Exhibit 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of December
__, 1997, by and among C-Phone Corporation, a New York corporation (the
"COMPANY"), and each of the undersigned (the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) 4,500 shares of its
Series A Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares (the "CONVERSION SHARES") of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Amendment of the
Certificate of Incorporation of the Company setting forth the number,
designation, relative rights, preferences and limitations with respect to such
Preferred Stock (the "CERTIFICATE OF AMENDMENT") and (ii) warrants (the
"WARRANTS") to acquire an aggregate of 450,000 shares of Common Stock (the
"WARRANT SHARES"), upon the terms and subject to the limitations and conditions
set forth in the Warrants dated of even date herewith, among the Company and the
Initial Investors; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and
any transferee or assignee who agrees to become bound by, and meets the
qualifications of, the provisions of this Agreement in accordance with Section 9
hereof.
1
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion
Shares and the Warrant Shares (including any shares of Common Stock issued in
lieu of cash payments under the Certificate of Amendment or any Warrant) issued
or issuable with respect to the Warrants and the Preferred Stock and any shares
of capital stock issued or issuable, from time to time (with any adjustments),
as a distribution on or in exchange for or otherwise with respect to any of the
foregoing. As to any particular securities, such securities shall cease to be
Registrable Securities when they have been sold pursuant to an effective
registration statement or in compliance with Rule 144 or are eligible to be sold
pursuant to Rule 144(k), under the 1933 Act (or any similar rule then in force).
(iv) "Registration Statement" means a registration
statement on Form S-3 of the Company under the 1933 Act registering the
Registerable Securities (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities).
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement or the Certificate of Amendment.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall (i) prepare and,
on or prior to the date which is thirty (30) days after the date of issuance of
the Preferred Stock pursuant to the Securities Purchase Agreement (the "Closing
Date"), deliver to each Investor a draft of the Registration Statement covering
the resale of the Registrable Securities, accompanied or preceded by a
questionnaire (a "SELLING SHAREHOLDER QUESTIONNAIRE") of the type commonly used
for offerings of this kind, so as to permit a public offering and sale of the
Registrable Securities under the 1933 Act and (ii) within ten (10) days after
the Company has received comments, if any, and a properly completed Selling
Shareholder Questionnaire from each Investor, file the Registration Statement
with the SEC. The number of shares of Common Stock initially included in such
Registration Statement shall equal the sum of (i) 30% of the
2
number of shares of Common Stock issued and outstanding as of the close of
business on third business day immediately preceding the date of filing of the
Registration Statement and (ii) the number of Warrant Shares that are then
issuable upon exercise of the Warrants (without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants). The
Company shall use its best efforts to obtain effectiveness of the Registration
Statement as soon as reasonably practicable.
(b) PAYMENTS BY THE COMPANY. If (i) the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not declared effective by the SEC within ninety (90)
days after the date (the "FILING DATE") the Registration Statement is filed with
the SEC, (ii) after the Registration Statement has been declared effective by
the SEC, the Registration Statement is withdrawn or suspended or if sales
otherwise cannot be made pursuant to the Registration Statement for a period of
at least fifteen (15) consecutive trading days or thirty (30) days in any twelve
(12) month period, or (iii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("NSM"), the New York Stock Exchange (the "NYSE") or the American Stock Exchange
(the "AMEX") for a period of at least ten (10) consecutive days, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(b) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of the Preferred Stock or Registrable Securities an amount equal to
the aggregate Purchase Price (as defined below) of the Preferred Stock
("AGGREGATE SHARE PRICE") multiplied by the Payment Percentage (as defined
below) times (x) the number of months (prorated for partial months) after the
end of the 90-day period referenced in clause (i) above and prior to the date
the Registration Statement is declared effective by the SEC, provided, however,
that there shall be excluded from such period any delays which are solely
attributable to changes either required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of the Registration Statement pursuant to
Section 3(g) below in a reasonably prompt manner or changes reasonably requested
by the Company as a result of changes in such information; (y) the number of
months (prorated for partial months) after the end of the 15-day or 30-day
period referenced in clause (ii) above that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend
3
the prospectus included therein in accordance with the terms of this Agreement
or when such prospectus otherwise contains a material misstatement or omission);
or (z) the number of months (prorated for partial months) after the end of the
30-day period referenced in clause (iii) above that the Common Stock is not
listed or included for quotation on the NNM, NSM, NYSE or AMEX or that trading
thereon is halted after the Registration Statement has been declared effective.
The Payment Percentage shall be two percent (2%) per each thirty (30) day period
(or $20,000 per each 30-day for each $1,000,000 of Purchase Price). Such amounts
shall be paid in cash or, at the Company's option, may be pay in shares Common
Stock valued at the Market Price (as defined in Certificate of Amendment) with
the Pricing Period being the period ending on the date that is five (5) business
days prior to the day that the shares shall be required to issued. Any such
shares of Common Stock shall be Registrable Securities. If the Company desires
to pay the amounts due hereunder in shares of Common Stock, it shall so notify
the Investors in writing within two (2) business days of the date on which such
amounts are first payable in cash and such amounts shall be issued beginning on
the last day upon which the cash amount would otherwise be due in accordance
with the following sentence. Payments of cash pursuant hereto shall be made
within five (5) days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, interim payments shall be made for each such thirty (30) day period. The
term "PURCHASE PRICE" means the purchase price paid by the Investors for the
Preferred Stock. Notwithstanding the foregoing, the Company shall not be
required to make such payments during any "ALLOWED DELAY" as defined in Section
3(e) below.
(c) PIGGY-BACK REGISTRATIONS. Subject to the last sentence of
this Section 2(c), if at any time prior to the expiration of the Registration
Period (as defined in Section 3(a)), the Company shall file with the SEC a
registration statement under the 1933 Act relating to an offering for its own
account or the account of others of any of its equity securities (other than on
Form S-4 or Form S-8 or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option, stock purchase or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(c) written notice of such
determination and, if within fifteen (15) days after the effective date of such
notice, such Investor shall so request in writing, the Company shall include in
such registration statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter thereof shall impose a limitation on the number of shares of
4
Common Stock which may be included in the registration statement because, in
such underwriter's judgment, marketing or other factors dictate such limitation
is necessary to facilitate public distribution (including achieving pricing
acceptable to the Company), then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
in proportion to the number of Registrable Securities sought to be included by
such Investors in the aggregate; provided, however, that the Company shall not
exclude any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in such registration statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the registration statement other
than holders of securities entitled to inclusion of their securities in such
registration statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering, including
customary indemnification. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(c)
shall only be available in the event the Company fails to timely file, obtain
effectiveness or maintain effectiveness of the Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement,
and shall not apply during periods in which there is an effective Registration
Statement.
(d) ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that currently it meets the registrant eligibility and transaction
requirements for the use of Form S-3 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities. The Company
agrees that it shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3 to the extent that such
5
eligibility is based upon such timely filing.
(e) RULE 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the 1933 Act ("RULE 416") so as to include in such
Registration Statement any and all Registrable Securities which may become
issuable pursuant to the Securities Purchase Agreement or the Certificate of
Amendment (i) to prevent dilution resulting from stock splits, stock dividends
or similar transactions and (ii) by reason of reductions in the Conversion Price
of the Preferred Stock in accordance with the terms thereof, including, but not
limited to, the terms which cause the Variable Conversion Price to decrease to
the extent the closing bid price of the Common Stock decreases (collectively,
the "RULE 416 SECURITIES"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered pursuant to
Rule 416 in the Registration Statement and, absent guidance from the SEC or
other definitive authority to the contrary, the Company shall affirmatively
support and not take any action adverse to the position that the Registration
Statements filed hereunder cover all of the Rule 416 Securities. If the Company
determines that the Registration Statements filed hereunder do not cover all of
the Rule 416 Securities, the Company shall immediately provide to each Investor
written notice (a "RULE 416 NOTICE") setting forth the basis for the Company's
position and the authority therefor.
To the extent that Rule 416 is determined by the SEC not to
permit the registration of an indeterminate number of Registrable Securities,
the initial number of Registrable Securities included on any Registration
Statement and each increase (if any) to 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 of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities prior to
the effectiveness of the Registration Statement, each transferee shall be
allocated a pro rata portion of the number of Registrable Securities to be
included in a Registration Statement. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any person or entity which
does not hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of shares of Registrable Securities then
held by such Investors. For the avoidance of doubt, the number of Registrable
Securities held by any Investor shall be determined as if all shares of
Preferred Stock and Warrants then outstanding were converted into or exercised
for Registrable Securities.
(f) TERM. This Agreement and the Company's
6
obligations hereunder shall terminate on the fourth anniversary
of the date of this Agreement.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) Subject to any Allowed Delay, the Company shall (i)
prepare and deliver to each Investor a draft of the Registration Statement
accompanied or preceded by a Selling Shareholder Questionnaire and (ii) file the
Registration Statement with the SEC, in each case, in accordance with the
provisions of Section 2(a) hereof with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as practicable after such filing, and, subject to any Allowed
Delay, keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors or of legal
counsel to the Company) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof including under Rule
144(k)) without registration under the 1933 Act (the "REGISTRATION PERIOD"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
(b) Subject to any Allowed Delay, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to keep the Registration
Statement effective at all times during the Registration Period, and, during the
Registration Period, comply with the provisions of the 1933 Act applicable to
the Company with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement. In the event that Rule 416 is determined by the SEC not
to permit the registration of an indeterminate number of shares, and the number
of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon conversion of the Preferred Stock or exercise of the Warrants, the
Company shall
7
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as reasonably practicable, but
in any event within twenty (20) business days after the necessity therefor
arises (based on the market price of the Common Stock and other relevant factors
on which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as reasonably practicable following the filing thereof. The
provisions of Section 2(c) above shall be applicable with respect to such
obligation, with the one hundred twenty (120) days running from the day after
the date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement referred to in Section
2(a), each letter written by or on behalf of the Company to the SEC or the staff
of the SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than any
portion of any thereof which contains information for which the Company has
sought confidential treatment), and (ii) such number of copies of a prospectus
and all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor. The Company will promptly notify
each Investor by facsimile of the effectiveness of the Registration Statement or
any post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as reasonably practicable and shall promptly file an acceleration request as
soon as reasonably practicable following the resolution or clearance of all SEC
comments or, if applicable, following notification by the SEC that the
Registration Statement or any amendment thereto will not be subject to review.
(d) The Company shall use commercially reasonable efforts to
(i) register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including
8
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 (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
(e) As promptly as practicable after becoming aware of any
event as a result of which the prospectus included in the Registration
Statement, as then in effect, would then include an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the Company shall
notify each Investor of the happening of such event, and use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request. Notwithstanding the provisions of the preceding sentence, for not more
than fifteen (15) consecutive trading days (or a total of not more than thirty
(30) trading days in any twelve (12) month period), the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of the Company in the best interests of
the Company (an "ALLOWED DELAY"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose to such
investor any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay and (ii) advise the Investors in
writing to cease all sales under the Registration Statement until the end of the
Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be
bound by the first sentence of this Section 3(e) with respect to the information
giving rise thereto.
(f) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order
9
is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.
(g) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
(h) The Company shall make generally available to its
securities 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 the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(i) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other 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
10
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto. 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 Investor's 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 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 or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
(k) The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the NNM or, if not then eligible for the NNM on the NSM and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD") as such with respect to such Registrable Securities.
(l) The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration
11
Statement.
(m) The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the 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, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as Exhibit 1 and a letter from the Company, which letter has been acknowledged
by the Company's transfer agent as sufficient to permit the issuance of
unlegended Conversion Shares and Warrant Shares which are not subject to a stop
transfer notation substantially in the form attached hereto as Exhibit 2.
(n) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
(b) Each Investor, by such 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 the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such
12
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement.
(c) Each Investor shall sell all Registrable Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any,
and in compliance with the succeeding paragraph, or otherwise in compliance with
the requirements for an exemption from registration under the 1933 Act.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities at the time of receipt of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
Each party shall be responsible for its own fees and expenses,
including legal fees and expenses, except that the Company shall be responsible
for all registration, listing and qualification fees, printers and Company
accounting fees.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any
13
Investor within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), if any, (iii) any underwriter (as defined in
the 1933 Act) for the Investors, and (iv) the directors, officers, partners,
employees and each person who controls any such underwriter within the meaning
of the 1933 Act or the 1934 Act, if any (each, an "INDEMNIFIED PERSON"), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to
14
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor; provided, further, however,
that the Investor shall be liable under this Agreement (including this Section
6(b) and Section 7) for only that amount as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
15
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel of its choice subject to the consent
of the Indemnified Party or Indemnified Person which consent shall not be
unreasonably withheld; provided, however, that such indemnifying party shall not
be entitled to assume such defense and an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable
16
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees, for
as long as there shall be any Series A Preferred Stock, Warrants, or Registrable
Securities held by an Investor, to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company 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, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investor to any transferee of one-third (1/3) or more of such Investor's
Preferred Shares, Warrants or 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
17
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) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws, (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities Purchase Agreement, and (vi) such transferee shall be an Accredited
Investor as that term defined in Rule 501 of Regulation D promulgated under the
1933 Act and shall have made appropriate representations to that effect to the
Company.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five (5)
business days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or one (1) business day after transmission, if sent
by facsimile, in each case addressed to a party. Each party shall provide notice
to the other party of any change in address. The addresses for such
communications shall be:
18
If to the Company:
C-Phone Corporation
6714 Netherlands Drive
Wilmington, NC 28405
Attn: Daniel P. Flohr, President
Fax: (910) 395-6108;
with a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attn: Arthur A. Katz, Esq.
Fax: (212) 972-9150;
If to an Investor:
To the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase
Agreement.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of State of New York applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal Courts and
state courts located in New York, New York with respect to any dispute arising
under this Agreement or the transactions contemplated hereby.
(e) This Agreement, the Securities Purchase Agreement
(including all schedules and exhibits thereto), and the Warrants 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 Securities Purchase Agreement and the Warrants supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and
19
thereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(j) Except as otherwise provided herein, all consents and
other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all of the shares of Preferred Stock and Warrants then
outstanding have been converted into or exercised for Registrable Securities.
(k) 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.
20
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
C-PHONE CORPORATION
By:____________________________
Daniel P. Flohr
President and Chief
Executive Officer
21
[NAME OF INVESTOR]
By:____________________________
Name:
Title:
Address:
22
Exhibit 1 to Registration
Rights Agreement
[Company Letterhead]
[Date]
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10006
Attention: Compliance Department
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you (1) to transfer or re-register (or at the holders request to reissue to
the holder thereof without any restrictive legend) the certificates for the
shares of Common Stock, par value $.01 per share (the "Common Stock"), of
C-Phone Corporation, a New York corporation (the "Company"), represented by
certificate numbers _____ for an aggregate of _____ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
(the "Investor") (which shares were previously issued upon conversion of the
Preferred Shares (as hereinafter defined) or exercise of the Warrants (as
hereinafter defined)), upon surrender of such certificates to you,
notwithstanding the legend appearing on such certificates, (2) to issue shares
(the "Conversion Shares") of Common Stock to or upon the order of the registered
holder from time to time of shares of Series A Convertible Preferred Stock of
the Company (the "Preferred Shares") upon surrender to you of a properly
completed and duly executed Notice of Conversion (notwithstanding the legend
appearing on such certificates) and upon receipt from the Company or its legal
counsel that it has received the Preferred Shares and any other required
documents, (3) to issue shares (the "Warrant Shares") of Common Stock to or upon
the order of the registered holder from time to time of the One-Year Warrants
and Three-Year Warrants of the Company (collectively, the "Warrants") upon
surrender to you of a properly completed and duly executed Notice of Exercise
(notwithstanding the legend appearing on such Warrants) and upon receipt from
the Company or its legal counsel that it has received the Warrants and any other
required documents. The transfer or re-registration of the certificates for the
Outstanding Shares by you should be made at such time as you are requested to do
so by the record holder of the Outstanding Shares. The certificate issued upon
such transfer or re-registration should be registered in such name as requested
by the holder of record of the certificate surrendered to you and should not
bear any legend which would restrict the transfer of the shares represented
thereby. In addition, you are hereby directed to remove any stop-transfer
instruction relating to the
23
Outstanding Shares. Subject to the foregoing, certificates for the Conversion
Shares and Warrant Shares should not bear any restrictive legend and should not
be subject to any stop-transfer restriction.
Notwithstanding the foregoing, pursuant to applicable securities laws
or certain agreements between the Company and the Investor, the Investor may be
prohibited during certain limited periods of time from selling its Outstanding
Shares or other shares of Common Stock issuable upon conversion of the Preferred
Shares and exercise of the Warrant Shares under the Registration Statement;
PROVIDED, HOWEVER, that such Investor may continue to sell such securities
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "1933 Act"). The Company may, during such periods, deliver a notice
to you advising you to refrain from transferring any Outstanding Shares pursuant
to such Registration Statement, provided that such notice shall not prohibit the
transfer of such shares pursuant to an exemption from registration under the
1933 Act during such periods.
Contemporaneous with the delivery of this letter, the Company is
delivering to you a letter of Warshaw Burstein Cohen Schlesinger & Kuh, LLP,
counsel to the Company, as to registration of the Outstanding Shares and the
Conversion Shares under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
C-PHONE CORPORATION
---------------------------
By:
Title:
Enclosures:
cc: [Name of Investor]
24
Exhibit 2 to Registration
Rights Agreement
[Letterhead of Company Counsel]
[Date]
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10006
Attention: Compliance Department
Re: C-PHONE CORPORATION
Ladies and Gentlemen:
We are counsel to C-Phone Corporation, a New York corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company shares of the Company's Series A Convertible
Preferred Stock (the "Preferred Stock") and one-year warrants and three-year
warrants (collectively, the "Warrants") that are convertible or exercisable into
the Company's Common Stock, par value $.01 per share (the "Common Stock"). The
Preferred Stock and Warrants were purchased by the Holder pursuant to a
Securities Purchase Agreement, dated as of December __, 1997, between the Holder
and the Company (the "Agreement"). Pursuant to a Registration Rights Agreement,
dated as of December __, 1997, between the Company and the Holder (the
"Registration Rights Agreement"), the Company agreed with the Holder, among
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on __________, 199_, the Company filed a Registration
Statement on Form S-3 (File No. 333- _____________) (the "Registration
Statement") with the Securities and Exchange Commission relating to the
Registrable Securities, which names the Holder as a selling stockholder
thereunder and which Registration Statement was declared effective on _______,
1998.
[Other introductory language]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included]
Very truly yours,
cc: [Name of investor]
25