Registration Rights
Othnet, Inc. hereby grants to the Subscriber the following registration
rights.
1. Definitions.
Capitalized terms used herein without definition shall have the
respective meanings given such terms as set forth in the Subscription Agreement
between Othnet, Inc., AVP and the subscriber signatory thereto (the
"Subscription Agreement") or in the Company's Confidential Private Placement
Memorandum, dated as of January 5, 2005 (as amended or supplemented, and
together with all documents and filings attached thereto, the "Memorandum"). As
used herein, the following terms shall have the following meanings:
Business Day: Any day other than a day on which banks are authorized
or required to be closed in the State of New York.
Commission: The United States Securities and Exchange Commission.
Common Stock: The common stock, par value $0.001 per share, of the
Company.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
Holder or Holders: Any holder of the Registrable Securities.
Person: Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization
or government or other agency or political subdivision thereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering
of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to
the prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by
reference in such prospectus.
Registrable Securities: The shares of Common Stock underlying the
Series B Convertible Preferred Stock and the Warrants, until such
time as (1) a Registration Statement covering such Registrable
Securities has been declared effective by the Commission and such
Registrable Securities have been disposed of pursuant to such
effective Registration Statement or (2) such Registrable Securities
are saleable pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act, without any restriction, whichever
is earlier.
Registration Statement: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments
and supplements to such registration statements, including post
effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such
registration statement.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
Series B Convertible Preferred Stock: The Series B Preferred Stock
included in the Units, convertible into Common Stock.
Units: The units of the Company sold pursuant to the Subscription
Agreement consisting of Series B Convertible Preferred Stock and
Warrants.
Warrants: The Warrant included in the Units exercisable for shares
of Common Stock.
2. Registration Rights.
(a) Required Registration. Within 45 days following the Final
Closing Date, the Company shall prepare and file with the Commission an
appropriate Registration Statement for the purpose of registering for public
resale the Registrable Securities sold to the Subscriber pursuant to the
Subscription Agreement or held by a Holder. The Company shall use its good faith
best efforts to ensure that the Registration Statement is declared effective
within 120 days of the Final Closing Date. In the event that the registration
statement covering all of the Registrable Securities is not filed within 45 days
following the Final Closing Date or declared effective by the SEC within 120
days of the Final Closing Date or the registration does not stay effective for
60 consecutive days, then the Company will pay the holders of the Series B
Convertible Preferred Stock cash payments equal to one percent (1%) of the
purchase price of the Series B Convertible Preferred Stock per month, and such
monthly payments shall increase to two percent (2%) per month, or any portion
thereof, in the event that the Registration Statement has not been filed with
the Commission or declared effective by the Commission within 180 days of the
Final Closing Date. The Company will agree to take all actions as are necessary
to keep the Registration Statement effective until the date on which all
Registrable Securities purchased by the Subscriber or held by a Holder may be
sold without any restriction, under Rule 144 during any 90-day period in
accordance with all rules and regulations regarding sales of securities pursuant
to Rule 144 (such period, the "Effectiveness Period"). Each Subscriber or Holder
shall respond promptly and accurately to Company's request at reasonable
intervals regarding the amount of Registrable Securities then held by such
Subscriber or Holder. The Company shall bear all expenses of the Registration
Statement, including fees and expenses, if any, of a special counsel or other
advisors to the Subscriber or a Holder and the Placement Agent, equal to
$15,000. The Company shall also pay all expenses of the Investors and the
Placement Agent for any "144 opinions" or other opinions which are required in
connection with any transfers of Securities made by such parties under Rule 144
or any other applicable sale or transfer (including, without limitation, sales
made pursuant to prospectus delivery).
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(b) Piggyback Registration. If, at any time during the Effectiveness
Period, the Company proposes to register any of its securities under the
Securities Act for sale to the public for its own account or for the account of
other security holders (except with respect to registration statements on Forms
S-4 or S-8 or another form not available for registering the Registrable
Securities for sale to the public), each such time it will give written notice
thereof to Holders of its intention so to do (such notice to be given at least
fifteen (15) days prior to the filing thereof). Upon the written request of any
such Holder (which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder and the intended method of disposition
thereof), received by the Company within ten (10) days after giving of any such
notice by the Company, to register any of such Holder's Registrable Securities,
the Company will use its reasonable efforts to cause the Registrable Securities
as to which registration shall have been so requested to be included in the
securities to be covered by the Registration Statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the Holder (in accordance with its written request) of such Registrable
Securities so registered ("Piggyback Registration Rights"); provided, that if,
at any time after giving written notice of its intention to register any
securities pursuant to this Section 2(b) and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company
shall give written notice to all Holders and, thereupon, shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration. If a registration pursuant to this Section 2(b) involves an
underwritten public offering, any Holder requesting to be included in such
registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. The foregoing
provisions notwithstanding, the Company may withdraw any registration statement
referred to in this Section 2(b) without thereby incurring any liability to the
Holders.
(c) Exceptions. Notwithstanding the foregoing, the Company may delay
the registration of Registrable Securities pursuant to Section 2(b) hereof (but
not Section 2(a) hereof) for the time periods described in Section 2(d) hereof
upon the occurrence of any of the following:
(i) The Company shall have previously entered into an
agreement or letter of intent contemplating an underwritten public
offering on a firm commitment basis of Common Stock or securities
convertible into or exchangeable for Common Stock and the managing
underwriter of such proposed public offering advises the Company in
writing that in its opinion such proposed underwritten offering
would be materially and adversely affected by a concurrent
registered offering of Registrable Securities (such opinion to state
the reasons therefor);
(ii) During the two (2) month period immediately preceding
such request, the Company shall have entered into an agreement or
letter of intent, which has not expired or otherwise terminated,
contemplating a material business acquisition by the Company or its
subsidiaries whether by way of merger, consolidation, acquisition of
assets, acquisition of securities or otherwise;
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(iii) The Company is in possession of material nonpublic
information that the Company would be required to disclose in the
Registration Statement and that is not, but for the registration,
otherwise required to be disclosed at the time of such registration,
the disclosure of which, in its good faith judgment, would have a
material adverse effect on the business, operations, prospects or
competitive position of the Company;
(iv) The Company shall receive the written opinion of the
managing underwriter of the underwritten public offering pursuant to
which Common Stock has been registered within the three (3) month
period prior to the receipt of a registration request that the
registration of additional Common Stock will materially and
adversely affect the market for the Common Stock (such opinion to
state the reasons therefor); or
(v) At the time of receipt of a registration request, the
Company is engaged, or its board of directors has adopted by
resolution a plan to engage, in any program for the purchase of
Common Stock or securities convertible into or exchangeable for
Common Stock and, in the opinion of counsel, reasonably satisfactory
to the requesting Holders, the distribution of the Common Stock to
be registered would cause such purchase to be in violation of
Regulation M promulgated under the Exchange Act.
(d) Period of Delay. If an event described in clauses (i) through
(iv) of Section 2(c) shall occur, the Company may, by written notice to the
Holders, delay the filing of a Registration Statement with respect to the
Registrable Securities to be covered thereby for a period of time not exceeding
one hundred twenty (120) days. If an event described in clause (v) of Section
2(c) shall occur, the filing of a Registration Statement with respect to the
Registrable Securities to be covered thereby shall be delayed until the first
date that the Registrable Securities to be covered thereby can be sold without
violation of Regulation M of the Exchange Act.
3. Registration Procedures.
In connection with the registration obligations of the Company
pursuant to the terms and conditions of this Agreement, the Company shall:
(a) prior to filing a Registration Statement or Prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of the Registration Statement, the Company will furnish
to the Holders covered by such Registration Statement (the "Selling Holders"),
Holders' legal counsel and the underwriters, if any, draft copies of all such
documents proposed to be filed at least three (3) Business Days prior thereto,
which documents will be subject to the review of such Holders' Counsel and the
underwriters, if any, and the Company will not, unless required by law, file any
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto (including such documents incorporated by reference) to which Selling
Holders of at least a majority of the Registrable Securities (the "Objecting
Party") shall object, pursuant to notice given to the Company prior to the
filing of such amendment or supplement (the "Objection Notice"). The Objection
Notice shall set forth the objections and the specific areas in the draft
documents where such objections arise. The Company shall have five (5) Business
Days after receipt of the Objection Notice to correct such deficiencies to the
satisfaction of the Objecting Party, and will notify each Selling Holder of any
stop order issued or threatened by the Commission in connection therewith and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered;
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(b) as promptly as practicable prepare and file with the Commission
such amendments and post-effective amendments to the Registration Statement as
may be necessary to keep such Registration Statement effective for the period
required pursuant to Section 2; cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Selling Holders set forth in such Registration Statement or supplement to the
Prospectus;
(c) as promptly as practicable furnish to any Selling Holder and the
underwriters, if any, without charge, such number or conformed copies of such
Registration Statement and any post-effective amendment thereto and such number
of copies of the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, and any documents incorporated by reference
therein, as such Selling Holder or underwriter may reasonably request in order
to facilitate the disposition of the Registrable Securities being sold by such
Selling Holder (it being understood that the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each Selling Holder and
the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto); provided, that before filing a Registration Statement or Prospectus
relating to the Registrable Securities or any amendments or supplements thereto,
the Company will furnish to Holders' Counsel copies of all documents proposed to
be filed at least three (3) Business Days prior to the filing thereof, which
documents will be subject to the review of such counsel;
(d) on or prior to the date on which the Registration Statement is
declared effective, register or qualify such Registrable Securities under such
other securities or "blue sky" laws of such jurisdictions as any Selling Holder,
Holders' Counsel or underwriter reasonably requests and do any and all other
acts and things which may be necessary or advisable to enable such Selling
Holder to consummate the disposition in such jurisdictions of such Registrable
Securities owned by such Selling Holder; keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective; and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company shall not be required to (i)
qualify to do business as a foreign corporation or as a broker-dealer in any
jurisdiction where it is not then so qualified or (ii) take any action which
would subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject;
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(e) cause the Registrable Securities covered by such Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations of
the Company to enable the Selling Holders to consummate the disposition of such
Registrable Securities;
(f) as promptly as practicable notify each Selling Holder, Holders'
Counsel and any underwriter and Of requested by any such Person) confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any other federal or state governmental
authority for amendments or supplements to a Registration Statement or related
Prospectus or for additional information to be included in any Registration
Statement or Prospectus or otherwise, (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of a Registration Statement or the
initiation or threatening of any proceedings for that purpose, (iv) of the
issuance by any state securities commission or other regulatory authority of any
order suspending the qualification or exemption from qualification of any of the
Registrable Securities under state securities or "blue sky" laws or the
initiation of any proceedings for that purpose and (v) of the happening of any
event which makes any statement made in a Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated by
reference therein untrue or which requires the making of any changes in such
Registration Statement, Prospectus or documents so that they will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and, as promptly as practicable thereafter, prepare and file with
the Commission and furnish a supplement or amendment to such Prospectus so that,
as thereafter deliverable to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(g) make generally available to the Holders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act no later than
thirty (30) days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
a Registration Statement; (h) use its reasonable efforts to prevent the issuance
of any order suspending
the effectiveness of a Registration Statement, and, if one is
issued, to obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment;
(i) as promptly as practicable after filing with the Commission of
any document which is incorporated by reference into a Registration Statement,
deliver a copy of such document to Holders' legal counsel;
(j) cooperate with the Selling Holders and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery of
certificates (which shall not bear any restrictive legends and shall be in a
form eligible for deposit with the Depository Trust Company) representing
securities sold under such Registration Statement, and enable such securities to
be in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such Selling Holders may request and
make available prior to the effectiveness of such Registration Statement a
supply of such certificates;
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Each Selling Holder, upon receipt of any notice from the Company of
the happening of any event of the kind described in subsection (f) of this
Section 3, shall forthwith discontinue disposition of the Registrable Securities
until such Selling Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by subsection (f) of this Section 3 or until it is
advised in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings which are incorporated by reference in the Prospectus, and, if so
directed by the Company, such Selling Holder will, or will request the managing
underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Selling Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event that the
Company shall give any such notice, the time periods for which a Registration
Statement is required to be kept effective pursuant to Section 2 hereof shall be
extended by the number of days during the period from and including the date of
the giving of such notice to and including the date when each Selling Holder
shall have received (1) the copies of the supplemented or amended Prospectus
contemplated by Section 3(f) or (ii) the Advice.
4. Registration Expenses.
(a) All expenses incident to the Company's performance of, or
compliance with, the provisions hereof, including without limitation, all
Commission and securities exchange or NASD registration and filing fees, fees
and expenses of compliance with securities or "blue sky" laws (including fees
and disbursements of counsel in connection with "blue sky" qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
the Company's officers and employees performing legal or accounting duties),
fees and expenses incurred in connection with the listing of the securities to
be registered, if any, on each securities exchange on which similar securities
issued by the Company are then listed, fees and disbursements of counsel for the
Company and its independent certified public accountants (including the expense
of any special audit or "cold comfort" letters required by, or incident to, such
performance), Securities Act liability insurance (if the Company elects to
obtain such insurance), reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, fees and expenses
of other Persons retained by the Company in connection with each registration
hereunder (but not including the fees and expense of legal counsel retained by a
Holder or Holders, or any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities) are herein called
"Registration Expenses."
(b) The Company will pay all Registration Expenses in connection
with each Registration Statement filed pursuant to Section 2 except as otherwise
set forth therein. Other than as specifically provided for in Section 2(a)
hereto, all expenses to be borne by the Holders in connection with any
Registration Statement filed pursuant to Section 2 (including, without
limitation, all underwriting fees, discounts or commissions attributable to such
sale of Registrable Securities) shall be borne by the participating Holders pro
rata in relation to the number of Units of Registrable Securities to be
registered by each Holder.
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5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each Holder, its
officers, directors and each Person who controls such Holder (within the meaning
of the Securities Act), and any agent or investment adviser thereof, against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, any amendment or supplement thereto, any Prospectus or
preliminary Prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same arise out of or are based
upon any such untrue statement or omission based upon information with respect
to such Holder furnished in writing to the Company by or on behalf of such
Holder expressly for use therein; provided that, in the event that the
Prospectus shall have been amended or supplemented and copies thereof as so
amended or supplemented, shall have been furnished to a Holder prior to the
confirmation of any sales of Registrable Securities, such indemnity with respect
to the Prospectus shall not inure to the benefit of such Holder if the Person
asserting such loss, claim, damage or liability and who purchased the
Registrable Securities from such holder did not, at or prior to the confirmation
of the sale of the Registrable Securities to such Person, receive a copy of the
Prospectus as so amended or supplemented and the untrue statement or omission of
a material fact contained in the Prospectus was corrected in the Prospectus as
so amended or supplemented.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such information with
respect to the name and address of such Holder and such other information as may
be reasonably required for use in connection with any such Registration
Statement or Prospectus and agrees to indemnity, to the full extent permitted by
law, the Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact in the Registration Statement or Prospectus or any amendment
thereof or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement relates to any information with respect to such Holder so
furnished in writing by such Holder specifically for inclusion in any Prospectus
or Registration Statement; provided, however, that such Holder shall not be
liable in any such case to the extent that prior to the filing of any such
Registration Statement or Prospectus or amendment thereof or supplement thereto,
such Holder has furnished in writing to the Company information expressly for
use in such Registration Statement or Prospectus or any amendment thereof or
supplement thereto which corrected or made not misleading information previously
furnished to the Company. In no event shall the liability of any Selling Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Selling Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
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(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to the provisions hereof and, unless in the judgment of counsel of such
indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claim. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. If the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel (plus such local counsel, if any, as may be
reasonably required in other jurisdictions) with respect to such claim, unless
in the judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels. For the
purposes of this Section 5(c), the term "conflict of interest" shall mean that
there are one or more legal defenses available to the indemnified party that are
different from or additional to those available to the indemnifying party or
such other indemnified parties, as applicable, which different or additional
defenses make joint representation inappropriate.
(d) Contribution. If the indemnification from the indemnifying party
provided for in this Section 5 is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 5(c), any reasonable legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(0 of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) If indemnification is available under this Section 5, the
indemnifying parties shall indemnity each indemnified party to the full extent
provided in Sections 5(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 5.
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6. Transfer of Rights.
The rights to cause the Company to register Registrable Securities
granted pursuant to the provisions hereof may be transferred or assigned by any
Holder to a transferee or assignee; provided; however, that the transferee or
assignee of such rights assumes the obligations of such transferor or assignor,
as the case may be, hereunder.
7. Amendment.
Except as otherwise provided herein, the provisions hereof may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of at least a majority of the aggregate number of the
Registrable Securities then outstanding.
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