INVESTOR REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
November 30, 2005, by and among COMPLIANCE SYSTEMS CORPORATION, a Delaware
corporation (the "Company"), and the undersigned investors listed on Schedule
I attached hereto (each, an "Investor" and collectively, the "Investors").
RECITALS:
WHEREAS, in connection with the Securities Purchase Agreement by and
among the parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to the
Investors secured convertible debentures (the "Convertible Debentures") which
shall be convertible into that number of shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), pursuant to the terms
of the Securities Purchase Agreement for an aggregate purchase price of up
to One Million Dollars ($1,000,000). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Securities Purchase Agreement;
and
WHEREAS, to induce the 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 there under, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
NOW, THEREFORE, for and 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 the
Investors hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule providing
for offering securities on a continuous or delayed basis ("Rule 415"), and
the declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission (the
"SEC").
(c) "Registrable Securities" means the shares of Common Stock
issuable to the Investors upon conversion of the Convertible Debentures
pursuant to the Securities Purchase Agreement.
(d) "Registration Statement" means a registration statement
under the Securities Act which covers the Registrable Securities.
2. REGISTRATION.
(a) Subject to the terms and conditions of this Agreement, the
Company shall prepare and file, no later than forty five (45) days from the
date hereof (the "Scheduled Filing Deadline"), with the SEC a registration
statement on Form S-1 or SB-2 (or, if the Company is then eligible, on Form
S-3) under the Securities Act (the "Initial Registration Statement") for the
resale by the Investors of the Registrable Securities, which includes at
least 65,000,000 shares of Common Stock underlying the Convertible
Debentures. The Company shall cause the Registration Statement to remain
effective until all of the Registrable Securities have been sold. Prior to
the filing of the Registration Statement with the SEC, the Company shall
furnish a copy of the Initial Registration Statement to the Investors for
their review and comment. The Investors shall furnish comments on the
Initial Registration Statement to the Company within twenty-four (24) hours
of the receipt thereof from the Company.
(b) Effectiveness of the Initial Registration Statement. The
Company shall use its best efforts (i) to have the Initial Registration
Statement declared effective by the SEC no later than one hundred twenty
(120) days after the date filed (the "Scheduled Effective Deadline") and (ii)
to insure that the Initial Registration Statement and any subsequent
Registration Statement remains in effect until all of the Registrable
Securities have been sold, subject to the terms and conditions of this
Agreement. It shall be an event of default hereunder if the Initial
Registration Statement is not declared effective by the SEC within ninety
(90) days after filing thereof.
(c) Failure to File or Obtain Effectiveness of the Registration
Statement. In the event the Registration Statement is not filed by the
Scheduled Filing Deadline or is not declared effective by the SEC on or
before the Scheduled Effective Date, or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, failure to disclose such information as is necessary for
sales to be made pursuant to the Registration Statement, failure to register
sufficient shares of Common Stock or otherwise then as partial relief for the
damages to any holder of Registrable Securities by reason of any such delay
in or reduction of its ability to sell the underlying shares of Common Stock
(which remedy shall not be exclusive of any other remedies at law or in
equity), the Company will pay as liquidated damages (the "Liquidated
Damages") to the holder, at the holder's option, either a cash amount or
shares of the Company's Common Stock within three (3) business days, after
demand therefore, equal to two percent (2%) of the liquidated value of the
Convertible Debentures outstanding as Liquidated Damages for each thirty (30)
day period after the Scheduled Filing Deadline or the Scheduled Effective
Date as the case may be.
(d) Liquidated Damages. The Company and the Investor hereto
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all
other rights of the Investor, including the right to call a default. The
parties further acknowledge that (i) the amount of loss or damages likely to
be incurred is incapable or is difficult to precisely estimate, (ii) the
amounts specified in such subsections bear a reasonable relationship to, and
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are not plainly or grossly disproportionate to, the probable loss likely to
be incurred in connection with any failure by the Company to obtain or
maintain the effectiveness of a Registration Statement, (iii) one of the
reasons for the Company and the Investor reaching an agreement as to such
amounts was the uncertainty and cost of litigation regarding the question of
actual damages, and (iv) the Company and the Investor are sophisticated
business parties and have been represented by sophisticated and able legal
counsel and negotiated this Agreement at arm's length.
3. RELATED OBLIGATIONS.
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration
Statement (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, in light of the circumstances in which they were made,
not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth
in such Registration Statement. In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the
Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any
analogous report under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company shall incorporate such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the Exchange Act report is
filed which created the requirement for the Company to amend or supplement
the Registration Statement.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) at least one (1) copy of such Registration Statement as declared
effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference,
all exhibits and each preliminary prospectus, (ii) ten (10) copies of the
final prospectus included in such Registration Statement and all amendments
and supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents as such Investor may
reasonably request from time to time in order to facilitate the disposition
of the Registrable Securities owned by such Investor.
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(d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however,
that the Company shall not be required in connection therewith or as a
condition thereto to (w) make any change to its articles of incorporation or
by-laws, (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject
itself to general taxation in any such jurisdiction, or (z) file a general
consent to service of process in any such jurisdiction. The Company shall
promptly notify each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such
event or development, the Company shall notify each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to each Investor. The Company shall also
promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness), (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
(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, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction within the United States
of America and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to
notify each Investor who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
(g) At the reasonable request of any Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as
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is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated
as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given
in an underwritten public offering, addressed to the Investors.
(h) The Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investors (collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by
each Inspector, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request; provided,
however, that each Inspector shall agree, and each Investor hereby agrees, to
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the Securities Act, (b) the release
of such Records is ordered pursuant to a final, non-appealable subpoena or
order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector and the Investor has knowledge. 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.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with federal
or state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental
body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. The Company agrees that it shall,
upon learning that disclosure of such information concerning an Investor is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt written notice to such Investor and allow
such Investor, at the Investor's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information.
(j) The Company shall use its best efforts either to cause all
the Registrable Securities covered by a Registration Statement (i) to be
listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange or
(ii) the inclusion for quotation on the National Association of Securities
Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).
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(k) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request.
(l) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve
(12) month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration
Statement.
(n) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies
to the Investors whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has
been declared effective by the SEC in the form attached hereto as Exhibit A.
(p) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
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(f) or the
first sentence of 3(e), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus contemplated
by Section 3(e) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause
its transfer agent to deliver unlegended certificates for shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e) and for which the Investor has not yet settled.
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5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers, legal and
accounting fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and
each Person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against
any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys' fees, amounts paid in settlement or
expenses, joint or several (collectively, "Claims") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may
become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under the
securities or other "blue sky" laws of any jurisdiction in which Registrable
Securities are offered ("Blue Sky Filing"), or the omission or alleged
omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; (ii) any untrue statement or
alleged untrue statement of a material fact contained in any 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
Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"). The Company shall reimburse the
Investors and each such controlling person promptly as such expenses are
incurred and are due and payable, for any legal fees or disbursements 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): (x) shall not apply to a Claim by an Indemnified Person arising out of
or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto;
(y) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. 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 hereof.
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(b) In connection with a Registration Statement, each Investor
agrees to severally and not jointly indemnify, hold harmless and defend, to
the same extent and in the same manner as is set forth in Section 6(a), the
Company, each of its directors, each of its officers, employees,
representatives, or agents and each Person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act (each an
"Indemnified Party"), against any Claim or Indemnified Damages to which any
of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or is
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses 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) and the agreement with respect to contribution contained in Section 7
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(b) with respect to any prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected and such new prospectus was
delivered to each Investor prior to such Investor's use of the prospectus to
which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding)
involving a Claim, such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more
than one (1) counsel for such Indemnified Person or Indemnified Party 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 Indemnified Party or Indemnified Person
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shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to
such action or claim. The indemnifying party shall keep the Indemnified
Party or Indemnified Person fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however,
that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party or Indemnified Person of a release
from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of any liability
to the Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
(d) The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
(e) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of fraudulent misrepresentation; and (ii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
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8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
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 as are required by 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
Securities Act and the Exchange 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. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to fewer than all
of the holders of the Registrable Securities. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification
of any provision of any of this Agreement unless the same consideration also
is offered to all of the parties to this Agreement.
10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons 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, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
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confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) business day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company, to: Compliance Systems Corporation
90 Pratt Oval
Glen Cove, NY 11542
Attention: Dean Garfinkel
Telephone: (516) 656-5155
Facsimile: (516) 676-2420
With Copy to: Kirkpatrick & Lockhart Nicholson Graham, LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 328-7095
If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as
set forth on the Schedule of Investors or to such other address and/or
facsimile number and/or to the attention of such other person as the
recipient party has specified by written notice given to each other party
five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause
(i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The laws of the State of New Jersey shall govern all issues
concerning the relative rights of the Company and the Investors as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New Jersey, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New
Jersey or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New Jersey. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the Superior
Courts of the State of New Jersey, sitting in Hudson County, New Jersey and
federal courts for the District of New Jersey sitting Newark, New Jersey, for
the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
11
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
in that jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING
OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent
Instructions, the Securities Purchase Agreement and related documents
including the Convertible Debenture and the Escrow Agreement dated the date
hereof by and among the Company, the Investors set forth on the Schedule of
Investors attached hereto, and David Gonzalez, Esq. (the "Escrow Agreement")
and the Security Agreement dated the date hereof (the "Security Agreement")
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 Irrevocable Transfer Agent Instructions,
the Securities Purchase Agreement and related documents including the
Convertible Debenture, the Escrow Agreement and the Security Agreement
supersede all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding
upon the permitted 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 identical counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission 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.
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.
12
(j) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other Person.
[SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
COMPLIANCE SYSTEMS CORPORATION
By:_______________________________
Name: Dean Garfinkel
Title: Chairman
13
SCHEDULE I
SCHEDULE OF INVESTORS
Address/Facsimile
Name Signature Number of Investors
---- --------- -------------------
Montgomery Equity By: Yorkville Advisors, LLC 101 Hudson Street - Suite
Partners, Ltd. 3700
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By:
Name: Mark Angelo
Its: Portfolio Manager
With a copy to: David Gonzalez, Esq. 101 Hudson Street - Suite
3700
Jersey City, NJ 07302
Facsimile: (201) 985-8266
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attention:
Re: COMPLIANCE SYSTEMS CORPORATION
Ladies and Gentlemen:
We are counsel to Compliance Systems Corporation, a Delaware
corporation (the "Company"), and have represented the Company in connection
with that certain Securities Purchase Agreement (the "Securities Purchase
Agreement") entered into by and among the Company and the investors named
therein (collectively, the "Investors") pursuant to which the Company issued
to the Investors shares of its Common Stock, par value $0.001 per share (the
"Common Stock"). Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Investors (the
"Investor Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement) under the Securities Act of
1933, as amended (the "Securities Act"). In connection with the Company's
obligations under the Registration Rights Agreement, on ____________ ____,
the Company filed a Registration Statement on Form ________ (File
No. 333-_____________) (the "Registration Statement") with the Securities and
Exchange SEC (the "SEC") relating to the Registrable Securities which names
each of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the Securities Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the Securities
Act pursuant to the Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM,
LLP
By:
---------------------------------
cc: [LIST NAMES OF INVESTORS]