EXHIBIT 10.5
 
INVESTOR/REGISTRATION RIGHTS AGREEMENT
 
This Investor/Registration Rights Agreement (the “Agreement”) is made and
entered into as of the 14th day of August, 2014, by and Midwest Energy Emissions
Corp., a Delaware corporation (the “Company”) and AC Midwest Energy LLC, a
Delaware limited liability company (the “Holder”).
 
WHEREAS, the Company and the Holder have entered into a certain Financing
Agreement dated as of the date hereof (the “Financing Agreement”) pursuant to
which the Company has agreed, upon the terms and conditions set forth in the
Financing Agreement, to issue and sell to the Holder a senior secured
convertible note in the principal amount of $10,000,000 (the “Note”), which Note
shall be convertible into shares of the Company’s common stock, par value $0.001
per share (the “Common Stock,” and the shares of Common Stock issuable upon
conversion of the Note, the “Conversion Shares”) and warrants (the “Warrants”)
which will be exercisable to purchase shares of Common Stock (as exercised,
collectively, the “Warrant Shares”) in accordance with the terms of the
Warrants; and
 
WHEREAS, in accordance with the terms of the Financing Agreement the Company has
agreed to provide the Holder with certain rights, including, without limitation:
(i) registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any successor statute (collectively, the
“1933 Act”), and applicable state securities laws; (ii) to consent to certain
actions taken by the Company and its subsidiaries once the Note is repaid in
full at which time the covenants set forth in the Financing Agreement no longer
apply, (iii) to consult with management from time to time and to attend meetings
of the Company’s Board of Directors (the “Board”) as an observer once the Note
is repaid in full at which time the covenants set forth in the Financing
Agreement no longer apply.
 
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the parties hereto hereby agree as follows:
 
1. Definitions. For purposes of this Agreement:
 
“1933 Act” has the meaning set forth in the recitals.
 
“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, or any successor statute thereto.
 
“Additional Effective Date” means the date the Additional Registration Statement
is declared effective by the SEC.
 
“Additional Effectiveness Deadline” means the date which is the earlier of: (i)
in the event that the Additional Registration Statement (a) is not subject to a
full review by the SEC, 30 calendar days after the earlier of the Additional
Filing Date and the Additional Filing Deadline, or (b) in the event that the
Additional Registration Statement is subject to a full review by the SEC, 60
calendar days after the earlier of the Additional Filing Date and the Additional
Filing Deadline, and (ii) the 5 Business Day after the date the Company is
notified (orally or in writing, whichever is earlier) by the SEC that such
Additional Registration Statement will not be reviewed or will not be subject to
further review; provided, however, that if the Additional Effectiveness Deadline
falls on a Saturday, Sunday or other day that the SEC is closed for business,
the Additional Effectiveness Deadline shall be extended to the next Business Day
on which the SEC is open for business.
 
 
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“Additional Filing Date” means the date on which the Additional Registration
Statement is filed with the SEC.
 
“Additional Filing Deadline” means if Cutback Shares are required to be included
in any Additional Registration Statement, the later of (i) the date 60 calendar
days after the date substantially all of the Registrable Securities registered
under the immediately preceding Registration Statement are sold, and (ii) the
date six months from the Initial Effective Date or the most recent Additional
Effective Date, as applicable.
 
“Additional Registrable Securities” means: (i) any Cutback Shares not previously
included on a Registration Statement, and (ii) any capital stock of the Company
issued or issuable with respect to the Notes, Conversion Shares, Purchased
Convertible Notes, Purchased Convertible Note Shares, Warrants, Warrant Shares
or Cutback Shares, as applicable, as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise.
 
“Additional Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
resale of any Additional Registrable Securities.
 
“Additional Required Registration Amount” means (i) any Cutback Shares not
previously included on a Registration Statement, all subject to adjustment as
provided in Section 2.1(e), or (ii) such other amount as may be permitted by the
staff of the SEC pursuant to Rule 415.
 
“Affiliate” means, with respect to a specified Person, another Person that is a
director or officer of such Person, or directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with
the Person specified
 
“Agreement” has the meaning set forth in the preamble.
 
“Allowable Grace Period” has the meaning set forth in Section 2.2(p).
 
“Approved Plan and Budget” has the meaning set forth in Section 3.
 
“Bloomberg” means Bloomberg Financial Markets.
 
“Blue Sky Filing” has the meaning set forth in Section 2.5(a).
 
“Board” has the meaning set forth in the preamble.
 
 
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“Business Day” means any day other than Saturday, Sunday or any other day on
which commercial banks in the City of New York are authorized or required by law
to remain closed.
 
“Claims” has the meaning set forth in Section 2.5(a).
 
“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the OTC Link or “pink sheets” by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the affected Investors. If the Company
and such Investors are unable to agree upon the fair market value of such
security, then the Company and the Investors shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to make such
determination, whose determination shall be final and binding and whose fees and
expenses shall be borne by the Company.
 
“Common Stock” has the meaning set forth in the recitals.
 
“Company” has the meaning set forth in the preamble.
 
“Conversion Shares” has the meaning set forth in the recitals.
 
“Current Public Information Failure” has the meaning set forth in Section
2.1(f).
 
“Cutback Shares” means any of the Initial Required Registration Amount or the
Additional Required Registration Amount (without regard to clause (ii) in the
definition thereof) of Registrable Securities not included in all Registration
Statements previously declared effective hereunder as a result of a limitation
on the maximum number of shares of Common Stock of the Company permitted to be
registered by the staff of the SEC pursuant to Rule 415. For the purpose of
determining the Cutback Shares, in order to determine any applicable Required
Registration Amount, unless an Investor gives written notice to the Company to
the contrary with respect to the allocation of its Cutback Shares, first the
Warrant Shares shall be excluded on a pro rata basis among the Investors until
all of the Warrant Shares have been excluded, second, the Purchased Convertible
Note Shares shall be excluded on a pro rata basis among the Investors until all
of the Purchased Convertible Note Shares have been excluded, and finally the
Conversion Shares shall be excluded on a pro rata basis among the Investors
until all of the Conversion Shares have been excluded.
 
 
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“Effective Date” means the Initial Effective Date and the Additional Effective
Date, as applicable.
 
“Effectiveness Deadline” means the Initial Effectiveness Deadline and the
Additional Effectiveness Deadline, as applicable.
 
“Effectiveness Failure” has the meaning set forth in Section 2.1(f).
 
“Eligible Market” means the Principal Market, The New York Stock Exchange, Inc.,
the NYSE MKT LLC, The NASDAQ Capital Market, The NASDAQ Global Select Market or
The NASDAQ Global Market.
 
“Filing Deadline” means the Initial Filing Deadline and the Additional Filing
Deadline, as applicable.
 
“Filing Failure” has the meaning set forth in Section 2.1(f).
 
“Financing Agreement” has the meaning set forth in the recitals.
 
“Grace Period” has the meaning set forth in Section 2.2(p).
 
“Holder” has the meaning set forth in the preamble and shall also include or any
transferee or assignee of the Holder identified in the preamble to whom the
Holder identified in the preamble assigns its rights under this Agreement and
who agrees to be bound by the provisions of this Agreement in accordance with
Section 7.1 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 7.1.
 
“Indemnified Damages” has the meaning set forth in Section 2.5(a).
 
“Indemnified Party” has the meaning set forth in Section 2.5(b).
 
“Indemnified Person” has the meaning set forth in Section 2.5(a).
 
“Initial Effective Date” means the date that the Initial Registration Statement
has been declared effective by the SEC.
 
 
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“Initial Effectiveness Deadline” means the date which is the earlier of: (i) in
the event that the Initial Registration Statement (a) is not subject to a full
review by the SEC, 90 calendar days after the Request Date, or (b) is subject to
a full review by the SEC, 120 calendar days after the Request Date, and (ii) the
fifth Business Day following the date on which the Company is notified (orally
or in writing, whichever is earlier) by the SEC that such Initial Registration
Statement will not be reviewed or will not be subject to further review;
provided, however, that if the Initial Effectiveness Deadline falls on a
Saturday, Sunday or other day that the SEC is closed for business, the Initial
Effectiveness Deadline shall be extended to the next Business Day on which the
SEC is open for business.
 
“Initial Filing Date” means the date on which the Initial Registration Statement
is filed with the SEC.
 
“Initial Filing Deadline” means the date which is 30 calendar days after the
Request Date.
 
“Initial Registrable Securities” means (i) the Warrant Shares issuable or issued
upon exercise of the Warrant; (ii) the Conversion Shares issuable or issued
pursuant to the terms of the Note; (iii) the Purchased Convertible Note Shares
issuable or issued pursuant to the terms of the Purchased Convertible Notes; and
(iv) any other capital stock issued or issuable with respect to the Note,
Conversion Shares, Purchased Convertible Notes, Purchased Convertible Note
Shares, Warrant or Warrant Shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise.
 
“Initial Registration Statement” means a registration statement or registration
statements of the Company filed under the 1933 Act covering the resale of the
Initial Registrable Securities.
 
“Initial Required Registration Amount” means (i) the sum of: (a) 135% of the
maximum number of Conversion Shares issued and issuable pursuant to the Notes,
(b) 100% of the maximum number of Warrant Shares issued and issuable pursuant to
the Warrant, and (c) 100% of the maximum number of Purchased Convertible Note
Shares issued and issuable pursuant to the Purchased Convertible Notes, each as
of the Trading Day immediately preceding the applicable date of determination
and all subject to adjustment as provided in Section 2.1(e), or (ii) such other
amount as may be permitted by the staff of the SEC pursuant to Rule 415.
 
“Inspectors” has the meaning set forth in Section 2.2(g)(ii).
 
“Investor” means the Holder or any transferee or assignee of the Holder to whom
the Holder assigns its rights under this Agreement and who agrees to be bound by
the provisions of this Agreement in accordance with Section 7.1 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 7.1.
 
“Note” has the meaning set forth in the recitals.
 
“Maintenance Failure” has the meaning set forth in Section 2.1(f).
 
 
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“Major Action” has the meaning set forth in Section 3.
 
“Permitted Issuances” means any issuance or sale (or deemed issuance or sale in
accordance with Section 4) by the Company after the Original Issue Date of
shares of Common Stock issued or issuable with respect to any of the following:
(a) upon conversion of the Note or the Prior Convertible Notes; (b) upon
exercise each of the following warrants which were issued as of the date hereof:
(i) this Warrant, (ii) the New Warrants (as defined in the Allonge to the Prior
Senior Convertible Notes); and (iii) the warrants to be issued to the Placement
Agent; (c) interest on the Note or Prior Senior Convertible Notes as a result of
in kind payments of Common Stock in lieu of cash; (d) upon exercise of the
existing warrants to the extent outstanding as of the Original Issue Date,
including, without limitation: (i) the warrants issued in connection with the
Prior Convertible Notes; (ii) the warrants issued to each of Arthur Peterson and
James Stanley on September 19, 2013; and (iii) the warrants issued to View Trade
Securities, Inc. between July 30, 2013 and May 8, 2014 to purchase up to an
aggregate of 572,750 shares of Common Stock at an exercise price of $0.50 per
share; (e) pursuant to the existing employment agreements with each of R. Alan
Kelley, John F. Norris, Jr., Richard H. Gross and Marc Sylvester (the “Executive
Employment Agreements”); (f) upon exercise of the following existing options to
the extent outstanding as of the Original Issue Date: (i) the options issued
pursuant to the 2005 Stock Option Plan (as amended in 2009); (ii) the options
issued in connection with the Executive Employment Agreements; and (iii) the
options issued to each of Keith McGee and Jim Trettel on January 1, 2014 (the
forgoing clauses (a) through (f) collectively, the “Existing Issuance
Obligations”); (g) in connection with the acquisition of any interest in an
entity not affiliated with the Company (whether by merger, purchase of
substantially all of the assets, purchase of stock or other otherwise) which is
consented to by the Holder; and (h) pursuant to or in connection with any
strategic alliance, joint venture or corporate partnership, each with an entity
not affiliated with the Company which is consented to by the Holder, (i) shares
issuable to EERCF and/or its designees as set forth in the Fifth Amendment to
the EERCF License Agreement, in the event of exercise by MES of its option to
cause EERCF to transfer the Patent Rights (as such term is defined in the EERCF
License Agreement) to MES (or any of its assignees or Affiliates) pursuant to
the EERCF License Agreement; provided that Holder has consented to MES
exercising such right; and (j) the equity securities or equity linked securities
as necessary to provide sufficient net proceeds to the Company to enable it to
pay off at any time on or following maturity, the indebtedness evidenced by any
of the “Prior Convertible Notes” (as that term is defined in the Financing
Agreement).
 
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
 
“Principal Market” means The OTC QB.
 
“Purchased Convertible Note Shares” means the shares of Common Stock issuable
upon conversion of any Purchased Convertible Notes.
 
“Purchased Convertible Notes” means any of the Prior Senior Convertible Notes
purchased by the Holder.
 
“Records” has the meaning set forth in Section 2.2(g)(ii).
 
“register”, “registered” and “registration” mean a registration effected by
preparing and filing one or more Registration Statements in compliance with the
1933 Act and pursuant to Rule 415, and the declaration or ordering of
effectiveness of such Registration Statement or Registration Statements by the
SEC.
 
“Registrable Securities” means the Initial Registrable Securities and the
Additional Registrable Securities.
 
“Registration Delay Payments” has the meaning set forth in Section 2.1(f).
 
 
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“Registration Failure” has the meaning set forth in Section 2.1(f)
 
“Registration Period” has the meaning set forth in Section 2.2(a).
 
“Registration Statement” means the Initial Registration Statement and the
Additional Registration Statement, as applicable.
 
“Required Holders” means the holders of at least a majority of the Registrable
Securities and shall include the Holder so long as the Holder or any Affiliate
of the Holder holds any Registrable Securities.
 
“Request Date” means the date that the Required Holder have delivered a notice
to the Company requesting that the Company file the Initial Registration
Statement, such notice in accordance with the notice provisions set forth in
Section 7.3 hereof.
 
“Required Registration Amount” means either the Initial Required Registration
Amount or the Additional Required Registration Amount, as applicable.
 
“Rule 144” has the meaning set forth in Section 2.7.
 
“Rule 415” means Rule 415 promulgated under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.
 
“SEC” means the U.S. Securities and Exchange Commission.
 
“Trading Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that “Trading Day” shall not
include any day on which the Common Stock is scheduled to trade on such exchange
or market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York time).
 
“Transaction Documents” means the Financing Agreement, the Note, the Warrant,
and each of the other agreements, documents and certificates entered into by the
Holder and the Company in connection with the transactions contemplated by the
Financing Agreement.
 
“Violations” has the meaning set forth in Section 2.5(a).
 
“Warrant” has the meaning set forth in the recitals.
 
 
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“Warrant Shares” has the meaning set forth in the recitals.
 
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to them in the Financing Agreement.
 
2. Registration Rights.
 
2.1 Demand Registration.
 
(a) Initial Registration. Promptly following the Request Date, the Company shall
prepare, and, as soon as practicable but in no event later than the Initial
Filing Deadline, file with the SEC the Initial Registration Statement on Form
S-3. The Initial Registration Statement prepared pursuant hereto shall register
for resale at least the number of shares of Common Stock equal to the Initial
Required Registration Amount determined as of the date the Initial Registration
Statement is initially filed with the SEC, subject to adjustment as provided in
Section 2.1(e). The Initial Registration Statement shall contain (except if
otherwise directed by the Required Holders) the “Plan of Distribution” and
“Selling Shareholders” sections in substantially the form attached hereto as
Exhibit B. The Company shall use its commercially reasonable efforts to have the
Initial Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than the Initial Effectiveness Deadline. By
9:30 a.m. New York time on the Business Day following the Initial Effective
Date, the Company shall file with the SEC in accordance with Rule 424 under the
1933 Act the final prospectus to be used in connection with sales pursuant to
such Initial Registration Statement.
 
(b) Additional Registrations. The Company shall prepare, and, as soon as
practicable but in no event later than the Additional Filing Deadline, file with
the SEC an Additional Registration Statement on Form S-3 covering the resale of
all of the Additional Registrable Securities not previously registered on an
Additional Registration Statement hereunder. To the extent the staff of the SEC
does not permit the Additional Required Registration Amount to be registered on
an Additional Registration Statement, the Company shall file Additional
Registration Statements successively trying to register on each such Additional
Registration Statement the maximum number of remaining Additional Registrable
Securities until the Additional Required Registration Amount has been registered
with the SEC. Each Additional Registration Statement prepared pursuant hereto
shall register for resale at least that number of shares of Common Stock equal
to the Additional Required Registration Amount determined as of the date such
Additional Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 2.1(e). Each Additional Registration Statement
shall contain (except if otherwise directed by the Investors) the “Plan of
Distribution” and “Selling Shareholders” sections in substantially the form
attached hereto as Exhibit B. The Company shall use its commercially reasonable
efforts to have each Additional Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Additional
Effectiveness Deadline. By 9:30 a.m. New York time on the Business Day following
the Additional Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Additional Registration Statement.
 
(c) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase or decrease
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase or decrease thereof is declared
effective by the SEC. In the event that an Investor sells or otherwise transfers
any of such Investor’s Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. In no event shall
the Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required
Holders.
 
 
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(d) Ineligibility for Form S-3. Notwithstanding anything herein to the contrary,
in the event that Form S-3 is not available for the registration of the resale
of Registrable Securities hereunder, the Company shall: (i) register the resale
of the Registrable Securities on Form S-1 or another appropriate form reasonably
acceptable to the Required Holders, and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available; provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
 
(e) Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Sections 2.1(a) or
2.1(b) is insufficient to cover the Required Registration Amount of Registrable
Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to Section
2.1(c), the Company shall amend the applicable Registration Statement, or file a
new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least the Required Registration Amount
as of the Trading Day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable,
but in any event not later than 15 calendar days after the necessity therefor
arises. The Company shall use its commercially reasonable efforts to cause such
amendment or new Registration Statement, or both, to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if at any
time the number of shares of Common Stock available for resale under the
Registration Statement is less than the Required Registration Amount. The
calculation set forth in the foregoing sentence shall assume: (i) that the Note
is then convertible in full into shares of Common Stock at the then prevailing
Conversion Price (as defined in the Financing Agreement) and (ii) the Warrant is
then exercisable in full into shares of Common Stock at the then prevailing
Exercise Price (as defined in the Warrant).
 
(f) Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If: (i) the Initial Registration Statement when declared
effective fails to register the Initial Required Registration Amount of Initial
Registrable Securities (a “Registration Failure”), (ii) a Registration Statement
covering all of the Registrable Securities required to be covered thereby and
required to be filed by the Company pursuant to this Agreement is: (A) not filed
with the SEC on or before the applicable Filing Deadline (a “Filing Failure”),
or (B) not declared effective by the SEC on or before the Effectiveness Deadline
(an “Effectiveness Failure”), (iii) on any day after the applicable Effective
Date, sales of all of the Registrable Securities required to be included on such
Registration Statement cannot be made (other than during an Allowable Grace
Period) pursuant to such Registration Statement or otherwise (including, without
limitation, because of the suspension of trading or any other limitation imposed
by an Eligible Market, a failure to keep such Registration Statement effective,
a failure to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement, a failure to register a sufficient
number of shares of Common Stock or a failure to maintain the quotation or
listing of the Common Stock) (a “Maintenance Failure”), or (iv) if a
Registration Statement is not effective for any reason or the prospectus
contained therein is not available for use for any reason, the Company fails to
file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act
such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if
applicable) (a “Current Public Information Failure”) as a result of which any of
the Investors are unable to sell Registrable Securities without restriction
under Rule 144 (including, without limitation, volume restrictions) then, as
partial relief for the damages to any holder 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 available at law or in
equity, including, without limitation, specific performance or the additional
obligation of the Company to register any Cutback Shares), the Company shall pay
to each holder of Registrable Securities relating to such Registration Statement
an amount in cash equal to (x) 0.5% of the aggregate value of such holder’s
Registrable Securities (such value being determined by multiplying the number of
such holder’s Registerable Securities by: the Closing Sale Price of one share of
Common Stock on the Trading Day immediately preceding the date of determination,
on each of the following dates: (i) the day of a Registration Failure, (ii) the
day of a Filing Failure; (iii) the day of an Effectiveness Failure; (iv) the
initial day of a Maintenance Failure; (v) the initial day of a Current Public
Information Failure, and (y) 1.0% of the aggregate value of such holder’s
Registrable Securities, whether or not included in such Registration Statement,
on each of the following dates: (i) on the thirtieth day after the date of a
Registration Failure and every thirtieth day thereafter (prorated for periods
totaling less than thirty days) until such Registration Failure is cured; (ii)
on the thirtieth day after the date of a Filing Failure and every thirtieth day
thereafter (prorated for periods totaling less than thirty days) until such
Filing Failure is cured; (iii) on the thirtieth day after the date of an
Effectiveness Failure and every thirtieth day thereafter (prorated for periods
totaling less than thirty days) until such Effectiveness Failure is cured; (iv)
on the thirtieth day after the initial date of a Maintenance Failure and every
thirtieth day thereafter (prorated for periods totaling less than thirty days)
until such Maintenance Failure is cured; and (v) on the thirtieth day after the
initial date of a Public Information Failure and every thirtieth day thereafter
(prorated for periods totaling less than thirty days) until such Public
Information Failure is cured. The payments to which a holder shall be entitled
pursuant to this Section 2.1(f) are referred to herein as “Registration Delay
Payments.” Registration Delay Payments shall be paid on the earlier of (I) the
dates set forth above, and (II) the third Business Day after the event or
failure giving rise to the Registration Delay Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of one and 1.0% per
month (prorated for partial months) until paid in full. Notwithstanding anything
herein to the contrary, (i) Registration Delay Payments shall cease to accrue
when all of the Registrable Securities may be sold pursuant to Rule 144 without
any restrictions or limitations, (ii) in no event shall the aggregate amount of
all Registration Delay Payments (without regard to any accrued interest thereon
in accordance with the preceding sentence) paid to an Investor exceed an amount
equal to 2.5% of the original principal amount stated in the Note on the Closing
Date (as defined in the Financing Agreement), (iii) no single event or failure
shall give rise to more than one type of Registration Delay Payment, or (iv) if
an Investor would be required to be named as an “underwriter” in the
Registration Statement by the SEC and such Investor elects, pursuant to Section
2.2(q) below not to include any Registrable Securities of such Investor in the
Registration Statement, no Registration Delay Payments shall accrue with respect
to such Registrable Securities of such Investor.
 
 
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2.2 Obligations of the Company. At such time as the Company is obligated to file
a Registration Statement with the SEC pursuant to Section 2.1(a), 2.1(b), 2.1(d)
or 2.1(e), the Company will use its reasonable commercially reasonable efforts
to effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
 
(a) The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to the Registrable Securities and use its commercially
reasonable efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as practicable after such
filing (but in no event later than the Effectiveness Deadline). The Company
shall keep each Registration Statement effective pursuant to Rule 415 at all
times until the earlier of: (i) the date as of which the Investors may sell all
of the Registrable Securities covered by such Registration Statement without
restriction or limitation pursuant to Rule 144 and without the requirement to be
in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under
the 1933 Act, or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration
Period”). The Company shall ensure that each 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 the case of prospectuses, in the light of the circumstances in which they
were made) not misleading. The term “commercially reasonable efforts” shall
mean, among other things, that the Company shall submit to the SEC, within two
Business Days after the later of the date that the Company learns that no review
of a particular Registration Statement will be made by the staff of the SEC or
that the staff has no further comments on a particular Registration Statement,
as the case may be, a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than two Business Days after
the submission of such request. The Company shall respond in writing to comments
made by the SEC in respect of a Registration Statement as soon as practicable,
but in no event later than fifteen days after the receipt of comments by or
notice from the SEC that an amendment is required in order for a Registration
Statement to be declared effective.
 
(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 1933 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
1933 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 2.2(b)) by reason of the Company filing a
report on Form 10-K, Form 10-Q, Form 8-K or any analogous report under the 1934
Act, the Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement such
Registration Statement.
 
(c) The Company shall furnish to each Investor, without charge, (i) promptly
after the same is prepared and filed with the SEC, at least one copy of such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, ten copies of the
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, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities.
 
 
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(d) The Company shall use its commercially reasonable efforts to (i) register
and qualify, unless an exemption from registration and qualification applies,
the resale by the Investors of the Registrable Securities covered by a
Registration Statement under such other securities or “blue sky” laws of all
applicable jurisdictions in the United States, (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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 2.2(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
the Investors 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
threatening of any proceeding for such purpose.
 
(e) The Company shall notify the Investors in writing of the happening of any
event, as promptly as practicable after becoming aware of such 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 the 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, subject to Section 2.2(p), promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten copies of such supplement or amendment to
each Investor (or such other number of copies as such Investor may reasonably
request). The Company shall also promptly notify the Investors 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
the Investors by facsimile or email on the same day of such effectiveness and by
overnight mail), (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. By 9:30 a.m. New York City time on
the date following the date any post-effective amendment has become effective,
the Company shall file with the SEC in accordance with Rule 424 under the 1933
Act the final prospectus to be used in connection with sales pursuant to such
Registration Statement.
 
(f) The Company shall use its commercially reasonable 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 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 each Investor 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) If any Investor is required under applicable securities laws to be described
in the Registration Statement as an underwriter or an Investor believes that it
could reasonably be deemed to be an underwriter of Registrable Securities, the
Company shall
 
(i) furnish the Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as the Investor may
reasonably request (A) a letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investor, and (B) 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 Investor; and
 
 
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(ii) make available for inspection by (A) the Investor, (B) the Investor’s legal
counsel, and (C) one firm of accountants or other agents retained by the
Investor (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 to hold in strict confidence and shall not make
any disclosure (except to the Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (x) 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 1933 Act, (y) 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 (z) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this Agreement. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit an Investor’s ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
 
(h) 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 the Investor and allow the Investor, at the Investor’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
 
(i) The Company shall use its commercially reasonable efforts either to (i)
cause all of the Registrable Securities covered by a Registration Statement 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) secure the inclusion for quotation of all of the Registrable Securities on
the Principal Market or (iii) if, despite the Company’s commercially reasonable
efforts, the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on another Eligible Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
use its commercially reasonable efforts to arrange for at least two market
makers to register with the Financial Industry Regulatory Authority, Inc. as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
2.2(i).
 
(j) The Company shall cooperate with the Investors and, to the extent
applicable, 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.
 
 
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(k) If requested by an Investor, the Company shall as soon as practicable: (i)
incorporate in a prospectus supplement or post-effective amendment such
information as the Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding Registrable Securities.
 
(l) The Company shall use its commercially reasonable efforts to cause the
Registrable Securities covered by a 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 90 days after the close of the period covered
thereby, an earnings statement (in form complying with, and in the manner
provided by, the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the applicable Effective Date of a Registration
Statement.
 
(n) The Company shall otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration here.
 
(o) Within two Business Days after a Registration Statement which covers
Registrable Securities is ordered 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)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A
 
(p) Notwithstanding anything herein to the contrary, at any time after the
Effective Date, the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board and its counsel, in the best interest of
the Company and, in the opinion of counsel to the Company, otherwise required (a
“Grace Period”); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material, non-public information giving
rise to a Grace Period (provided that in each such notice the Company will not
disclose the content of such material, non-public information to the Investors)
and the date on which the Grace Period will begin, and (ii) notify the Investors
in writing of the date on which the Grace Period ends; provided further, that
(x) no Grace Period shall exceed ten consecutive Trading Days, (y) during any
365-day period such Grace Periods shall not exceed an aggregate of twenty (20)
Trading Days, and (z) the first day of any Grace Period must be at least five
(5) Trading Days after the last day of any prior Grace Period (each, an
“Allowable Grace Period”). For purposes of determining the length of a Grace
Period, the Grace Period shall begin on and include the date the Investors
receive the notice referred to in clause (i) and shall end on and include the
later of the date the Investors receive the notice referred to in clause (ii)
and the date referred to in such notice. The provisions of Section 2.1(f) shall
not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 2.2(e) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Transaction Documents in connection
with any sale of Registrable Securities with respect to which the Investor has
entered into a contract for sale, prior to the Investor’s receipt of the notice
of a Grace Period and for which the Investor has not yet settled.
 
 
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(q) Neither the Company nor any Subsidiary or affiliate thereof shall identify
an Investor as an underwriter in any public disclosure or filing with the SEC,
the Principal Market or any Eligible Market and any Investor being deemed an
underwriter by the SEC shall not relieve the Company of any obligations it has
under this Agreement or any other Transaction Document; provided, however, that
the foregoing shall not prohibit the Company from including the disclosure found
in the “Plan of Distribution” section attached hereto as Exhibit B in the
Registration Statement.
 
(r) 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 Holder in this
Agreement or otherwise conflicts with the provisions hereof.
 
2.3 Obligations of the Investors.
 
(a) At least five Business Days prior to the first anticipated Filing Date of a
Registration Statement, the Company shall notify each Investor in writing of the
information the Company requires from such Investor. It shall be a condition
precedent to the obligations of the Company to complete any registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect and maintain the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.
 
(b) Each Investor, by such Investor’s acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of any Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor’s election to exclude all of such Investor’s Registrable Securities
from such Registration Statement.
 
(c) Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in the first sentence of
Section 2.2(e) or in Section 2.2(f), the Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement
covering such Registrable Securities until the such Investor’s receipt of copies
of the supplemented or amended prospectus as contemplated by the first sentence
of Section 2.2(e) or Section 2.2(f) 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 shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Transaction
Documents in connection with any sale of Registrable Securities with respect to
which the 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 the first sentence of Section 2.2(e) or in Section 2.2(f) and for
which the Investor has not yet settled.
 
(d) Each Investor covenants and agrees that it will comply with the prospectus
delivery requirements of the 1933 Act as applicable to it or an exemption
therefrom in connection with sales of Registrable Securities pursuant to the
Registration Statement.
 
 
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2.4 Expenses of Registration. All expenses, other than underwriting discounts
and commissions, incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Sections 2.1 and 2.2,
(which right may be assigned as provided in Section 7.1), including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company shall be
paid by the Company. The Company shall also reimburse the Investors for the
reasonable fees and disbursements of counsel for the Investors in connection
with each registration, filing or qualification pursuant Sections 2.1 and 2.2 of
this Agreement.
 
2.5 Indemnification. In the event any Registrable Securities are included in a
registration statement under this Section 1:
 
(a) To the fullest extent permitted by law, the Company will, and hereby does
agree to, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, members, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 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
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, “Violations”). Subject to Section 2.5(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 2.5(a): (i) 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 for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 2.2(c); and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. 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 7.1.
 
 
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(b) In connection with any Registration Statement in which an Investor is
participating, each such 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 2.5(a), the Company, each of its directors, each of its
officers who signs the Registration Statement and each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each,
an “Indemnified Party”), against any Claim or Indemnified Damages to which any
of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are 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 2.5(c), such Investor shall
reimburse the Indemnified Party for any legal or other expenses reasonably
incurred by an Indemnified Party in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained in
this Section 2.5(b) and the agreement with respect to contribution contained in
Section 2.6 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 or delayed; provided, further, that
the Investor shall be liable under this Section 2.5(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 7.1.
 
(c) Promptly after receipt by an Indemnified Person or Indemnified Party under
this Section 2.5 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 2.5, 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 counsel for all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as applicable, 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. In the case of an Indemnified Person, legal counsel
referred to in the immediately preceding sentence shall be selected by the
Investors holding at least a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The
Indemnified Party or Indemnified Person shall reasonably cooperate 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 and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. 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 2.5, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
 
 
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(d) The indemnification required by this Section 2.5 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
 
2.6 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 2.5 to the fullest extent permitted by law; provided, however,
that: (i) no Person involved in the sale of Registrable Securities which Person
is guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale 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 amount of net proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
 
2.7 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the public without
registration (“Rule 144”), the Company agrees 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 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and
 
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
 
 
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3. Major Action Approval Rights.
 
3.1 Subject to the Section 3.2 below, the Company shall not be authorized to
take, and the Company shall not take any of the actions that are set out below
(each a “Major Action”) without the prior written consent of the Holder:
 
(a) amending this Agreement;
 
(b) merging, consolidating or reorganizing the Company;
 
(c) purchasing another business (whether by a purchase of assets, purchase of
stock, merger or otherwise) involving the expenditure of $2,000,000 or more in
cash or comparable value.
 
(d) selling, exchanging or otherwise disposing of all or substantially all of
the assets of the Company;
 
(e) dissolving, liquidating and/or winding up the Company;
 
(f) making an assignment for the benefit of creditors or admitting in writing
the inability of the Company to pay its debts generally as they become due or
petitioning or applying to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator for the Company or of any substantial part of
the assets, or commencing of any proceeding relating to the Company under any
bankruptcy, reorganization, arrangement insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction;
 
(g) paying dividends to stockholder of the Company other than quarterly
dividends as approved by the board of directors;
 
(h) issuing additional equity interests in the Company or any debt security
which by its terms is convertible into or exchangeable for any equity interests
of the Company to new or existing equity holders or otherwise recapitalizing the
Company, except for Permitted Issuances;
 
(i) creating, incurring or assuming any indebtedness, refinancing any
indebtedness other than Permitted Indebtedness (as defined in the Financing
Agreement);
 
(j) changing any annual business plan and budget approved by the Company’s board
of directors (the “Approved Plan and Budget”) and engaging in any transaction
that is not provided for in an Approved Plan and Budget, except to the extent
that such item is incurred in the ordinary course of business (including but not
limited to taking on new business and incurring customary expenses and
obligations associated with servicing such new business) or otherwise incurs any
obligation which does not exceed $250,000.
 
 
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(k) amend or terminate the EERCF License Agreement, or permit MES (or any of its
assignees or Affiliates) to cause EERCF to transfer the Patent Rights (as such
term is defined in the EERCF License Agreement) to MES (or any of its assignees
or Affiliates) pursuant to the EERCF License Agreement;
 
(l) taking any action that constitutes or could, with the giving of notice or
the passage of time, reasonably be expected to constitute an event of default
under any contract that could have an impact of $2,000,000 or more regarding the
Company;
 
(m) taking any action that requires the consent of a lender to the Company where
such consent is not obtained from the lender;
 
(n) transacting any business with an officer of the Company or a member of the
Company’s board of directors based upon a rate of compensation that is less than
an arm’s length rate as determined by a majority of those members of the board
of directors unaffiliated with the officer or director in question;
 
(o) making any investments, other than holding working capital and reserves in
short term depository accounts or financial instruments or holding an interest
in a subsidiary where the Company is not actively involved in the operations of
the subsidiary;
 
(p) entering into any contract, agreement or other commitment to undertake any
Major Action;
 
(q) engaging in any other transaction or matter or making any decision outside
of the ordinary course of the Company’s business;
 
(r) taking any act in contravention of this Agreement or the Company’s
organizational documents; or
 
(s) taking, permitting or allowing to occur any of the foregoing on behalf of,
or by, a Subsidiary of the Company.
 
3.2 The provisions of Section 3.1 above shall take effect upon the earlier to
occur of (i) the repayment in full of the Note or (i) Holder’s conversion of the
Note into Common Stock representing at least 10 percent of the Common Stock of
the Company on a fully-diluted basis, provided however, that at such point in
time thereafter as Holder holds less than 10 percent of the Common Stock on a
fully diluted basis, then the provisions of this Section 3.1 shall no longer be
of force or effect. Holder may assign its rights under this Section 3 to one or
more of its Affiliates, but Holder may not assign any of its rights under this
Section 3 to any non-Affiliate third party without the prior written consent of
the Company.
 
 
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4. Changes in Common Stock. If, and as often as, there is any change in the
Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
 
5. Rights of Inspection. The Company shall permit Holder to visit and inspect
the Company’s properties, to examine its books of account and records and to
discuss the Company’s affairs, finances and accounts with its officers, all at
such reasonable times as may be requested; provided, however, the Company shall
not be obligated under this Section 4 with respect to information the Company
determines in good faith to be confidential, and therefore, not to be disclosed.
The Company’s covenant pursuant to this Section 4 shall be in addition to, and
not in limitation of, any other Holder right of inspection as a stockholder,
director or creditor of the Company.
 
6. Board Meeting Notice Requirement/Observation Rights. If notice is given of an
annual meeting or special meeting of the Board of Directors at any time when the
Board of Directors consists of no individuals who are Holder nominees, the
Company shall deliver written notice of such meeting to Holder concurrently with
the delivery of meeting notices to the Board of Directors. Holder shall be
entitled to designate, and the Company shall accept, one (1) individual to
attend any such meeting, subject to the right to recuse the individual from
attending that portion of the meeting that deals with: (a) the relationship
between the Company and/or its Subsidiaries on the one hand and Holder or its
Affiliates on the other hand; or (b) any matter where such recusal is necessary
to preserve attorney client privilege as to the matters being discussed.
 
7. Miscellaneous.
 
7.1 Successors and Assigns; Assignment.
 
(a) Generally. Except as otherwise provided in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties hereto (including
transferees of any shares of the Common Stock, the Note or the Warrant). Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. No party to this
Agreement other than Holder may assign its rights or delegate its obligations
hereunder, whether by operation of law or otherwise, without the prior written
consent of the other parties to this Agreement and delivery by the assigning
party to the non-assigning parties of a writing by its assignee containing such
assignee’s agreement to be bound by this Agreement.
 
 
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(b) Registration Rights. The registration rights provided in Section 2 of this
Agreement shall be automatically assignable by the Investors to any transferee
of all or any portion of such Investor’s Registrable Securities if: (i) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (A) the
name and address of such transferee or assignee, and (B) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act or applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Transaction Documents; and
(vi) the limitations on liability of the Company pursuant to this Agreement
shall apply to Holder and all assignees collectively, and not individually.
 
7.2 Amendments and Waivers. Any term of this Agreement may be amended or waived
only with the written consent of the parties hereto. Any amendment or waiver
effected in accordance with this Section 7.2 shall be binding upon Holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, the Common Holders, each future holder of the Common
Stock now held by the Common Holders and the Company.
 
7.3 Consents. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders, determined as if any portion of the
outstanding Note then held by the Investors has been converted for Registrable
Securities and the outstanding Warrants then held by Investors have been
exercised for Registrable Securities.
 
7.4 Notices.
 
(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 or more
Persons with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.
 
(b) All notices and other communications provided for herein shall be in writing
and shall be delivered by hand or overnight courier service, mailed by certified
or registered mail or sent by facsimile, as follows:
 
If to the Company:
 
Midwest Energy Emissions Corp.
Attn: Alan Kelley, CEO
500 W Wilson Bridge Rd Ste 140
Worthington, OH 43085
Fax: (614) 505-7377
E-mail: akelley@midwestemissions.com

 
 
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With a copy (for informational purposes only):
 
Taft Stettinius & Hollister LLP
Attn: Mitchell D. Goldsmith
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-3713
Fax: (312) 275-7569
E-mail: mgoldsmith@taftlaw.com
 
If to the Holder:
 
c/o Alterna Capital Partners LLC
Attn: Samir Patel
Wilton, Connecticut 06897
Fax: (203) 563-92110
E-Mail: samir.patel@alternacapital.com

With copies to (for informational purposes only):

Levenfeld Pearlstein, LLC
Attn: David B. Solomon
2 North LaSalle Street-Suite 1300
Chicago, IL 60602
E-Mail: dsolomon@lplegal.com
 
and
 
Qashu & Schoenthaler, LLP
Attn.: Vanessa J. Schoenthaler
495 Madison Avenue, 12th Floor
New York, New York 10017
E-Mail: vschoenthaler@qsllp.com

 
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7.5 Severability. It is the intent of the parties hereto that each of the
provisions of this Agreement be read and interpreted with every reasonable
inference given to its enforceability. However, it is also the intent of the
parties that if any term, provision or condition hereof is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the provisions thereof shall remain in full force and effect and shall in no way
be affected, impaired or invalidated. Finally, it is also the intent of the
parties that if a court should determine any of the terms, provisions or
conditions hereof are unenforceable, then the court shall modify said term,
provision or condition so as to make it reasonable and enforceable under the
prevailing circumstances.
 
7.6 Investor Obligations Several and Not Joint. The obligations of each Investor
hereunder are several and not joint with the obligations of any other Investor,
and no provision of this Agreement is intended to confer any obligations on any
Investor vis-à-vis any other Investor. Nothing contained herein or in any other
Transaction Document, and no action taken by any Investor pursuant hereto or
thereto, shall be deemed to constitute the Investors as, and the Company
acknowledges that the Investors do not so constitute, a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Investors are in any way acting in concert or as a group or
entity with respect to such obligations or the transactions contemplated by the
Transaction Documents or any matters, and the Company acknowledges that the
Investors are not acting in concert or as a group, and the Company shall not
assert any such claim, with respect to such obligations or the transactions
contemplated by this Agreement or any of the other the Transaction Documents.
Each Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.
The use of a single agreement with respect to the obligations of the Company
contained herein was solely in the control of the Company, not the action or
decision of any Investor, and was done solely for the convenience of the Company
and not because it was required or requested to do so by any Investor. It is
expressly understood and agreed that each provision contained in this Agreement
and in each other Transaction Document is between the Company and an Investor,
solely, and not between the Company and the Investors collectively and not
between and among Investors.
 
7.7 Governing Law; Submission to Jurisdiction. This Agreement shall be governed
by and construed in accordance with the internal laws (without regard to the
conflict of laws provisions) of the State of New York. The Parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any U.S. Federal or State court sitting in New
York, New York in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each party
to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 6.5. Nothing in this Agreement will affect the
right of any party to this Agreement to serve process in any other manner
permitted by law.
 
 
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7.8 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
SUBORDINATED CREDITOR AND EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
 
7.9 Counterparts/Electronic Signatures. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page of this Agreement by facsimile or other
electronic transmission shall be effective as delivery of a manually executed
counterpart of this Agreement.
 
7.10 Entire Agreement. This Agreement, the Transaction Documents and the
documents referred to herein, constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede any and all
other written or oral agreements existing among the parties hereto, which
agreements are expressly canceled.
 
7.11 Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Company’s or its Subsidiaries’ organizational documents, the provisions of this
Agreement shall control and govern.
 
7.12 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
 
7.13 Attorneys’ Fees. Notwithstanding anything to the contrary contained herein,
in the event of any dispute between the parties hereto with respect to this
Agreement and the transactions contemplated hereby, the prevailing party shall
be entitled to receive from the other part(ies) its reasonable attorneys’ fees
and court costs.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the undersigned have caused this Investor/Registration
Rights Agreement to be duly executed and delivered as of the date first written
above.
 
 

 
MIDWEST ENERGY EMISSIONS CORP.,
a Delaware corporation
         
 
By:
      Name:       Title:    

 
 

 
AC MIDWEST ENERGY, LLC,
a Delaware limited liability company
         
 
By:
      Name:       Title:    

 
 
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