Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this 23rd day of
October, 1998 (this "Agreement"), between The Network Connection,
Inc., a Georgia Corporation, with principal executive offices
located at 0000 Xxxxx Xxxx Xxxx, Xxxxxxxxxx, Xxxxxxx 00000 (the
"Company"), and the undersigned (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions
of the Securities Purchase Agreement dated as of a date even
herewith, between the Initial Investor and the Company (the
"Securities Purchase Agreement"), the Company has agreed to issue
and sell to the Initial Investor (i) 1,500 shares of Series B
Convertible Preferred Stock, $.01 par value ("Preferred Stock")
which, upon the terms and subject to the conditions of the
Articles of Amendment to the Articles of Incorporation of the
Company dated a date even herewith (the "Amendment"), are
convertible into shares of common stock, $.001 par value, of the
Company ("Common Stock") and (ii) warrants ("Warrants") to
purchase 100,000 shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and
deliver the Securities Purchase Agreement, the Company has agreed
to provide with respect to the Common Stock issued or issuable in
lieu of cash dividend payments on the Preferred Stock, upon
conversion of the Preferred Stock and exercise of the Warrants
certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms
shall have the meanings:
(i) "Affiliate" of any specified Person means any
other Person who directly, or indirectly through one or more
intermediaries, is in control of, is controlled by, or is
under common control with, such specified Person. For
purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the
direction of the management and policies of such Person
whether by contract, securities, ownership or otherwise; and
the terms "controlling" and "controlled" have the respective
meanings correlative to the foregoing.
(ii) "Commission" means the Securities and Exchange
Commission.
(iii) "Current Market Price" on any date of
determination means the closing price of a share of Common
Stock on such day as reported on the Nasdaq SmallCap Stock
Market ("Nasdaq"), or, if such security is not listed or
admitted to trading on the Nasdaq, on the principal national
security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing price
of such security on the over-the-counter market on the day
in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished
by any Nasdaq member firm of the National Association of
Securities Dealers, Inc. selected from time to time by the
Board of Directors of the Company for that purpose, or a
price determined in good faith by the Board of Directors of
the Company as being equal to the fair market value thereof,
as the case may be.
(iv) "Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the
Commission thereunder, or any similar successor statute.
(v) "Investors" means the Initial Investor and any
transferee or assignee of Registrable Securities who agrees
to become bound by all of the terms and provisions of this
Agreement in accordance with Section 8 hereof.
(vi) "Person" means any individual, partnership,
corporation, limited liability company, joint stock company,
association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
(vii) "Prospectus" means the prospectus (including,
without limitation, any preliminary prospectus and any final
prospectus filed pursuant to Rule 424(b) under the
Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on
Rule 430A under the Securities Act) included in the
Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other
amendments and supplements to such prospectus, including all
material incorporated by reference in such prospectus and
all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference
therein.
(viii) "Registrable Securities" means the Common
Stock issued or issuable (i) in lieu of cash dividend
payments on the Preferred Stock, (ii) upon conversion of the
Preferred Stock or (iii) upon exercise of the Warrants;
provided, however, a share of Common Stock shall cease to be
a Registrable Security for purposes of this Agreement when
it no longer is a Restricted Security.
(ix) "Registration Statement" means a registration
statement of the Company filed on an appropriate form under
the Securities Act providing for the registration of, and
the sale on a continuous or delayed basis by the holders of,
all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained
therein and forming a part thereof, any amendments to such
registration statement and supplements to such Prospectus,
and all exhibits and other material incorporated by
reference in such registration statement and Prospectus.
(x) "Restricted Security" means any share of Common
Stock issued or issuable in lieu of cash dividend payments
on the Preferred Stock, upon conversion of the Preferred
Stock or exercise of the Warrants except any such share that
(i) has been registered pursuant to an effective
registration statement under the Securities Act and sold in
a manner contemplated by the Prospectus included in the
Registration Statement, (ii) has been transferred in
compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is
transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or
(iii) otherwise has been transferred and a new share of
Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the
Company.
(xi) "Securities Act" means the Securities Act of 1933,
as amended, and the rules and regulations of the Commission
thereunder, or any similar successor statute.
(b) All capitalized terms used and not defined herein
have the respective meaning assigned to them in the Securities
Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration
Statement. The Company shall prepare and file with the
Commission by not later than 21 days after the Closing Date (as
defined in the Securities Purchase Agreement), a Registration
Statement relating to the offer and sale of the Registrable
Securities and shall use its best efforts to cause the Commission
to declare such Registration Statement effective under the
Securities Act as promptly as practicable but not later than 105
days after the Closing Date, assuming for purposes hereof a
Conversion Price (as defined in the Amendment) of not greater
than $1.83 per share. The Company shall not include any other
securities in the Registration Statement relating to the offer
and sale of the Registrable Securities. The Company shall notify
the Initial Investor by written notice that such Registration
Statement has been declared effective by the Commission within 48
hours of such declaration by the Commission.
(b) Registration Default. If the Registration
Statement covering the Registrable Securities or the Additional
Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or
(2d) hereof, as the case may be, is not (i) filed with the
Commission within 21 days after the Closing Date or (ii) declared
effective by the Commission within 105 days after the Closing
Date (either of which, without duplication, an "Initial Date"),
then the Company shall make the payments to the Initial Investor
as provided in the next sentence as liquidated damages and not as
a penalty. The amount to be paid by the Company to the Initial
Investor shall be determined as of each Computation Date, and
such amount shall be equal to 2% (the "Liquidated Damage Rate")
of the Purchase Price per share of Preferred Stock (as defined in
the Securities Purchase Agreement) from the Initial Date to the
first Computation Date and for each Computation Date thereafter,
calculated on a pro rata basis to the date on which the
Registration Statement is filed with (in the event of an Initial
Date pursuant to (c)(i) above) or declared effective by (in the
event of an Initial Date pursuant to (c)(ii) above) the
Commission (the "Periodic Amount"); provided, however, that in no
event shall the Liquidated Damages be less than $20,000. The
full Periodic Amount shall be paid by the Company to the Initial
Investor by wire transfer of immediately available funds within
three days after each Computation Date.
As used in this Section 2(b), "Computation Date" means
the date which is 30 days after the Initial Date and, if the
Registration Statement required to be filed by the Company
pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so
declared effective.
Notwithstanding the above, if the Registration
Statement covering the Registrable Securities or the Additional
Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or
(2d) hereof, as the case may be, is not filed with the Commission
within 21 days after the Closing Date, the Company shall be in
default of this Registration Rights Agreement.
(c) Eligibility for Use of Form S-3. The Company
agrees that at such time as it meets all the requirements for the
use of Securities Act Registration Statement on Form S-3 it shall
file all reports and information required to be filed by it with
the Commission in a timely manner and take all such other action
so as to maintain such eligibility for the use of such form.
(d) In the event the Current Market Price declines to
$1.75, the Company shall, to the extent required by the
Securities Act (because the additional shares were not covered by
the Registration Statement filed pursuant to Section 2(a)), as
reasonably determined by the Initial Investor, file an additional
Registration Statement with the Commission for such additional
number of Registrable Securities as would be issuable upon
conversion of the Preferred Stock (the "Additional Registrable
Securities"), in addition to those previously registered,
assuming a Conversion Price of $1.00 per share. The Company
shall, to the extent required by the Securities Act, as
reasonably determined by the Initial Investor, prepare and file
with the Commission not later than the 45th day thereafter, a
Registration Statement relating to the offer and sale of such
Additional Registrable Securities and shall use its best efforts
to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but
not later than 60 days thereafter. The Company shall not include
any other securities in the Registration Statement relating to
the offer and sale of such additional Registrable Securities.
Upon declaration by the Commission of an effective Registration
Statement for the offer and sale of Registrable Securities in an
amount equal to 19.99% of the Common Stock outstanding on the
Closing Date, the Company shall have no further obligation to
file an additional Registration Statement for the Additional
Registrable Securities.
(e) (i) If the Company proposes to register any of
its warrants, Common Stock or any other shares of common stock of
the Company under the Securities Act (other than a registration
(A) on Form S-8 or S-4 or any successor or similar forms,
(B) relating to Common Stock or any other shares of common stock
of the Company issuable upon exercise of employee share options
or in connection with any employee benefit or similar plan of the
Company or (C) in connection with a direct or indirect
acquisition by the Company of another Person or any transaction
with respect to which Rule 145 (or any successor provision) under
the Securities Act applies), whether or not for sale for its own
account, it will each such time, give prompt written notice at
least 20 days prior to the anticipated filing date of the
registration statement relating to such registration to the
Initial Investor, which notice shall set forth such Initial
Investor' rights under this Section 3(e) and shall offer the
Initial Investor the opportunity to include in such registration
statement such number of Registrable Shares as the Initial
Investor may request. Upon the written request of an Initial
Investor made within ten (10) days after the receipt of notice
from the Company (which request shall specify the number of
Registrable Shares intended to be disposed of by such Initial
Investor), the Company will use its best efforts to effect the
registration under the Securities Laws of all Registrable Shares
that the Company has been so requested to register by the Initial
Investor, to the extent requisite to permit the disposition of
the Registrable Shares so to be registered; provided, however,
that (A) if such registration involves a Public Offering, the
Initial Investor must sell their Registrable Shares to the
underwriters selected as provided in Section 3(b) hereof on the
same terms and conditions as apply to the Company and (B) if, at
any time after giving written notice of its intention to register
any Registrable Shares pursuant to this Section 3 and prior to
the effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such Registrable Shares, the
Company shall give written notice to the Initial Investor and,
thereupon, shall be relieved of its obligation to register any
Registrable Shares in connection with such registration. The
Company's obligations under this Section 2(c) shall terminate on
the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(e)
involves a Public Offering and the managing underwriter thereof
advises the Company that, in its view, the number of shares of
Common Stock, Warrants or other shares of Common Stock that the
Company and the Initial Investor intend to include in such
registration exceeds the largest number of shares of Common Stock
or Warrants (including any other shares of Common Stock or
Warrants of the Company) that can be sold without having an
adverse effect on such Public Offering (the "Maximum Offering
Size"), the Company will include in such registration, only that
number of shares of Common Stock or Warrants, as applicable, such
that the number of Registrable Shares registered does not exceed
the Maximum Offering Size, with the difference between the number
of shares in the Maximum Offering Size and the number of shares
to be issued by the Company to be allocated (after including all
shares to be issued and sold by the Company) among the Company
and the Initial Investor pro rata on the basis of the relative
number of Registrable Shares offered for sale under such
registration by each of the Company and the Initial Investor.
If as a result of the proration provisions of this
Section 2(e)(ii), any Initial Investor is not entitled to include
all such Registrable Shares in such registration, such Initial
Investor may elect to withdraw its request to include any
Registrable Shares in such registration. With respect to
registrations pursuant to this Section 2(e), the number of
securities required to satisfy any underwriters' over-allotment
option shall be allocated pro rata among the Company and the
Initial Investor on the basis of the relative number of
securities otherwise to be included by each of them in the
registration with respect to which such over-allotment option
relates.
3. Obligations of the Company. In connection with
the registration of the Registrable Securities, the Company
shall:
(a) Promptly (i) prepare and file with the Commission
such amendments (including post-effective amendments) to the
Registration Statement and supplements to the Prospectus as may
be necessary to keep the Registration Statement continuously
effective and in compliance with the provisions of the Securities
Act applicable thereto so as to permit the Prospectus forming
part thereof to be current and useable by Investors for resales
of the Registrable Securities for a period of three years (such
period to be extended by a period equal to any change in the
Mandatory Conversion Date (as defined in the Amendment) pursuant
to the Amendment) from the date on which the Registration
Statement is first declared effective by the Commission (the
"Effective Time") or such shorter period that will terminate when
all the Registrable Securities covered by the Registration
Statement have been sold pursuant thereto in accordance with the
plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise
transferred in a manner that results in the delivery of new
securities not subject to transfer restrictions under the
Securities Act (the "Registration Period") and (ii) take all
lawful action such that each of (A) the Registration Statement
and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, not misleading and (B) the Prospectus
forming part of the Registration Statement, and any amendment or
supplement thereto, does not at any time during the Registration
Period 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, in light of the circumstances
under which they were made, not misleading. Notwithstanding the
foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 60 days (whether or not consecutive)
in any 12-month period if the Board of Directors of the Company
determines in good faith that because of valid business reasons,
including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is
in the best interests of the Company to suspend such use, and
prior to or contemporaneously with suspending such use, the
Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event
giving rise to such suspension. At the end of any such
suspension period, the Company shall provide the Investors with
written notice of the termination of such suspension.
(b) During the Registration Period, comply with the
provisions of the Securities Act with respect to the Registrable
Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus
forming part of the Registration Statement;
(c)(i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any Prospectus (including any
supplements thereto), provide draft copies thereof to the
Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose with regard
to Holder ownership and the Plan of Distribution included therein
and (ii) furnish to each Investor whose Registrable Securities
are included in the Registration Statement and its legal counsel
identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or
received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and
(B) such number of copies of the Prospectus and all amendments
and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
(d)(i) Register or qualify the Registrable Securities
covered by the Registration Statement under such securities or
"blue sky" laws of such jurisdictions as the Investors who hold a
majority-in-interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in such jurisdictions
such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times
during the Registration Period, (iii) take all such other lawful
actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful 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 (A) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process
in any such jurisdiction;
(e) As promptly as practicable after becoming aware of
such event, notify each Investor of the occurrence of any event,
as a result of which the Prospectus included in the 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, in
light of the circumstances under which they were made, not
misleading, and promptly prepare an amendment to the Registration
Statement and supplement to the Prospectus to correct such untrue
statement or omission, and deliver a number of copies of such
supplement and amendment to each Investor as such Investor may
reasonably request;
(f) As promptly as practicable after becoming aware of
such event, notify each Investor who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission of any
stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all
lawful action to effect the withdrawal, recession or removal of
such stop order or other suspension;
(g)(i) Cause all the Registrable Securities covered by
the Registration Statement to be listed on the principal national
securities exchange, and included in an inter-dealer quotation
system of a registered national securities association, on or in
which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than
the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors
reasonably may request and registered in such names as the
Investor may request; and, within three business days after a
Registration Statement which includes Registrable Securities is
declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent
for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and, to the extent
necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the
Investors of their Registrable Securities in accordance with the
intended methods therefor provided in the Prospectus which are
customary under the circumstances;
(k) Make generally available to its security holders
as soon as practicable, but in any event not later than 18 months
after (i) the effective date (as defined in Rule 158(c) under the
Securities Act) of the Registration Statement, and (ii) the
effective date of each post-effective amendment to the
Registration Statement, as the case may be, an earnings statement
of the Company and its subsidiaries complying with Section 11(a)
of the Securities Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company,
Rule 158);
(l) In the event of an underwritten offering, promptly
include or incorporate in a Prospectus supplement or post-
effective amendment to the Registration Statement such
information as the managers reasonably agree should be included
therein and to which the Company does not reasonably object and
make all required filings of such Prospectus supplement or post-
effective amendment as soon as practicable after it is notified
of the matters to be included or incorporated in such Prospectus
supplement or post-effective amendment;
(m)(i) Make reasonably available for inspection by
Investors, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors
and employees to supply all information reasonably requested by
such Investors or any such underwriter, attorney, accountant or
agent in connection with the Registration Statement, in each
case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as
confidential, proprietary or containing any material non-public
information shall be kept confidential by such Investors and any
such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such
holder or agent), unless such disclosure is made pursuant to
judicial process in a court proceeding (after first giving the
Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or
documents become available to the public generally or through a
third party not in violation of an accompanying obligation of
confidentiality; and provided further that, if the foregoing
inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and
information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties
entitled thereto by one firm of counsel designed by and on behalf
of the majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make
such representations and warranties to the Investors
participating in such underwritten offering and to the managers,
in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering,
obtain opinions of counsel to the Company (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the managers) addressed to the underwriters,
covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed
that the matters to be covered by such opinions shall include,
without limitation, as of the date of the opinion and as of the
Effective Time of the Registration Statement or most recent post-
effective amendment thereto, as the case may be, the absence from
the Registration Statement and the Prospectus, including any
documents incorporated by reference therein, of an untrue
statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject
to customary limitations);
(p) In connection with any underwritten offering,
obtain "cold comfort" letters and updates thereof from the
independent public accountants of the Company (and, if necessary,
from the independent public accountants of any subsidiary of the
Company or of any business acquired by the Company, in each case
for which financial statements and financial data are, or are
required to be, included in the Registration Statement),
addressed to each underwriter participating in such underwritten
offering (if such underwriter has provided such letter,
representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and
covering matters of the type customarily covered in "cold
comfort" letters in connection with secondary underwritten
offerings;
(q) In connection with any underwritten offering,
deliver such documents and certificates as may be reasonably
required by the managers, if any; and
(r) In the event that any broker-dealer registered
under the Exchange Act shall be an "Affiliate" (as defined in
Rule 2729(b)(1) of the rules and regulations of the National
Association of Securities Dealers, Inc. (the "NASD Rules") (or
any successor provision thereto)) of the Company or has a
"conflict of interest" (as defined in Rule 2720(b)(7) of the NASD
Rules (or any successor provision thereto)) and such broker-
dealer shall underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the
Registration Statement, whether as a holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, the Company
shall assist such broker-dealer in complying with the
requirements of the NASD Rules, including, without limitation, by
(A) engaging a "qualified independent underwriter" (as defined in
Rule 2720(b)(15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Registration
Statement relating to such Registrable Securities, to exercise
usual standards of due diligence in respect thereof and to
recommend the public offering price of such Registrable
Securities, (B) indemnifying such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof, and (C) providing such information
to such broker-dealer as may be required in order for such broker-
dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the 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 the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. As
least seven days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such
Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the
Registration Statement. If at least two business days prior to
the anticipated filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive
Investor and have no further obligations to the Non-Responsive
Investor;
(b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection
with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in
writing of its election to exclude all of its Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any
notice from the Company of the occurrence of any event of the
kind described in Section 3(e) or 3(f), it shall immediately
discontinue its disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented
or amended Prospectus contemplated by Section 3(e) and, if so
directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All expenses, other
than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant
to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and
engraving fees, accounting fees, and the fees and disbursements
of counsel for the Company shall be borne by the Company.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their
respective officers and directors and each person who controls
such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person
may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact
contained in any Registration Statement or an 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 arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein 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; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable
legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when
such expenses are incurred; provided, however, that the Company
shall not be liable to any such Indemnified Person in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon (i) an untrue statement or alleged
untrue statement made in, or an omission or alleged omission
from, such Registration Statement or Prospectus in reliance upon
and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or
(ii) in the case of the occurrence of an event of the type
specified in Section 3(e), the use by the Indemnified Person of
an outdated or defective Prospectus after the Company has
provided to such Indemnified Person an updated Prospectus
correcting the untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such loss, claim,
damage or liability.
(b) Indemnification by the Investors and Underwriters.
Each Investor agrees, as a consequence of the inclusion of any of
its Registrable Securities in a Registration Statement, and each
underwriter, if any, which facilitates the disposition of
Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the
Company, its directors (including any person who, with his or her
consent, is named in the Registration Statement as a director
nominee of the Company), its officers who sign any Registration
Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other persons
may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the
Company by such holder or underwriter expressly for use therein,
and (ii) reimburse the Company for any legal or other expenses
incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by
a party seeking indemnification pursuant to this Section 6 (an
"Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section 6 is being sought (the
"Indemnifying Party") of the commencement thereof; but the
omission to so notify the Indemnifying Party shall not relieve it
from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is
materially prejudiced and forfeits substantive rights and
defenses by reason of such failure. In connection with any Claim
as to which both the Indemnifying Party and the Indemnified Party
are parties, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the
defense of any Claim by the Indemnifying Party, the Indemnified
Party shall have the right to employ separate legal counsel and
to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party
if (and only if): (x) the Indemnifying Party shall have agreed to
pay such fees, costs and expenses, (y) the Indemnified Party and
the Indemnifying Party shall reasonably have concluded that
representation of the Indemnified Party by the Indemnifying Party
by the same legal counsel would not be appropriate due to actual
or, as reasonably determined by legal counsel to the Indemnified
Party, (i) potentially differing interests between such parties
in the conduct of the defense of such Claim, or (ii) if there may
be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying
Party and which can not be presented by counsel to the
Indemnifying Party, or (z) the Indemnifying Party shall have
failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice
of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnifying Party
(which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that
does not include an unconditional release of the Indemnifying
Party from all liabilities with respect to such Claim or
judgment.
(d) Contribution. If the indemnification provided for
in this Section 6 is unavailable to or insufficient to hold
harmless an Indemnified Person under subsection (a) or (b) above
in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with
the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party
shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by such Indemnified Party or by such
Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would
not be just and equitable if contribution pursuant to this
Section 6(d) were determined by pro rata allocation (even if the
Investors or any underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this
Section 6(d). The amount paid or payable by an Indemnified Party
as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred
by such indemnified party in connection with investigating or
defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the
percentage of Registrable Securities registered or underwritten,
as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this
Section 6, in no event shall any (i) Investor be required to
undertake liability to any person under this Section 6 for any
amounts in excess of the dollar amount of the proceeds to be
received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are to be
registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed
pursuant to the Registration Statement; provided, however, in the
event of fraud by the Investor (in the case of (i) above) or
underwriter (in the case of (ii) above), there shall be no such
dollar amount limitation.
(f) The obligations of the Company under this Section
6 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of
any Indemnified Person under this Section 6 shall be in addition
to any liability which such Indemnified Person may otherwise have
to the Company. The remedies provided in this Section 6 are not
exclusive and shall not limit any rights or remedies which may
otherwise be available to an indemnified party at law or in
equity.
7. Rule 144. With a view to making available to the
Investors the benefits of Rule 144 under the Securities Act or
any other similar rule or regulation of the Commission 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 use its best efforts to:
(a) comply with the provisions of paragraph (c)(1) of
Rule 144; and
(b) file with the Commission in a timely manner all
reports and other documents required to be filed by the Company
pursuant to Section 13 or 15(d) under the Exchange Act; and, if
at any time it is not required to file such reports but in the
past had been required to or did file such reports, it will, upon
the request of any Holder, make available other information as
required by, and so long as necessary to permit sales of, its
Registrable Securities pursuant to Rule 144.
8. Assignment. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall
be automatically assigned by the Investors to any permitted
transferee of all or any portion of such securities (or all or
any portion of any Preferred Stock or Warrant of the Company
which is convertible into such securities) of Registrable
Securities only if: (a) 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee
and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately
following such transfer or assignment, the securities so
transferred or assigned to the transferee or assignee constitute
Restricted Securities, and (d) at or before the time the Company
received the written notice contemplated by clause (b) of this
sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein.
9. Amendment and Waiver. Any provision of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in
accordance with this Section 9 shall be binding upon each
Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder
of Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the
Commission declaring the Registration Statement to be filed
pursuant to Section 2(a) effective under the Securities Act, the
Company grants to any Person any registration rights with respect
to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company
forthwith shall grant (by means of an amendment to this Agreement
or otherwise) identical registration rights to all Investors
hereunder.
(c) Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally
or sent by certified mail, postage prepaid, or by a nationally
recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
The Network Connection, Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxx
With a copy to:
Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
(2) if to the Initial Investor, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
00 Xxxx Xxxxxx Xxxxxx, Xxxxxxxxx 0X
Xxxxxxxxx, Xxxxxx
Attention: Xxxxxx Xxxxxxxx
(3) if to any other Investor, at such address as such
Investor shall have provided in writing to the
Company.
The Company, the Initial Investor or any Investor may change the
foregoing address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
(e) This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City
of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by
law, any objection including any objection based on forum non
conveniens, to the bringing of any such proceeding in such
jurisdictions.
(f) The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement
with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The
Company is not currently a party to any agreement granting any
registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder
or gives any other party the right to include any securities in
any Registration Statement filed pursuant hereto, except for (i)
such rights and conflicts as have been irrevocably waived and
(ii) registration rights granted to KA Investments LDC pursuant
to the terms of the Convertible Preferred Stock Purchase
Agreement, dated as of June 9, 1998. Without limiting the
generality of the foregoing, without the written consent of the
Holders of a majority in interest of the Registrable Securities,
the Company shall not hereafter grant to any person the right to
request it to register any of its securities under the Securities
Act unless the rights so granted are subject in all respect to
the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent
with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this
paragraph shall terminate on the date the Registration Statement
to be filed pursuant to Section 2(a) is declared effective by the
Commission.
(h) This Agreement, the Securities Purchase Agreement,
the Amendment and the Warrants constitute the entire agreement
among the parties hereto with respect to the subject matter
hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein.
This Agreement, the Securities Purchase Agreement, the Amendment
and the Warrants supersede all prior agreements and undertakings
among the parties hereto with respect to the subject matter
hereof.
(i) Subject to the requirements of Section 8 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(j) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context may require.
(k) The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the
meaning thereof.
(l) The Company acknowledges that any failure by the
Company to perform its obligations under Section 3, or any delay
in such performance could result in direct damages to the
Investors and the Company agrees that, in addition to any other
liability the Company may have by reason of any such failure or
delay, the Company shall be liable for all direct damages caused
by such failure or delay.
(m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. A
facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
[Remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
THE NETWORK CONNECTION, INC.
By:____________________________
Name:
Title:
THE SHAAR FUND LTD.
By:____________________________
Name:
Title:
