Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of January 11, 2006, among Electronic Control Security, Inc., a New
Jersey corporation (the "Company"), and the purchasers signatory hereto (each
such purchaser is a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial
Registration Statement required to be filed hereunder, the 120th
calendar day following the date hereof and, with respect to any
additional Registration Statements which may be required pursuant to
Section 3(c), the 90th calendar day following the date on which the
Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder; provided,
however, in the event the Company is notified by the Commission that
one of the above Registration Statements will not be reviewed or is no
longer subject to further review and comments, the Effectiveness Date
as to such Registration Statement shall be the fifth Trading Day
following the date on which the Company is so notified if such date
precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 45th calendar day following the date
hereof and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 30th day following
the date on which the Company first knows, or reasonably should have
known that such additional Registration Statement is required
hereunder.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in
Section 2(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes
any 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 a 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" means (i) all of the shares of Common
Stock issuable upon conversion in full of the Debentures, (ii) all
shares issuable as interest on the Debentures assuming all permissible
interest payments are made in shares of Common Stock and the
Debentures are held until maturity, (iii) all Warrant Shares, (iv) any
additional shares issuable in connection with any anti-dilution
provisions in the Debentures or the Warrants (in each case, without
giving effect to any limitations on conversion set forth in the
Debenture or limitations on exercise set forth in the Warrant) and (v)
any securities issued or issuable upon any stock split, dividend or
other distribution, recapitalization or similar event with respect to
the foregoing.
"Registration Statement" means the registration statements
required to be filed hereunder and any additional registration
statements contemplated by Section 3(c), including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same purpose and effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set
forth in Section 3(a).
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering
the resale of 125% of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form SB-2 (or on another
appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders) substantially the "Plan of
Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event
prior to the applicable Effectiveness Date, and shall use its
commercially reasonable efforts to keep such Registration Statement
continuously effective under the Securities Act until all Registrable
Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Company's
transfer agent and the affected Holders (the "Effectiveness Period").
The Company shall telephonically request effectiveness of a
Registration Statement as of 5:00 pm Eastern Time on a Trading Day.
The Company shall immediately notify the Holders via facsimile of the
effectiveness of a Registration Statement on the same Trading Day that
the Company telephonically confirms effectiveness with the Commission,
which shall be the date requested for effectiveness of a Registration
Statement. The Company shall, by 9:30 am Eastern Time on the Trading
Day after the Effective Date (as defined in the Purchase Agreement),
file a Form 424(b)(5) prospectus with the Commission. Failure to so
notify the Holder within 1 Trading Day of such notification shall be
deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior to
its Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the
same as required by Section 3(a), the Company shall not be deemed to
have satisfied this clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not
be "reviewed," or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective
amendment and otherwise respond in writing to comments made by the
Commission in respect of such Registration Statement within 20
calendar days after the receipt of comments by or notice from the
Commission that such amendment is required in order for a Registration
Statement to be declared effective, or (iv) a Registration Statement
filed or required to be filed hereunder is not declared effective by
the Commission by its Effectiveness Date, or (v) after the
Effectiveness Date, a Registration Statement ceases for any reason to
remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are not permitted
to utilize the Prospectus therein to resell such Registrable
Securities for 10 consecutive Trading Days but no more than an
aggregate of 20 Trading Days during any 12-month period (which need
not be consecutive Trading Days) (any such failure or breach being
referred to as an "Event", and for purposes of clause (i) or (iv) the
date on which such Event occurs, or for purposes of clause (ii) the
date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 20 Trading Day period is
exceeded, or for purposes of clause (v) the date on which such 10 or
20 Trading Day period, as applicable, is exceeded being referred to as
"Event Date"), then in addition to any other rights the Holders may
have hereunder or under applicable law, (A) on each such Event Date,
the Company shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to 1.0% of the
aggregate purchase price paid by such Holder pursuant to the Purchase
Agreement for any Registrable Securities then held by such Holder and
(B) and on each monthly anniversary of each such Event Date thereafter
(if the applicable Event shall not have been cured by such date) until
the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as partial liquidated damages and not as a penalty,
equal to 2.0% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement for any Registrable Securities then
held by such Holder. If the Company fails to pay any partial
liquidated damages pursuant to this Section in full within seven days
after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted
to be paid by applicable law) to the Holder, accruing daily from the
date such partial liquidated damages are due until such amounts, plus
all such interest thereon, are paid in full. The partial liquidated
damages pursuant to the terms hereof shall apply on a daily pro-rata
basis for any portion of a month prior to the cure of an Event.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Not less than four Trading Days prior to the filing of each
Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated
or deemed to be incorporated therein by reference), the Company shall,
(i) furnish to each Holder copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such
Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries
as shall be necessary, in the reasonable opinion of respective counsel
to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or
any such Prospectus or any amendments or supplements thereto to which
the Holders of a majority of the Registrable Securities shall
reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than 5 Trading Days
after the Holders have been so furnished copies of such documents.
Each Holder agrees to furnish to the Company a completed Questionnaire
in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") not less than three Trading Days prior to
the Filing Date or by the end of the fourth Trading Day following the
date on which such Holder receives draft materials in accordance with
this Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and
the Prospectus used in connection therewith as may be necessary to
keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus
to be amended or supplemented by any required Prospectus supplement
(subject to the terms of this Agreement), and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible to any comments received from the Commission with
respect to a Registration Statement or any amendment thereto and as
promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to a
Registration Statement; provided, however, that if, in the opinion of
counsel to the Company, the provision of such correspondence shall
result in the provision of material non-public information to such
Holders and a breach of Section 4.8 of the Purchase Agreement, such
Holders shall first have executed a written agreement regarding
confidentiality and use of such information; and (iv) comply in all
material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable
period in accordance (subject to the terms of this Agreement) with the
intended methods of disposition by the Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of
Registrable Securities at any time exceeds 90% of the number of shares
of Common Stock then registered in a Registration Statement, then the
Company shall file as soon as reasonably practicable but in any case
prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than 125% of
the number of such Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold
(which notice shall, pursuant to clauses (ii) through (vi) hereof, be
accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than four Trading
Days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following
the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be
filed; (B) when the Commission notifies the Company whether there will
be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written
responses thereto to each of the Holders); and (C) 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 Prospectus or for
additional information; (iii) of the issuance by the Commission or any
other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement covering any
or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities
for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; (v) of the occurrence of any event or
passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any
statement made in a Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any
revisions to a Registration Statement, Prospectus or other documents
so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it 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, in light of the
circumstances under which they were made, not misleading; and (vi) the
occurrence or existence of any pending corporate development with
respect to the Company that the Company believes may be material and
that, in the determination of the Company, makes it not in the best
interest of the Company to allow continued availability of a
Registration Statement or Prospectus; provided that any and all of
such information shall remain confidential to each Holder until such
information otherwise becomes public, unless disclosure by a Holder is
required by law; provided, further, notwithstanding each Holder's
agreement to keep such information confidential, the Holders make no
acknowledgement that any such information is material, non-public
information.
(e) Use its commercially reasonable efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of a Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest practicable moment.
(f) Furnish to each Holder, without charge, at least one
conformed copy of each such Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the
extent requested by such Person, and all exhibits to the extent
requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents
with the Commission.
(g) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons
may reasonably request in connection with resales by the Holder of
Registrable Securities. Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto,
except after the giving on any notice pursuant to Section 3(d).
(h) If NASDR Rule 2710 requires any broker-dealer to make a
filing prior to executing a sale by a Holder, the Company shall (i)
make an Issuer Filing with the NASDR, Inc. Corporate Financing
Department pursuant to proposed NASDR Rule 2710(b)(10)(A)(i), (ii)
respond within five Trading Days to any comments received from NASDR
in connection therewith, and (iii) pay the filing fee required in
connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder,
use its commercially reasonable efforts to register or qualify or
cooperate with the selling Holders in connection with the registration
or qualification (or exemption from the Registration or qualification)
of such Registrable Securities for the resale by the Holder under the
securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by each
Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where
it is not then so qualified, subject the Company to any material tax
in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all
restrictive legends, and to enable such Registrable Securities to be
in such denominations and registered in such names as any such Holders
may request.
(k) Upon the occurrence of any event contemplated by this
Section 3, as promptly as reasonably possible under the circumstances
taking into account the Company's good faith assessment of any adverse
consequences to the Company and its stockholders of the premature
disclosure of such event, prepare a supplement or amendment, including
a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other
required document so that, as thereafter delivered, neither a
Registration Statement nor such Prospectus will contain an 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 under which they were made, not misleading.
If the Company notifies the Holders in accordance with clauses (ii)
through (vi) of Section 3(d) above to suspend the use of any
Prospectus until the requisite changes to such Prospectus have been
made, then the Holders shall suspend use of such Prospectus. The
Company will use its commercially reasonable efforts to ensure that
the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under
this Section 3(k) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial liquidated
damages pursuant to Section 2(b), for a period not to exceed 60 days
(which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to
the Company a certified statement as to the number of shares of Common
Stock beneficially owned by such Holder and, if required by the
Commission, the person thereof that has voting and dispositive control
over the Shares. During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time as to such Holder
only shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until
such information is delivered to the Company.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as requested by the Holders) and (C) if not
previously paid by the Company in connection with an Issuer Filing, with respect
to any filing that may be required to be made by any broker through which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in a Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, members, partners,
agents, brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and
employees (and any other Persons with a functionally equivalent role
of a Person holding such titles, notwithstanding a lack of such title
or any other title) of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, members,
partners, agents and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
relating to (1) any untrue or alleged untrue statement of a material
fact contained in a Registration Statement, any Prospectus or any form
of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of
the circumstances under which they were made) not misleading or (2)
any violation or alleged violation by the Company of the Securities
Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its
obligations under this Agreement, except to the extent, but only to
the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent
that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or
in any amendment or supplement thereto (it being understood that the
Holder has approved Annex A hereto for this purpose) or (ii) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(d). The Company
shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the
transactions contemplated by this Agreement of which the Company is
aware.
(b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees
of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form
of prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading (i) to the
extent, but only to the extent, that such untrue statement or omission
is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration
Statement or such Prospectus (it being understood that the Holder has
approved for this purpose the Plan of Distribution attached hereto in
connection with the initial Registration Statement) or (ii) to the
extent that (1) such untrue statements or omissions are based solely
upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent
that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement (it being understood that the Holder has
approved Annex A hereto for this purpose), such Prospectus or such
form of Prospectus or in any amendment or supplement thereto or (2) in
the case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(d). In no event
shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall
have the right to assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal
or further review) that such failure shall have prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall reasonably believe, based upon
the reasonable opinion of separate counsel, that a material conflict
of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense thereof and the reasonable fees and expenses of one
separate counsel shall be at the expense of the Indemnifying Party).
The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and
expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred,
within ten Trading Days of written notice thereof to the Indemnifying
Party; provided, that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the
relative faults of the parties.
(d) Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying
Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party
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 or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable
by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys' or other reasonable fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance
with its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of
this Section 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
except in the case of fraud by such Holder.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that
monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions
of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on
Schedule 6(b) attached hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the initial
Registration Statement other than the Registrable Securities. No
Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company. The Company
shall not file any other registration statements until the initial
Registration Statement required hereunder is declared effective by the
Commission, provided that this Section 6(b) shall not prohibit the
Company from filing amendments or supplements to registration
statements already filed.
(c) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act
as applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind
described in Section 3(d), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration
Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement, or
until it is advised in writing (the "Advice") by the Company that the
use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. The Company will use its best
efforts to ensure that the use of the Prospectus may be resumed as
promptly as it is practicable. The Company agrees and acknowledges
that any periods during which the Holder is required to discontinue
the disposition of the Registrable Securities hereunder shall be
subject to the provisions of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account
of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) 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 the stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such
determination and, if within ten days after the date of such notice,
any such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered; provided, however,
that, the Company shall not be required to register any Registrable
Securities pursuant to this Section 6(e) that are eligible for resale
pursuant to Rule 144(k) promulgated under the Securities Act or that
are the subject of a then effective Registration Statement or are
subject to customary underwriter cutbacks applicable to all Holders of
Registrable Securities.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and each Holder of the then
outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to
a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may
be given by Holders of all of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of
this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be
delivered as set forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. Except as set forth on Schedule 6(i), neither the Company nor
any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any signature
is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning
hereof.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with
the obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any
other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by
any Holder pursuant hereto or thereto, shall be deemed to constitute
the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in
any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be
entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not
be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
ELECTRONIC CONTROL SECURITY, INC.
By: /s/ Arthur Barchenko
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Name: Arthur Barchenko
Title: President
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