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Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of August 29, 2002, among Level 8 Systems, Inc., a Delaware corporation
(the "Company"), and the parties who have executed this Agreement and whose
names appear on Schedule I hereto (each party listed on Schedule I hereto is
sometimes individually referred to herein as a "Holder" and all such parties are
sometimes collectively referred to herein as the "Holders").
This Agreement is made pursuant to the Exchange Agreement, dated as of the
date hereof among the Company and the Holders (the "Exchange Agreement").
The Company and the Holders hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Exchange Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" has meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Aggregate Price" has the meaning set forth in Section 2(d).
"AMEX" has the meaning set forth in Section 2(d).
"Average Price" has the meaning set forth in the Certificate of
Designations.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"Certificates of Designations" has the meaning set forth in the Exchange
Agreement.
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"Closing Date" shall mean the Closing Date as such term is defined in the
Exchange Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $0.001 per
share.
"Effectiveness Date" means the earlier of (i) the 120th day following the
Closing Date if filing on Form S-3 is available or, if filing on Form S-3 is
unavailable, the 135th day following the Closing Date, or (ii) the fifth day
after the Company has received notice (written or oral) from the Commission that
the Commission Staff will not be reviewing the Registration Statement or has no
further comments on the Registration Statement, unless the Required Holders
consent in writing to a longer period, such consent not to be unreasonably
withheld.
"Effectiveness Period" has the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Event" has the meaning set forth in Section 2(d).
"Filing Date" means as soon as practicable but in no event (i) later than
the 20th day following the Closing Date if filing on Form S-3 is available or
(ii) if filing on Form S-3 is unavailable, no later than the 45th day following
the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 5(c).
"Indemnifying Party" has the meaning set forth in Section 5(c).
"Initial Registration Statement" has the meaning set forth in Section 2(a).
"Losses" has the meaning set forth in Section 5(a).
"Nasdaq" has the meaning set forth in Section 2(d).
"NYSE" has the meaning set forth in Section 2(d).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's Series A2 Convertible Preferred Stock
and the Company's Series B2 Convertible Redeemable Preferred Stock issuable at
the Closing (as defined in the Exchange Agreement) pursuant to the Exchange
Agreement.
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"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the 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 the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issued or
issuable upon (i) conversion of or with respect to the Preferred Stock, (ii)
payment of dividends or any other payments in respect of the Preferred Stock,
(iii) exercise of the Warrants, (iv) the occurrence of the events set forth in
Article V of the Certificates of Designation (at such time that the shareholders
of the Company have approved an amendment to the Company's Certificate of
Incorporation increasing the authorized shares of Common Stock) and (v) any
shares of the Company's capital stock issued with respect to (i), (ii), (iii) or
(iv) as a result of any stock split, stock dividend, recapitalization, exchange
or similar event or otherwise.
"Registration Delay Payment" has the meaning set forth in Section 2(d).
"Registration Statement" means the Initial Registration Statement and any
additional registration statements contemplated by Sections 2(a), 2(b) and 7(d),
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 in
such registration statement.
"Required Holders" has the meaning set forth in the Certificates of
Designation.
"Rule 144" means Rule 144 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 effect as such Rule.
"Rule 158" means Rule 158 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 effect as such Rule.
"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 effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
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"Special Counsel" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Standstill Notice" has the meaning set forth in Section 2(e).
"Standstill Period" has the meaning set forth in Section 2(e).
"Trading Day" means a day on which Nasdaq (or such other securities market
on which the Common Stock is listed) is open for trading.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants.
"Underwritten Registration or Underwritten Offering" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
"Warrants" means the warrants issuable pursuant to the Exchange Agreement.
2. Registration Requirements
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a Registration Statement (the "Initial Registration Statement")
which shall cover all Registrable Securities for an offering to be made on a
continuous basis pursuant to a "Shelf" registration statement under Rule 415.
The Initial Registration Statement shall be on Form S-3 or any successor form
(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, subject to the reasonable
consent of the original Holders of the Registrable Securities). The Company
shall use its best efforts to cause the Initial Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event on or prior to the Effectiveness Date, and to
keep such Initial Registration Statement continuously effective under the
Securities Act until the date which is four years after the date that such
Initial Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Initial
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144 as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Holders and the Company's transfer
agent to such effect (the "Effectiveness Period"). The number of shares of
Common Stock initially included in the Initial Registration Statement shall be
no less than 100% of the aggregate number of shares of Common Stock that are
then issuable upon conversion of the Preferred Stock (based on the Conversion
Price (as defined in the Preferred Stock ) as would then be in effect at such
time) and the exercise of the Warrants, without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants.
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(b) In addition to the Initial Registration Statement, if the Holders of a
majority of the Registrable Securities covered by a Registration Statement so
elect on or after September 30, 2002, an offering of Registrable Securities
pursuant to such Registration Statement may be effected on no more than two (2)
occasions in the form of an Underwritten Offering of at least one million shares
of Common Stock. In such event, and if the managing underwriters advise the
Company and such Holders in writing that in their opinion the amount of
Registrable Securities proposed to be sold in such Underwritten Offering exceeds
the amount of Registrable Securities which can be sold in such Underwritten
Offering, there shall be included in such Underwritten Offering the amount of
such Registrable Securities which in the opinion of such managing underwriters
can be sold, and such amount shall be allocated pro rata among all selling
security holders proposing to sell securities of the Company in such
Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering, subject to the consent of the Company, which will not
be unreasonably withheld. No Holder may participate in any Underwritten Offering
hereunder unless such Holder (i) agrees to sell its Registrable Securities on
the basis provided in any underwriting agreements approved by the Persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
(d) If (i) the Initial Registration Statement covering all the applicable
Registrable Securities and required to be filed by the Company pursuant to this
Agreement is not (A) filed with the Commission on or before the Filing Date or
(B) declared effective by the Commission on or before the applicable
Effectiveness Date, (ii) on any day after the Registration Statement has been
declared effective by the Commission (A) sales of all the Registrable Securities
required to be included on a Registration Statement cannot be made pursuant to
the Registration Statement (including, without limitation, because of a failure
to keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, or to
register sufficient shares of Common Stock) or (B) the Common Stock (including
the Registrable Securities) is not listed or included for quotation on either
the Nasdaq SmallCap Market or the Nasdaq National Market of the Nasdaq Stock
Market ("Nasdaq"), the New York Stock Exchange ("NYSE") or the American Stock
Exchange (the "AMEX") or (iii) the Company shall otherwise fail to file a
Registration Statement required by Section 2(a), (each such event specified in
(i), (ii) and (iii) above, an "Event"), then, as partial relief for the damages
to any Holder by reason of any such delay in or reduction of its ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
equitable remedies), after a 60-day period commencing on the date of the Event,
the Company shall pay to each Holder an amount in cash (a "Registration Delay
Payment") equal to the aggregate liquidation value of the Preferred Stock (as
determined by reference to the Certificates of Designation) (the "Aggregate
Price") multiplied by .015 times the sum of: (i) the number of months (rounded
upwards to the nearest 30 day increment for partial months) after the end of the
Effectiveness Date and prior to the date the Registration Statement is declared
effective by the Commission, provided, however, that there shall be excluded
from such period any delays which are primarily attributable to changes required
by the Holders in the Registration Statement with respect to information
relating to the Holders, or to the failure of the Holders to conduct their
review of the Registration Statement pursuant to Section 3(a); (ii) the number
of months (rounded upwards to the nearest 30 day increment for partial months)
that sales cannot be made pursuant to the Registration Statement after the
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Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the Prospectus in accordance with the terms of this
Agreement, or otherwise, but excluding when such sales cannot be made solely by
reason of any act or omission primarily attributable to the Holders); and (iii)
the number of months (rounded upwards to the nearest 30 day increment for
partial months) that the Common Stock (including the Registrable Securities) is
not listed or included for quotation on the Nasdaq, NYSE or AMEX or that trading
thereon is halted after the Registration Statement has been declared effective.
The Company shall pay any Required Registration Delay Payments to each Holder in
cash on the last Business Day of each month during which an Event has occurred
and is continuing. In the event the Company fails to make a Registration Delay
Payment in a timely manner, such Registration Delay Payment shall bear interest
at the rate of 1.5% per month (rounded upwards to the nearest 30 day increment
for partial months) until paid in full. No Standstill Period (as defined in
paragraph (e)) shall be included in the period an Event is deemed to be
continuing pursuant to this Section 2(d). Notwithstanding anything in this
Agreement to the contrary, in lieu of cash payment described above during the
sixty (60) day period described below, if the Event is the Company's failure to
file the Initial Registration Statement on or before the Filing Date, the
Company shall issue to the Holders Warrants to purchase additional 59,850 shares
of Common Stock for each 30-day period that passes following the Filing Date up
to a maximum of two such 30-day periods, if the Event is the failure to have the
Registration Statement declared effective on or before the Effectiveness Date,
the Company shall issue to the Holders Warrants to purchase an additonal 59,850
shares of Common Stock for each 30-day period that passes following the
Effectiveness Date up to a maximum of two such 30-day periods. The Warrant
issued to each Holder shall be to purchase a portion of the aggregate number of
shares of Common Stock on a pro rata basis equal to its percentage ownership of
the then outstanding number of shares of Preferred Stock. In the case of an
occurrence on an Event specified in (ii)(B) above, the Holders shall be
obligated to elect to receive the Registration Delay Payments set forth in this
paragraph or, alternatively, the redemption or dividend adjustment set forth in
Section 8.1(f) of the Certificate of Designation and the adjustment set forth in
Section 6(f) in the Warrant. Such election shall be made by the holders of a
majority of the outstanding Preferred Stock (excluding Preferred Stock held by
Affiliates of the Company, other than persons who are Affilates solely as a
result of the Preferred Stock and Warrants held by such person) and the Company
shall not be obligated to effect such payment or adjustment until such election
is made. The Company shall have no liability to any Holder for actions taken in
accordance with such election by the holders of a majority of the Preferred
Stock.
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(e) Notwithstanding anything to the contrary herein, the Company may
delay preparing, filing any Registration Statement, and may withhold efforts to
cause the Registration Statement to become effective, and may delay the filing
of any supplement or amendment if the Company determines in good faith that such
supplement or amendment might, in the reasonable judgment of the Company (i)
interfere with or affect the negotiation or completion of a transaction that is
being contemplated by the Company (whether or not a final decision has been made
to undertake such transaction) or (ii) involve initial or continuing disclosure
obligations that are not in the best interests of the Company's stockholders at
such time; provided however, that (x) the Company will give notice (a
"Standstill Notice") of any such delay no less than five (5) Business Days prior
to such delay (other than an Event specified in Section 2(d)(ii)(B)), (y) such
delay shall not extend for a period of more than fifteen (15) Trading Days
without the written consent of the Holder and (z) the Company may utilize such
delay no more than an aggregate of thirty (30) Trading Days in each calendar
year (each a "Standstill Period"). Each Holder agrees, upon receipt of a
Standstill Notice, forthwith to cease making offers and sales of the Shares
pursuant to any Registration Statement that is effective or deliveries of the
prospectus contained therein and to return to the Company, for modification and
exchange, the copies of such prospectus not theretofore delivered by such
Holder; provided that the Company shall forthwith prepare and deliver to such
Holder after such delay a reasonable number of copies of any supplement to or
amendment of such prospectus that may be necessary so that such prospectus does
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
not misleading in light of the circumstances then existing. No Registration
Delay Payments shall be payable nor any Warrants issued pursuant to Section 2(d)
hereof with respect to any Standstill Period.
3. Registration Procedures
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Subject to Section 2(e), prepare and file with the Commission on or
prior to the Filing Date a Registration Statement on Form S-3 or its successor
form (or if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3 such registration shall be on another
appropriate form in accordance herewith (which shall include a Plan of
Distribution substantially in the form of Exhibit A annexed hereto, unless in
connection with an Underwritten Offering) or in connection with an Underwritten
Offering hereunder, such other form agreed to by the Company and by a
majority-in-interest of Holders of Registrable Securities to be covered by such
Registration Statement) (except if otherwise directed by the Holders), and use
its best efforts to cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that not less than three
(3) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall, if
reasonably practicable (i) furnish to the Holders, their Special Counsel and any
managing underwriters, copies of all such documents proposed to be filed
(including documents incorporated by reference), which documents will be subject
to the review of such Holders, their Special Counsel and such managing
underwriters, and (ii) use its best efforts to 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 such Holders and such underwriters, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities, their
Special Counsel or any managing underwriters shall reasonably object, and will
not request acceleration of such Registration Statement without prior notice to
such counsel and in either event no Registration Delay Payment shall be payable
nor any Warrants issued pursuant to Section 2(d) hereof. The sections of such
Registration Statement covering information with respect to the Holders, the
Holder's beneficial ownership of securities of the Company or the Holders
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Holders.
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(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective 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, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
possible to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; 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 the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
In the event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover 100% of the Registrable
Securities issued or issuable upon conversion of the Preferred Stock and
exercise of the Warrants, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover 100% of the Registrable Securities, in each
case, as soon as practicable, but in any event within twenty (20) Business Days
after the necessity therefor arises (based on the Conversion Price of the
Preferred Stock and other relevant factors on which the Company reasonably
elects to rely). The Company shall use its best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. The provisions of Section 2(d) above shall be
applicable with respect to such obligation, with the time periods specified
therein running from the day after the date on which the Company reasonably
first determines (or reasonably should have determined) the need therefor.
(c) Notify the Holders of Registrable Securities to be sold, their Special
Counsel and any managing underwriters as promptly as possible (and, in the case
of (i)(A) below, not less than three (3) Business Days prior to such filing and,
in the case of (i)(C) below, not later than the first Business Day after
effectiveness) and (if requested by any such Person) confirm such notice in
writing no later than two (2) Business Days following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) 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 the 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
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event that makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the 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.
(e) If requested by any managing underwriter or the Holders of a majority
in interest of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein under applicable law and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel, and any managing
underwriters, upon request and without charge, at least one conformed copy of
each Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, 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) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto; unless the Company notifies the Holders on any event
described in Sections 3(c)(ii) through 3(c)(v).
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify to the extent required or to cooperate with the
selling Holders or any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
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(i) Cooperate with the Holders and any managing underwriters to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to a Registration Statement, which certificates
shall be free, to the extent permitted by applicable law and the Exchange
Agreement, of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such managing
underwriters or Holders may request at least two (2) Business Days prior to any
sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the 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 the 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.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on Nasdaq and any other securities
exchange, quotation system, market or over-the-counter bulletin board, if any,
on which similar securities issued by the Company are then listed as and when
required pursuant to the Exchange Agreement.
(l) In the case of an Underwritten Offering (i) enter into such agreements
(including an underwriting agreement in form, scope and substance as is
customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the Underwritten Offering of such
Registrable Securities, (ii) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(iii) obtain and deliver copies thereof to the managing underwriters, if any, or
in the case of non-Underwritten Offerings, if reasonably requested by the
selling Holders, to use its best efforts to obtain and deliver copies thereof to
such selling Holders, of opinions of counsel to the Company and updates thereof
addressed to each such underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special Counsel to the
selling Holders covering the matters customarily covered in opinions requested
in Underwritten Offerings and such other matters as may be reasonably requested
by such Special Counsel and underwriters; (iv) immediately prior to the
effectiveness of the Registration Statement, at the time of delivery of any
Registrable Securities sold pursuant thereto, and, in the case of
non-Underwritten Offerings, at such time as the selling Holders may reasonably
request, to use its best efforts to obtain and deliver copies to the Holders and
the managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
required, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
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statements and financial data is, or is required to be, included in the
Registration Statement), addressed to each of the underwriters, if any, in form
and substance as are customary in connection with Underwritten Offerings; (v) if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or such
other provisions and procedures acceptable to the managing underwriters, if any,
and holders of a majority of Registrable Securities participating in such
Underwritten Offering; and (vi) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(1)(ii) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and no more than two (2) law firms and one accounting
firm retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case reasonably
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided, however,
that if any information is determined in good faith by the Company in writing to
be of a confidential nature at the time of delivery of such information, then
prior to delivery of such information, the Company and the Holders shall enter
into a confidentiality agreement reasonably acceptable to the Company and the
Holders providing that such information shall be kept confidential, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities (provided,
however, that the Company shall be given notice of any such pending disclosure
so that the Company may seek a protective order); (ii) disclosure of such
information, in the opinion of counsel to such Person, is required by law; (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(n) Use its best efforts to comply in all material respects with all
applicable rules and regulations of the Commission and make generally available
to its securityholders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 not later than 45 days after the end of
any 12-month period (or 90 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts Underwritten Offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
11
(o) Each selling Holder shall furnish to the Company information regarding
such Holder and the distribution of such Registrable Securities as is required
by law to be disclosed in the Registration Statement, and the Company may
exclude from such registration the Registrable Securities of any such Holder who
fails to furnish such information within a reasonable time after receiving such
request. Each selling Holder shall also use its best efforts to cooperate with
the Company in connection with the preparation and filing of any Registration
Statement including Registrable Securities.
The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless (i) disclosure of
such information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Holder is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Holder prior to making such disclosure, and
allow the Holder, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
12
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v), such Holder
will forthwith discontinue offers and dispositions of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
bona fide transferee of a Holder in accordance with the terms of the Exchange
Agreement in connection with any sale of Registrable Securities with respect to
which an Holder has entered into a contract for sale in good faith prior to the
Holder's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v) and for
which the Holder has not yet settled.
(p) The Company agrees to respond fully and completely to any and all
comments on a Registration Statement received from the Commission staff as
promptly as possible but, for non-Underwritten Offerings, in no event later than
ten (10) Business Days of the receipt of such comments, regardless of whether
such comments are in oral or written form.
(q) Within two (2) Business Days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the Commission,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Holders whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the Commission in the form attached hereto as Exhibit B.
4. Registration Expenses
All fees and expenses of the Company incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company,
whether or not pursuant to an Underwritten Offering and whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the 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 Nasdaq
and each other securities exchange or market on which Registrable Securities are
required hereunder to be listed and (B) in compliance with state securities or
Blue Sky laws (including, without limitation, reasonable fees and disbursements
of counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
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. The
Holder shall pay all underwriting discounts and fees and commissions, brokerage
fees and commissions, any fees and expenses of counsel to the Holders and
Holders' out of pocket expense.
13
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, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), 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 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, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all joint or several losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, "Losses"), as incurred, arising out of or
relating to (i) any untrue or alleged untrue statement of a material fact
contained in the 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 (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made),
except to the extent, but only to the extent, that such untrue statements or
omissions are based solely upon and in conformity with information regarding a
Holder furnished in writing to the Company by a Holder expressly for use
therein, which information was reasonably relied on by the Company 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
the Registration Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto (provided that the Company amended any
disclosure with respect to the method of distribution upon written notice from
the Holders that such section of the Prospectus should be revised in any way) or
(ii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of Registrable Securities. The Company shall not, however, be liable for
any Losses to any Holder with respect to any untrue or alleged untrue statement
of material fact or omission or alleged omission of material fact if such
statement or omission was made in a preliminary Prospectus or form of prospectus
which has subsequently been amended or supplemented and such Holder did receive
a copy of the final Prospectus (or any amendment or supplement thereto) at or
prior to the confirmation of the sale of the Registrable Securities in any case
where such delivery is required by the Securities Act and the untrue or alleged
untrue statement of material fact or omission or alleged omission of material
fact contained in such preliminary Prospectus was corrected in the final
Prospectus (or any amendment or supplement thereto), unless the failure to
deliver such final Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 3(g) of this Agreement. The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
14
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the 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, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading 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 the
Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was furnished by such Holder or,
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of prospectus;
provided, however, that the indemnity agreement contained in this Section 5(b)
shall not apply to amounts paid in settlement of any Losses if such settlement
is effected without the prior written consent of such Holder, which consent
shall not be unreasonably withheld. 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; unless such Holder withholds
consent to a settlement offered at a lower amount.
(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 promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
reasonable fees and expenses incurred in connection with defense thereof;
provided, however, 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
proximately and materially adversely prejudiced the Indemnifying Party.
15
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; or (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 such Indemnified Party
shall have been advised by counsel that a 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 the Indemnifying Party shall bear the fees
and expenses for one such counsel for all of the Indemnified Parties). 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. 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.
All 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 thirty (30)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party because of a failure or refusal of a
court of competent jurisdiction to enforce such indemnification in accordance
with its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, 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 Section 5(c), any
reasonable attorneys' or other reasonable 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. In no
event shall any selling Holder be required to contribute an amount under this
Section 5(d) in excess of the net proceeds received by such Holder upon sale of
the Registrable Securities pursuant to the Registration Statement giving rise to
such contribution obligation.
16
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.
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.
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. Rule 144
As long as any Holder owns Registrable Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to Section 13(a) or l5(d) of the Exchange Act and to
promptly furnish the Holders with true and complete copies of all such filings.
As long as any Holder owns Registrable Securities, if the Company is not
required to file reports pursuant to Section 13(a) or l5(d) of the Exchange Act,
it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. Upon the request of any Holder, the Company shall
deliver to such Holder a written certification of a duly authorized officer as
to whether it has complied with such requirements. The Company further covenants
that it will take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable such Person to sell
Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder of any
of their 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 waive the defense that
a remedy at law would be adequate.
17
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, 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 is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed in Schedule 2.1(c) of the Exchange Agreement, 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. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subordinated in all respects to the rights in
full of the Holders set forth in Section 2 herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement. This Agreement,
together with the Exchange Agreement, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
(c) No Piggyback on Registrations. Except as disclosed on Schedule 2.1(c)
of the Exchange Agreement, neither the Company nor any of its securityholders
(other than the Holders in such capacity pursuant hereto) may include securities
of the Company in the Registration Statements and the Company shall not after
the date hereof enter into any agreement providing such right to any of its
securityholders, unless the right so granted is on parity with or subordinated
in all respects to the rights in full of the Holders set forth herein, and is
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(d) Piggy-Back Registrations. Except as provided herein if, at any time
when there is not an effective Registration Statement covering the Registrable
Securities, 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 stock option or other employee benefit
plans, the Company shall send to each Holder of Registrable Securities written
notice of such determination and, if within ten (10) days after receipt of such
notice, any such Holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the Holders),
the Company will use reasonable efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered, provided that if
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4), and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities being registered
pursuant to this Section 7(d) for the same period as the delay in registering
such other securities. The Company shall include in such registration statement
all or any part of such Registrable Securities such Holder requests to be
registered; provided, however, that the Company shall not be required to
18
register any Registrable Securities pursuant to this Section 7(d) that are
eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of
an underwritten public offering, if the Company after consultation with the
Underwriter's representative should reasonably determine that the inclusion of
such Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer Registrable
Securities then proposed to be sold by the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration) or (y) none
of the Registrable Securities of the Holders shall be included in such
registration statement if the Company, after consultation with the
underwriter(s), recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company). Notwithstanding the foregoing, the
Company shall not file any registration statement under the Securities Act
(other than on Form X-0, Xxxx X-0, Form S-3 or Form S-1 for resale of private
placement securities and proposed Underwritten Offerings registered on the
available form) relating to the offer and sale of any equity securities of the
Company, or offer or sell any equity securities of the Company in a transaction
exempt from registration pursuant to Regulation S under the Securities Act other
than pursuant to an Underwritten Offering, until such time as the Initial
Registration Statement has been effective for a period of sixty (60) Trading
Days, which period shall be tolled if the effectiveness of the Initial
Registration Statement is suspended for any reason whatsoever. In connection
with any underwritten offering of securities proposed by the Company (other than
pursuant to an employee benefit plan, pursuant to a merger, exchange offer or a
transaction described in Rule 145 under the Securities Act or pursuant to a
"shelf registration"), each Holder of Registrable Securities agrees that it
shall not effect any sale or distribution of any Registrable Securities similar
to the securities offered in such underwritten offering, or convertible into or
exchangeable for such securities, during the 10-day period prior to, and during
a period beginning on the effective date of such registration and not to exceed
90 days, and hereby agrees to execute a "lock-up letter" in form and substance
customary for transactions of such type if so requested by the managing
underwriter for such underwritten offering.
(e) 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 the Holders of
at least two thirds of the then outstanding Registrable Securities; provided,
however, that for the purposes of this sentence, Registrable Securities that are
owned, directly or indirectly, by the Company, or an Affiliate of the Company
are not deemed outstanding. 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 at least a
majority 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.
19
(f) Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 5:00 p.m.
eastern time where such notice is to be received), or the first Business Day
following such delivery (if received after 5:00 p.m. eastern time where such
notice is to be received) or (b) on the second Business Day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications are (i) if to the Company to Level 8 Systems,
Inc., 0000 Xxxxxxx Xxxxxxx, Xxxx, Xxxxx Xxxxxxxx 00000, Telephone: (919)
000-0000, Facsimile: (000) 000-0000, Attention: Xxxxxx XxXxxxxx, with copies to
Powell, Goldstein, Xxxxxx & Xxxxxx LLP, 16th Floor, 000 Xxxxxxxxx Xxxxxx,
Xxxxxxx, XX 00000, Attention: Xxxxx X. Xxxxx, Esq., Facsimile: (000) 000-0000
and (ii) if to any Holder to the address set forth on Schedule I hereto with
copies to the addressees set forth on Schedule II hereto or such other address
as may be designated in writing hereafter, in the same manner, by such Person.
(g) 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 its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign its rights hereunder in the manner and to the
Persons as permitted under the Exchange Agreement. In addition, the rights of
each Holder hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by each Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Exchange Agreement and applicable law. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.
20
(i) Governing Law. The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and the Holders as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consent to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
(j) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(k) 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 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.
(l) Headings; References. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. References in this Agreement to Sections are to Sections of this
Agreement, unless otherwise expressly provided.
(m) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
21
(n) Revision of SEC Position on Warrants. In the event the rules and
regulations of the Commission or the policies of the staff of the Commission are
modified and as a result thereof the Company determines in good faith that it
may be practicable and in the interests of the Company and the Holders to
register the exercise of the Warrants so that the Warrant Shares may be freely
resold without maintaining an effective registration statement under the
Securities Act for resales, the Company and the Holders agree to cooperate in
good faith to effect such amendments to this Agreement as may be appropriate to
provide that the Company may fulfill its obligations hereunder with respect to
the Warrants and the Warrant Shares by maintaining an effective registration
statement under the Securities Act covering the exercise of the Warrants rather
than the resale of the Warrant Shares.
22
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
LEVEL 8 SYSTEMS, INC.
By:
--------------------------------------------------------
Name:
Title:
XXXXX XXXXXXX PARTNERS I, LTD.
By:
--------------------------------------------------------
Name:
Title: Authorized Signatory
SENECA CAPITAL, L.P.
By: Seneca Capital Advisors, LLC, its general partner
By:
-------------------------------------------------------
Name:
Title:
SENECA CAPITAL INTERNATIONAL, LTD.
By:
-------------------------------------------------------
Name:
Title:
ADVANCED SYSTEMS EUROPE, B.V.
By:
--------------------------------------------------------
Name:
Title:
23
SCHEDULE I
Company
Level 8 Systems, Inc.
0000 Xxxxxxx Xxxxxxx
Xxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxx XxXxxxxx
Facsimile: (000) 000-0000
Holders:
-------
Xxxxx Xxxxxxx Partners I, Ltd.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxx
Fax: (000) 000-0000
Seneca Capital, L.P.
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx Xxxx
Seneca Capital International, Ltd.
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx Xxxx
Advanced Systems Europe, B.V.
c/o Liraz Systems Ltd.
Azrieli Xxxxxx 0, Xxxxxxxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx 00000 Israel
Telephone:
Facsimile:
Attention: Xx. Xxxxx Xxxxxxx
SCHEDULE II
Holders:
-------
In the case of notice to Xxxxx Xxxxxxx Partners I, Ltd., with a copy to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx
Facsimile: (000) 000-0000
In the case of notice to Seneca Capital, L.P. or Seneca Capital International,
Ltd., with a copy to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
In the case of notice to Advanced Systems Europe, B.V., with a copy to:
Xxxxxxxx, Xxxx & Xxxx
Xxxxxx House
2 Ibn Xxxxxx Xxxxxx
Xxx Xxxx, Xxxxxx 00000
Telephone: 000-0-000-0000
Facsimile: 972-3-608-9909
Attention: Mr. Xxxx Xxxx
Xx. Xxxx Xxxxx
EXHIBIT A
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. All costs, expenses and fees in connection with the registration
of the shares offered by this prospectus will be borne by us, other than
brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares which will be borne by the selling stockholders. The Company has
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act. Sales
of shares may be effected by selling stockholders from time to time in one or
more types of transactions (which may include block transactions) on the Nasdaq
National Market, in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of shares, or a combination of any such methods of sale, and any other
method permitted pursuant to applicable law, at market prices prevailing at the
time of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinated broker acting in connection with the
proposed sale of shares by the selling stockholders.
The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of the shares or of securities convertible into or exchangeable for the
shares in the course of hedging positions they assume with selling stockholders.
The selling stockholders may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealers or other financial institutions of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as amended or supplemented to reflect such
transaction). The selling stockholders may pledge and or loan these shares to
broker-dealers who may borrow the shares against their hedging short position
and in turn sell these shares under the prospectus to cover such short position.
The selling stockholders may make these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer is not expected to be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection with
the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.
Because selling stockholders may be deemed "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders may be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.
Selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act provided
they meet the criteria and conform to the requirements of Rule 144.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o the name of each such selling stockholder and of the participating
broker-dealer(s);
o the number of shares involved;
o the initial price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
o other facts material to the transactions.
In addition, upon our being notified by a selling stockholder that a donee
or pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed. The selling stockholder may from time to time pledge or grant a
security interest in some or all of the Shares or common stock or Warrant owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus, or under an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.
The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn.:
Re: Level 8 Systems, Inc.
Ladies and Gentlemen:
We are counsel to Level 8 Systems, a New York corporation (the "Company"),
and have represented the Company in connection with that certain Exchange
Agreement (the "Exchange Agreement") entered into by and among the Company and
the buyers named therein (collectively, the "Holders") pursuant to which the
Company issued to the Holders its Series B2 convertible preferred stock, par
value $0.001 per share and its Series A2 convertible preferred stock (the
"Preferred Stock"), convertible into shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"), and Warrants (the "the Warrants") to
acquire shares of Common Stock. Pursuant to the Exchange Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on
_______________, 2000, the Company filed a Registration Statement on [Form S-3]
(File No. 333-_____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
cc: [LIST NAMES OF HOLDERS]
