
permitted to utilize the Prospectus therein to resell such Registrable
Securities for more than 15 consecutive calendar days or more than an
aggregate of 20 calendar days during any 12-month period (which need not
be consecutive calendar days) (any such failure or breach being referred
to as an "Event", and for purposes of clause (i) or (iv) the date on which
such Event occurs, or for purposes of clause (ii) the date on which such
five Trading Day period is exceeded, or for purposes of clause (iii) the
date which such 10 calendar day period is exceeded, or for purposes of
clause (v) the date on which such 15 or 20 calendar day period, as
applicable, is exceeded being referred to as "Event Date"), then in
addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of
each such Event Date (if the applicable Event shall not have been cured by
such date) until the applicable Event is cured, the Company shall pay to
each Holder an amount in cash, as partial liquidated damages and not as a
penalty, equal to $0.01 for each Registrable Security then held by such
Holder. If the Company fails to pay any partial liquidated damages
pursuant to this Section in full within seven days after the date payable,
the Company will pay interest thereon at a rate of 18% per annum (or such
lesser maximum amount that is permitted to be paid by applicable law) to
the Holder, accruing daily from the date such partial liquidated damages
are due until such amounts, plus all such interest thereon, are paid in
full. The partial liquidated damages pursuant to the terms hereof shall
apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than 5 Trading Days prior to the filing of each
Registration Statement and not less than one 1 Trading Day prior to the
filing of any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference)
will be subject to the reasonable review of such Holders, and (ii) cause
its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to each Holder to conduct a
reasonable investigation within the meaning of the Securities Act. The
Company shall not file a Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority
of the Registrable Securities shall reasonably object in good faith,
provided that, the Company is notified of such objection in writing no
later than 5 Trading Days after the Holders have been so furnished copies
of a Registration Statement or 1 Trading Day after the Holders have been
so furnished copies of any related Prospectus or amendment or supplement
thereto. Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a
"Selling Shareholder Questionnaire") not less than two Trading Days prior
to the Filing Date or by the end of the fourth Trading Day following the
date on which such Holder receives draft materials in accordance with this
Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms
of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible to any
comments received from the Commission with respect to a Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Holders true and complete copies of all correspondence from
and to the Commission relating to a Registration Statement (provided that
the Company may excise any information contained therein which would
constitute material non-public information as to any Holder which has not
executed a confidentiality agreement with the Company); and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 90% of the number of shares of Common Stock
then registered in a Registration Statement, then the Company shall file
as soon as reasonably practicable but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the resale by
the Holders of not less than 130% of the number of such Registrable
Securities. In addition, in the event that 130% of the Registrable
Securities are not included in the initial Registration Statement as
contemplated by the proviso regarding Registrable Securities in Section
2(a) above, then, upon written request of holders holding at least 51% of
the then outstanding Registrable Securities, the Company shall file as
soon as reasonably practicable, but in no event earlier than six months
after the Effective Date of the initial Registration Statement, an
additional Registration Statement covering the resale by the Holders of
not less than the difference between 130% of the Registrable Securities
and the number of Registrable Securities included in the initial
Registration Statement, or such lesser number of shares as may then be
permitted under any then-applicable rules or unwritten staff positions of
the Commission.
(d) Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (iii) through (vi) hereof, be
accompanied by an instruction to suspend the use of the Prospectus until
the requisite changes have been made) as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than 1 Trading Day prior to
such filing) and (if requested by any such Person) confirm such notice in
writing no later than one Trading Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such
Registration Statement; and (C) with respect to a Registration Statement
or any post-effective amendment, when the same has become effective; (ii)
of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) 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; (v) of the occurrence of any event or
passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement
made in a 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 a Registration
Statement, Prospectus or other documents so that, in the case of a
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; and (vi) the occurrence or existence
of any pending corporate development with respect to the Company that the
Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus; provided
that any and all of such information shall remain confidential to each
Holder until such information otherwise becomes public, unless disclosure
by a Holder is required by law; provided, further, notwithstanding each
Holder's agreement to keep such information confidential, the Holders make
no acknowledgement that any such information is material, non-public
information.
(e) Use its best commercial efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable
moment.
(f) Furnish to each Holder, without charge, at least one conformed
copy of each such Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated
or deemed to be incorporated therein by reference to the extent requested
by such Person, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Subject to the terms of this Agreement, the Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(d).
(h) If NASDR Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale by a Holder, the Company shall (i) make an
Issuer Filing with the NASDR, Inc. Corporate Financing Department pursuant
to proposed NASDR Rule 2710(b)(10)(A)(i), (ii) respond within five Trading
Days to any comments received from NASDR in connection therewith, and
(iii) pay the filing fee required in connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder, use
its commercially reasonable efforts to register or qualify or cooperate
with the selling Holders in connection with the registration or
qualification (or exemption from the Registration or qualification) of
such Registrable Securities for the resale by the Holder under the
securities or Blue Sky laws of such jurisdictions within the United States
as any Holder reasonably requests in writing, to keep each registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things reasonably necessary to
enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement;
provided, that the Company shall not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified, subject
the Company to any material tax in any such jurisdiction where it is not
then so subject or file a general consent to service of process in any
such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free, to
the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request.
(k) Upon the occurrence of any event contemplated by this Section 3,
as promptly as reasonably possible under the circumstances taking into
account the Company's good faith assessment of any adverse consequences to
the Company and its stockholders of the premature disclosure of such
event, prepare a supplement or amendment, including a post-effective
amendment, to a Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither a Registration Statement nor such Prospectus
will 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, in light of the circumstances under which they were
made, not misleading. If the Company notifies the Holders in accordance
with clauses (iii) through (vi) of Section 3(d) above to suspend the use
of any Prospectus until the requisite changes to such Prospectus have been
made, then the Holders shall suspend use of such Prospectus. The Company
will use its best commercial efforts to ensure that the use of the
Prospectus may be resumed as promptly as is practicable. The Company shall
be entitled to exercise its right under this Section 3(k) to suspend the
availability of a Registration Statement and Prospectus, subject to the
payment of partial liquidated damages pursuant to Section 2(b), for a
period not to exceed 60 calendar days (which need not be consecutive days)
in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the
natural persons thereof that have voting and dispositive control over the
Shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such information
within three Trading Days of the Company's request, any liquidated damages
that are accruing at such time as to such Holder only shall be tolled and
any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until
such information is delivered to the Company.
(n) The Company agrees to list the Registrable Securities on The
Nasdaq Capital Market or any applicable exchange on which the Common Stock
is then listed for trading.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (A) with respect to
filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, (B) in compliance with applicable state securities
or Blue Sky laws reasonably agreed to by the Company in writing (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities) and (C) if not previously paid by the Company in connection with an
Issuer Filing, with respect to any filing that may be required to be made by
any broker through which a Holder intends to make sales of Registrable
Securities with NASD Regulation, Inc. pursuant to the NASD Rule 2710, so long
as the broker is receiving no more than a customary brokerage commission in
connection with such sale, (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a majority of the Registrable Securities included in a
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, members, partners, agents,
brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin
call of Common Stock), investment advisors and employees (and any other
Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of
such title or any other title) of each of them, each Person who controls
any such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, members,
shareholders, partners, agents and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to (1)
any untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were
made) not misleading, or (2) any violation or alleged violation by the
Company of the Securities Act, Exchange Act or any state securities law,
or any rule or regulation thereunder, in connection with the performance
of its obligations under this Agreement, except to the extent, but only to
the extent, that (i) such untrue statements or omissions arise out of or
are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed
and expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or in
any amendment or supplement thereto (it being understood that the Holder
has reviewed and approved Annex A hereto for this purpose) or (ii) in the
case of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 6(d). The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and
against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder's failure to comply with the prospectus
delivery requirements of the Securities Act or (y) any untrue or alleged
untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of
or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein
not misleading (i) to the extent, but only to the extent, that
such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for
inclusion in such Registration Statement or such Prospectus or (ii) to the
extent that such information relates to such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement (it being understood that the Holder has reviewed and approved
Annex A hereto for this purpose), such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (ii) in the case
of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 6(d). In no event shall the
liability of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have
prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any
such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and
the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist
if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not
have the right to assume the defense thereof and the reasonable fees and
expenses of no more than one separate counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for
any settlement of any such Proceeding effected without its written
consent, which consent shall not be unreasonably withheld or delayed. No
Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release
of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and
expenses of the Indemnified Party (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party; provided, that
the Indemnified Party shall promptly reimburse the Indemnifying Party for
that portion of such fees and expenses applicable to such actions for
which such Indemnified Party is judicially determined to be not entitled
to indemnification hereunder.
(d) Contribution. If the indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party
shall contribute to the amount paid or payable by such Indemnified Party,
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in this Agreement,
any reasonable attorneys' or other fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, except in the case of fraud by
such Holder.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their respective obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or
shall waive the defense that a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the initial Registration Statement other than
the Registrable Securities. Other than the registration statement required
pursuant to the Purchasers' Registration Rights Agreement, the Company
shall not file any other registration statements until the initial
Registration Statement required hereunder is declared effective by the
Commission, provided that this Section 6(b) shall not prohibit the Company
from filing amendments to registration statements already filed.
(c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition
of Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Section 3(d)(iii)
through (vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under a Registration Statement until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus (as it may have been supplemented or amended) may be resumed.
The Company will use its best commercial efforts to ensure that the use of
the Prospectus may be resumed as promptly as it practicable. The Company
agrees and acknowledges that any periods during which the Holder is
required to discontinue the
disposition of the Registrable Securities hereunder shall be subject to
the provisions of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of
the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of
any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating
to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such determination
and, if within fifteen days after the date of such notice, any such Holder
shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered, subject to customary underwriter
cutbacks applicable to all holders of registration rights; provided,
however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are eligible for
resale pursuant to Rule 144(k) promulgated under the Securities Act or
that are the subject of a then effective Registration Statement.
(f) Amendments and Waivers. 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 same shall be in writing and signed by
the Company and each Holder of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of
all of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be
delivered as set forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign (except by merger) its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable
Securities. Each Holder may assign their respective rights hereunder in
the manner and to the Persons as permitted under the Purchase Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its Subsidiaries, on or after the date of this Agreement, enter
into any agreement with respect to its securities, that would have the
effect of impairing the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as set forth on
Schedule 6(i), neither the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights
with respect to any of its securities to any Person that have not been
satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission or by
e-mail delivery of a ".pdf" format data file, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such
facsimile or ".pdf" signature page were an original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined in accordance with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any other remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience
only, do not constitute a part of this Agreement and shall not be deemed
to limit or affect any of the provisions hereof.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Holder
pursuant hereto or thereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Holders are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Holder shall be entitled to protect and enforce its
rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined
as an additional party in any proceeding for such purpose.
********************
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
▇▇▇▇▇▇ ELECTRONICS, INC.
By:____________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO HRVE RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
ANNEX A
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common stock
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the Nasdaq Capital
Market or any other stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the effective date of
the registration statement of which this prospectus is a part;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with NASDR Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
Annex B
▇▇▇▇▇▇ ELECTRONICS, INC.
Selling Securityholder Notice and Questionnaire
The undersigned beneficial owner of common stock, par value $.01 per share
(the "Common Stock"), of ▇▇▇▇▇▇ Electronics, Inc., a New York corporation (the
"Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities
Act of 1933, as amended (the "Securities Act"), of the Registrable Securities,
in accordance with the terms of the Registration Rights Agreement, dated as of
March __, 2006 (the "Registration Rights Agreement"), among the Company and the
Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are
advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the
Registration Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities
owned by it and listed below in Item 3 (unless otherwise specified under such
Item 3) in the Registration Statement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities Listed in Item 3 below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a natural
person who directly or indirectly alone or with others has power to
vote or dispose of the securities covered by the questionnaire):
--------------------------------------------------------------
2. Address for Notices to Selling Securityholder:
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Telephone:
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Fax:
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Contact Person:
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3. Beneficial Ownership of Registrable Securities:
(a) Type and Number of Registrable Securities beneficially owned (not
including the Registrable Securities that are issuable pursuant to
the Purchase Agreement):
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----------------------------------------------------------------------
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4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable Securities
as compensation for investment banking services to the Company.
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of business,
and at the time of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:
----------------------------------------------------------------------
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6. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of 5%
of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
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----------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
---------------------- --------------------------------
By:
---------------------------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO: