In connection with the issuance of shares and warrants by the Company (the Shares), the Company has on numerous instances granted registration rights to the holders of the Shares, including those shares which result from the exercise of warrants (the "Registrable Securities"). The obligations of the Company with respect to the Registrable Securities include one-time demand registration rights and/or piggy-back registration rights (the "Registration"). The Company is required to file an effective registration by either September 19, 1999, December 1, 1999 or January 31, 2000. In connection with the Registration of the Registrable Securities, the Company is required to provide notice to the holder of the Registrable Securities, who may or may not elect to be included in the Registration. The Company is obligated to register the Registrable Securities even though the Registrable Securities may be tradable under Rule 144. The Company did not file a registration statement for the shares agreed to be registered by September 19, 1999 or December 1, 1999. The Company has also received notice of a demand for registration for certain of the Shares. The Registration Rights Agreements do not contain provisions for damages, if the Registration is not completed except for those Shares required to be registered on December 1, 1999, whereby for each month after December 1999 and if the Company fails to have an effective registration statement, the Company will be required to pay a penalty of $80,000 to be paid in cash and/or common stock of the Company based on the then current trading price of the common stock of the Company. The Company has received an extension with respect to the Shares required to be registered on December 1, 1999 until January 15, 2000.
The total amount of shares and warrants subject to registration at December 1,1999, are as follows:
<TABLE> <CAPTION> Unexercised Shares Warrants --------- ----------- <S> <C> <C> Demand Registration Rights 1,400,000 - Piggy-Back Registration Rights 1,522,576 882,500 --------- ----------- Total Registrable Securities 2,922,576 882,500 ========= =========== Registration Rights Subject To Penalty* 400,000 200,000 <FN>
Shareholders with unregistered securities, as part of the consideration for their investment made in a private placement or to provide equity before a company goes public, often have at least one right to demand registration of their securities. This enables the investors, typically insiders, the oportunity to sell more shares than they could through Rule 144 sales of unregistered shares. Often, when more than one investor has obtained an equity investment, other investors registration rights may be triggered by an event, the passage of time, or the excercise by another investor of their registration rights. When the latter occurs, the triggering of additional excercise of registration rights "piggy back" on the back of the Registration Statement an investor has required the company to file. Typically the company picks up the cost of the Registration.
By registering the shares through the Company filing of the Registration Statement, the insider may then freely sell those shares registered, but is not required to.