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EXHIBIT 10.12
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REGISTRATION RIGHTS AGREEMENT
DATED AS OF JANUARY 28, 1998
BY AND BETWEEN
THE CATALYST FUND, LTD.
AND
ACR GROUP, INC.
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REGISTRATION RIGHTS AGREEMENT
TABLE OF CONTENTS
Section 1. DEFINITIONS
Section 2. REGISTRATION RIGHTS
2.1 Piggyback Registration..........................................................................2
2.2 Demand Registration Rights......................................................................3
(a) Right to Demand........................................................................3
(b) Number of Demand Registrations; Payment of Expenses....................................4
(c) Selection of Underwriters..............................................................5
(d) Company Registration...................................................................5
(e) Limitations on Registration Rights.....................................................5
2.3 Holdback Agreements; Requirements of the Holder.................................................7
(a) Restrictions on Public Sale by the Holder..............................................7
(b) Restrictions on Public Sale by the Company.............................................7
(c) Cooperation by Holder..................................................................7
2.4 Registration Procedures.........................................................................7
2.5 Registration Expenses..........................................................................11
2.6 Indemnification; Contribution..................................................................12
(a) Indemnification by the Company........................................................12
(b) Indemnification by Holders of Registrable Securities..................................12
(c) Conduct of Indemnification Proceedings................................................13
(d) Contribution..........................................................................13
2.7 Participation in Underwriting Registrations....................................................14
2.8 Rule 144; Information..........................................................................14
SECTION 3. OTHER REGISTRATION RIGHTS
3.1 Future Rights..................................................................................15
3.2 Representation and Warranty....................................................................15
SECTION 4. MISCELLANEOUS
4.1 Recapitalization, Exchanges, etc...............................................................15
4.2 Opinions.......................................................................................16
4.3 Notices........................................................................................16
4.4 Applicable Law.................................................................................16
4.5 Amendment and Waiver...........................................................................16
4.6 Remedy for Breach of Contract..................................................................17
4.7 Severability...................................................................................17
4.8 Counterparts...................................................................................17
4.9 Headings.......................................................................................17
4.10 Binding Effect.................................................................................17
4.11 Entire Agreement...............................................................................17
4.12 Multiple Holders...............................................................................17
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
and made as of January 28, 1998, by and among ACR Group, Inc., a Texas
corporation having its headquarters at 3200 Wilcrest, #440, Houston, Texas 77042
(the "Company"), and The Catalyst Fund, Ltd., a Texas limited partnership having
its headquarters at Three Riverway, Suite 770, Houston, Texas 77056
("Catalyst").
The Company has agreed to grant certain demand and piggyback
registration rights to Catalyst in connection with the issuance by the Company
of the Warrant (as hereinafter defined) to Catalyst.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the panics hereto agree as
follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
have the respective meanings set forth below or set forth in the Section or
paragraph following such term:
ADVICE - Section 2.4.
AGENT - Section 2.6(a).
AGREEMENT- introductory paragraph.
BUSINESS DAY - day other than a Saturday, Sunday or legal holiday for
commercial banks in the State of Texas.
CATALYST- introductory paragraph.
COMMISSION- the Securities and Exchange Commission.
COMMON STOCK - the Company's Common Stock, $.01 par value per share, or
any successor class of the Company's Common Stock.
COMPANY- introductory paragraph.
DEMAND NOTICE - Section 2.2.(a)(i).
DEMAND REGISTRATION - Section 2.2(a)(1).
EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
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HOLDER - Catalyst, any limited or general partner of Catalyst to whom
Registrable Securities are distributed by Catalyst and any Person holding
Registrable Securities.
HOLDERS' REPRESENTATIVE- Section 4.12.
INSPECTORS- Section 2.4(n).
LIABILITIES - Section 2.6(a).
1933 ACT - the Securities Act of 1933, as amended.
PERSON - any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or a political subdivision, agency or instrumentality thereof or
other entity or organization of any kind.
PIGGYBACK REGISTRATION - Section 2.1(a).
RECORDS- Section 2.4(n).
REGISTRABLE SECURITIES - any (i) shares of Common Stock or other
securities issued or issuable pursuant to the Warrant and (ii) any securities
issued in exchange for, as a dividend on, or in replacement or upon conversion
of, or otherwise issued in respect of (including securities issued in a stock
dividend, split or recombination or pursuant to the exercise of preemptive
rights), any shares of Common Stock or other securities described in clause (i),
until such time as such securities have been (w) distributed to the public
pursuant to a registration statement covering such securities that has been
declared effective under the 1933 Act, (x) distributed to the public in
accordance with the provisions of Rule 144 (or any similar provision then in
force) under the 1933 Act, (y) repurchased by the Company, or (z) registered
before issuance to a Holder.
REGISTRATION EXPENSES - Section 2.5.
WARRANT - that certain Warrant (No. 8) of even date herewith for the
purchase of 50,000 shares (subject to adjustment as provided therein) of Common
Stock granted by the Company to Catalyst and, collectively, any and all warrants
issued in substitution or replacement of such Warrant.
SECTION 2. REGISTRATION RIGHTS.
2.1 PIGGYBACK REGISTRATION.
(a) If the Company proposes to file a registration statement under the
1933 Act with respect to an offering by the Company for its own account or for
the account of any other Person of any class of equity security, including any
security convertible into or exchangeable for any equity security, then the
Company shall in each case give written notice of such proposed filing to the
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Holder at least shiny days before the anticipated filing date, and such notice
shall offer the Holder the opportunity to register such number of Registrable
Securities as the Holder may request (a "Piggyback Registration"). The Company
shall use reasonable diligence to cause the managing underwriter or underwriters
of a proposed underwritten offering to permit the Holder to include the
Registrable Securities requested by the Holder to be included in the
registration statement and in such offering on the same terms and conditions as
any similar securities of the Company included therein, to the extent permitted
by applicable law. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering delivers a written opinion to the Holder that the
total amount of securities which the Holder requests to include in such offering
is sufficiently large to materially and adversely affect the success of such
offering, then the amount or kind of Registrable Securities to be offered for
the accounts of all Persons whose shares of Registrable Securities were
requested to be included in such offering shall be reduced pro rata with respect
to each such Person to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter, such a reduction not to include shares of (i) if the
registration initially occurs at the insistence of the Company, the Company or
(ii) if such registration occurs due to a demand under a right similar to that
in Section 2.2 hereof, shares of the Person making that demand.
(b) Notwithstanding anything to the contrary contained in Section
2.1(a), the Company shall not be required to include Registrable Securities in
any registration statement pursuant to this Section 2.1 if the proposed
registration is (i) a registration of a stock option or other employee incentive
compensation plan or of securities-issued or issuable pursuant to any such plan,
(ii) a registration of securities issued or issuable pursuant to a stockholder
reinvestment plan or other similar plan, (iii) a registration of securities
issued in exchange for any securities or any assets of, or in connection with a
merger or consolidation with, an unaffiliated company, or (iv) a registration of
securities pursuant to a "rights" or other similar plan designed to protect the
Company's stockholders from a coercive or other attempt to take control of the
Company.
(c) The Company may withdraw any registration statement and abandon any
proposed offering initiated by the Company without the consent of the Holder
notwithstanding the request of the Holder to participate therein in accordance
with this provision, if the Company determines that such action is in the best
interests of the Company and its stockholders (for this purpose, the interests
of the Holder shall not be considered).
2.2 DEMAND REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND.
(i) Subject to the conditions stated hereinafter in this Section
2.2(a), beginning 18 months after the date hereof, the Holder may make a written
request to the Company for registration with the Commission of the sale of all
or part of the Registrable Securities owned by the Holder under and in
accordance with the provisions of the 1933 Act (a "Demand Registration");
provided that the Company may if necessary delay the filing of any registration
statement relating to any such Demand Registration for such reasonable period of
time as is necessary to prepare the financial
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statements of the Company for the fiscal period most recently ended prior to
such written request; provided further, however, that the Holder will use its
good-faith, reasonable efforts to time its requests for the Demand Registration
(within the meaning of Section 2.2(b)) in such a manner so as to minimize, to
the extent possible, the cost of such Demand Registration to the Company;
provided further, however, that the preceding proviso shall in no way limit the
rights of the Holder to realize the maximum possible value for their shares of
Registrable Securities to be offered to the public under such Demand
Registration; provided further that the effective date of any registration
statement relating to any such Demand Registration shall occur as soon as
practicable, and no later than 75 days after the written request for a Demand
Registration is made by the Holder or the Holders' Representative, as
applicable, in the manner described in the first sentence of this Section
2.2(a)(i) (unless a delay beyond such 75-day period occurs despite the Company's
having acted with diligence and good faith towards obtaining the effectiveness
of such registration statement within such 75-day period); and provided further
that in the event that more than one Person shall constitute the "Holder" under
this Agreement, any such written request for a Demand Registration may be made
only by the Holders' Representative.
(ii) All requests made pursuant to this Section 2.2(a) will specify the
amount and kind of securities to be registered, the Person or Persons who is the
owner of such Registrable Securities, and will also specify the intended methods
of disposition thereof. Notwithstanding anything to the contrary in this Section
2.2, the Company shall not be obligated to take any action with respect to a
request for a Demand Registration by the Holder unless such request would
involve the registration with the Commission of at least 100 shares of
Registrable Securities; and provided further, however, that if any other Person
shall have rights to request a Piggyback Registration of its securities in a
registration requested pursuant to this Agreement, the number of shares of
Securities requested by such Person to be included in a Demand Registration
pursuant hereto shall be counted towards determining whether the 100 share
threshold set forth in the first clause of this sentence shall have been
reached; and provided further, however, that if, in accordance with the
provisions of this sentence, the Company shall not be obligated to proceed with
a Demand Registration subsequent to a request therefor by the Holder, such
request shall be treated as if it had never been made, provided that the Company
gives the Holder as soon as practicable after the determination has been made
that fewer than 100 shares of Registrable Securities were requested to be
included therein by the Holder a notice stating that the Company will not
proceed with such requested Demand Registration and the reason therefor.
(b) NUMBER OF DEMAND REGISTRATIONS; PAYMENT OF EXPENSES. The Holder
shall be entitled to one (1) Demand Registration (which, except as provided to
the contrary in the immediately succeeding sentence, must become effective to
count as having occurred). The Holder shall pay all Registration Expenses (as
hereinafter defined) of the Demand Registration (and, until a Demand
Registration becomes effective, of each attempted Demand Registration that does
not become effective); provided, however, that if the Holder, prior to the date
that a Demand Registration becomes effective, chooses in its sole discretion not
to sell the Registrable Securities requested by it to be included in such Demand
Registration, such Demand Registration shall count as having occurred,
notwithstanding anything to the contrary in the first sentence of this Section
2.2(b); provided further that if (x) the Holder prior to the date that the
registration statement for a
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Demand Registration has been filed with the Commission, chooses in its sole
discretion not to require the Company to file such registration statement
pursuant to a notice to such effect to the Company or (y) the Holder, prior to
the Date that the registration statement for a Demand Registration has been
filed with the Commission or thereafter but prior to the date that the Demand
Registration becomes effective, releases the Company of its obligation to
proceed toward obtaining the effectiveness of such registration statement for
such Demand Registration pursuant to a request for such release by the Company,
such Demand Registration shall not count as having occurred for purposes of this
Section 2.2(b) and the request for such Demand Registration shall be treated as
if it had never been made. The Company shall not be obligated to file a
registration statement on Form S-1 under the 1933 Act, or any successor forms,
with respect to a Demand Registration under Section 2.2(a), and the Company's
registration statement filing obligations pursuant to this Agreement may be
fulfilled by it by its filing, in accordance with the provisions of this
Agreement, of registration statements on Form S-2 or Form S-3 under the 1933
Act. or any successor forms.
(c) SELECTION OF UNDERWRITERS. If any Demand Registration is an
underwritten offering, the Holder will select a managing underwriter or
underwriters acceptable to the Company to administer the offering, which
acceptance will not be unreasonably withheld or delayed.
(d) COMPANY REGISTRATION. Notwithstanding the provisions of Sections
2.2(a)-(c),the Company shall not be obligated to effect a registration requested
pursuant to Sections 2.2(a)-(c) if (i) within 10 days after receiving the notice
provided by the Holder under Sections 2.2(a)-(c), the Company notifies Holder of
its intention to file a registration statement for a firm commitment
underwritten public offering of Common Stock for the account of the Company and,
within 120 days after providing such notice, the Company files a registration
statement for such offering and (ii) the Company has never before exercised its
rights under this Section 2.2(d). In such case, the Holder shall have all the
rights provided herein as if no such Demand Registration had been requested. If
at any time the Company fails to diligently pursue any such registration
statement or offering, the provisions of the first sentence of this Section
2.2(d) shall not apply, and the Company shall be obligated, upon abandoning such
registration statement for such offering for any reason, to satisfy its
obligations under Sections 2.2(a)-(c). With respect to such Company
registration, the Company shall have the sole authority to select or terminate
the employment of underwriters, and to make all decisions in connection with the
filing, effectiveness and consummation of the proposed offering, subject to the
express provisions hereof.
(e) LIMITATIONS ON REGISTRATION RIGHTS. The obligations of the Company
under Sections 2.2(a)-(c) are subject to each of the following limitations,
conditions and qualifications:
(1) The Company shall be entitled to postpone for a reasonable
period of time (not exceeding 60 days) the filing (but not the
preparation) of any registration statement otherwise required to be
prepared and filed by it pursuant hereto if, at the time the Company
receives a request for such registration, the Company is in possession
of material non-public information that would be required to be
disclosed in a registration statement but that has not been and will
otherwise not be disclosed to the public and the Company deems
disclosure not to be in the best interests of the Company and its
stockholders generally (without
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considering the interests of the Holder). The Company shall be entitled
to postpone the filing of such a registration statement for additional
periods of time (not to exceed in any event an aggregate of 90 days) if
it delivers to the Holder an opinion of counsel to the effect that
there is a reasonable likelihood that the filing of a registration
statement would result in the disclosure of material nonpublic
information that would be required to be disclosed in a registration
statement, the disclosure of which at such time appears not to be in
the best interests of the Company and its stockholders.
(2) The Company shall be entitled to postpone for a reasonable
period of time (as short as practicable, but not exceeding 180 days)
the distribution of preliminary or final prospectuses under any
registration statement required to be prepared and filed by it pursuant
hereto, if at the time such distribution would otherwise be made the
Company is engaged in an issuer tender offer within the meaning of
Section 13(e) of the Exchange Act for securities of the same class as
the Registrable Securities that are proposed to be registered, unless
the Holder or the Holders' Representative, as applicable, can obtain a
no-action letter from the staff of the Commission to the effect that
the staff would not recommend enforcement action to the Commission if
offers or sales were made pursuant to a prospectus under such
circumstances.
(3) The Company shall be entitled to postpone for a reasonable
period of time (as short as practicable, but not exceeding 180 days)
the effectiveness (but not the filing or preparation) of any
registration statement otherwise required to be prepared and filed by
it pursuant hereto if, within 10 Business Days after it receives a
request for a registration pursuant hereto, the Company's investment
banking firm determines (and the Company so notifies the Holder) that
in its judgment, such registration and offering would materially
interfere with any financing, acquisition, corporate reorganization or
other material transaction involving the Company that prior to such
request the Board of Directors of the Company had agreed by resolution
to pursue.
(4) If, pursuant to a request for Demand Registration, the
Company delivers to the Holder or the Holders' Representative, as
applicable, an opinion of counsel to the effect that sales of
Registrable Securities thereunder might cause the Company to lose a
material amount of net operating losses or other tax carry forwards,
the Company may postpone the filing of the registration statement
otherwise required to be filed by it pursuant hereto, but only to the
extent required to protect such carry forwards, and only if it is first
determined that such protection cannot be effected by reducing the
number of securities being registered.
2.3 HOLDBACK AGREEMENTS; REQUIREMENTS OF THE HOLDER.
(a) RESTRICTIONS ON PUBLIC SALE BY THE HOLDER. To the extent not
inconsistent with applicable law, the Holder agrees that, during the Restriction
Period, as defined below, it will not
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effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, during the 14 days prior to,
and during the 90-day period beginning on, the effective date of such
registration statement (the "Restriction Period") (except as part of such
registration), but only if and to the extent requested in writing (with
reasonable prior notice) by the managing underwriter or underwriters in the case
of an underwritten public offering by the Company of securities similar to the
Registrable Securities.
(b) RESTRICTIONS PUBLIC SALE BY THE COMPANY. The Company agrees not to
effect any public sale or distribution of any securities being registered, or
any securities similar to those being registered, or any securities convertible
into or exchangeable or exercisable for such securities, during the 14 days
prior to, and during the 90-day period beginning on, the effective date of any
registration statement in which the Holder is participating (except (i) pursuant
to such registration statement, or (ii) pursuant to sales to employee stock
purchase or option plans which are exempt from the registration requirements of
the 1933 Act, or (iii) pursuant to any other stock option or similar agreements
which require the Company to issue securities in accordance with the terms of
such agreements, which issuances set forth in clauses (ii) and (iii) preceding
are exempt from the registration requirements of the 1933 Act).
(c) COOPERATION BY HOLDER. The offering of Registrable Securities by
the Holder shall comply in all respects with the applicable terms, provisions
and requirements set forth in this Agreement, and the Holder shall timely
provide the Company with all information and materials required to be included
in a registration statement that (a) relate to the offering, (b) are in
possession of the Holder, and (c) relate to the Holder, and to take all such
action as may be reasonably required in order not to delay the registration and
offering of the securities by the Company. The Company shall have no obligation
to include in such registration statement shares of the Holder if the Holder has
failed to furnish such information or materials and if, in the written opinion
of counsel to the Company, such information and materials are required in order
for the registration statement to be in compliance with the 1933 Act.
2.4 REGISTRATION PROCEDURES. Whenever any Registrable Securities are to
be registered pursuant to Sections 2.1 or 2.2, the Company will use reasonable
diligence to effect the registration of such Registrable Securities in
accordance with the intended method of disposition thereof as quickly as
practicable and in accordance with the provisions of Section 2. In connection
with any Piggyback Registration or Demand Registration, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement that
includes the Registrable Securities requested to be included therein in
accordance with Section 2.1 or 2.2 and use reasonable diligence to cause such
registration statement to become effective; provided, however, that at least ten
Business Days before filing a registration statement or prospectus or any
amendment or supplement thereto, including documents incorporated by reference
therein, the Company will furnish to the Holder, and the underwriters, if any,
draft copies of all such documents proposed to be filed, which documents will be
subject to the review of the Holder and such underwriters, and the Company will
not file any registration statement or prospectus or amendment or supplement
thereto
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(including such documents incorporated by reference) to which the Holder or the
underwriters with respect to such Registrable Securities, if any, shall
reasonably object; and provided further, however, that if the Company, in the
case of a Piggyback Registration, despite the reasonable objection of the Holder
desires to proceed with the registration of its shares, the Holder may withdraw
the Registrable Securities from being included in such offering, using its
good-faith efforts to minimize delay caused by such withdrawal, and the Company
may then, notwithstanding anything to the contrary in the immediately preceding
proviso, proceed with such offering; the Company and the Holder acknowledge that
such withdrawal by the Holder will delay such offering for as much time as is
necessary to amend such registration statement or prospectus to reflect the
withdrawal of such Registrable Securities from such offering;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep the registration statement effective for a period of twenty-four months (or
such shorter period which will terminate when all Registrable Securities covered
by such registration statement have been sold or withdrawn, but not prior to the
expiration of the 90-day period referred to in Section 4(3) of the 1933 Act and
Rule 174 thereunder, if applicable); cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act
applicable to it with respect to the disposition of all securities covered by
such registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus; the Company shall not be
deemed to have complied with its obligations hereunder to keep a registration
statement effective during the applicable period if it voluntarily takes any
action that would result in the prevention of the Holder from selling such
Registrable Securities during that period unless such action is required under
applicable law;
(c) furnish to the Holder and the underwriter or underwriters, if any,
without charge, such reasonable number of conformed copies of the registration
statement and any post-effective amendment thereto and such reasonable number of
copies of the prospectus (including each preliminary prospectus) and any
amendments or supplements thereto, and any documents incorporated by reference
therein, as the Holder or underwriter may request in order to facilitate the
disposition of the Registrable Securities being sold by the Holder (it being
understood that the Company consents to the use of the prospectus and any
amendment or supplement thereto by the Holder and the underwriter or
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto);
(d) notify the Holder at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, when the Company becomes aware of
the happening of any event as a result of which the prospectus included in such
registration statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and, as promptly as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such
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Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(e) use reasonable diligence to cause all Registrable Securities
included in such registration statement to be listed, by the date of the first
sale of Registrable Securities pursuant to such registration statement, on each
securities exchange (including, for this purpose, NASDAQ) on which the Common
Stock of the Company is then listed or proposed to be listed, if any;
(f) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the 1933 Act no later
than 45 days after the end of the 12-month period beginning with the first day
of the Company's first fiscal quarter commencing after the effective date of the
registration statement, which earnings statement shall cover said 12-month
period, which requirement will be deemed to be satisfied if the Company timely
files complete and accurate information on such forms and reports as the Company
may be required to file under the Exchange Act and otherwise complies with Rule
158 under the 1933 Act as soon as feasible;
(g) notify the Holder of any stop order issued or threatened by the
Commission in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment;
(h) if requested by the managing underwriter or underwriters, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or the Holder reasonably
requests to be included therein, including, without limitation, the purchase
price being paid therefor by such underwriter or underwriters and any other
terms of the underwritten offering of such Registrable Securities (excluding,
however, information with respect to the number of Registrable Securities being
sold to such underwriter or underwriters by the Holder), and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(i) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement,
deliver to the Holder as many copies of that document as may be reasonably
requested by the Holder;
(j) on or prior to the date on which the registration statement is
declared effective, use reasonable diligence to register or qualify, and
cooperate with the Holder the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the Registrable
Securities covered by the registration statement for offer and sale under the
securities or blue sky laws of each state and other jurisdiction of the United
States as the Holder or underwriter reasonably requests in writing, to use
reasonable diligence to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and to do any and all
other acts or things
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necessary or advisable to enable the disposition in all such jurisdictions of
the Registrable Securities covered by the applicable registration statement;
provided that the Company will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process in any such
jurisdiction where it is not then so subject; and provided, further, however,
that while it is the present intention of the Holder to cooperate with the
Company to keep the costs of compliance with state blue sky laws to a minimum,
the Holder shall have the right to require compliance by the Company with the
blue sky laws of as many states as the managing underwriter deems reasonably
necessary in its good faith judgment to realize the maximum possible value for
the Registrable Securities included in such registration statement;
(k) cooperate with the Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing securities to be sold under the registration statement
and enable such securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, may request, subject
to the underwriters' obligation to return any certificates representing
securities not sold;
(l) use reasonable diligence to cause the Registrable Securities
covered by the registration statement to be registered with or approved by such
other governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such securities;
(m) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other reasonable actions as the
Holder or the underwriters retained by the Holder participating in an
underwritten public offering, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(n) make available for inspection by the Holder any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be necessary to enable them to exercise their due diligence
responsibility; and cause the Company's officers, directors and employees
to-make available for inspection and/or copying all Records reasonably requested
by any such Inspector in connection with such registration statement; provided
however, that in the case of a second Demand Registration (within the meaning of
Section 2.2(b)), the Holder shall bear the out-of-pocket costs of copying such
documents as are requested by any such Inspector in accordance with this Section
2.4(n); and
(o) use reasonable diligence to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters covering
registration statements similar to the registration statement at issue as the
Holder reasonably requests.
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The Holder, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subsection (d) of this Section
2.4, will forthwith discontinue disposition of the Registrable Securities until
the Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 2.4 and copies of any additional
or supplemental filings which are incorporated by reference in the prospectus,
or until it is advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed. If so directed by the Company, the Holder shall
deliver to the Company (at the Company's expense) all copies in its possession
or control, other than permanent file copies then in the Holder's possession, of
the prospectus covering such Registrable Securities. In the event the Company
shall give any such notice, the time periods mentioned in subsection (b) of this
Section 2.4 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such registration statement
shall have received the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 2.4 hereof or the Advice.
If such registration statement refers to the Holder by name or
otherwise as the holder of any securities of the Company then the Holder shall
have the right to require (i) the insertion therein of language, in form and
substance satisfactory to the Holder to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation of such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that the Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder by name or otherwise is not required by the Securities
Act or any similar federal statute then in force, the deletion of the reference
to such Holder.
2.5 REGISTRATION EXPENSES. Except as otherwise provided in Section
2.2(b), all expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation, all Commission and securities
exchange or National Association of Securities Dealers, Inc. registration and
filing fees, all fees and expenses (other than the pro rata portion of filing
fees that are required by state law with respect to the securities to be sold)
relating to compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), all printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), fees and
expenses incurred in connection with the listing of the securities to be
registered on securities exchanges, fees and disbursements of counsel for the
Company and its independent certified public accountants (including the expenses
required for "cold comfort" letters required by or incident to such
performance), and fees and expenses of any special experts retained by the
Company in connection with such registration (but not including any underwriting
fees, discounts or commissions directly attributable to the sale of Registrable
Securities) (all such expenses being herein called "Registration Expenses"),
will be home by the Company; provided, however that, the Company shall not be
obligated to pay (i) the fees and disbursements of any counsel for the Holder or
liability insurance (if the Company elects to obtain such insurance) for the
Holder, or (ii) any out-of-pocket expenses of the Holder, which fees,
disbursements and expenses described in clauses (i) and (ii) preceding shall be
borne by the Holder, and provided that the Holder shall bear its pro rata
portion of any underwriting fees, discounts or
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commissions directly attributable to any sale of Registrable Securities in which
the Holder participates.
2.6 INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
partners and each Person who controls such Holder (within the meaning of the
1933 Act), and any Agent (as hereinafter defined) or investment advisor thereof
against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation, and attorneys fees and expenses as further
provided in Section 2.6(c)) (collectively, "Liabilities") arising out of or
based upon any untrue or alleged untrue statement of material fact contained in
any registration statement, any amendment or supplement thereto, or any
prospectus or preliminary prospectus contained therein, 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, except insofar as
any such Liabilities arise out of or are based upon any untrue statement or
omission based upon information with respect to such indemnified Person
furnished in writing to the Company by such indemnified Person expressly for use
therein. In connection with an underwritten offering, the Company will indemnify
the underwriters thereof, their officers and directors and each Person who
controls such underwriters (within the meaning of the 1933 Act) to the same
extent as provided above with respect to the indemnification of the Holders of
Registrable Securities or to such other extent as the Company and such
underwriters may agree. For purposes of this Section 2.6(a), an "Agent" of a
Holder of Registrable Securities is any Person acting for or on behalf of such
Holder with respect to the holding or sale of such Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any registration statement in which the Holder is participating, the Holder
will furnish to the Company in writing such information with respect to the name
and address of the Holder and the amount of Registrable Securities held by the
Holder and such other information as the Company shall reasonably request for
use in connection with any such registration statement or prospectus, and agrees
to indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading! to the extent. but only to the extent, that
such untrue statement or omission is based upon any information with respect to
the Holder so furnished in writing by the Holder specifically for inclusion in
any prospectus or registration statement. In connection with an underwritten
offering, the Holder participating in such offering will indemnify the
underwriters thereof, their officers and directors and each Person who controls
such underwriters (within the meaning of the 1933 Act) to the same extent as
provided in the immediately preceding sentence with respect to indemnification
of the Company. In no event shall the liability of the Holder hereunder be
greater in amount than the dollar amount of the proceeds received by the Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
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(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person may claim indemnification or contribution
pursuant to this Agreement and, unless in the written opinion of counsel for
such indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume, at the sole cost and expense of the indemnifying
party, the defense of such claim with counsel reasonably satisfactory to such
indemnified party. Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent. No indemnifying party will consent to entry
of any judgment or enter into any settlement 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 in respect of such claim or
litigation. If the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, the indemnified party shall be entitled to hire
counsel reasonably satisfactory to it, the fees and expenses of which shall be
borne by, in their entirety, the indemnifying party; provided, however, that the
indemnifying party shall not be obligated to pay the fees and expenses of more
than one counsel with respect to such claim, unless in the opinion of counsel
for any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in this Section
2.6 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 2.6(c), any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.6(d), the Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable
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Securities of the Holder were offered to the public exceeds the amount of any
damages which the Holder has otherwise been required to pay by reason of such
untrue statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(0 of the 1933 Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The obligations of the Company pursuant to this Section 2.6 shall be
further subject to such additional express agreements of the Company as may be
required to facilitate an underwritten offering, provided that no such agreement
shall in any way limit the rights of the Holder under this Agreement, or create
additional obligations of the Holder not set forth herein, except as otherwise
expressly agreed in writing by the Holder.
2.7 PARTICIPATION IN UNDERWRITING REGISTRATIONS. Holder may not
participate in any underwritten registration hereunder unless the Holder (a)
agrees to sell its securities on the terms of and on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements (which shall be (i) the Company in the case of an offering of
securities by the Company and (ii) the Holder in the case of a Demand
Registration) and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
2.8 RULE 144; INFORMATION. The Company covenants that, upon any
registration statement covering Company securities becoming effective, it will
file the reports required to be filed by it under the 1933 Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
the Holder make publicly available other nonconfidential information as is
necessary to permit sales under Rule 144 under the 1933 Act), and it will take
such other action as the Holder may reasonably request, all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the 1933 Act within the limitation of the exemptions
provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the
Commission; provided further that if the Company is not required to file reports
under the 1933 Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder, the Company shall, upon the request of the Holder,
provide the Holder audited financial statements and access to the books and
records of the Company and, if requested by the Holder sufficient information to
enable the Holder to comply with Rule 144 or Rule 144A under the 1933 Act. Upon
the request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
SECTION 3. OTHER REGISTRATION RIGHTS.
3.1 FUTURE RIGHTS. From the date of this Agreement until the earlier to
occur of the sixth anniversary hereof or the date that all Registrable
Securities have been registered under the 1933 Act, the Company will not grant
to any Person (excluding the Holder) any registration rights with respect to any
securities of the Company other than registration rights ("new rights") that are
granted in
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connection with the investment in the Company by such grantee of at least
$1,000,000. Such new rights must (i) be subordinate to and of a lesser priority
than the registration rights granted by the Company under this Agreement, (ii)
be approved in writing by the Holder, and (iii) not be inconsistent with the
terms of this Agreement. Additionally, new rights may not be granted without
expressly providing that, with respect to demand registration rights granted to
such other Persons, the Holder have a piggyback right upon the exercise of such
new rights and shall be included in any related registration statement on the
same terms and conditions as the holders of the new rights, subject to possible
reduction at the initiative of the managing underwriter or underwriters, on
terms substantially equivalent to those set forth in Section 2.1. The Company
may grant registration rights that permit any Person the right to piggyback or
may itself exercise the right to piggyback on any Demand Registration; provided
that if the managing underwriter or underwriters of such offering delivers an
opinion to the Holder that the total amount of securities which they and the
holders of such piggyback rights intend to include in any offering is so large
as to materially and adversely affect the success of such offering (including
the price at which such securities can be sold), then the amount or kind of
securities to be offered for the account of holders of such piggyback rights, or
the Company if it is exercising piggyback rights, will be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by the managing underwriter prior to any
reduction in the amount of Registrable Securities to be included; and further
provided that if such offering is not underwritten, then any such piggyback
shall only be exercised with the consent of the Holder.
3.2 REPRESENTATION AND WARRANT. The Company hereby represents and
warrants to Catalyst that on or prior to the date hereof, (a) the Company has
not granted registration rights to any Person except for the registration rights
granted under this Agreement, and (b) no consent, approval, authorization or
waiver of any Person is required to permit the Company to (i) execute or deliver
this Agreement or (ii) perform this Agreement in accordance with its terms other
than with respect to registration under the 1933 Act and comparable
registrations with state securities commissions.
SECTION 4. MISCELLANEOUS.
4.1 RECAPITALIZATION, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of equity capital of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Registrable Securities, in each case as the amounts of such
securities outstanding are appropriately adjusted for any equity dividends,
splits, reverse splits, combinations, recapitalization and the like occurring
after the date of this Agreement.
4.2 OPINIONS. When any legal opinion is required to be delivered
hereunder, such opinion may contain such qualifications as may be customary or
otherwise appropriate for legal opinions in similar circumstances.
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4.3 NOTICES. (a) All communications under this Agreement shall be in
writing to the following addresses:
(i) If to Company, to:
ACR Group, Inc.
3200 Wilcrest, #440
Houston, Texas 77042
Attention: Tony Maresca, Senior Vice
President and Chief Financial
Officer
Facsimile No.: (713) 780-4067
(ii) If to the Holder, to:
The Catalyst Fund, Ltd.
Three Riverway, Suite 770
Houston, Texas 77056
Attention: Ron Nixon
Facsimile No.: (713) 623-0473
or to such other address as any party may furnish to the others in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
(b) Any communication so addressed and mailed by first class registered
or certified mail, postage prepaid, shall be deemed to be received on the third
Business Day after so mailed, and if delivered by personal delivery (including
by courier) or facsimile to such address, upon delivery during normal business
hours.
4.4 APPLICABLE LAW. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
4.5 AMENDMENT AND WAIVER. This Agreement may be amended, and the
provisions hereof may be waived, only by a written instrument signed by the
Holder and the Company. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
4.6 REMEDY FOR BREACH OF CONTRACT. The parties agree that in the event
there is any breach or asserted breach of the terms, covenants or conditions of
this Agreement, the remedy of the parties hereto shall be in law and in equity
and injunctive relief shall lie for the enforcement of or relief from any
provisions of this Agreement. If any remedy or relief is sought and obtained by
any party against one of the other parties pursuant to this Section 4.6, the
other party shall, in addition
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to the remedy of relief so obtained, be liable to the party seeking such remedy
or relief for the reasonable expenses incurred by such party in successfully
obtaining such remedy or relief, including the fees and expenses of such party's
counsel.
4.7 SEVERABILITY. It is a desire and intent of the parties that the
terms, provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any Person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any Person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
4.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
4.9 HEADINGS. The section and paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
4.10 BINDING EFFECT. Unless otherwise provided herein, the provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns, and is not intended to confer upon any other Person any right
or remedies hereunder, provided, however, that a transferee of Holder shall be
deemed to be a Holder for purposes of obtaining the benefits or enforcing the
rights of a Holder.
4.11 ENTIRE AGREEMENT. This Agreement, together with the other
agreements referenced herein, constitutes the entire agreement and supersedes
all prior agreements, understandings, both written and oral, among the parties
with respect to the subject matter hereof.
4.12 MULTIPLE HOLDERS. In the event that more than one Person shall
constitute the "Holder" under this Agreement each such Person shall have the
rights and duties of the Holder hereunder with respect to its Registerable
Securities but not those of any other such Persons. In that event, however,
Catalyst (or if Catalyst no longer is a Person constituting the Holder, such
other Person as all of the Persons constituting the Holder shall designate with
the Company's consent) shall act as representative of all such Persons
constituting the Holder (the "Holders' Representative") for the purposes of
giving and receiving consents, notices, amendments, and documents and exercising
the rights of the Holder. Accordingly, if more than one Person shall constitute
the Holder (a) any amendment signed by the Holders' Representative shall be
conclusively deemed, as between the parties hereto, as having been signed by the
Holder, (b) any consent required or permitted to be obtained from the Holder
shall be obtained only from the Holders' Representative, and (c) any notice
required to be given or document delivered pursuant to this Agreement shall be
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deemed duly given or delivered only if given to the Holders' Representative in
accordance with Section 4.3. In no event, however, shall the Holder's
Representative or any other Person constituting the Holder be liable for
information supplied by a Person constituting the Holder, and that Person and
the Company shall deal directly with each other with respect to matters in
Section 2.6.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACR GROUP, INC.
By:
--------------------------------
Alex Trevino, Jr., President
THE CATALYST FUND, LTD.
By: RDR Management I, Inc.,
its general partner
By:
-------------------------
Ron Nixon, Vice President
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