.........
Registration Rights Agreement
dated as of
August 26, 2002
by and between
Avitar, Inc.
and
Global Capital Funding Group, L.P.
..................
TABLE OF CONTENTS
1. Introduction.............................................................................................2
i. Securities Purchase Agreement...................................................................2
ii. Definition of Securities........................................................................2
iii. National Market Representation..................................................................2
2. Registration under Securities Act, etc...................................................................2
2.1 Mandatory Registration..........................................................................2
i. Registration of Registrable Securities.................................................2
ii. Registration Statement Form............................................................3
iii. Expenses...............................................................................3
iv. Effective Registration Statement.......................................................3
v. Plan of Distribution...................................................................3
2.2 Incidental Registration.........................................................................3
i. Right to Include Registrable Securities................................................3
ii. Priority in Incidental Registrations...................................................4
2.3 Registration Procedures.........................................................................5
2.4 Underwritten Offerings..........................................................................8
i. Incidental Underwritten Offerings......................................................8
ii. Holdback Agreements....................................................................8
iii. Participation in Underwritten Offerings................................................9
2.5 Preparation; Reasonable Investigation...........................................................9
2.6 Registration Default Fee........................................................................9
2.7 Indemnification.................................................................................9
i. Indemnification by the Company.........................................................9
ii. Indemnification by the Sellers........................................................10
iii. Notices of Claims, etc................................................................11
iv. Other Indemnification.................................................................11
v. Indemnification Payments..............................................................11
vi. Contribution..........................................................................11
3. Definitions.............................................................................................13
4. Rule 144................................................................................................14
5. Amendments and Waivers..................................................................................15
6. Nominees for Beneficial Owners..........................................................................15
7. Notices.................................................................................................15
8. Assignment..............................................................................................16
9. Descriptive Headings....................................................................................16
10. GOVERNING LAW...........................................................................................16
11. Counterparts............................................................................................16
12. Entire Agreement........................................................................................16
13. Severability............................................................................................16
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August 26,
2002, among Avitar, Inc., a Delaware corporation (the "Company"), and Global
Capital Funding Group, L.P. (the "Fund").
1. Introduction
i. Securities Purchase Agreement. The Company and the Fund have today
executed that certain Securities Purchase Agreement (the "Securities
Purchase Agreement"), pursuant to which the Company has agreed, among other
things, to issue a $1,250,000.00 (U.S.) principal amount of Secured
Promissory Note of the Company (the "Note") to the Fund or its successors,
assigns or transferees (collectively, the "Holders"). In addition, pursuant
to the terms of the Securities Purchase Agreement and the transactions
contemplated thereby, the Company has issued to the Fund Common Stock
Purchase Warrants exercisable for up to an aggregate of 600,000 shares of
the Company's common stock, $0.01 par value per share (the "Common Stock")
(the "Warrant Shares"). The number of Warrant Shares is subject to
adjustment upon the occurrence of stock splits, recapitalization and
similar events occurring after the date hereof.
ii. Definition of Securities. The Warrant Shares are collectively
herein referred to as the "Securities."
iii. National Market Representation. The Company represents and
warrants that the Company's Common Stock is currently eligible for trading
on the American Stock Exchange ("Amex") under the symbol "AVR." Certain
capitalized terms used in this Agreement are defined in Section 3 hereof;
references to sections shall be to sections of this Agreement.
2. Registration under Securities Act, etc.
2.1 Mandatory Registration.
i. Registration of Registrable Securities. The Company will file
with the Commission, within 90 days following the date hereof, a
Registration Statement on Form S-3 (the "Registration Statement") to
register the resale of the Common Shares issuable upon the exercise of
the Warrants. The Company will use its best efforts to cause the
Registration Statement to become effective within (i) 120 days of the
Date hereof, (ii) ten (10) days following the receipt of a "No Review"
or similar letter from the Commission or (iii) the first day following
the day the Commission determines the Registration Statement eligible
to be declared effective (the "Required Effectiveness Date"). Nothing
contained herein shall be deemed to limit the number of Registrable
Securities to be registered by the Company hereunder. As a result,
should the Registration Statement not relate to the maximum number of
Registrable Securities acquired by (or potentially acquirable by) the
holders thereof upon conversion of the Note, or exercise of the Common
Stock Purchase Warrants described in Section 1 above, the Company
shall be required to promptly file a separate registration statement
(utilizing Rule 462 promulgated under the Exchange Act, where
applicable) relating to such Registrable Securities which then remain
unregistered. The provisions of this Agreement shall relate to any
such separate registration statement as if it were an amendment to the
Registration Statement.
ii. Registration Statement Formii. Registration Statement Form.
Registrations under this Section 2.1 shall be on Form S-3 or such
other appropriate registration form of the Commission as shall permit
the disposition of such Registrable Securities in accordance with the
intended method or methods of disposition specified by the Fund;
provided, however, such intended method of deposition shall not
include an underwritten offering of the Registrable Securities.
iii. Expenses. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
iv. Effective Registration Statementiv. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become
effective, provided that a registration which does not become
effective after the Company filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any
holder of Registrable Securities (other than a refusal to proceed
based upon the advice of counsel in the form of a letter signed by
such counsel and provided to the Company relating to a disclosure
matter unrelated to such holder) shall be deemed to have been effected
by the Company unless the holders of the Registrable Securities shall
have elected to pay all Registration Expenses in connection with such
registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other
order or extraordinary requirement of the Commission or other
governmental agency or court for any reason or (iii) if, after it has
become effective, such registration ceases to be effective for more
than an aggregate of ninety (90) days.
v. Plan of Distributionv. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section
reasonably acceptable to the Fund; provided, however, such plan of
distribution section shall be modified by the Company so as to not
provide for the disposition of the Registrable Securities on the basis
of an underwritten offering.
2.2 Incidental Registration.
i. Right to Include Registrable Securities. If any time after the
date hereof but before the third anniversary of the date hereof, the
Company proposes to register any of its securities under the
Securities Act (other than by a registration in connection with an
acquisition in a manner which would not permit registration of
Registrable Securities for sale to the public, on Form S-8, or any
successor form thereto, on Form S-4, or any successor form thereto and
other than pursuant to Section 2.1), on an underwritten basis (either
best-efforts or firm-commitment), then, the Company will each such
time give prompt written notice to all Holders of its intention to do
so and of such Holders' rights under this Section 2.2. Upon the
written request of any such Holder made within twenty (20) days after
the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder an
and the intended method of disposition thereof), the Company will,
subject to the terms of this Agreement, effect the registration under
the Securities Act of the Registrable Securities, to the extent
requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of such Registrable Securities so to be
registered, by inclusion of such Registrable Securities in the
registration statement which covers the securities which the Company
proposes to register, provided that if, at any time after 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 either
not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a
determination not to register, shall be relieved of this obligation to
register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the
rights of any holder or holders of Registrable Securities entitled to
do so to request that such registration be effected as a registration
under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable
Securities, for the same period as the delay in registering such other
securities. No registration effected under this Section 2.2 shall
relieve the Company of its obligation to effect any registration upon
request under Section 2.1, nor shall any such registration hereunder
be deemed to have been effected pursuant to Section 2.1. The Company
will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this
Section 2.2. The right provided the Holders of the Registrable
Securities pursuant to this Section shall be exercisable at their sole
discretion and will in no way limit any of the Company's obligations
to pay the Securities according to their terms.
ii. Priority in Incidental Registrations. If the managing
underwriter of the underwritten offering contemplated by this Section
2.2 shall inform the Company and holders of the Registrable Securities
requesting such registration by letter of its belief that the number
of securities requested to be included in such registration exceeds
the number which can be sold in such offering, then the Company will
include in such registration, to the extent of the number which the
Company is so advised can be sold in such offering, (i) first
securities proposed by the Company to be sold for its own account, and
(iii) second Registrable Securities and securities of other selling
security holders requested to be included in such registration pro
rata on the basis of the number of shares of such securities so
proposed to be sold and so requested to be included; provided,
however, the holders of Registrable Securities shall have priority to
all shares sought to be included by officers and directors of the
Company as well as holders of ten percent (10%) or more of the
Company's Common Stock.
2.3 Registration Procedures. If and whenever the Company is required
to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 and, as applicable, 2.2, the
Company shall, as expeditiously as possible:
i. prepare and file with the Commission the Registration
Statement to effect such registration (including such audited
financial statements as may be required by the Securities Act or the
rules and regulations promulgated thereunder) and thereafter use its
best efforts to cause such registration statement to be declared
effective by the Commission, as soon as practicable, but in any event
no later than the Required Effectiveness Date (with respect to a
registration pursuant to Section 2.1); provided, however, that before
filing such registration statement or any amendments thereto, the
Company will furnish to the counsel selected by the holders of
Registrable Securities which are to be included in such registration,
copies of all such documents proposed to be filed;
ii. with respect to any Registration Statement pursuant to
Section 2.1, 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 and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement, until the earlier
to occur of six (6) years after the date of this Agreement(subject to
the right of the Company to suspend the effectiveness thereof for not
more than 10 consecutive days or an aggregate of 30 days in such six
(6) years period) or such time as all of the securities which are the
subject of such registration statement cease to be Registrable
Securities (such period, in each case, the "Registration Maintenance
Period");
iii. furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of
the Registrable Securities owned by such seller;
iv. use its reasonable efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities laws or blue sky
laws as any seller thereof shall reasonably request, to keep such
registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
v. use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
vi. furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any,
of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting
agreement),reasonably satisfactory in form and substance to such
seller) including that the prospectus and any prospectus
supplement forming a part of the Registration Statement does not
contain an untrue statement of a material fact or omits a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading, and
(B) a "comfort" letter (or, in the case of any Person which
does not satisfy the conditions for receipt of a "comfort" letter
specified in Statement on Auditing Standards No. 72, an "agreed
upon procedures" letter), dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter of like kind dated the
date of the closing under the underwriting agreement), signed by
the independent public accountants who have certified the
Company's financial statement included in such registration
statement, covering substantially the same matters with respect
to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with
respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters
in underwritten public offerings of securities (with, in the case
of an "agreed upon procedures" letter, such modifications or
deletions as may be required under Statement on Auditing
Standards No. 35) and, in the case of the accountants' letter,
such other financial matters, and, in the case of the legal
opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
vii. notify the Sellers' Representative and its counsel promptly
and confirm such advice in writing promptly after the Company has
knowledge thereof:
(A) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment
to the Registration Statement has been filed, and, with respect
to the Registration Statement or any post-effective amendment
thereto, when the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus or
for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings by any Person for that purpose; and
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for
such purpose;
viii. notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material facts required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
ix. use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the
earliest possible moment;
x. otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
xi. enter into such agreements and take such other actions as the
Sellers' Representative shall reasonably request in writing (at the
expense of the requesting or benefiting sellers) in order to expedite
or facilitate the disposition of such Registrable Securities; and
xii. use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the Registration Statement) to which the Sellers'
Representative shall reasonably object, provided that the Company may file such
documents in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Securities Purchase Agreement.
The Fund agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, the Fund will forthwith discontinue the Fund's disposition of
Registrable Securities pursuant to the Registration Statement relating to such
Registrable Securities until the Fund's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in the
Fund's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.4 Underwritten Offerings.
i. Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed
by or through one or more underwriters, the Company will, if requested
by any holder of Registrable Securities as provided in Section 2.2 and
subject to the provisions of Section 2.2(i), use its reasonable
efforts to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters.
ii. Holdback Agreements. Subject to such other reasonable
requirements as may be imposed by the underwriter as a condition of
inclusion of a Fund's Registrable Securities in the registration
statement, each Fund agrees by acquisition of Registrable Securities,
if so required by the managing underwriter, not to sell, make any
short sale of, loan, grant any option for the purchase of, effect any
public sale or distribution of or otherwise dispose of, except as part
of such underwritten registration, any equity securities of the
Company, during such reasonable period of time requested by the
underwriter; provided however, such period shall not exceed the 120
day period commencing 30 days prior to the commencement of such
underwritten offering and ending 90 days following the completion of
such underwritten offering.
iii. Participation in Underwritten Offerings. No holder of
Registrable Securities may participate in any underwritten offering
under Section 2.2 unless such holder of Registrable Securities (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved, subject to the terms and
conditions hereof, by the holders of a majority of Registrable
Securities to be included in such underwritten offering and (ii)
completes and executes all questionnaires, indemnities, underwriting
agreements and other documents (other than powers of attorney)
required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other
agreement in connection with such offering) shall require any holder
of Registrable Securities to make an representations or warranties to
or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by
such holder expressly for use in the related registration statement or
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, and
their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the reasonable opinion of
such holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.6 Registration Default Fee. If the Registration Statement
contemplated in Section 2.1 is (x) not declared effective by the Required
Effectiveness Date or (y) such effectiveness is not maintained for the
Registration Maintenance Period, then the Company shall pay to the Fund the
applicable Default Fee specified in Section 10.4 of the Securities Purchase
Agreement.
2.7 Indemnification
i. Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities
Act, the Company will, and hereby does agree to indemnify and hold
harmless the holder of any Registrable Securities covered by such
registration statement, its directors and officers, each other Person
who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such holder or
any such underwriter within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several, to which
such holder or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect
thereof) 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 securities were registered
under the Securities Act, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or
supplement thereto, or any 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 the Company will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the
Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability, (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to
the Company by such holder or underwriter stating that it is for use
in the preparation thereof and, provided further that the Company
shall not be liable to any Person who participates as an underwriter
in the offering or sale of Registrable Securities or to any other
Person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or
amended, within the time required by the Securities Act to the Person
asserting the existence of an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or
an amendment or supplement thereto. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of such holder or any such director, officer, underwriter or
controlling person and shall survive the transfer of such securities
by such holder.
ii. Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration
statement filed pursuant to this Agreement, the Company shall have
received an undertaking satisfactory to it from the prospective seller
of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (i) of
this Section 2.7) the Company, each director of the Company, each
officer of the Company and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through
an instrument duly executed by such seller specifically stating that
it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Any such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such seller.
iii. Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions
of this Section 2.7, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 2.7,
except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying
party similarly notified, to the extent that the indemnifying party
may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability, or a covenant
not to sue, in respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by
an indemnifying party without the consent of such indemnifying party.
iv. Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with
appropriate modifications) shall be given by the Company and each
seller of Registrable Securities (but only if and to the extent
required pursuant to the terms of 2.7(ii)) with respect to any
required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority,
other than the Securities Act.
v. Indemnification Payments. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills
are received or expense, loss, damage or liability is incurred.
vi. Contribution. If the indemnification provided for in the
preceding subdivision of this Section 2.7 is unavailable to an
indemnified party in respect of any expense, loss, claim, damage or
liability referred to therein, 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 expense,
loss, claim, damage or liability (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company
on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the holder or
underwriter, as the case may be, on the other in connection with the
statements or omissions which resulted in such expense, loss, damage
or liability, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to
be in the same proportion as the total net proceeds received by the
Company from the initial sale of the Registrable Securities by the
Company to the purchasers bear to the gain, if any, realized by all
selling holders participating in such offering or the underwriting
discounts and commissions received by the underwriter, as the case may
be. The relative fault of the Company on the one hand and of the
holder or underwriter, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by the
holder or by the underwriter and the parties' relative intent,
knowledge, access to information supplied by the Company, by the
holder or by the underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission, provided that the foregoing contribution
agreement shall not inure to the benefit of any indemnified party if
indemnification would be unavailable to such indemnified party by
reason of the provisions contained in the first sentence of
subdivision (i) of this Section 2.7, and in no event shall the
obligation of any indemnifying party to contribute under this
subdivision (vi) exceed the amount that such indemnifying party would
have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (ii) of this Section
2.7 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (vi) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that 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 and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (iii) of this
Section 2.7, 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 subdivision (vi), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
allege untrue statement or 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 was not guilty of such
fraudulent misrepresentation.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Agreement": As defined in Section 1.
"Commission": The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this Agreement.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"Amex": As defined in Section 1.
"Note": As defined in Section 1, such term to include any securities issued
in substitution of or in addition to such Note.
"Person": A corporation, association, partnership, organization, business,
individual, governmental or political subdivision thereof or a governmental
agency.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, (e) on the expiration of
the applicable Registration Maintenance Period or (f) any and all legends
restricting transfer thereof have been removed in accordance with the provisions
of Rule 144(k) (or any successor provision) under the Securities Act.
"Registration Expenses": All expenses incident to the Company's performance
of or compliance with this Agreement, including, without limitation, all
registration, filing and NASD fees, all stock exchange and Amex listing fees,
all fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
premiums and other costs of policies of insurance of the Company against
liabilities arising out of the public offering of the Registrable Securities
being registered and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any, provided that, in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Required Effectiveness Date": As defined in Section 2.1.
"Securities Act": The Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in Section 1.
"Sellers' Representative": Global Capital Advisors, Ltd. or such Person
designated by Global Capital Advisors, Ltd.
"Warrant Shares": As defined in Section 1.
4. Rule 144. The Company shall timely file the reports required
to be filed by it under the Securities Act and the Exchange Act (including but
not limited to the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 4.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent if sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
Securities Purchase Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) in
the case of the Company, at the address set forth on the signature page hereto,
to the attention of its President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address specified
above, provided that any such notice, request or communication shall not be
effective until received.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Each of the Holders of the Registrable Securities
agrees, by accepting any portion of the Registrable Securities after the date
hereof, to the provisions of this Agreement including, without limitation,
appointment of the Sellers' Representative to act on behalf of such Holder
pursuant to the terms hereof which such actions shall be made in the good faith
discretion of the Sellers' Representative and be binding on all persons for all
purposes.
9. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF DELAWARE WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. Entire Agreement. Subject to Article X of the Securities Purchase
Agreement, this Agreement embodies the entire agreement and understanding
between the Company and each other party hereto relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
13. Severability. If any provision of this Agreement, or the application of
such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
AVITAR, INC.
By: /s/PETER P. PHILDIUS
Name: Peter P. Phildius
Title: CEO
Address: 65 Dan Road
Canton, MA 02021
Telephone_______________
Fax: __________________
Attn: Peter P. Phildius
GLOBAL CAPITAL FUNDING GROUP, L.P.
By its General Partner, Global Capital Management Services,
Inc.
By:
Name: Lewis N. Lester
Title: President
Address: 106 Colony Park Drive
Suite 900
Cumming, GA 30040
Telephone:(678) 947-0028
Fax: (678) 947-6499
Attn: Lewis N. Lester