Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of _________, 2005 by and among HC INNOVATIONS, INC., a
Delaware corporation (the "COMPANY"), and the persons and entities who are
signatories hereto (the " HOLDERS").
BACKGROUND
The Holders have severally agreed to purchase from the Company, and the
Company has agreed to sell to the Holders an aggregate of $1,200,000 principal
amount Convertible Debentures of the Company (collectively, the "CONVERTIBLE
DEBENTURES") and 1,200,000 shares of the Company's voting common stock, par
value $.01 per share, (collectively, the "COMMON STOCK") on the terms and
conditions set forth in certain Subscription Agreements of even date herewith by
and between the Company and each of the Holders, as amended from time to time
(collectively, the "SUBSCRIPTION AGREEMENTS").
The Holders have been informed that following the execution and
delivery of the Subscription Agreements and the issuance of the Convertible
Debentures and Common Stock, the Company may be merged with or into or acquired
by a public company (the "PUBLIC COMPANY SUCCESSOR"), with the Public Company
Successor as the surviving entity of such merger or acquisition, all upon terms
and conditions, including, without limitation, the assumption by the Public
Company Successor of the Company's obligations under this Agreement, as shall be
satisfactory to the Company. After the consummation of such merger or
acquisition, the Public Company Successor would become a reporting company
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT") and the Public Company Successor's common stock would
be listed or quoted for trading, as applicable, on one of the following markets
or exchanges: the Nasdaq SmallCap Market, the American Stock Exchange, the New
York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board (each,
a "TRADING MARKET") or continued to be reported in the "Pink Sheets".
The Holders will receive one share of Common Stock for each Dollar of
principal amount of the Debentures purchased. The Convertible Debentures provide
that in certain circumstances such Debentures are convertible into the voting
common stock of the Public Company Successor (the "CONVERSION SHARES"). This
Agreement provides that the Holders shall be granted certain registration rights
with respect to the Common Stock and the Conversion Shares upon the terms and
subject to the conditions as hereinafter set forth.
The parties agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"RESTRICTED STOCK" shall mean the Common Stock and Conversion Shares,
the certificates for which are required to bear the legend set forth in Section
2 hereof.
"REGISTRANT" shall mean the Company or the Public Company Successor, as
applicable.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
2. RESTRICTIVE LEGEND. The Common Stock and Conversion Shares and
each certificate representing such Restricted Stock and, except as otherwise
provided in Section 3 hereof, each certificate issued upon exchange or transfer
of any such securities shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH
RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE."
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
any Restricted Stock (other than under the circumstances described in Section 4
hereto, the holder thereof shall give written notice to the Registrant of its
intention to effect such transfer. Each such notice shall describe the manner of
the proposed transfer and, if requested by the Registrant, shall be accompanied
by an opinion of counsel satisfactory to the Registrant to the effect that the
proposed transfer may be effected without registration under the Securities Act,
whereupon such holder shall be entitled to transfer such securities in
accordance with the terms of its notice. All Restricted Stock transferred as
above provided shall bear the legend set forth in Section 2, except that such
securities shall not bear such legend if (i) such transfer is in accordance with
the provisions of Rule 144 (or any other rule permitting public sale without
registration under the Securities Act) or (ii) the opinion of counsel referred
to above is to the further effect that the transferee and any subsequent
transferee (other than an affiliate of the Registrant) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act.
4. PIGGYBACK REGISTRATION. From and after the final closing under
the Subscription Agreements and until such time as the holders of Restricted
Stock rights terminate hereunder in accordance with the terms hereof, if the
Registrant at any time proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (other than a registration statement
associated with the merger of the Registrant with a public company or similar
transaction or in connection a registration statement for the initial public
offering of the Registrant's common stock or a
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registration on Form-S-4, Form S-8 or other limited purpose form), then in each
instance, it will give written notice to all holders of Restricted Stock of its
intention so to do, PROVIDED, HOWEVER, that for the purposes of this sentence,
the Registrant shall treat the holders hereof in the same manner and IN PARI
PASSU with all other holders of unregistered capital stock of the Registrant who
(i) have registration rights with respect to such stock or (ii) presently or at
any time hereafter are officers, directors, or 5% shareholders of the
Registrant, or any affiliate, successor, or assign thereof. Upon the written
request of any such holders, given within 20 days after the date of any such
notice, to register any of its Restricted Stock (which request shall state the
intended method of disposition thereof), the Registrant will use its best
efforts to cause the Restricted Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Registrant all to the extent requisite to
permit the sale or other disposition by the holders (in accordance with its
written request) of such Restricted Stock so registered. The Registrant may
withdraw any such registration statement before it becomes effective or postpone
the offering of securities contemplated by such registration statement without
any obligation to the holders of any Restricted Stock.
In the event that any registration pursuant to this Section 4 shall be,
in whole or in part, an underwritten public offering of common stock, any
request by holders pursuant to this Section 4 to register Restricted Stock shall
specify that such Restricted Stock is to be included in the underwriting on the
same terms and conditions as the shares of common stock otherwise being sold
through underwriters under such registration. The number of shares of Restricted
Stock to be included in such an underwriting may be cut back (PRO RATA among the
requesting holders) if and to the extent that the managing underwriter shall be
of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Registrant therein.
Notwithstanding anything to the contrary contained in this Section 4,
in the event that there is an underwritten offering of securities of the
Registrant pursuant to a registration covering Restricted Stock and a selling
holder of Restricted Stock does not elect to sell his, her or its Restricted
Stock to the underwriters of the Registrant's securities in connection with such
offering, such holder shall refrain from selling such Restricted Stock not
registered pursuant to this Section 4 during the period of distribution of the
Registrant's securities by such underwriters and the period in which the
underwriting syndicate participates in the after market; PROVIDED, HOWEVER, that
such holder shall, in any event, be entitled to sell its Restricted Stock in
connection with such registration commencing on the 180th day after the
effective date of such registration statement.
5. REGISTRATION PROCEDURES. If and whenever the Registrant is
required by the provisions of Section 4 hereof to use its best efforts to effect
the registration of any shares of Restricted Stock under the Securities Act, the
Registrant will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4
hereof, shall be on Form S-1 or other form of general applicability satisfactory
to the managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration
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statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided),
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 5 (a) above and as to comply with the provisions
of the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or blue sky
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter shall reasonably
request;
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein not misleading in
the light of the circumstances then existing;
(f) use its best efforts to furnish, at the request of any seller,
on the date that Restricted Stock is delivered to the underwriters for sale
pursuant to such registration: (i) an opinion dated such date of counsel
representing the Registrant for the purposes of such registration, addressed to
the underwriters in a form and substance as is customarily given to underwriters
in an underwritten public offering, and (ii) a letter dated such date from the
independent public accountants retained by the Registrant, addressed to the
underwriters in a form and substance as is customarily given by independent
public accountants to underwriters in an underwritten public offering; and
(g) make available for inspection by any underwriter participating
in any distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such underwriter, all financial and other
records, pertinent corporate documents and properties of the Registrant, and
cause the Registrant's officers, directors and employees to supply all
information reasonably requested by any such underwriter, attorney, accountant
or agent in connection with such registration statement.
For purposes of Sections 5 (a) and (b) above, the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each
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underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Restricted Stock in any other registration
shall be deemed to extend until the earlier of the sale of all Restricted Stock
covered thereby or nine months after the effective date thereof.
In connection with each registration hereunder, the selling holders of
Restricted Stock will furnish to the Registrant in writing such information with
respect to themselves and the proposed distribution by them as shall be
necessary in order to assure compliance with Federal and applicable state
securities laws or as the Registrant may reasonably request.
In connection with each registration pursuant to Section 4 hereof
covering an underwritten public offering, the Registrant agrees to enter into a
written agreement with the managing underwriter selected in the manner herein,
in such form and containing such provisions as are customary in the securities
business for such an arrangement.
6. EXPENSES. All expenses incurred by the Registrant in complying
with Section 4 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Registrant, fees of the National
Association of Securities Dealers, Inc., fees of transfer agents and registrars,
but excluding any Selling Expenses, are herein called "REGISTRATION EXPENSES".
All underwriting discounts and selling commissions and transfer taxes applicable
to the sale of Restricted Stock are herein called "SELLING EXPENSES".
The Registrant will pay all Registration Expenses in connection with
each registration statement filed pursuant to Section 4 hereof. All Selling
Expenses incurred in connection with any sale of Restricted Stock by any
participating seller shall be borne by such participating seller or by such
persons other than the Registrant (except to the extent the Registrant shall be
a seller) as they may agree.
7. INDEMNIFICATION. In the event of a registration of any of the
Restricted Stock under the Securities Act pursuant to Section 4 hereof, the
Registrant will indemnify and hold harmless each seller of such Restricted Stock
thereunder and each underwriter of such Restricted Stock thereunder and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act, against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each such seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, expense
or action; PROVIDED,
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HOWEVER, that the Registrant will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such seller, such
underwriter or such controlling person in writing specifically for use in such
registration statement or prospectus.
In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to Section 4 hereof, each seller of such Restricted
Stock thereunder, severally and not jointly, will indemnify and hold harmless
the Registrant and each person, if any, who controls the Registrant within the
meaning of the Securities Act, each officer of the Registrant who signs the
registration statement, each director of the Registrant, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages, expenses or liabilities, joint or
several, to which the Registrant or such officer or director or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, expenses or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Section 4, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Registrant and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, and PROVIDED, HOWEVER, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Registrant by such seller specifically for use in such
registration statement or prospectus; PROVIDED, FURTHER, HOWEVER, that the
liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of the shares sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not to exceed the proceeds received by such
seller from the sale of Restricted Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party under this Section 7. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the announcement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party of its
election to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such
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indemnified party under this Section 7 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected;
PROVIDED, HOWEVER, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall have the
right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two paragraphs of this Section
7 is unavailable to or insufficient to hold harmless an indemnified party under
such paragraphs in respect of any losses, claims, damages or liabilities or
actions in respect thereof referred to therein, then each indemnifying party
shall in lieu of indemnifying such indemnified party contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or actions in such proportion as appropriate to reflect the
relative fault of the Registrant, on the one hand, and the sellers of such
Restricted Stock, on the other, in connection with the statement or omissions
which resulted in such losses, claims, damages, liabilities or actions, as well
as any other relevant equitable considerations including the failure to give any
notice under the third paragraph of this Section 7. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Registrant, on the one
hand, or by the sellers of such Restricted Stock, on the other, and to the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Registrant and the sellers of Restricted Stock agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by PRO RATA allocation (even if all of the sellers of Restricted
Stock were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
action in respect thereof, referred to in the
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immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this and the immediately
preceding paragraph, the sellers of such Restricted Stock shall not be required
to contribute any amount in excess of the amount, if any, by which the total
price at which the Restricted Stock sold by each of them was offered to the
public exceeds the amount of any damages which they would have otherwise been
required to pay by reason of such untrue or alleged untrue statement of
omission. 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 is not guilty of such fraudulent misrepresentation. The
indemnification of underwriters provided for in this Section 7 shall be on such
other terms and conditions as are at the time customary and reasonably required
by such underwriters.
8. RULE 144 REPORTING. From and after the date hereof, the
Registrant agrees with the holders of Restricted Stock as follows:
(a) The Registrant shall make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Registrant under the Securities Act of an
offering of its common stock to the general public.
(b) The Registrant shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") at any time after the Registrant has become subject to such
reporting requirements of the Exchange Act.
(c) The Registrant shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Registrant as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after 90 days following the effective date of the first registration statement
of the Registrant for an offering of its common stock to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Registrant and (iii) such other reports and documents
so filed as a holder may reasonably request to avail itself of any rule or
regulation of the Commission allowing a holder of Restricted Stock to sell any
such securities without registration.
9. MISCELLANEOUS.
(a) The rights arising under Section 4 shall terminate on the
fifth anniversary of this Agreement, or if earlier, when (i) the holder of the
Restricted Stock is no longer an "affiliate" as used in Rule 144 and (ii) the
holder of the Restricted Stock is permitted to sell all Restricted Stock then
held by it pursuant to Rule 144(k).
(b) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of
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the parties hereto whether so expressed or not. Without limiting the generality
of the foregoing, the registration rights conferred herein on the holders of
Restricted Stock shall inure to the benefit of any and all subsequent permitted
holders from time to time of the Restricted Stock for so long as the
certificates representing the Restricted Stock shall be required to bear the
legend specified in Section 2 hereof.
(c) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by generally recognized
overnight courier, postage prepaid, to the holder of the Restricted Stock at
its, his, or her address set forth in the records of the Registrant and to the
Registrant at its principal place of business or, in any case, at such other
address or addresses as shall have been furnished in writing to the Registrant
(in the case of a holder of Restricted Stock) or to the holders of Restricted
Stock (in the case of the Registrant).
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(e) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH
COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE
AND ANY CLAIM THAT THE SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF
BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN
SECTION 9(C)], SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.
(f) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except in writing.
(g) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date and year first written above.
THE COMPANY:
HC Innovations, Inc.
By:
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Name:
Title:
HOLDERS:
By: --
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Title:
By: --
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