EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
January 21, 2014, by and among Advanced Cannabis Solutions, Inc., a Colorado
corporation, with headquarters located at 7750 N. Union Blvd., Suite 201,
Colorado Springs, Colorado 80920, (the "Company"), and the investors listed on
the Schedule of Buyers attached hereto (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to each Buyer senior secured
convertible notes of the Company (the "Notes"), which will, among other things,
be convertible (upon conversion, redemption, payment of interest or otherwise)
into a certain number of shares of the Company's common stock, no par value (the
"Common Stock") (the Common Stock issuable pursuant to the terms of the Notes,
the "Conversion Shares") in accordance with the terms of the Notes and (ii)
warrants (the "Warrants") which will be exercisable to purchase shares of Common
Stock (as exercised, the "Warrant Shares") in accordance with the terms of the
Warrants.
B. In accordance with the terms of the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
(a) "Additional Effective Date" means the date the Additional Registration
Statement is declared effective by the SEC.
(b) "Additional Effectiveness Deadline" means the date which is forty-five
(45) calendar days after the earlier of the Additional Filing Date and the
Additional Filing Deadline.
(c) "Additional Filing Date" means the date on which the Additional
Registration Statement is filed with the SEC.
(d) "Additional Filing Deadline" means if Cutback Shares are required to be
included in any Additional Registration Statement, the later of (i) the date
sixty (60) days after the date substantially all of the Registrable Securities
registered under the immediately preceding Registration Statement are sold and
(ii) the date six (6) months from the Initial Effective Date or the most recent
Additional Effective Date, as applicable.
(e) "Additional Registrable Securities" means, (i) any Cutback Shares not
previously included on a Registration Statement and (ii) any capital stock of
the Company issued or issuable with respect to the Notes, the Conversion Shares,
the Warrants, the Warrant Shares, or the Cutback Shares, as applicable, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on the issuance of Common
Stock pursuant to the terms of the Notes or exercise of the Warrants.
(f) "Additional Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.
(g) "Additional Required Registration Amount" means any Cutback Shares not
previously included on a Registration Statement, all subject to adjustment as
provided in Section 2(f) without regard to any limitations on issuance of Common
Stock pursuant to the Notes or exercise of the Warrants.
(h) "Business Day" means any day other than Saturday, Sunday or any other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.
(i) "Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
(j) "Cutback Shares" means any of the Initial Required Registration Amount
or the Additional Required Registration Amount, as applicable, of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock permitted to be registered by the staff of the SEC pursuant to
Rule 415. The number of Cutback Shares shall be allocated pro rata among the
Investors with each Investor entitled to elect the portion of its Conversion
Shares and/or Warrant Shares that are to be considered Cutback Shares. For the
purpose of determining the Cutback Shares, in order to determine any applicable
Required Registration Amount, unless an Investor gives written notice to the
Company to the contrary with respect to the allocation of its Cutback Shares,
first the Conversion Shares shall be excluded on a pro rata basis among the
Investors until all of the Conversion Shares have been excluded, and second the
Warrant Shares shall be excluded on a pro rata basis until all of the Warrant
Shares have been excluded.
(k) "effective" and "effectiveness" refer to a Registration Statement that
has been declared effective by the SEC and is available for the resale of the
Registrable Securities required to be covered thereby.
(l) "Effective Date" means the Initial Effective Date and the Additional
Effective Date, as applicable.
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(m) "Effectiveness Deadline" means the Initial Effectiveness Deadline and
the Additional Effectiveness Deadline, as applicable.
(n) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., The NYSE MKT LLC, The NASDAQ Capital Market, The NASDAQ Global
Market or The NASDAQ Global Select Market.
(o) "Initial Effective Date" means the date that the Initial Registration
Statement has been declared effective by the SEC.
(p) "Initial Effectiveness Deadline " means the date which is thirty (30)
calendar days after the earlier of (i) the Initial Filing Date and (ii) the
Initial Filing Deadline.
(q) "Initial Filing Deadline" means the date which is sixty (60) calendar
days after the earlier of (i) the Closing Date and (ii) the date of the
termination of the obligation of the Buyers to purchase Notes from the Company
under the Securities Purchase Agreement.
(r) "Initial Registrable Securities" means (i) the Conversion Shares issued
or issuable pursuant to the terms of the Notes, (ii) the Warrant Shares issued
or issuable upon exercise of the Warrants and (iii) any capital stock of the
Company issued or issuable with respect to the Notes, the Conversion Shares, the
Warrant Shares or the Warrants as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, in each case without
regard to any limitations on the issuance of shares of Common Stock pursuant to
the terms of the Notes or exercise of the Warrants.
(s) "Initial Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.
(t) "Initial Required Registration Amount" means 130% of the sum of (i) the
maximum number of Conversion Shares issued and issuable pursuant to the Notes
and (ii) the maximum number of Warrant Shares issued and issuable pursuant to
the Warrants as of the Trading Day immediately preceding the applicable date of
determination, subject to adjustment as provided in Section 2(f), without regard
to any limitations on the issuance of Common Stock pursuant to the terms of the
Notes or exercise of the Warrants.
(u) "Investor" means a Buyer or any transferee or assignee thereof to whom
a Buyer assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
(v) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(w) "Principal Market" means the OTC Bulletin Board.
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(x) "register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415, and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.
(y) "Registrable Securities" means the Initial Registrable Securities and
the Additional Registrable Securities.
(z) "Registration Statement" means the Initial Registration Statement and
the Additional Registration Statement, as applicable.
(aa) "Required Holders" means the holders of at least a majority of the
Registrable Securities.
(bb) "Required Registration Amount" means the Initial Required Registration
Amount or the Additional Required Registration Amount, as applicable.
(cc) "Rule 415" means Rule 415 promulgated under the 1933 Act or any
successor rule providing for offering securities on a continuous or delayed
basis.
(dd) "SEC" means the United States Securities and Exchange Commission.
(ee) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).
2. Registration.
(a) Initial Mandatory Registration. Unless the Required Holders indicate in
writing otherwise, the Company shall prepare, and, as soon as practicable but in
no event later than the Initial Filing Deadline, file with the SEC the Initial
Registration Statement on Form S-3 covering the resale of the Initial Required
Registration Amount of Initial Registrable Securities. In the event that Form
S-3 is unavailable for such a registration, the Company shall use Form S-1 or
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders, subject to the provisions of
Section 2(f). The Initial Registration Statement prepared pursuant hereto shall
register for resale at least the number of shares of Common Stock equal to the
Initial Required Registration Amount determined as of the date the Initial
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 2(f). The Initial Registration Statement shall contain
(except if otherwise directed by the Required Holders) the "Plan of
Distribution" and "Selling Stockholders" sections in substantially the form
attached hereto as Exhibit B. The Company shall use its best efforts to have the
Initial Registration Statement declared effective by the SEC as soon as
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practicable, but in no event later than the Initial Effectiveness Deadline. By
9:30 a.m. New York time on the Business Day following the Initial Effective
Date, the Company shall file with the SEC in accordance with Rule 424 under the
1933 Act the final prospectus to be used in connection with sales pursuant to
such Initial Registration Statement.
(b) Additional Mandatory Registrations. The Company shall prepare, and, as
soon as practicable but in no event later than the Additional Filing Deadline,
file with the SEC an Additional Registration Statement on Form S-3 covering the
resale of all of the Additional Registrable Securities not previously registered
on an Additional Registration Statement hereunder. To the extent the staff of
the SEC does not permit the Additional Required Registration Amount to be
registered on an Additional Registration Statement, the Company shall file
Additional Registration Statements successively trying to register on each such
Additional Registration Statement the maximum number of remaining Additional
Registrable Securities until the Additional Required Registration Amount has
been registered with the SEC. In the event that Form S-3 is unavailable for such
a registration, the Company shall use such Form S-1 or other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders, subject to the provisions of Section 2(e).
Each Additional Registration Statement prepared pursuant hereto shall register
for resale at least that number of shares of Common Stock equal to the
Additional Required Registration Amount determined as of the date such
Additional Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 2(f). Each Additional Registration Statement
shall contain (except if otherwise directed by the Required Holders) the
"Selling Stockholders" and "Plan of Distribution " sections in substantially the
form attached hereto as Exhibit B. The Company shall use its best efforts to
have each Additional Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the Additional Effectiveness
Deadline. By 9:30 a.m. New York time on the Business Day following the
Additional Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Additional Registration Statement.
(c) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase or decrease
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase or decrease thereof is declared
effective by the SEC. In the event that an Investor sells or otherwise transfers
any of such Investor's Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. In no event shall
the Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required
Holders.
(d) Legal Counsel. Subject to Section 5 hereof, the Required Holders shall
have the right to select one legal counsel to review and oversee any
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registration pursuant to this Section 2 ("Legal Counsel"), which shall be such
counsel as thereafter designated by the Required Holders. The Company and Legal
Counsel shall reasonably cooperate with each other in performing the Company's
obligations under this Agreement.
(e) Ineligibility for Form S-3. In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on Form S-1
or another appropriate form reasonably acceptable to the Required Holders and
(ii) undertake to register the Registrable Securities on Form S-3 as soon as
such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
(f) Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
or Section 2(b) is insufficient to cover the Required Registration Amount of
Registrable Securities required to be covered by such Registration Statement or
an Investor's allocated portion of the Registrable Securities pursuant to
Section 2(c), the Company shall amend the applicable Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least the Required Registration Amount
as of the Trading Day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use its best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the number of shares of
Common Stock available for resale under the Registration Statement is less than
the product determined by multiplying (i) the Required Registration Amount as of
such time by (ii) 0.90. The calculation set forth in the foregoing sentence
shall be made without regard to any limitations on the issuance of shares of
Common Stock pursuant to the terms of the Notes or exercise of the Warrants and
such calculation shall assume (i) that the Notes are then convertible in full
into shares of Common Stock at the then prevailing Conversion Rate (as defined
in the Notes) (ii) the initial outstanding principal amount of the Notes remains
outstanding through the scheduled Maturity Date (as defined in the Notes) and no
redemptions of the Notes occur prior to the scheduled Maturity Date and (iii)
the Warrants are then exercisable in full into Common Stock at the then
prevailing Exercise Price (as defined in the Warrants).
3. Related Obligations.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), 2(b), 2(e), or 2(f), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to the Registrable Securities and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
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become effective as soon as practicable after such filing (but in no event later
than the Effectiveness Deadline). The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction or limitation
pursuant to Rule 144 and without the requirement to be in compliance with Rule
144(c)(1) (or any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the "Registration Period"). The Company
shall ensure that each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within two (2) Business Days after the later of
the date that (i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and (ii)
the approval of Legal Counsel pursuant to Section 3(c) (which approval is
immediately sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than two (2) Business Days
after the submission of such request. The Company shall respond in writing to
comments made by the SEC in respect of a Registration Statement as soon as
practicable, and shall use its reasonably best efforts to respond within fifteen
(15) days after the receipt of comments by or notice from the SEC that an
amendment is required in order for a Registration Statement to be declared
effective.
(b) Unless otherwise waived by the Required Holders, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with such Registration Statement, which prospectus is to be filed
pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep
such Registration Statement effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall
have incorporated such report by reference into such Registration Statement, if
permitted by the SEC, or shall file such amendments or supplements with the SEC
on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement such Registration Statement.
(c) The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least five (5) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and any similar or successor reports) within
a reasonable number of days prior to their filing with the SEC, and (B) not file
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any Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.
(d) The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) promptly after
the same is prepared and filed with the SEC, at least one copy of such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, as many copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto as such Persons may reasonably request and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
(e) The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of the State of New York and such
other states as are reasonably requested by the Required Holders, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
(f) The Company shall notify Legal Counsel and each Investor in writing of
the happening of any event, as promptly as practicable after becoming aware of
such event but in any event on the same Trading Day as such event, as a result
of which the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
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in the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver as many copies of such supplement or amendment to Legal
Counsel and each Investor as such Persons may reasonably request. The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile or electronic mail on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate. By
9:30 a.m. New York City time on the date following the date any post-effective
amendment has become effective, the Company shall file with the SEC in
accordance with Rule 424 under the 1933 Act the final prospectus to be used in
connection with sales pursuant to such Registration Statement.
(g) The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
(h) If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, at the reasonable request of such Investor, the Company shall
furnish to such Investor on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investors, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.
(i) If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, the Company shall make available for inspection by (i) such
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors"), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
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necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
Agreement. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(j) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(k) The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) secure the
inclusion for quotation of all of the Registrable Securities on the Principal
Market or (iii) if, despite the Company's best efforts, the Company is
unsuccessful in satisfying the preceding clauses (i) and (ii), to secure the
inclusion for quotation on an Eligible Market for such Registrable Securities
and, without limiting the generality of the foregoing, to use its best efforts
to arrange for at least two market makers to register with the Financial
Industry Regulatory Authority, Inc. ("FINRA") as such with respect to such
Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
(l) The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.
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(m) If requested by an Investor, the Company shall as soon as practicable
(i) incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.
(n) The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
(o) The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the applicable Effective Date of a Registration
Statement.
(p) The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
(q) Within two (2) Business Days after a Registration Statement which
covers Registrable Securities is declared effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.
(r) Notwithstanding anything to the contrary herein, at any time after the
Effective Date, the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a "Grace Period"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed five (5)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of twenty (20) days and the first
day of any Grace Period must be at least five (5) Trading Days after the last
day of any prior Grace Period (each, an "Allowable Grace Period"); provided,
further, that no such suspension shall be permitted arising out of the same set
of facts, circumstances or transactions. For purposes of determining the length
of a Grace Period above, the Grace Period shall begin on and include the date
11
the Investors receive the notice referred to in clause (i) above and shall end
on and include the later of the date the Investors receive the notice referred
to in clause (ii) above and the date referred to in such notice. The provisions
of Section 3(g) hereof shall not be applicable during the period of any
Allowable Grace Period. Upon expiration of the Grace Period, the Company shall
again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale, prior to the
Investor's receipt of the notice of a Grace Period and for which the Investor
has not yet settled.
(s) Neither the Company nor any Subsidiary or affiliate thereof shall
identify any Investor as an underwriter in any public disclosure or filing with
the SEC, the Principal Market or any Eligible Market and any Investor being
deemed an underwriter by the SEC shall not relieve the Company of any
obligations it has under this Agreement or any other Transaction Document (as
defined in the Securities Purchase Agreement); provided, however, that the
foregoing shall not prohibit the Company from including the disclosure found in
the "Plan of Distribution" section attached hereto as Exhibit B in the
Registration Statement; provided, further, that if a Buyer is required to be
identified as an underwriter under any law or rule, then after such Buyer has
had a reasonable opportunity to discuss the matter with the applicable agency so
requiring its identification as an underwriter, such Buyer shall either consent
to be so identified or promptly withdraw whatever portion of the Registrable
Securities from the applicable Registration Statement is necessary so that it
would not be required to be so identified. Upon any such withdrawal, the
Company's obligations with respect to such withdrawn Registrable Securities
under Section 2 shall be suspended until such time as such withdrawn Registrable
Securities may be included in a Registration Statement without requiring such
Buyer to be identified as an underwriter.
(t) The Company shall not file any other registration statements until, or
grant registration rights to any Person that can be exercised prior to the time
that, all Registrable Securities are registered pursuant to a Registration
Statement that is declared effective by the SEC, provided that this Section 3(t)
shall not prohibit the Company from filing amendments (pre-effective and
post-effective) to registration statements filed prior to the date of this
Agreement; provided that no such amendment shall increase the number of
securities registered on a registration statement. Notwithstanding the
foregoing, the Company shall be permitted to include in the Registration
Statement (i) shares of Common Stock issuable upon conversion of those certain
convertible promissory notes issued by the Company on December 27, 2013 as
described in the Company's Current Report on Form 8-K filed on January 6, 2014
(such shares, the "Spencer Edwards Shares") (ii) up to 12,500,000 shares of
Common Stock issued on or around June 30, 2013 (the "June 2013 Shares"), (iii)
up to 973,000 shares of Common Stock issued during August and September 2013,
and 973,000 shares issuable upon exercise of the warrants issued during August
and September 2013 (collectively, the "August/September Shares") and together
with the Spencer Edward Shares, the June 2013 Shares and the Registrable
Securities, the "Registrable Shares"), provided that if any Registration
Statement is not permitted to include all the Registrable Shares as a result of
12
a limitation on the maximum number of shares of Common Stock permitted to be
registered by the staff of the SEC pursuant to Rule 415 or otherwise, first the
Spencer Edwards Shares, the June 2013 Shares and the August/September Shares
shall be excluded until all of such shares have been excluded, and second the
Registrable Securities shall be excluded pursuant to the terms of this
Agreement. Neither the Company nor any of its Subsidiaries has entered, as of
the date hereof, nor shall the Company or any of its Subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities, that would have the effect of impairing the rights granted to the
Buyers in this Agreement or otherwise conflicts with the provisions hereof.
4. Obligations of the Investors.
(a) At least five (5) Business Days prior to the first anticipated Filing
Date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete any registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until such Investor's receipt of copies of the
supplemented or amended prospectus as contemplated by Section 3(g) or the first
sentence of Section 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of Section 3(f) and for which the Investor
has not yet settled.
(d) Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it or an
exemption therefrom in connection with sales of Registrable Securities pursuant
to the Registration Statement.
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5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $15,000
for each such registration, and $1,000 for each state filing or qualification.
6. Indemnification.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, members, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims"), incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
14
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor shall
reimburse the Indemnified Party for any legal or other expenses reasonably
incurred by an Indemnified Party in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained in
this Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
15
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In the case of an Indemnified Person, legal counsel
referred to in the immediately preceding sentence shall be selected by the
Investors holding at least a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The
Indemnified Party or Indemnified Person shall reasonably cooperate with the
indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or Claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent ,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such Claim or litigation and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
(d) The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the amount of net proceeds
16
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company
(unless such reports are available on the SEC's EDGAR system), and (iii) such
other information as may be reasonably requested to permit the Investors to sell
such securities pursuant to Rule 144 without registration, provided that Rule
144 is available for any such sale or would be available for any such sale
assuming the Company's full compliance with the provisions of this Section 8.
The Company also agrees, while any Notes, Warrants or Registrable Securities
remain outstanding, to remain subject to the reporting obligations under the
1934 Act, regardless of whether or not the Company is required to do so, and to
file with the SEC in a timely manner, but in no event later than the deadlines
required by the SEC, all reports and other documents required of a reporting
company under the 1934 Act.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of such Investor's
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act or applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
17
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of this Agreement unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to this
Agreement.
11. Miscellaneous.
(a) A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party) or by electronic mail; or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be: If to the Company:
Advanced Cannabis Solutions, Inc.
7750 N. Union Blvd., Suite 201
Colorado Springs, CO 80920
Telephone: (719) 434-1991
Facsimile: (719) 590-4888
Attention: Robert Frichtel
E-mail: Robert@advcannabis.com
18
With a copy to:
Hart & Hart, LLC
1624 Washington Street
Denver, CO 80203
Telephone: 303-839-0061
Facsimile: 303-839-5414
Attention: William Hart, Esq.
E-mail: harttrinen@aol.com
If to the Transfer Agent:
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
Telephone: (303) 282-4800
Facsimile: (303) 777-3094
Attention: Carylyn Bell
E-mail: cbell@corporatestock.com
If to a Buyer, to its address, facsimile number or e-mail address set forth on
the Schedule of Buyers attached hereto, with copies to such Buyer's
representatives as set forth on the Schedule of Buyers, or to such other
address, facsimile number and/or e-mail address to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine or electronic mail server containing the time,
date, recipient facsimile number or e-mail address and an image of the first
page of such transmission in the case of a facsimile or a copy of such notice,
consent, waiver or other communication in the case of an electronic mail message
or (C) provided by a courier or overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
19
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(e) If any provision of this Agreement is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction,
the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such provision shall not
affect the validity of the remaining provisions of this Agreement so long as
this Agreement as so modified continues to express, without material change, the
original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).
(f) This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
(g) Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission or electronic transmission via pdf
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
20
(j) Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
(k) All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders, determined as if all of the
outstanding Notes and Warrants held by Investors have been converted or
exercised for Registrable Securities without regard to any limitations on the
issuance of Common Stock pursuant to the terms of the Notes or exercise of the
Warrants.
(l) The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
(m) This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
(n) The obligations of each Investor hereunder are several and not joint
with the obligations of any other Investor, and no provision of this Agreement
is intended to confer any obligations on any Investor vis-a-vis any other
Investor. Nothing contained herein, and no action taken by any Investor pursuant
hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.
* * * * * *
[Signature Page Follows]
21
IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
COMPANY:
ADVANCED CANNABIS SOLUTIONS, INC.
By:/s/ Robert L. Frichtel
-------------------------------------
Name: Robert L. Frichtel
Title: President
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
BUYERS:
FULL CIRCLE CAPITAL CORPORATION
By:/s/ Gregg J. Felton
----------------------------------
Name: Gregg J. Felton
Title: President
SCHEDULE OF BUYERS
Buyer Address, Facsimile Number and
Buyer Email Address
----- -----------------------------------
Full Circle Capital Corporation 800 Westchester Ave., Suite S-620
Rye Brook, NY 10573
Attention: Gregg Felton
Facsimile: (914) 220-6301
Telephone: (914) 220-6300
Email: gfelton@fccapital.com
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[_______________]
[_______________]
[_______________]
Telephone:[____]
Facsimile:[____]
Email: [____]
Attention:[____]
Re: Advanced Cannabis Solutions, Inc.
Ladies and Gentlemen:
[We are][I am] counsel to Advanced Cannabis Solutions, Inc., a Colorado
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement, dated as of January 21, 2014 (the
"Securities Purchase Agreement"), entered into by and among the Company and the
buyers named therein (collectively, the "Holders") pursuant to which the Company
issued to the Holders senior secured convertible notes (the "Notes") pursuant to
which the Company's common stock, no par value (the "Common Stock") and warrants
exercisable for shares of Common Stock (the "Warrants"). Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant
to which the Company agreed, among other things, to register the resale of the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable pursuant to the terms of the Notes
and the shares of Common Stock issuable upon exercise of the Warrants under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 2014, the Company filed a Registration Statement on Form S-1 (File No.
333-_____________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, [we][I] advise you that a member of the
SEC's staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
A-1
This letter shall serve as our standing instruction to you that the shares
of Common Stock are freely transferable by the Holders pursuant to the
Registration Statement. You need not require further letters from us to effect
any future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company's Irrevocable Transfer Agent Instructions
dated January __, 2014.
Very truly yours,
[ISSUER'S COUNSEL]
By:_____________________
CC: [LIST NAMES OF HOLDERS]
A-2
EXHIBIT B
SELLING STOCKHOLDERS
The shares of common stock being offered by the selling stockholders are
those issuable to the selling stockholders pursuant to the terms of the senior
secured convertible notes and upon exercise of the warrants. For additional
information regarding the issuance of those senior secured convertible notes and
warrants, see "Private Placement of Senior Secured Convertible Notes and
Warrants" above. We are registering the shares of common stock in order to
permit the selling stockholders to offer the shares for resale from time to
time. Except for the ownership of the senior secured convertible notes and the
warrants issued pursuant to the Securities Purchase Agreement, the selling
stockholders have not had any material relationship with us within the past
three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of common stock by each of the
selling stockholders. The second column lists the number of shares of common
stock beneficially owned by each selling stockholder, based on its ownership of
the shares of the senior secured convertible notes and warrants, as of ________,
2014, assuming conversion of all senior secured convertible notes and exercise
of the warrants held by the selling stockholders on that date, without regard to
any limitations on conversions and/or redemptions of the senior secured
convertible notes or exercises of the warrants.
The third column lists the shares of common stock being offered by
this prospectus by the selling stockholders.
In accordance with the terms of a registration rights agreement with the
selling stockholders, this prospectus generally covers the resale of at least
130% of the sum of (i) the maximum number of shares of common stock issuable
pursuant to the senior secured convertible notes as of the Trading Day
immediately preceding the date the registration statement is initially filed
with the SEC, and (ii) the maximum number of shares of common stock issuable
upon exercise of the related warrants as of the Trading Day immediately
preceding the date the registration statement is initially filed with the SEC,
all subject to adjustment as provided in the registration rights agreement and
in each case without regard to any limitations on the issuance of shares of
common stock pursuant to the terms of the Notes or exercise of the Warrants.
Because the conversion price of the convertible notes and the exercise price of
the warrants may be adjusted, the number of shares that will actually be issued
may be more or less than the number of shares being offered by this prospectus.
The fourth column assumes the sale of all of the shares offered by the selling
stockholders pursuant to this prospectus.
Under the terms of the senior secured convertible notes and the warrants, a
selling stockholder may not convert the senior secured convertible notes or
exercise the warrants to the extent such conversion or exercise would cause such
selling stockholder, together with its affiliates, to beneficially own a number
of shares of common stock which would exceed 4.99% of our then outstanding
shares of common stock following such conversion or exercise, excluding for
purposes of such determination shares of common stock issuable upon conversion
of the senior secured convertible notes which have not been converted and upon
Exh. B-1
exercise of the warrants which have not been exercised. The number of shares in
the second column does not reflect this limitation. The selling stockholders may
sell all, some or none of their shares in this offering. See "Plan of
Distribution."
Exh. B-2
Maximum Number of Number of
Number of Shares Shares of Common Shares of
of Common Stock Stock to be Sold Common Stock
Owned Prior to Pursuant to this Owned After
Name of Selling stockholder Offering Prospectus Offering
--------------------------- -------- ---------- --------
Full Circle Capital 0
Corporation (1)
(1)
Annex I-1
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon conversion of
the senior secured convertible notes and upon exercise of the warrants to permit
the resale of these shares of common stock by the holders of such senior secured
convertible notes and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of common stock. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
The selling stockholders may sell all or a portion of the shares of common
stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,
o on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or
in the over-the-counter market;
o through the writing of options, whether such options are listed
on an options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o sales pursuant to Rule 144;
Annex II-1
o broker-dealers may agree with the selling securityholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of common stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of common
stock short and deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or
all of the senior secured convertible notes, warrants or shares of common stock
owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus or any amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933, as amended, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of common stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
Annex II-2
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all
of the shares of common stock registered pursuant to the registration statement,
of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement, estimated to be $[ ] in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
stockholder, specifically for use in this prospectus, in accordance with the
related registration rights agreement, or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
Annex II-3