INVESTORS' RIGHTS AGREEMENT

 

COPSYNC, INC.

INVESTORS’ RIGHTS AGREEMENT

October 14, 2009

 

 

 

 

 

COPSYNC, INC.

INVESTORS’ RIGHTS AGREEMENT

This Investors’ Rights Agreement (this “ Agreement ”) is made as of October 14, 2009, by and among COPsync, Inc., a Delaware corporation (the “ Company ”), and the persons and entities (each, an “ Investor ” and collectively, the “ Investors ”) listed on Exhibit A hereto.  Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1 .

RECITALS

WHEREAS: The Investors and the Company are parties to the Securities Purchase Agreement of even date herewith (the “ Purchase Agreement ”), and it is a condition to the closing of the sale of the Series B Preferred Stock and warrants to purchase Common Stock to the Investors under the Purchase Agreement that the Investors and the Company execute and deliver this Agreement.

NOW, THEREFORE: In consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

Section 1

Definitions

1.1       Certain Definitions

.  As used in this Agreement, the following terms shall have the meanings set forth below:

(a)      “ Commission ” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

(b)           “ Common Stock ” means the Common Stock of the Company.

(c)      “ Conversion Stock ” means shares of Common Stock issued upon conversion of the Series B Preferred Stock.

(d)      “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(e)      “ Holder ” means any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section   2.10 of this Agreement.

(f)      “ Indemnified Party ” shall have the meaning set forth in Section  2.5(c) hereto.

(g)      “ Indemnifying Party ” shall have the meaning set forth in Section  2.5(c) hereto.

 

 

(h)            “Initial Closing” means the date of the initial sale of shares of the Company’s Series B Preferred Stock pursuant to the Purchase Agreement.

(i)      “ Initiating Holders ” means any Holder or Holders who in the aggregate hold not less than a majority of the outstanding Registrable Securities.

(j)      “ New Securities ” shall have the meaning set forth in Section  3.1(a) hereto.

(k)      “ Other Selling Stockholders ” means persons other than Holders who, by virtue of agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder.

(l)      “ Other Shares ” means shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted.

(m)           “ Purchase Agreement ” shall have the meaning set forth in the Recitals hereto.

(n)       “ Registrable Securities ” shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares, (ii) shares of Common Stock issued or issuable upon exercise of the Warrants (as defined in the Purchase Agreement) and (iii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) or (ii) above; provided , however , that Registrable Securities shall not include any shares of Common Stock described in clause (i), (ii) or (iii) above that have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144 or Rule 145, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this Agreement.

(o)      The terms “ register ,” “ registered ” and “ registration ” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

(p)      “ Registration Expenses ” shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company   and one special counsel for the Holders, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company.

(q)      “ Restricted Securities ” shall mean any Registrable Securities required to bear the legend set forth in Section  2.7(b) hereof.

(r)      “ Rule 144 ” means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

 

(s)           “ Rule 145 ” means Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

(t)      “ Securities Act ” means the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(u)      “ Selling Expenses ” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses).

(v)      “ Series B Director ” shall have meaning given such term in the Company’s Amended and Restated Certificate of Incorporation, as amended from time to time.

(w)           “ Series B Preferred Stock ” means the shares of Series B Preferred Stock issued pursuant to the Purchase Agreement.

(x)      “ Shares ” means the Company’s Series B Preferred Stock.

Section 2

Registration Rights

2.1       Requested Registration

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(a)       Request for Registration .  Subject to the conditions set forth in this Section  2.1 , if the Company shall receive from Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to at least a majority of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of by such Initiating Holders), the Company will:

(i)      promptly give written notice of the proposed registration to all other Holders; and

(ii)      as soon as practicable, file and use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.

(b)       Limitations on Requested Registration.   The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section  2.1 :

 

 

(i)           Prior to the two (2) year anniversary of the date of this Agreement;

(ii)      In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(iii)                 After the Company has initiated one (1) such registration pursuant to this Section  2.1 ; or

(iv)                 During the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a Company-initiated registration (or ending on the subsequent date on which all market stand-off agreements applicable to the offering have terminated); provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective.

(c)       Deferral .  If (i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable Securities would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section  2.1(b)(iv) above) the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further , that the Company shall not defer its obligation in this manner more than two (2) times in any twelve-month period.

(d)       Other Shares .  The registration statement filed pursuant to the request of the Initiating Holders may include Other Shares, and may include securities of the Company being sold for the account of the Company.

2.2       Company Registration

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(a)       Company Registration . If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders who is an affiliate of the Company, other than a registration pursuant to Section  2.1 , a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will:

(i)      promptly give written notice of the proposed registration to all Holders; and

 

 

(ii)           use its commercially reasonable efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section  2.2(b) below, and in any underwriting involved therein, all of such Registrable Securities as are specified in a written request or requests made by any Holder or Holders received by the Company within twenty (20) days after such written notice from the Company is delivered to such Holder or Holders.  Such written request may specify all or a part of a Holder’s Registrable Securities.

(b)       Underwriting .  If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section  2.2(a)(i) .  In such event, the right of any Holder to registration pursuant to this Section  2.2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting must (together with the Company, the Other Selling Stockholders and other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.

Notwithstanding any other provision of this Section  2.2 , if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) limit the number of Registrable Securities to be included in, the registration and underwriting.  The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (i) first, to the Company for securities being sold for its own account, (ii) second, to the Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion and (iii) third, to the Other Selling Stockholders requesting to include Other Shares in such registration statement based on the pro rata percentage of Other Shares held by such Other Selling Stockholders, assuming conversion. Notwithstanding the foregoing, no such reduction shall reduce the Registrable Securities of the Holders included in such registration, unless such registration does not include shares of any other selling stockholders, in which event any or all of the Registrable Securities of the Holders may be excluded.

If a Holder who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Holder shall also be excluded therefrom by written notice from the Company or the underwriter.  The Registrable Securities or other securities so excluded shall also be withdrawn from such registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

(c)       Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section  2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.

2.3       Expenses of Registration

.  All Registration Expenses incurred in connection with  registrations pursuant to Sections  2.1 and 2.2 hereof shall be borne by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section  2.1 if the registration request is

 

 

subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions set forth in Section   2.1 are no longer satisfied (in which case all participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section  2.1 .  All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.

2.4       Registration Procedures

.  In the case of each registration effected by the Company pursuant to Section 2 , the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof.  At its expense, the Company will use its commercially reasonable efforts to:

(a)      Keep such registration effective for a period of ending on the earlier of the date which is sixty (60) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration statement relating thereto;

(b)      Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above;

(c)      Furnish such number of prospectuses, including any preliminary prospectuses,  and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

(d)      Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders; provided , that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

(e)      Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include 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 not misleading or incomplete in light of the circumstances then existing;

(f)      Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and

 

 

(g)           In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section  2.1 hereof, enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains reasonable and customary provisions, and provided further , that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

2.5       Indemnification

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(a)      To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2 , and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by