REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of
December 14, 2004 by and among (i) EP MedSystems, Inc., a New Jersey corporation
(the "COMPANY"), (ii) each purchaser of Common Stock (as defined below) pursuant
to the Stock Purchase Agreement (as defined below) (collectively, the
"INVESTORS" and each individually, an "INVESTOR"), and (iii) each person or
entity that subsequently becomes a party to this Agreement pursuant to, and in
accordance with, the provisions of Section 12 hereof (each an "INVESTOR
PERMITTED TRANSFEREE" and collectively, the "INVESTOR PERMITTED TRANSFEREES");
WHEREAS, the Company has agreed to issue and sell to the Investors, and
the Investors have agreed to purchase from the Company up to an aggregate of
1,500,000 shares (the "PURCHASED SHARES") of the Company's common stock, no par
value, $0.001 stated value per share (the "COMMON STOCK"), all upon the terms
and conditions set forth in that certain Common Stock Purchase Agreement, dated
of even date herewith, between the Company and the Investors (the "STOCK
PURCHASE AGREEMENT"); and
WHEREAS, the terms of the Stock Purchase Agreement provide that it
shall be a condition precedent to the closing of the transactions thereunder,
for the Company and the Investors to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the meanings provided therefor
below or elsewhere in this Agreement as described below:
"AFFILIATE" of a party means any other Person controlling,
controlled by or under common control with the specified Person. For the
purposes of this definition, "CONTROL" means the power to direct the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
"BOARD" shall mean the board of directors of the Company.
"CLOSING" shall have the meaning ascribed to such term in the
Stock Purchase Agreement.
"CLOSING DATE" shall have the meaning ascribed to such term in
the Stock Purchase Agreement.
"EFFECTIVENESS DEADLINE" shall be one hundred twenty (120)
days after the Closing Date or, in the event of a review of the Registration
Statement by the SEC, one hundred thirty five (135) days after the Closing Date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and all of the rules and regulations promulgated thereunder.
"FILING DATE DEADLINE" shall be thirty (30) days after the
Closing Date.
"INVESTORS" shall mean, collectively, the Investors and the
Investor Permitted Transferees; provided, however, that the term "INVESTORS"
shall not include any of the Investors or any of the Investor Permitted
Transferees that ceases to own or hold any Purchased Shares.
"MAJORITY HOLDERS" shall mean, at the relevant time of
reference thereto, those Investors holding more than fifty percent (50%) of the
Registrable Shares held by all of the Investors.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"PERSON" shall mean an individual, corporation, company,
partnership, firm, association, joint venture, trust, unincorporated
organization, government, governmental body, agency, political subdivision or
other entity.
"QUALIFYING HOLDER" shall have the meaning ascribed thereto in
Section 12 hereof.
"REGISTRABLE SHARES" shall mean (i) the Purchased Shares, (ii)
any shares of Common Stock issued pursuant to Section 3(e) or Section 3(f)
hereof and (iii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is issued
as) a dividend or other distribution (including a stock split or reverse stock
split) with respect to, or in exchange for, or in replacement of, the shares of
Common Stock referred to in clause (i) or (ii) of this definition.
"RULE 144" shall mean Rule 144 promulgated under the
Securities Act and any successor or substitute rule, law or provision.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and all of the rules and regulations promulgated thereunder.
2. EFFECTIVENESS; TERMINATION. This Agreement shall become effective
and legally binding only if the Closing occurs. This Agreement shall terminate
and be of no further force or effect, automatically and without any action
being required of any party hereto, upon the termination of the Stock
Purchase Agreement pursuant to Section 7 thereof. Nothing contained herein
or in any agreement or document relating to this transaction, and no action
taken by any Investor, shall be deemed to constitute the Investors as, or
to create any presumption that the Investors are in any way acting in
concert or as, a group with respect to the obligations or transaction
hereunder. Each Investor shall be entitled to independently protect and
enforce its rights hereunder.
3. REGISTRATION.
(a) As soon as practicable, but in no event later than the Filing
Date Deadline, the Company shall prepare and file with the SEC a registration
statement on Form S-3 for the purpose of registering under the Securities
Act all of the Registrable Shares for resale by, and for the account of,
the Investors as selling stockholders thereunder (the "REGISTRATION
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STATEMENT", which term, for purposes of Section 5 hereof, shall include
each Piggyback Registration Statement (as defined below)). The Registration
Statement shall permit the Investors to offer and sell, on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, any or all
of the Registrable Shares. The Company shall use all commercially
reasonable efforts to cause the Registration Statement to be declared
effective after 5:00 p.m. as promptly as possible after filing, but in no
event later than the Effectiveness Deadline, and shall be required to keep
the Registration Statement effective until such date that is the earlier of
(i) the second anniversary of the effective date of such Registration
Statement; and (ii) the date on which the Shares can be sold by
non-affiliates of the Company without registration under Rule 144(k)
promulgated under the Securities Act (the "MANDATORY REGISTRATION
TERMINATION DATE"). Thereafter, the Company shall be entitled to withdraw
the Registration Statement and the Investors shall have no further right to
offer or sell any of the Registrable Shares pursuant to the Registration
Statement (or any Prospectus relating thereto). The Company will timely
file a Form D in accordance with the provisions of Regulation D promulgated
by the SEC under the Securities Act with respect to the transactions
contemplated by Stock Purchase Agreement and this Agreement.
(b) Unless otherwise agreed to by the Company and the Investors,
the offer and sale of the Registrable Shares pursuant to the Registration
Statement shall not be underwritten.
(c) The Company represents and warrants that, as of the date of
this Agreement, it meets the requirements for the use of Form S-3 for
registration of the resale by the Investors of the Registrable Shares, and it
will use its commercially reasonable efforts to continue to meet such
requirements during the period in which it takes to have the Registration
Statement declared effective.
(d) The Company shall cause all of the Registrable Shares to be
listed on the Nasdaq SmallCap Market.
(e) This Section 3(e) shall apply to the Company's obligation
under Section 3(a) hereof to file the Registration Statement with the SEC and to
cause such Registration Statement to become effective. Subject to the provisions
below, the Company and Investors agree that the Investors will suffer
damages if the Registration Statement is not declared effective by the SEC,
subject to receipt of the necessary information from the Investors, on or
prior to the Effectiveness Deadline. The Company and the Investors further
agree that it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (i) the Registration Statement is not filed
on or prior to the Filing Date Deadline; or (ii) the Registration Statement
is not declared effective prior to the Effectiveness Deadline (unless, in
each case, an Event results, directly or indirectly, from any act of war or
terrorism) (each of the events listed in (i)-(ii) above being referred to
as an "EVENT"), then the Company shall pay to each Investor as liquidated
damages for any such failure and not as a penalty an amount equal to 1.0%
of the purchase price for the Shares purchased by such Investor pursuant to
the Stock Purchase Agreement for each full thirty (30) day period following
an Event until such Event has been cured. Such Liquidated Damages (as
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defined below) shall be payable monthly, at the election of the Company, in
(x) cash by wire transfer of immediately available funds or (y) that number
of shares of Common Stock equal to (A) the amount owed to such Investor in
Liquidated Damages pursuant to this Section 3(f) divided by (B) $3.00
(rounding down to the nearest whole share). If the Company is required to
issue any additional shares of Common Stock pursuant to the foregoing, the
Company shall include those shares in the Registration Statement; provided,
however, in no event shall the number of shares issuable on account of the
occurrence of Events and/or a lapse in the effectiveness of the
Registration Statement as provided herein, plus the shares issued to
Investors pursuant to the Stock Purchase Agreement exceed 19.99% of the
Company's issued and outstanding stock as of the date hereof.
(f) Subject to the provisions below, and except for time periods
during which the effectiveness of the Registration Statement may be suspended
as provided in Section 11 hereof, should the effectiveness of the Registration
Statement or the Prospectus included therein (the "PROSPECTUS") lapse for
any reason while the Company has any obligation to maintain such
Registration Statement and Prospectus or the Registration Statement or
Prospectus ceases to be usable for any reason, and the Company does not
cure such lapse in effectiveness or other reason, within fifteen (15)
business days (the "CURE PERIOD") by a post-effective amendment to the
Registration Statement, a supplement to the Prospectus or a report filed
pursuant to the Exchange Act that cures such lapse, the Company shall pay
each Investor damages from the period from and including the first day
following the expiration of the Cure Period until, but excluding, the
earlier of (1) the date in which such failure is cured and (2) the date
which is fifteen (15) months following the Closing Date, at a rate equal to
1% per annum (pro rata on a 360 day basis) of the total purchase price for
the Purchased Shares purchased by each Investor pursuant to the Stock
Purchase Agreement. Such Liquidated Damages (as defined below) shall be
payable monthly, at the election of the Company, in (x) cash by wire
transfer of immediately available funds or (y) that number of shares of
Common Stock equal to (A) the amount owed to such Investor in Liquidated
Damages pursuant to this Section 3(f) divided by (B) $3.00 (rounding down
to the nearest whole share).
(g) For purposes of Section 3(e) and Section 3(f), the amounts
payable by the Company under this Agreement are referred to collectively herein
as "LIQUIDATED DAMAGES". In any event, no Liquidated Damages shall accrue
after the fifteen (15) month anniversary of the Closing Date. The parties
agree that the Liquidated Damages represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of
damages that may be incurred by the Investors if the Registration Statement
is not filed on or prior to the Filing Date Deadline or has not been
declared effective by the SEC on or prior to the Effectiveness Deadline or
if there is a lapse in the effectiveness of the Registration Statement or
Prospectus or if the Registration Statement or Prospectus ceases to be
usable.
4. "PIGGYBACK" REGISTRATION RIGHTS.
(a) If, at any time after the Mandatory Registration Termination
Date, the Company proposes to register any of its Common Stock under the
Securities Act, whether as a result of a primary or secondary offering of Common
Stock or pursuant to registration rights granted to holders of other securities
of the Company (but excluding in all cases any registrations to be effected
on Forms S-4 or S-8 or other applicable successor forms), the Company
shall, each such time, give to the Investors holding Registrable Shares
written notice of its intent to do so. Upon the written request of any such
Investor given within 20 days after the giving of any such notice by the
Company, the Company shall use reasonable efforts to cause to be included
in such registration the Registrable Shares of such Investor, to the extent
requested to be registered; provided that (1) the number of Registrable
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Shares proposed to be sold by such Investor is equal to at least
twenty-five percent (25%) of the total number of Registrable Shares then
held by such participating Investor, (ii) such Investor agrees to sell
those of its Registrable Shares to be included in such registration in the
same manner and on the same terms and conditions as the other shares of
Common Stock which the Company proposes to register and (iii) if the
registration is to include shares of Common Stock to be sold for the
account of the Company or any party exercising demand registration rights
pursuant to any other agreement with the Company in an underwritten
offering, the proposed managing underwriter does not advise the Company
that in its opinion the inclusion of such Investor's Registrable Shares
(without any reduction in the number of shares to be sold for the account
of the Company or such party exercising demand registration rights) is
likely to materially and adversely affect the success of the offering or
the price that would be received for any shares of Common Stock offered, in
which case the rights of such Investor shall be as provided in Section 4(b)
hereof.
(b) If a registration pursuant to Section 4(a) hereof involves an
underwritten offering and the managing underwriter shall advise the Company in
writing that, in its opinion, the number of shares of Common Stock requested by
the Investors to be included in such registration is likely to materially and
adversely affect the success of the offering or the price that would be
received for any shares of Common Stock offered in such offering, then,
notwithstanding anything in Section 4(a) to the contrary, the Company shall
only be required to include in such registration, to the extent of the
number of shares of Common Stock which the Company is so advised can be
sold in such offering, (i) first, the number of shares of Common Stock
proposed to be included in such registration for the account of the Company
and/or any stockholders of the Company (other than the Investors) that have
exercised demand registration rights, in accordance with the priorities, if
any, then existing among the Company and/or such stockholders of the
Company with registration rights (other than the Investors), and (ii)
second, the shares of Common Stock requested to be included in such
registration by all other stockholders of the Company who have piggyback
registration rights (including, without limitation, the Investors), pro
rata among such other stockholders (including, without limitation, the
Investors) on the basis of the number of shares of Common Stock that each
of them requested to be included in such registration.
(c) In connection with any offering involving an underwriting of
shares under this Section 4, the Company shall not be required under this
Section 4 or otherwise to include the Registrable Shares of any Investor therein
unless such Investor accepts and agrees to the terms of the underwriting, which
shall be reasonable and customary, as agreed upon between the Company and
the underwriters selected by the Company.
5. OBLIGATIONS OF THE COMPANY. In connection with the Company's
obligation under Sections 3 and 4, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC such amendments and supplements
to the Registration Statement and the Prospectus as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all Registrable Shares covered by the Registration Statement; provided,
however, that before filing a registration statement or Prospectus or any
amendments or supplements thereto, or comparable statements under
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securities or blue sky laws of any jurisdiction, the Company will furnish
to one counsel to be designated by Investors participating in the planned
offering and/or to one additional counsel designated by each Investor
(each, a "DESIGNATED COUNSEL"), copies of the "SELLING SECURITYHOLDER" and
"PLAN OF DISTRIBUTION" sections of such filings, or, at the request of an
Investor, of all such documents proposed to be filed (including all
exhibits thereto), which documents will be subject to the reasonable review
and reasonable comment of such counsel.
(b) Furnish to the Investors such number of copies of the
Prospectus, including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents (including,
without limitation, Prospectus amendments and supplements as are prepared by the
Company in accordance with Section 5(a) above) as the Investors may reasonably
request in order to facilitate the disposition of such Investors' Registrable
Shares.
(c) Promptly notify the Investors, at any time when the Prospectus
relating to the Registration Statement is required to be delivered under the
Securities Act, of the happening of any event (without disclosing the nature or
substance of such event) as a result of which the Prospectus included in or
relating to the Registration Statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and, thereafter, the Company will promptly prepare (and, when completed,
give notice to each Investor) a supplement or amendment to such Prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Shares pursuant to the Registration Statement, such Prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided that upon such
notification by the Company of the foregoing and instructing each Investor
to cease to offer and sell Registrable Shares, each Investor will use
commercially reasonable efforts to cease its offer and sale of Registrable
Shares until the Company has notified the Investors that it has prepared a
supplement or amendment to such Prospectus and delivered copies of such
supplement or amendment to the Investors (it being understood and agreed by
the Company that the foregoing proviso shall in no way diminish or
otherwise impair the Company's obligation to promptly prepare a Prospectus
amendment or supplement as above provided in this Section 5(c) and deliver
copies of same as above provided in Section 5(b) hereof).
(d) Use commercially reasonable efforts to register and qualify
the Registrable Shares covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
appropriate in the opinion of the Company and the managing underwriters, if any,
or if reasonably requested by the Investors; provided that, or unless requested
by an Investor and consented to by the Company (which consent shall not be
unreasonably withheld), the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
and provided further that (notwithstanding anything in this Agreement to
the contrary with respect to the bearing of expenses) if any jurisdiction
in which any of such Registrable Shares shall be qualified shall require
that expenses incurred in connection with the qualification therein of any
such Registrable Shares be borne by the Investors, then the Investors
shall, to the extent required by such jurisdiction, pay their pro rata
share of such qualification expenses.
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(e) Promptly notify (i) each Investor (A) any time when the
Registration Statement, the Prospectus or any Prospectus supplement related
thereto or post effective amendment has been filed, and with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective, and with respect to the Registration Statement, provide
each Investor who has provided its current e-mail address to Counsel to the
Company, a copy of the Prospectus by electronic mail prior to the opening
of trading of the Company's Common Stock on the first business day
following the date on which the Registration Statement has become
effective, (B) of the issuance of any stop order by the SEC suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings by any person to such effect, and promptly use all commercially
reasonable efforts to obtain the release of such suspension, (C) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of any Registrable Shares for sale under the
securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose, (D) when a Prospectus relating to the
registration of the Registrable Shares is required to be delivered under
the Securities Act, or (E) of the happening of any event as a result of
which the Prospectus included, as then in effect, includes any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and (ii)
Designated Counsel of any request by the SEC for amendments or supplements
to the Registration Statement or Prospectus or for additional information.
If the notification relates to an event described in Section 5(c), the
Company shall in accordance with Section 5(a), promptly prepare and furnish
to each Investor, if any, selling Registrable Shares covered by such
registration statement, a reasonable number of copies of a Prospectus
supplemented or amended so that, as thereafter delivered to the purchasers
of such Registrable Shares, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in the light
of the circumstances under which they were made not misleading.
(f) Cause all such Registrable Shares registered pursuant to this
Agreement to be listed on each securities exchange on which similar securities
issued by the Company are then listed, if the listing of such Registrable Shares
is then permitted under the rules of such exchange, or if no similar
securities are then so listed, to either cause all such Registrable Shares
to be listed on a national securities exchange or to secure designation of
all such Registrable Shares as a NASDAQ "NATIONAL MARKET SYSTEM SECURITY"
within the meaning of Rule 11Aa2-1 of the Exchange Act, or failing that,
secure NASDAQ authorization for such Registrable Shares.
(g) Provide a transfer agent and registrar for all Registrable
Shares registered pursuant to this Agreement and a CUSIP number for all such
Registrable Shares, in each case not later than the effective date of
registration and, at the time of the sale of the Registrable Shares
pursuant to an effective Registration Statement or in accordance with
Section 6.3 of the Stock Purchase Agreement, use commercially reasonable
efforts to cause the transfer agent to remove restrictive legends on the
securities covered by such Registration Statement.
(h) Promptly deliver to Designated Counsel copies of all
correspondence between the SEC and the Company, its counsel or auditors and all
memoranda relating to discussions with the SEC or its staff with respect to the
registration statement, other than those portions of any such memoranda that
contain information subject to attorney client privilege with respect to the
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Company, and, upon receipt of such confidentiality agreements as the
Company may reasonably request, make reasonably available for inspection by
Designated Counsel participating in any disposition to be effected pursuant
to the Registration Statement, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all
of the Company's officers, directors and employees to supply all
information reasonably requested by Designated Counsel in connection with
such Registration Statement.
(i) Use commercially reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement.
(j) Upon written request, furnish to each Investor participating
in the offering, without charge, at least one (1) conformed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference).
(k) Comply with all applicable rules and regulations of the SEC,
and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the Registration Statement (and in
any event within sixteen (16) months thereafter), an earnings statement
(which need not be audited) covering the period of at least twelve (12)
consecutive months beginning with the first day of the Company's first
calendar quarter after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement
(including, without limitation, to maintain the accuracy of any information
previously furnished by Investors for use in the Registration Statement) that
the Investors shall furnish to the Company such information regarding them and
the securities held by them as the Company shall reasonably request and as shall
be required by applicable securities laws in order to effect any registration by
the Company pursuant to this Agreement.
7. EXPENSES OF REGISTRATION. All of the expenses incurred by the
Company in connection with the registration of the Registrable Shares
pursuant to this Agreement (excluding underwriting, brokerage and other selling
commissions and discounts), including without limitation, all registration,
qualification and filing fees, printing fees and fees and disbursements of its
counsel and one counsel to the Investors, shall be borne by the Company, whether
or not such Registration Statement becomes effective or remains effective for
the period contemplated hereby.
8. DELAY OF REGISTRATION. No Investor shall take any action to
restrain, enjoin or otherwise delay any registration as the result of any
controversy which might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. For the purposes of this Section 9 and Section 11,
the term "Registration Statement" shall include any preliminary or final
Prospectus, exhibit, supplement or amendment included in or relating to, as
the case may be, the Registration Statement referred to in Section 3(a).
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(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor, its directors, officers, employees, fiduciaries,
members, managers, or general or limited partners (and the directors,
officers, employees and stockholders thereof), any broker/dealer acting on
behalf of any Investor and each officer and director of such Investor or
broker/dealer and each Person, if any, who controls such Investor or
broker/dealer within the meaning of the Securities Act (each, an "INVESTOR
INDEMNIFIED PERSON"), against any losses, claims, damages or liabilities,
joint or several, and expenses (including reasonable counsel fees and
disbursements, any amounts paid in any settlement effected with the
Company's prior written consent) to which they may become subject under the
Securities Act, the Exchange Act, state securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement or in any amendments or supplements to the
Registration Statement or any registration statement pursuant to which
Registrable Shares are registered pursuant to Section 4 hereof (including
any preliminary prospectus or final prospectus relating thereto, any
amendments or supplements thereto and any exhibits thereto, a "PIGGYBACK
REGISTRATION STATEMENT") or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein in light of the
circumstance under which they were made not misleading or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act,
state securities laws or any rule or regulation promulgated under the
Securities Act, the Exchange Act, state securities laws or NASDAQ or (ii)
any failure of the Company to fulfill any undertaking included in the
Registration Statement, or any Piggyback Registration Statement; and will
reimburse such Investor Indemnified Person for any expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action (including reasonable expenses of
legal counsel); provided, however, that the indemnity agreement contained
in this Section 9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, damage, liability or action to the extent that it arises
out of or is based upon an untrue statement or alleged untrue statement or
omission made in connection with the Registration Statement or any
Piggyback Registration Statement in reliance upon and in conformity with
written information furnished expressly for use in connection with the
Registration Statement or any Piggyback Registration Statement by the
Investors. Such indemnity and reimbursement of expenses shall remain in
full force and effect regardless of any investigation made by or on behalf
of such Investor Indemnified Person and shall survive the sale of such
Registrable Shares by such Investor.
(b) To the extent permitted by law, each Investor will severally,
and not jointly, indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the Registration Statement, or any
Piggyback Registration Statement, each person, if any, who controls the
Company within the meaning of the Securities Act, or any broker/dealer
acting on behalf of the Company (a "COMPANY INDEMNIFIED PERSON") against
any losses, claims, damages or liabilities to which the Company or any such
director, officer, controlling person, or broker/dealer may become subject
to, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement or any Piggyback Registration
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Statement or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, in each case to the extent and
only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in the Registration Statement or
any Piggyback Registration Statement, in reliance upon and in conformity
with written information furnished by such Investor expressly for use in
connection with the Registration Statement or any Piggyback Registration
Statement; and such Investor will reimburse any expenses reasonably
incurred by a Company Indemnified Person in connection with investigating
or defending any such loss, claim, damage, liability or action (including
reasonable counsel fees and disbursements); provided, however, that the
liability of each Investor hereunder shall be limited to the proceeds (net
of underwriting discounts and commissions, if any) received by such
Investor from the sale of Registrable Shares covered by the Registration
Statement or Piggyback Registration Statement; as the case may be; and
provided, further, however, that the indemnity agreement contained in this
Section 9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of those Investor(s) against which the request for
indemnity is being made (which consent shall not be unreasonably withheld).
Such indemnity and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of such Company
Indemnified Person and, as relevant, shall survive the sale of such
Registrable Shares by any Investor.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 9, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in and, to the extent the indemnifying party desires, jointly with
any other indemnifying party similarly noticed, to assume at its expense the
defense thereof with counsel mutually satisfactory to the indemnifying parties
with the consent of the indemnified party (which consent will not be
unreasonably withheld, conditioned or delayed). In the event that the
indemnifying party assumes any such defense, the indemnified party may
participate in such defense with its own counsel and at its own expense;
provided, however, that the counsel for the indemnifying party shall act as lead
counsel in all matters pertaining to such defense or settlement of such claim
and the indemnifying party shall only pay for such indemnified party's expenses
for the period prior to the date of its participation on such defense.
(d) If the indemnification provided for in this Section 9 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, or expense in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, claim, damage, liability or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties'
10
relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission. If, however, the allocation
provided in the first sentence of this paragraph is not permitted by
applicable law, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative faults but also the relative
benefits of the indemnifying party and the indemnified party as well as any
other relevant equitable considerations. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section
9(d) were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the preceding sentences of this Section 9(d). The amount
paid or payable in respect of any claim shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending such loss, claim, damage or
liability. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything in this Section 9(d) to the
contrary, no Investor shall be required pursuant to this Section 9(d) to
contribute any amount in excess of the net proceeds received by such
Investor from the sale of Registrable Shares in the offering to which the
loss, claims, damage or liability relates, less the amount of any
indemnification payment previously made by such indemnifying party pursuant
to Section 9(b).
(e) The obligations of the Company and the Investors under this
Section 9 shall survive the completion of any offering of Registrable
Shares pursuant to a Registration Statement or any Piggyback Registration
Statement.
(f) Notwithstanding anything to the contrary herein, the
indemnifying party shall not be entitled to settle any claim, suit or
proceeding unless in connection with such settlement the indemnified party
receives an unconditional release with respect to the subject matter of such
claim, suit or proceeding and such settlement does not contain any admission of
fault by the indemnified party.
10. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 and any other rule or regulation of the
SEC that may at any time permit the Investors to sell the Purchased Shares
to the public without registration, the Company agrees to use commercially
reasonable efforts: (i) to make and keep public information available, as
those terms are understood and defined in the General Instructions to Form
S-3, or any successor or substitute form, and in Rule 144; (ii) to file
with the SEC in a timely manner all reports and other documents required to
be filed by an issuer of securities registered under the Securities Act or
the Exchange Act; (iii) as long as any Investor owns any Purchased Shares,
to furnish in writing upon such Investor's request a written statement by
the Company that it has complied with the reporting requirements of Rule
144 and of the Securities Act and the Exchange Act, and to furnish to such
Investor a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as
may be reasonably requested in availing such Investor of any rule or
regulation of the SEC permitting the selling of any such Purchased Shares
without registration; and (iv) undertake any additional actions reasonably
necessary to maintain the availability of the Registration Statement or the
use of Rule 144.
11
11. DEFERRAL AND LOCK-UP. Notwithstanding anything in this Agreement to
the contrary, if the Company shall furnish to the Investors a certificate
signed by the President or Chief Executive Officer of the Company stating
that the Board of Directors of the Company has made the good faith
determination (i) that continued use by the Investors of the Registration
Statement, or any Piggyback Registration Statement, for purposes of
effecting offers or sales of Registrable Shares pursuant thereto would
require, under the Securities Act, premature disclosure in the Registration
Statement, or any Piggyback Registration Statement of material, nonpublic
information concerning the Company, its business or prospects or any
proposed material transaction involving the Company, (ii) that such
premature disclosure would be materially adverse to the Company, its
business or prospects or any such proposed material transaction or would
make the successful consummation by the Company of any such material
transaction significantly less likely and (iii) that it is therefore
essential to suspend the use by the Investors of such Registration
Statement, or any Piggyback Registration Statement for purposes of
effecting offers or sales of Registrable Shares pursuant thereto, then the
right of the Investors to use the Registration Statement, or any Piggyback
Registration Statement for purposes of effecting offers or sales of
Registrable Shares pursuant thereto shall be suspended for not more than
thirty (30) days at one time and on no more than two occasions in the
aggregate (the "SUSPENSION PERIOD(S)") after delivery by the Company of the
certificate referred to above in this Section 11. Such 30-day periods shall
be at least two business days apart. In no event, however, will any
suspension be any longer than is reasonably necessary to avoid the adverse
effect. During any Suspension Period, none of the Investors shall offer or
sell any Registrable Shares publicly pursuant to or in reliance upon the
Registration Statement, or the Prospectus, or any Piggyback Registration
Statement (or the prospectus relating thereto).
12. TRANSFER OF REGISTRATION RIGHTS. None of the rights of any Investor
under this Agreement shall be transferred or assigned to any person unless (i)
such person is a Qualifying Holder (as defined below), and (ii) such person
agrees to become a party to, and bound by, all of the terms and conditions
of, this Agreement by duly executing and delivering to the Company an
Instrument of Adherence in the form attached as Exhibit B hereto. For
purposes of this Section 12, the term "QUALIFYING HOLDER" shall mean, with
respect to any Investor, (i) any Affiliate of an Investor, or (ii) any
other direct transferee from an Investor of at least 100,000 Purchased
Shares that are held on the date hereof by such Investor. None of the
rights of any Investor under this Agreement shall be transferred or
assigned to any person (including, without limitation, a Qualifying Holder)
that acquires Registrable Shares in the event that and to the extent that
such person is eligible to resell such Registrable Shares pursuant to Rule
144(k) of the Securities Act or may otherwise resell such Registrable
Shares pursuant to an exemption from the registration provisions of the
Securities Act.
13. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Majority Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such
holder or prospective holder to include such securities in any Piggyback
Registration Statement unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of the securities of
such holder or prospective holder will not reduce the amount of the
Registrable Shares which the Investors wish to include in such Registration
Statement.
12
14. NO REQUIRED SALE. Nothing in this Agreement shall be deemed to
create an independent obligation on the part of any Investor to sell any
Registrable Shares pursuant to any effective registration statement.
15. NOMINEES FOR BENEFICIAL OWNERS. If Registrable Shares are held by
a nominee for the beneficial owner thereof, the beneficial owner thereof may, at
its option, be treated as the holder of such Registrable Shares for purposes of
any request or other action by any Investor pursuant to this Agreement (or
any determination of any number or percentage of shares constituting
Registrable Shares held by any Investor contemplated by this Agreement);
provided that the Company shall have received assurances reasonably
satisfactory to it of such beneficial ownership.
16. ENTIRE AGREEMENT. This Agreement and exhibits attached hereto and
incorporated herewith constitute and contain the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
supersedes any and all prior negotiations, correspondence, agreements or
understandings with respect to the subject matter hereof and supercedes all
prior agreements, negotiations, understandings, representations and
statements respecting the subject matter hereof, whether oral or written.
17. AGREEMENT WITH RESPECT TO SALES OF COMMON STOCK. Each Investor will
not, and will cause each of its affiliates and any person acting on its or their
behalf not to, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the shares of Common Stock, except in
compliance with the Securities Act, applicable state securities laws and
the respective rules and regulations promulgated thereunder.
18. MISCELLANEOUS.
(a) AMENDMENT. No amendment, modification, alteration, waiver
or change in any of the terms of this Agreement shall be valid or binding upon
the parties hereto unless made in writing and duly executed by the Company and
the holders of at least 66 2/3% of the Registrable Shares held by all of the
Investors; provided, however, that in each case, no such amendment shall
increase the obligations of any Investor without such Investor's written
consent.
(b) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to any conflicts of laws concepts that would apply the laws
of another jurisdiction.
(c) ASSIGNMENT. The rights and obligations of the parties
hereto shall inure to the benefit of, and shall be binding upon the authorized
successors and permitted assigns of each party; provided that the terms and
conditions of Section 12 hereof are satisfied. This Agreement shall also be
binding upon and inure to the benefit of any transferee `of any of the Purchased
Shares; provided the terms and conditions of Section 12 hereof are satisfied.
Notwithstanding anything in this Agreement to the contrary, if at any time
any Investor shall cease to own any Registrable Shares, all of such
13
Investor's rights under this Agreement shall immediately terminate;
provided, however, that if such Investor ceases to own Registrable Shares
because all or a portion of such shares were sold pursuant to the
Registration Statement or a Piggyback Registration Statement, then such
Investor shall continue to have the rights and obligations set forth in
Section 9 hereof, as provided in Section 9(e) hereof. In the event of any
assignment by an Investor in accordance with the terms of this Agreement,
the assignee shall specifically assume and be bound by the provisions of
the Agreement by executing the Instrument of Adherence attached hereto as
Exhibit B.
(d) SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that damages will not be an adequate remedy for any
material breach or violation of this Agreement if such material breach or
violation would cause immediate and irreparable harm (an "IRREPARABLE BREACH").
Accordingly, in the event of a threatened or ongoing Irreparable Breach,
each party hereto shall be entitled to seek, in any state or federal court
in the State of New York, equitable relief of a kind appropriate in light
of the nature of the ongoing or threatened Irreparable Breach, which relief
may include, without limitation, specific performance or injunctive relief;
provided, however, that if the party bringing such action is unsuccessful
in obtaining the relief sought, the moving party shall pay the non-moving
party's costs, including actual attorney's fees, incurred in connection
with defending such action. Such remedies shall not be the parties'
exclusive remedies, but shall be in addition to all other remedies provided
in this Agreement.
(e) NOTICE. Any notices, reports or other correspondence
(hereinafter collectively referred to as "CORRESPONDENCE") required or permitted
to be given hereunder shall be sent by courier (overnight or same day) or
facsimile or delivered by hand to the party to whom such correspondence is
required or permitted to be given hereunder. The date of giving any notice
shall be the date of its actual receipt.
(i) All Correspondence to the Company shall be
addressed as follows:
EP MedSystems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President and Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) All Correspondence to any Investor shall be sent to
such Investor at the address set forth in Exhibit A.
(iii) Any Person may change the address to which
correspondence to it is to be addressed by notification as provided for herein.
(f) WAIVER. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or be construed as, a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term,
provision or condition of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS)
15
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date and year first above written.
EP MEDSYSTEMS, INC.
By: /s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President and Chief Executive Officer
THE INVESTOR'S SIGNATURE TO THE INVESTOR QUESTIONNAIRE DATED EVEN DATE HEREWITH
SHALL CONSTITUTE THE INVESTOR'S SIGNATURE TO THIS REGISTRATION RIGHTS AGREEMENT.
16
EXHIBIT A
-----------
INVESTORS
NUMBER OF SHARES
PURCHASER ADDRESS TO BE PURCHASED
--------- ------- ---------------
Crestview Capital Master LLC ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇,▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SF Capital Partners Ltd. c/▇ ▇▇▇▇▇ Offshore Management, LLC 750,000
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
17
EXHIBIT B
INSTRUMENT OF ADHERENCE
Reference is hereby made to that certain Registration Rights Agreement,
dated as of December 14, 2004, among EP MedSystems, Inc., a New Jersey
corporation (the "COMPANY"), the Investors and the Investor Permitted
Transferees, as amended and in effect from time to time (the "REGISTRATION
RIGHTS AGREEMENT"). Capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Registration Rights Agreement.
The undersigned, in order to become the owner or holder of ___________
shares of Company common stock, no par value, $0.001 stated value per share (the
"COMMON STOCK"), hereby agrees that, from and after the date hereof, the
undersigned has become a party to the Registration Rights Agreement in the
capacity of an Investor Permitted Transferee, and is entitled to all of the
benefits under, and is subject to all of the obligations, restrictions and
limitations set forth in, the Registration Rights Agreement that are applicable
to Investor Permitted Transferees. This Instrument of Adherence shall take
effect and shall become a part of the Registration Rights Agreement immediately
upon execution.
Executed under seal as of the date set forth below under the laws of
the State of New York.
Signature:
--------------------------------
Name:
---------------------------
Title:
--------------------------
Accepted:
EP MEDSYSTEMS, INC.
By:
-----------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Date:
-----------------------------------------------------
18
TABLE OF CONTENTS
PAGE
1. Definitions...........................................................1
2. Effectiveness; Termination............................................2
3. Registration..........................................................2
4. "Piggyback" Registration Rights.......................................4
5. Obligations of the Company............................................5
6. Furnish Information...................................................7
7. Expenses of Registration..............................................7
8. Delay of Registration.................................................8
9. Indemnification.......................................................8
10. Reports under the Exchange Act.......................................11
11. Deferral and Lock-up.................................................11
12. Transfer of Registration Rights......................................12
13. Limitations on Subsequent Registration Rights........................12
14. No Required Sale.....................................................12
15. Nominees for Beneficial Owners.......................................12
16. Entire Agreement.....................................................13
17. Agreement with Respect to Sales of Common Stock......................13
18. Miscellaneous........................................................13
Exhibit A.....................................................................17
Exhibit B.....................................................................18