REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of March 23,
2006, by and among Palomar Enterprises, Inc., a Nevada corporation with its
headquarters located at 0000 X. Xxxxxx Xxxxxx, Xxxxx 000-0000, Xxxxxx Xxxx,
XX 00000 (the Company), and each of the undersigned (together with
their respective affiliates and any assignee or transferee of all of their
respective rights hereunder, the Initial Investors).
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the Securities Purchase
Agreement), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
secured convertible notes in the aggregate principal amount of up to One
Million Three Hundred and Fifty Thousand Dollars ($1,350,000) (the Notes)
that are convertible into shares of the Company's common stock
(the Common Stock), upon the terms and subject to the limitations and
conditions set forth in such Notes, Series A warrants (the Series A
Warrants) to acquire an aggregate of 36,000,000 shares of Common Stock,
upon the terms and conditions and subject to the limitations and
conditions set forth in the Series A Warrants; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the 1933 Act), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
each of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) Investors means the Initial Investors and
any transferee or assignee who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 hereof.
(ii) register, registered, and
registration refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous basis (Rule 415), and the
declaration or ordering of effectiveness of such Registration Statement by
the United States Securities and Exchange Commission (the SEC).
(iii) Registration Price means the lesser of
(a)the Initial Market Price (as defined in the Notes) and (b)the
Conversion Price (as defined in the Notes, provided that for purposes of
this definition, the Applicable Percentage (as defined in the Notes) shall
be 60%).
(iv) Registrable Securities means the
Conversion Shares issued or issuable upon conversion or otherwise pursuant
to the Notes and Additional Notes (as defined in the Securities Purchase
Agreement) including, without limitation, Damages Shares (as defined in the
Notes) issued or issuable pursuant to the Notes, shares of Common Stock
issued or issuable in payment of the Standard Liquidated Damages Amount
(as defined in the Securities Purchase Agreement), shares issued or
issuable in respect of interest or in redemption of the Notes in accordance
with the terms thereof) and Warrant Shares issuable, upon exercise or
otherwise pursuant to the Series A Warrants and the Series B Warrants and
the Additional Warrants (as defined in the Securities Purchase Agreement),
and any shares of capital stock issued or issuable as a dividend on or in
exchange for or otherwise with respect to any of the foregoing.
(v) Registration Statement means a
registration statement of the Company under the 0000 Xxx.
b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the
Securities Purchase Agreement or the Convertible Note.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare,
and, on or prior to thirty (30) days from the date of Closing (as defined
in the Securities Purchase Agreement) (the Filing Date), file with the
SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to
effect a registration of the Registrable Securities, subject to the consent
of the Initial Investors, which consent will not be unreasonably withheld)
covering the resale of the Registrable Securities underlying the Notes and
Warrants issued or issuable pursuant to the Securities Purchase Agreement
which Registration Statement, to the extent allowable under the 1933 Act
and the rules and regulations promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of or otherwise pursuant to the Notes and exercise of the
Warrants to prevent dilution resulting from stock splits, stock dividends
or similar transactions. The number of shares of Common Stock initially
included in such Registration Statement shall be no less than an amount
equal to 2.25 times the sum of the number of Conversion Shares that are
then issuable upon conversion of the Notes and Additional Notes (based on
the Registration Price (as defined herein)), and the number of Warrant
Shares that are then issuable upon exercise of the Warrants, without regard
to any limitation on the Investors ability to convert the Notes or
exercise the Warrants. The Company acknowledges that the number of shares
initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of the
Notes and upon exercise of the Warrants.
b. Underwritten Offering. If any offering pursuant to
a Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the
consent of a majority-in-interest of the Initial Investors, shall have the
right to select one legal counsel and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the
Company.
c. Payments by the Company. The Company shall use its
best efforts to obtain effectiveness of the Registration Statement as soon
as practicable. If the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not filed by the Filing Date or declared effective
by the SEC on or prior to one hundred and twenty (120) days from the date
of Closing (as defined in the Securities Purchase Agreement)
(the Effectiveness Deadline), or after the Registration Statement has
been declared effective by the SEC, sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement, or the
Common Stock is not listed or included for quotation on the Nasdaq National
Market (Nasdaq), the Nasdaq SmallCap Market (Nasdaq SmallCap), the
New York Stock Exchange (the NYSE) or the American Stock Exchange
(the AMEX) after being so listed or included for quotation after the date
hereof, or the Common Stock ceases to be traded on the Over-the-Counter
Bulletin Board (the OTCBB) or any equivalent replacement exchange prior
to being listed or included for quotation on one of the aforementioned
markets, then the Company will make payments to the Investors in such
amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any
such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity). The Company shall pay to each holder of
the Notes or Registrable Securities an amount equal to the then outstanding
principal amount of the Notes (and, in the case of holders of Registrable
Securities, the principal amount of Notes from which such Registrable
Securities were converted) (Outstanding Principal Amount), multiplied by
the Applicable Percentage (as defined below) times the sum of: (i) the
number of months (prorated for partial months) after the Filing Date or the
end of the aforementioned one hundred and twenty (120) day period and
prior to the date the Registration Statement is declared effective by the
SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors
in the Registration Statement with respect to information relating to the
Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of
the Registration Statement pursuant to Section 3(h) below in a reasonably
prompt manner; (ii) the number of months (prorated for partial months) that
sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement after the 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 included therein in accordance with the terms of this Agreement,
but excluding any days during an Allowed Delay (as defined in Section
3(f)); and (iii) the number of months (prorated for partial months) that
the Common Stock is not listed or included for quotation on the OTCBB,
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
after the Registration Statement has been declared effective. The term
Applicable Percentage means two hundredths (.02). (For example, if the
Registration Statement becomes effective one (1) month after the end of
such one hundred and twenty (120) day period, the Company would pay $5,000
for each $250,000 of Outstanding Principal Amount. If thereafter, sales
could not be made pursuant to the Registration Statement for an additional
period of one (1) month, the Company would pay an additional $5,000 for
each $250,000 of Outstanding Principal Amount.) Such amounts shall be paid
in cash or, at the Company's option, in shares of Common Stock priced at
the Conversion Price (as defined in the Notes, provided that for purposes
of the calculation of the Conversion Price pursuant to this Section 2(c),
the Applicable Percentage (as defined in the Notes) shall be 60%) on such
payment date. For purposes of this Agreement, all amounts paid to the
Investors pursuant to this section shall be capped at 6%.
d. Piggy-Back Registrations. Subject to the last
sentence of this Section 2(d), if at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall
determine to file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the 1933 Act
of any of its equity securities (other than on Form S-4 or Form S-8 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 bona fide,
employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of
such determination and, if within fifteen (15) days after the effective
date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that
if, in connection with any underwritten public offering for the account
of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s) judgment,
marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking
to include Registrable Securities in proportion to the number of
Registrable Securities sought to be included by such Investors; provided,
however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having
the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in
such Registration Statement by reason of demand registration rights. No
right to registration of Registrable Securities under this Section 2(d)
shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then
each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer
and sell such Registrable Securities in an underwritten offering using the
same underwriter or underwriters and, subject to the provisions of this
Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. Notwithstanding anything to the
contrary set forth herein, the registration rights of the Investors
pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness
of any Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.
e. Eligibility for Form X-0, XX-0 or S-1; Conversion
to Form S-3. The Company represents and warrants that it meets the
requirements for the use of Form X-0, XX-0 or S-1 for registration of the
sale by the Initial Investors and any other Investors of the Registrable
Securities. The Company agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to remain eligible or
become eligible, as the case may be, and thereafter to maintain its
eligibility, for the use of Form S-3. If the Company is not currently
eligible to use Form S-3, not later than five (5) business days after the
Company first meets the registration eligibility and transaction
requirements for the use of Form S-3 (or any successor form) for
registration of the offer and sale by the Initial Investors and any other
Investors of Registrable Securities, the Company shall file a Registration
Statement on Form S-3 (or such successor form) with respect to the
Registrable Securities covered by the Registration Statement on Form SB-2
or Form S-1, whichever is applicable, filed pursuant to Section 2(a)
(and include in such Registration Statement on Form S-3 the information
required by Rule 429 under the 0000 Xxx) or convert the Registration
Statement on Form SB-2 or Form S-1, whichever is applicable, filed pursuant
to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933 Act and
cause such Registration Statement (or such amendment) to be declared
effective no later than thirty (30) days after filing. In the event of a
breach by the Company of the provisions of this Section 2(e), the Company
will be required to make payments pursuant to Section 2(c) hereof.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities,
the Company shall have the following obligations:
a. The Company shall prepare promptly, and file with
the SEC not later than the Filing Date, a Registration Statement with
respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible
after such filing but in no event later than the Effectiveness Deadline,
and keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of
the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the 1933 Act (the Registration Period), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary
to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to
the Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration
Statements effective at all times during the Registration Period, and,
during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by
the Registration Statements until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statements. In the event the number of shares available under
a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities issued or issuable upon
conversion of the Notes and exercise of the Warrants, the Company shall
amend the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to
cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common 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, but in any event within thirty (30) days after the
date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor. The provisions of Section 2(c) above
shall be applicable with respect to such obligation, with the one hundred
and twenty (120) days running from the day the Company reasonably first
determines (or reasonably should have determined) the need therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its
legal counsel promptly (but in no event more than two (2) business days)
after the same is prepared and publicly distributed, filed with the SEC,
or received by the Company, one copy of each Registration Statement and
any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf
of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential
treatment), and promptly (but in no event more than two (2) business days)
after the Registration Statement is declared effective by the SEC, such
number of copies of a prospectus, including a preliminary prospectus, and
all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Investor. The Company will
immediately notify each Investor by facsimile of the effectiveness of each
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC (which
comments shall promptly be made available to the Investors upon request),
with a view towards causing each Registration Statement or any amendment
thereto to be declared effective by the SEC as soon as practicable, shall
promptly file an acceleration request as soon as practicable (but in no
event more than two (2) business days) following the resolution or
clearance of all SEC comments or, if applicable, following notification by
the SEC that any such Registration Statement or any amendment thereto will
not be subject to review and shall promptly file with the SEC a final
prospectus pursuant to SEC Rule 424(b) as soon as practicable (but in no
event more than two (2) business days) following the effective date of the
Registration Statement. In the event of a breach by the Company of the
provisions of this Section 3(c), the Company will be required to make
payments pursuant to Section 2(c) hereof.
d. The Company shall use reasonable efforts to
register and qualify the Registrable Securities covered by the
Registration Statements under such other securities or blue sky laws of
such jurisdictions in the United States as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations
and qualifications as may be necessary to maintain the effectiveness
thereof during the Registration Period, take such other actions as may be
necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period, and take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not
be required in connection therewith or as a condition thereto to qualify
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), subject itself to general taxation
in any such jurisdiction, file a general consent to service of process in
any such jurisdiction, provide any undertakings that cause the Company
undue expense or burden, or make any change in its charter or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its shareholders.
e. In the event Investors who hold a
majority-in-interest of the Registrable Securities being offered in the
offering (with the approval of a majority-in-interest of the Initial
Investors) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the
prospectus included in any Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10) consecutive
trading days (or a total of not more than twenty (20) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not
in the good faith opinion of the Company, in the best interests of the
Company (an Allowed Delay); provided, further, that the Company shall
promptly notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such investor any of the facts or circumstances regarding)
material non-public information giving rise to an Allowed Delay and
advise the Investors in writing to cease all sales under such Registration
Statement until the end of the Allowed Delay. Upon expiration of the
Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise thereto.
g. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement
and all amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time prior
to their filing with the SEC, and not file any document in a form to which
such counsel reasonably objects and will not request acceleration of such
Registration Statement without prior notice to such counsel. The sections
of such Registration Statement covering information with respect to the
Investors, the Investors beneficial ownership of securities of the
Company or the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by
each of the Investors.
i. The Company shall make generally available to its
security holders as soon as practicable, but not later than one hundred
and twenty (120) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 under
the 0000 Xxx) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date
of the Registration Statement.
j. At the request of any Investor, the Company shall
furnish, on the date that Registrable Securities are delivered to an
underwriter, if any, for sale in connection with any Registration Statement
or, if such securities are not being sold by an underwriter, on the date
of effectiveness thereof an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters, if any, and the Investors and a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by
any Investor, any underwriter participating in any disposition pursuant
to a Registration Statement, one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, one firm
of attorneys and one firm of accountants or other agents retained by all
other Investors, and one firm of attorneys retained by all such
underwriters (collectively, the Inspectors) all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company, including without limitation, records of conversions by other
holders of convertible securities issued by the Company and the issuance
of stock to such holders pursuant to the conversions (collectively, the
Records), as shall be reasonably deemed necessary by each Inspector to
enable each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of
such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, the
release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement.
The Company shall not be required to disclose any confidential information
in such Records to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that
it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential. Nothing
herein (or in any other confidentiality agreement between the Company and
any Investor) shall be deemed to limit the Investors ability to sell
Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make
any disclosure of information concerning an Investor provided to the
Company unless disclosure of such information is necessary to comply with
federal or state securities laws, the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction, or 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 an Investor is sought in or by
a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
m. The Company shall cause all the Registrable
Securities covered by the Registration Statement to be listed on each
national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such
exchange, or to the extent the securities of the same class or series are
not then listed on a national securities exchange, secure the designation
and quotation, of all the Registrable Securities covered by the
Registration Statement on Nasdaq or, if not eligible for Nasdaq, on Nasdaq
SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on the OTCBB
and, without limiting the generality of the foregoing, to arrange for at
least two market makers to register with the National Association of
Securities Dealers, Inc. (NASD) as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities
not later than the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to a Registration Statement
and enable such certificates to be in such denominations or amounts, as
the case may be, as the managing underwriter or underwriters, if any, or
the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may
request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective
by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction
in the form attached hereto as Exhibit 1 and an opinion of such counsel
in the form attached hereto as Exhibit 2.
p. At the request of the holders of a
majority-in-interest of the Registrable Securities, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and any prospectus
used in connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such Registration
Statement.
q. From and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities,
the Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and
shall execute such documents in connection with such registration as the
Company may reasonably request. At least three (3) business days prior to
the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires
from each such Investor.
b. Each Investor, by such Investors acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statements hereunder, unless such Investor has notified
the Company in writing of such Investors election to exclude all of such
Investors Registrable Securities from the Registration Statements.
c. In the event Investors holding a
majority-in-interest of the Registrable Securities being registered
(with the approval of the Initial Investors) determine to engage the
services of an underwriter, each Investor agrees to enter into and perform
such Investors obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities,
unless such Investor has notified the Company in writing of such Investors
election to exclude all of such Investors Registrable Securities from
such Registration Statement.
d. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(f) or 3(g), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Investors receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or 3(g) and, if so directed by the Company,
such Investor shall deliver to the Company (at the expense of the Company)
or destroy (and deliver to the Company a certificate of destruction) all
copies in such Investors possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor agrees to sell such Investors
Registrable Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the Company,
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and agrees to
pay its pro rata share of all underwriting discounts and commissions and
any expenses in excess of those payable by the Company pursuant to Section
5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company and shall be included in the fees paid to counsel under the
Securities Purchase Agreement for purposes of counsel selected by the
Initial Investors.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees,
agents and each person who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended
(the 1934 Act), if any, any underwriter (as defined in the 0000 Xxx)
for the Investors, and the directors, officers, partners, employees and
each person who controls any such underwriter within the meaning of the
1933 Act or the 1934 Act, if any (each, an Indemnified Person), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or
threatened, in respect thereof, Claims) to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein
a material fact required to be stated or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading; or (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, Violations).
Subject to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Indemnified
Person, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in writing
to the Company by any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the preparation
of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(c) hereof; (ii) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in
the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and
the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advice, used it. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees severally
and not jointly to indemnify, hold harmless and defend, to the same extent
and in the same manner set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of the 1933 Act
or the 1934 Act, any underwriter and any other shareholder selling
securities pursuant to the Registration Statement or any of its directors
or officers or any person who controls such shareholder or underwriter
within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an Indemnified Party), against any
Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation by such Investor, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity
with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and
subject to Section 6(c) such Investor will reimburse any legal or other
expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained
in this Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall
have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party
shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim
relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors are entitled to indemnification hereunder, or
the Company, if the Company is entitled to indemnification hereunder, as
applicable. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to
the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 0000 Xxx) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty
of such fraudulent misrepresentation, and contribution (together with any
indemnification or other obligations under this Agreement) by any seller
of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the investors to sell
securities of the Company to the public without registration (Rule 144),
the Company agrees to:
a. make and keep public information available, as those
terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934
Act so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of
Rule 144; and
c. furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company, and such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i)the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment, (ii)the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee
or assignee, and 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
assignee is restricted under the 1933 Act and applicable state securities
laws, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein, (v) such transfer shall have been made in accordance
with the applicable requirements of the Securities Purchase Agreement, and
(vi) such transferee shall be an accredited investor as that term defined
in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with written consent of the
Company, each of the Initial Investors (to the extent such Initial Investor
still owns Registrable Securities) and Investors who hold a majority
interest of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and
the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
b. Any notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party. The addresses for such communications
shall be:
If to the Company:
Palomar Enterprises, Inc.
0000 X. Xxxxxx Xxxxxx, Xxxxx 000-0000
Xxxxxx Xxxx, XX 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (775)
With a copy to:
Attention:
Telephone:
Facsimile:
If to an Investor: to the address set forth immediately below such
Investors name on the signature pages to the Securities Purchase
Agreement.
With a copy to:
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY
WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT
OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.
e. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
f. This Agreement, the Notes, the Warrants and the
Securities Purchase Agreement (including all schedules and exhibits
thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof and thereof.
g. Subject to the requirements of Section 9 hereof,
this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns.
h. The headings in this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation
of, this Agreement.
i. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
j. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
k. Except as otherwise provided herein, all consents
and other determinations to be made by the Investors pursuant to this
Agreement shall be made by Investors holding a majority of the Registrable
Securities, determined as if the all of the Notes then outstanding have
been converted into for Registrable Securities.
l. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for breach of
its obligations under this Agreement will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of any of the
provisions under this Agreement, that each Investor shall be entitled, in
addition to all other available remedies in law or in equity, and in
addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security
being required.
m. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above
written.
PALOMAR ENTERPRISES, INC.
______________________________________
Xxxxx Xxxxxxxxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
______________________________________
Xxxxx X. Xxxxxxxx
Manager
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
______________________________________
Xxxxx X. Xxxxxxxx
Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
____________________________________
Xxxxx X. Xxxxxxxx
Manager
NEW MILLENNIUM CAPITAL PARTNERS, II, LLC
By: First Street Manager II, LLC
______________________________________
Xxxxx X. Xxxxxxxx
Manager
