SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (the "AGREEMENT"), dated as of December
17, 1997, between Electronic Transmission Corporation, a Delaware corporation
(the "COMPANY") , and each of the investors set forth on the signature pages
hereto (each, an "INVESTOR" and, collectively, the "INVESTORS").
In consideration of the mutual covenants set forth herein, the parties
hereto agree as follows:
1. SALE OF STOCK; CLOSINGS.
(a) PURCHASE AND SALE. Subject to the terms and conditions hereof,
the Company shall issue and sell to each of the Investors, and each Investor,
severally, shall purchase from the Company, with respect to the First Closing
and the Second Closing (each as defined below, and each, individually, a
"CLOSING"), the number of shares (individually, a "SHARE" and, collectively,
the "SHARES") of Common Stock, $0.001 par value per share, of the Company
(the "COMMON STOCK") set forth on such Investor's signature page hereto at a
purchase price of $0.50 per Share. Each Investor's obligation to purchase
Shares is separate and distinct from that of each other Investor, and no
Investor shall be required to purchase more than the number of Shares
specifically set forth on such Investor's signature page. In the event that
the Reverse Split Amendment described in Section 5(i) hereof shall occur
prior to the Second Closing, the number of Shares to be acquired by each
Investor at the Second Closing shall be reduced in the same proportion as the
aggregate number of issued Shares of Common Stock shall have been reduced
pursuant to such Amendment, and the purchase price payable per Share at the
Second Closing shall be correspondingly increased so that the aggregate
purchase price payable by each Investor at the Second Closing shall remain
unchanged.
(b) CLOSINGS.
(i) The first Closing (the "FIRST CLOSING") of the purchase and
sale of Shares shall occur with respect to 2,447,719 Shares at the
offices of Xxxxxxx, Calamari & Xxxxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx, at 10:00 A.M. on December 17, 1997, or such later date on which
the conditions set forth in Sections 6 and 7 hereof shall have been
satisfied or waived; PROVIDED, HOWEVER, that the First Closing shall in
no event occur later than December 24, 1997, unless otherwise extended
in writing by the parties hereto.
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(ii) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6, 7 and 8, the second Closing (the "SECOND
CLOSING") of the purchase and sale of Shares shall occur at the offices
of Xxxxxxx, Calamari & Xxxxxxx with respect to 552,281 Shares (as
adjusted pursuant to the last sentence of Section 1(a) hereof) within
thirty days following satisfaction or waiver of each of the conditions
set forth in Sections 6, 7 and 8. The Company shall give each Investor
at least fifteen days prior written notice of the date and time of the
Second Closing. Notwithstanding anything to the contrary contained
herein, the Second Closing in no event shall occur later than April 15,
1998.
(iii) The date of each Closing shall be hereinafter referred to
as a "CLOSING DATE."
(c) DELIVERY. The Company shall, at each Closing, deliver to each
Investor a stock certificate representing the Shares purchased by such
Investor, against payment of the purchase price therefor by check, payable to
the order of the Company, or by wire transfer of immediately available funds
to the Company in accordance with the Company's wiring instructions.
2. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each of the Investors
represents and warrants, severally, to the Company as follows:
(a) AUTHORIZATION. The Investor has the necessary power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of, and the performance under, this Agreement by
the Investor will not conflict with any rule, regulation, judgment or
agreement applicable to the Investor.
(b) PURCHASE FOR INVESTMENT. The Investor is purchasing the Shares for
investment purposes only and not with a view to, or for sale in connection
with, a distribution thereof within the meaning of the Securities Act of
1933, as amended (the "SECURITIES ACT"), except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Investor understands that it must
bear the economic risk of this investment indefinitely, unless the Shares are
registered pursuant to the Securities Act and any applicable state securities
or blue sky laws or an exemption from such registration is available.
Notwithstanding anything in this Section 2(b) to the contrary, the Investor,
by making the representations
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herein, does not agree to hold the Shares for any minimum or other specific
term and reserves the right to dispose of such Shares at any time in
accordance with or pursuant to registration or an exemption therefrom under
the Securities Act and applicable state securities laws.
(c) RELIANCE ON EXEMPTIONS. The Investor understands that the Shares
are being offered and sold in reliance upon specific exemptions from the
registration requirements of Federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to
acquire the Shares.
(d) ACCESS TO INFORMATION. The Investor has been afforded an
opportunity to ask questions of the Company's representatives concerning the
Company in making the decision to purchase the Shares and such questions have
been answered to its satisfaction. However, neither the foregoing nor any
other due diligence investigation conducted by the Investor or on its behalf
shall limit, modify or affect the representations and warranties of the
Company in Section 3 of this Agreement or the right of the Investor to rely
thereon.
(e) GOVERNMENTAL REVIEW. The Investor understands that no Federal or
state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Shares.
(f) INVESTOR'S QUALIFICATIONS. The Investor is an "accredited
investor" as defined in Rule 501 under Regulation D of the Securities Act
("REGULATION D"). The Investor is capable of evaluating the merits and
risks of an investment in the Shares and is financially capable of bearing a
total loss of this investment.
(g) RESTRICTIONS ON TRANSFER. The Investor understands that it may not
transfer any of the Shares unless such Shares are registered under the
Securities Act or unless an exemption from registration and qualification
requirements are available under the Securities Act and applicable state
securities laws. The Investor understands that certificates representing the
Shares shall bear the following legend until such time as they have been
registered under the Securities Act or otherwise may be sold under Rule 144
under the Securities Act ("RULE 144"):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS
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AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS PERMITTED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. UNLESS THE SECURITIES ARE SOLD
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the Schedule of Exceptions attached hereto as Exhibit A, the Company
represents and warrants to each Investor as follows:
(a) ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and has all necessary corporate power and authority to own or
lease its assets and to carry on its business as now being conducted and
presently proposed to be conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which its ownership or leasing of assets, or the conduct of
its business, makes such qualification necessary. Except for ETC
Administrative Services, Inc., a Texas corporation (the "SUBSIDIARY"), the
Company has no subsidiaries and no equity interests in any corporation,
partnership, joint venture or other entity. The Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, and has all necessary corporate power and authority to own or
lease its assets and to carry on its business as now being conducted and
presently proposed to be conducted. The Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which its ownership or leasing of assets, or the conduct of
its business, makes such qualification necessary. The Company owns all of
the capital stock of the Subsidiary.
(b) REQUISITE POWER AND AUTHORIZATION. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, including, without limitation, the
issuance of all Shares. Except for the approval by the stockholders of the
Company of the Authorized Share Amendment to the Company's Certificate of
Incorporation, as set forth in Section 5(i) hereof, which approval is
required prior to the Second Closing, all corporate action of the
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Company required for the execution and delivery of this Agreement and
issuance and delivery of all Shares has been duly and effectively taken, and
no further actions, authorizations or consents, including, without
limitation, any approvals of the stockholders of the Company, are required.
This Agreement constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the
indemnity provisions of Section 4(f) of this Agreement may be limited by law.
The Shares, when issued and delivered in compliance with the provisions of
this Agreement, will be validly issued, fully paid and non-assessable, free
and clear of any and all liens, charges, claims or encumbrances. The Shares
shall be issued in compliance with Federal and state securities laws.
(c) SEC DOCUMENTS. Since January 7, 1997, the Company has timely filed
with the Securities and Exchange Commission (the "SEC") all reports,
statements, schedules and other documents and any amendments thereto
(collectively, the "SEC DOCUMENTS") required to be filed by it pursuant to
the Securities Exchange Act of 1934 (the "EXCHANGE ACT") . As of their
respective dates, the SEC Documents, complied in all material respects with
the requirements of the Exchange Act, and the rules and regulations of the
SEC promulgated thereunder, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements included in the SEC Documents (the "FINANCIAL
STATEMENTS"), complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Except (i) as may be indicated in the notes to the
Financial Statements or (ii) in the case of the unaudited interim statements,
as permitted by Form 10-QSB under the Exchange Act, the Financial Statements
have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end adjustments). There are no
liabilities of the Company or the Subsidiary, whether absolute, contingent or
otherwise, which have not been reflected in the Financial Statements, other
than liabilities incurred in the ordinary course of business subsequent to
the date of such Financial Statements, which liabilities, individually or in
the aggregate, are not
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material to the financial condition or operating results of the Company.
(d) CAPITALIZATION. The capitalization of the Company as of the date
hereof, including (i) the authorized capital stock, (ii) the number of shares
issued and outstanding and in treasury, (iii) the number of shares reserved
for issuance pursuant to stock option, employee benefit or other plans, (iv)
the number of shares reserved for issuance and/or issuable pursuant to
securities exercisable for, or convertible into or exchangeable for any
shares of Common Stock, (v) the number of outstanding securities convertible
into or exchangeable for any shares of the Company's capital stock, (vi) the
number of the Shares to be issued at the First Closing, and (vii) the number
of the Shares to be issued at the Second Closing, is set forth on Schedule 3(d).
All outstanding shares of capital stock have been duly authorized and
validly issued and are fully paid and non-assessable. Except as set forth on
Schedule 3(d), the Company has (i) no outstanding securities convertible
into or exchangeable for any shares of capital stock of the Company, (ii) no
contracts, rights, options, warrants, rights to subscribe to, calls or other
agreements or commitments of any nature whatsoever relating to the purchase
or other acquisition of any shares of its capital stock or securities
convertible into or exchangeable for any shares of its capital stock and (iii)
no shares reserved for issuance. The Company's indebtedness to L. Xxxx
Xxxxxx, and to entities owned or controlled by L. Xxxx Xxxxxx, does not
exceed $112,276.
(e) NO CONFLICTS. Neither the execution, delivery and performance by
the Company of this Agreement nor the consummation of the transactions
contemplated hereby will violate, conflict with, or result in a breach of any
provision of, or constitute a default (with or without notice or lapse of
time or both) under, or result in the termination or modification of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under any term or provision of the Certificate/Articles of
Incorporation or By-Laws of the Company or the Subsidiary or contracts,
commitments, indentures or instruments to which the Company or the Subsidiary
is a party or by which any of their respective properties or assets may be
bound or affected or Federal or state laws, rules or regulations, writs,
orders, judgments or decrees which are applicable to the Company, the
Subsidiary or their respective assets.
(f) CONSENTS. No approval, consent, order, authorization or other
action by, or notice to or filing
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with, any governmental authority or regulatory or self regulatory agency, or
any other person or entity, and no lapse of a waiting period, is required in
connection with the execution, delivery or performance by the Company, or
enforcement against the Company, of this Agreement, the issue and delivery of
the Shares or any other transactions contemplated hereby, except for (i) the
filing of a Form D with the SEC, (ii) filings required under applicable state
"blue sky" laws (which shall be duly filed and effective prior to each
Closing if so required under such laws) and (iii) the filing of the
Authorized Share Amendment to the Company's Certificate of Incorporation as
set forth in Section 5(i) hereof.
(g) NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, the business of
the Company and the Subsidiary has been operated in the ordinary course and
substantially consistent with past practice, and there has not been any
material adverse change in the business, assets, financial condition, results
of operations, affairs or prospects of the Company and the Subsidiary (a
"MATERIAL ADVERSE CHANGE"). Since June 30, 1997, neither the Company nor the
Subsidiary has (i) paid any obligation or liability other than, or discharged
or satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (ii) declared
or made any payment or distribution to its stockholders as such, or purchased
or redeemed any of its shares of capital stock or other securities, or
obligated itself to do so; (iii) mortgaged, pledged or subjected to any lien,
charge, security interest or other encumbrance any of its assets, tangible or
intangible, except in the ordinary course; (iv) sold, transferred or leased
any of its assets except for fair value in the ordinary course; (v) increased
the compensation payable to any of its officers or other employees,
consultants or representatives by greater than $10,000; (vi) cancelled or
compromised any debt or claim, or waived or released any right of material
value; (vii) entered into any transaction other than in the ordinary course;
(viii) issued or sold any shares of capital stock or other securities or
granted any options, warrants or other purchase rights with respect thereto;
or (ix) agreed to do any of the foregoing (other than pursuant hereto).
(h) LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the
Company, the Subsidiary or any of their respective directors or officers in
their capacities as such, that questions the validity of this Agreement or
the issuance of the Shares, or the right of the Company to enter into this
Agreement or to consummate the transactions contemplated hereby, or that
might result,
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either individually or in the aggregate, in any Material Adverse Change or in
any change in the current equity ownership of the Company. Neither the
Company nor the Subsidiary is a party or subject to the provisions of any
order, writ, injunction, judgment, stipulation or decree of any court,
administrative agency, commission, regulatory authority, other government
agency or instrumentality or self-regulatory agency.
(i) NO DEFAULT. Neither the Company nor the Subsidiary is in violation
of or default under any provision of its Certificate/Articles of
Incorporation or By-Laws or in default under (and no event has occurred
which, with notice or lapse of time or both, would put the Company or the
Subsidiary in default under), nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any contract, commitment, indenture or
instrument to which it is a party or by which it or its properties or assets
is bound or affected. To the best of the Company's knowledge, no other
party is in material default under or in material breach or violation of any
material contract, commitment, indenture or instrument to which the Company
or the Subsidiary is a party or by which any of its properties or assets are
bound or affected.
(j) COMPLIANCE WITH LAWS. Each of the Company and the Subsidiary is
in compliance and has conducted its business and operations so as to comply
with all laws (including without limitation environmental laws), ordinances,
rules and regulations, judgments, decrees or orders of any court,
administrative agency, commission, regulatory authority or other governmental
or administrative body or instrumentality, whether domestic or foreign.
Neither the Company (and its predecessors) nor the Subsidiary has during the
past three years received any notice relating to any violation or potential
violation of applicable law or regulations.
(k) TITLE. Each of the Company and the Subsidiary has good and
marketable title to all real and personal property owned by it which is
material to the business of the Company and the Subsidiary, in each case free
and clear of all liens, encumbrances and defects. Any property, real or
personal, held under lease by the Company or the Subsidiary is held by them
under valid and enforceable leases.
(1) INTELLECTUAL PROPERTY. Each of the Company and the Subsidiary
owns, or possesses adequate and enforceable rights to use, all patents,
patent applications, trademarks, trademark applications, trade names, service
9
marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) and other similar rights
and proprietary knowledge (collectively, the "INTANGIBLES") material to the
conduct of its business. To the best knowledge of the Company, neither the
Company nor the Subsidiary has infringed or currently infringes or is in
conflict with any right of any other person with respect to any Intangibles.
To the best knowledge of the Company, no person is infringing on or violating
the Intangibles owned or used by the Company or the Subsidiary.
(m) REGISTRATION RIGHTS. Except as disclosed on Exhibit A hereto, the
Company has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity other than the Investors. None of
the registration rights disclosed on Exhibit A hereto are senior in priority
to the registration rights provided for in this Agreement.
(n) OTC BULLETIN BOARD. The Common Stock is traded by means of the
National Association of Securities Dealers, Inc. (the "NASD") OTC Bulletin
Board service (the "OTCBB"). The issuance and sale of the Shares will
not, when issued and sold in accordance with this Agreement, violate any Rule
of the NASD applicable to the Company or the Common Stock. The Company has
not received notification, written or oral, that the Company has failed to
satisfy any requirement of the NASD relating to the trading of the Common
Stock in the OTCBB. There are currently three market makers registered with
the NASD with respect to the Common Stock.
(o) REGISTRATION STATEMENT. The Company is currently eligible to
register the resale of its Common Stock under the Securities Act under a
registration statement on Form SB-2. There exist no facts or circumstances
that would inhibit or delay the preparation and filing of a registration
statement on Form SE-2 with respect to the Shares.
(p) NO MISREPRESENTATION. No representation or warranty by the Company
in this Agreement and no statements of the Company contained in any document
(including without limitation any SEC Document), certificate, schedule or
other information furnished or to be furnished by or on behalf of the Company
pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or shall contain any untrue statement of
material fact or omits or shall omit to state a material fact required to be
stated therein or necessary in order to make such statements, in
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light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or
the Subsidiary or their respective businesses, affairs, assets, properties,
prospects, operations or financial conditions which has not been publicly
disclosed, but which, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on
the date hereof by the Company under the Securities Act with respect to the
primary issuance of the Company's securities. The Company has delivered true
and complete copies of all documents requested by the Investors.
(q) ANTI-DILUTION AND OTHER SHARES. No stockholder of the Company or
other person or entity has any preemptive right of subscription or purchase
or contractual right of first refusal or similar right with respect to any of
the Shares. Issuance of the Shares will not result in the issuance of any
additional shares of Common Stock or the triggering of other anti-dilution or
similar rights contained in any options, warrants, debentures or other
agreements or commitments of the Company.
(r) NO BROKERS OR FINDERS. No person or entity has or will have, as a
result of any act or omission by the Company, any right, interest or valid
claim against any Investor for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement.
(s) NO IMPAIRMENT OF BUSINESS RELATIONSHIP. Since June 30, 1997,
Wal-Mart Stores, Inc., the principal customer of the Company, has given no
notice to the Company of an intention to reduce or renegotiate prices,
eliminate or reduce products or services provided by the Company or cancel,
fail to renew or otherwise terminate its business relationship with the
Company and the Company has no knowledge of any event which would precipitate
the material modification, cancellation or termination of, or the failure to
renew, the business relationship between Wal-Mart Stores, Inc. and the
Company.
4. REGISTRATION RIGHTS.
(a) DEFINITIONS. For purposes of this Section 4:
(i) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act and pursuant to Rule 415 under
such Act (or any successor rule providing for the offering of securities
on a continuous basis), and
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the declaration or ordering of effectiveness of such registration statement
by the SEC.
(ii) "Registrable Securities" means the Shares and any shares
of Common Stock issued or issuable, from time to time (with any
adjustments), as a distribution on, in exchange for or otherwise with
respect to the Shares.
(iii) "Holder" means any person owning of record Registrable
Securities or any assignee of record of such Registrable Securities to whom
rights under this Section 4 have been assigned in accordance with this
Agreement.
(b) SHELF REGISTRATION.
(i) The Company, on or before the date 45 days after the
First Closing, in the case of the First Closing, and the date 45 days after
the date of the Second Closing, in the case of the Second Closing, shall
file a registration statement under the Securities Act on Form S-3 (or, if
not available, on such form as is then available to effect a registration
of all Registrable Securities, subject to the consent of the Investors)
for, and all such qualifications and compliances as may be required and as
would permit the sale and distribution of, all Registrable Securities
issued at each respective Closing, and shall use its best efforts to secure
the effectiveness of such registration statement no later than 180 days
following each respective Closing Date. The requirement to register
securities sold at the Second Closing may be satisfied by amending the
shelf registration statement which shall have been filed pursuant to this
Section 4(b) with respect to securities sold at the First Closing.
(ii) The Company shall pay all expenses incurred in
connection with any registration, qualification and compliance (excluding
underwriters' and brokers' discounts and commissions), including, without
limitation, all filing, registration and qualification fees, printer and
accounting fees and fees and disbursements of counsel for the selling
Holder or Holders and counsel for the Company; PROVIDED, HOWEVER, that the
Company shall not be required to pay fees of counsel for the selling
Holders in excess of $2,000.
(iii) The Company shall use its best efforts to cause the
registration statement or statements filed
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pursuant to this Section 4(b) to remain effective until the earlier of (A)
the date on which all Registrable Securities shall have been sold or (B)
the date on which all Registrable Securities, in the opinion of counsel to
the Holder, may be sold immediately to the public in any single three-month
period pursuant to Rule 144(k).
(c) PIGGYBACK REGISTRATIONS.
(i) The Company shall be required to notify a Holder in
writing at least 30 days prior to the Company's filing of any registration
statement under the Securities Act for purposes of effecting an
underwritten public offering of Common Stock (including without limitation
registration statements relating to secondary offerings of Common Stock,
but excluding registration statements on Form S-4 or Form S-8, or any
successor forms, relating to equity securities to be issued solely in
connection with the acquisition of an entity or business or equity
securities issuable in connection with an employee benefit plan), and
shall afford a Holder an opportunity to include in such registration
statement, and any related qualification under or compliance with "blue
sky" or other state securities laws, all or any part of the Registrable
Securities then held by such Holder. A Holder desiring to include all or
any part of its Registrable Securities shall, within 30 days after receipt
of the above-described notice from the Company, notify the Company in
writing as to the number of Registrable Securities to be included in such
registration statement. If a Holder shall decide not to include all of its
Registrable Securities in such registration statement, such Holder
nevertheless shall continue to have the right to include any Registrable
Securities in any subsequent registration statement or statements as may be
filed by the Company with respect to underwritten public offerings of
Common Stock, all upon the terms and conditions set forth herein. The
right to registration of Registrable Securities under this Section 4(c)
shall not be construed to limit in any way the obligation of the Company to
register the Registrable Securities under Section 4(b) hereof.
(ii) The right of a Holder (a) to include Registrable
Securities in a registration pursuant to this Section 4(c) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. If less than all securities of Holders or
other persons
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requesting registration can be included in a registration based on the good
faith determination of the managing underwriter, the allocation among such
Holders and other persons will be on a pro rata basis according to the
relation that the number of Registrable Securities owned by each such
Holder and the number of shares of Common Stock owned by each such other
person bears to the total number of shares of Common Stock outstanding.
If any Holder shall disapprove of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the
Company delivered at least five business days prior to the effective date
of the registration statement. The Company shall exclude from the
registration any Registrable Securities so withdrawn.
(iii) The Company shall pay all expenses incurred in connection
with a piggyback registration pursuant to this Section 4(c) (excluding
underwriters' and brokers' discounts and commissions), including, without
limitation, all filing, registration and qualification fees, printer and
accounting fees and fees and disbursements of counsel for the selling
Holder or Holders and counsel for the Company.
(d) OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to keep the registration statement effective
and comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities 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 as
set forth in such registration statement.
(iii) Furnish to each Holder and its legal counsel (A)
promptly after filing with the SEC, one copy of such registration statement
and any amendment thereto, each preliminary prospectus and final prospectus
and each amendment or supplement thereto,
14
and, in the case of the registration statement to be filed pursuant to
Section 4(b), each letter written by or on behalf of the Company to the SEC
or the staff of the SEC and each correspondence therefrom, (B) on the date
of effectiveness of such registration statement or amendment, a notice that
such registration statement or amendment has been declared effective, and
(C) such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
all amendments thereto and such other documents as any Holder may
reasonably request, in order to facilitate the disposition of the
Registrable Securities owned by such Holder that are included in such
registration statement.
(iv) Use its best efforts to register and qualify the
Registrable Securities covered by such registration statement under such
other securities or "blue sky" laws of such states and jurisdictions as
shall be reasonably requested by any Holder, and maintain the effectiveness
of such registrations and qualifications, PROVIDED, that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process
in any such states or jurisdictions.
(v) Notify each Holder of Registrable Securities included in
such registration statement, at any time when a prospectus relating thereto
shall be required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement shall include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing, and upon such notice the Company shall
promptly correct such misstatement or omission and deliver to each Holder
copies of the corrected prospectus.
(vi) Take all reasonable actions required to prevent the entry
of any stop order issued or threatened by the SEC or any state regulatory
authority with respect to any registration statement covering Registrable
Securities, and notify each Holder of any such stop order or take all
reasonable actions to remove it if entered.
15
(vii) Permit one counsel designated by the Holders to review
such registration statement and all amendments and supplements thereto in a
reasonable period of time prior to their filing with the SEC, and not file
any document in a form to which such counsel shall reasonably object.
(e) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 4(b) and
4(c) hereof that a selling Holder shall furnish to the Company such
information regarding such Holder, the Registrable Securities held by such
Holder, and the intended method of disposition of such Securities as
reasonably shall be required to effect the registration of the Registrable
Securities.
(f) INDEMNIFICATION. In the event that any Registrable Securities
shall be included in a registration statement under this Agreement:
(i) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the partners, stockholders, officers and
directors of each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act
against any joint or several losses, claims, damages, liabilities or
expenses (together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in
respect thereof, "CLAIMS") to which any of them may become subject insofar
as such Claims arise out of or are based upon: (A) any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (B) 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 shall file 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,
or (C) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, or any other law, including without limitation any
state securities law,
16
or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (A) through
(C) being, collectively, "VIOLATIONS"). The Company shall reimburse the
indemnified party promptly, as such expenses shall be incurred and shall
be due and payable, for any reasonable legal fees or reasonable other
expenses incurred by it in connection with investigating or defending any
such Claim. The indemnification agreement contained in this
Section 4(f)(i): (x) shall not apply to a Claim arising out of or based
upon a Violation which shall occur in reliance upon and in conformity with
information furnished in writing to the Company by such indemnified party
expressly for use in such registration statement or any such amendment or
supplement thereto; (y) shall not apply to amounts paid in settlement of
any Claim if such settlement shall be effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld;
and (z) with respect to any preliminary prospectus, shall not inure to the
benefit of any indemnified party if the untrue statement or omission of
material fact in such prospectus shall have been corrected on a timely
basis and the indemnified party shall have failed to utilize such corrected
prospectus. This indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the indemnified
party and shall survive the transfer of the Registrable Securities by the
Investor.
(ii) In connection with any registration statement in which a Holder
shall participate, such Holder, severally and not jointly, shall indemnify
and hold harmless, the Company, each of its directors, each of its officers
who signs the registration statement, its employees, agents and each person,
if any, who controls the Company within the meaning of the Securities Act or
the Exchange Act, any underwriter and any other stockholder selling
securities pursuant to such registration statement or any of its directors
or officers or any person who controls such stockholder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
Claim to which any of them may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such Claim shall arise out of or
shall be based upon any Violation, in each case to the extent (and only to
the extent) that such Violation shall occur in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in connection with such registration statement. Such
Holder shall
17
reimburse the indemnified party any reasonable legal or other reasonable
expenses (promptly as such expenses shall be incurred and shall be due and
payable) incurred by them in connection with investigating or defending any
such Claim. The indemnity agreement contained in this Section 4(f)
(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement shall be effected without the prior written consent of such
Holder, which consent shall not be unreasonably withheld and; PROVIDED,
FURTHER, that the total amounts payable by a Holder under this Section 4(f)
(ii) shall not exceed the aggregate proceeds (net of discounts or
commissions) received by such Holder upon the sale of such Holder's
Registrable Securities included in such registration statement.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 4(f)(ii) shall not
inure to the benefit of any other stockholder selling securities pursuant
to the registration statement if the untrue statement or omission of
material fact in any prospectus shall have been corrected on a timely basis
in the prospectus and such stockholder shall have failed to utilize such
corrected prospectus.
(iii) Promptly after receipt by an indemnified party under this
Section 4(f) of notice of the commencement of any action (including,
without limitation, any governmental action), such indemnified party, if
a claim in respect thereof shall be made against any indemnifying party
under this Section 4(f), shall deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party shall be
entitled to participate therein and, to the extent it desires, to assume
the defense thereof with counsel satisfactory to the indemnified person,
after which the indemnifying person shall not be liable to such indemnified
person for any legal expenses subsequently incurred by such indemnified
person in connection with the defense thereof; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with fees
and expenses to be paid by the indemnifying party, if the indemnifying party
shall have failed to assume the defense of any such action or if, in the
reasonable opinion of counsel retained by the indemnifying party,
representation of such indemnified party by the counsel retained would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
action. No indemnifying person shall be responsible for paying the fees
and expenses of more
18
than one separate counsel for all indemnified parties. Failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any action, if the indemnifying party shall be materially
prejudiced thereby, shall relieve such indemnifying party of liability, but
only to the extent that such indemnifying party shall be prejudiced with
respect to a specific claim. An indemnified party shall not, without
the prior written consent of the indemnifying party, settle or compromise
or consent to the entry of a judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall
include an unconditional release of such indemnifying party from all
liability arising out of such claim, action, suit or proceeding.
(iv) If the indemnification provided for in Sections 4(f)(i)
or 4(f)(ii) hereof shall be unavailable to hold harmless an indemnified
party in respect of any liability under the Securities Act, then, and in
each such case, the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall to the extent permitted by applicable
law contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such proportion
as shall be appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in
connection with the Violation that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party
shall be determined by a court of law by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact shall have related to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission; PROVIDED, that, in no event, shall any
contribution under this Section (iv) by any Holder exceed the proceeds from
the offering received by such Holder. No person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the
Securities Act) shall be entitled to contribution from any person or
entity who shall not have been guilty of such fraudulent misrepresentation.
19
(g) RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Registrable Securities to the public without
registration, the Company shall:
(i) Make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) Use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) So long as a Holder shall own any Registrable
Securities, furnish to the Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing a Holder to
sell any such Securities without registration.
(h) DEFAULT SHARES.
(i) In the event that the registration statement required to
be filed pursuant to Section 4(b) relating to the Shares delivered at the
First Closing shall not be declared effective by the SEC within 180 days
from the date of the First Closing, the Company shall issue and deliver,
free of charge and without cost, to the Investors (i) within 10 days of
such 180th day, certificates representing a number of fully paid,
non-assessable shares of Common Stock equal to the aggregate of 2% of the
Shares issued or issuable with respect to the First Closing (with
additional shares issued pursuant to this Section 4(h) referred to as
"DEFAULT SHARES") and (ii) within 10 days of the last date of each
additional 30-day period in which such registration statement shall not
have been declared effective by the SEC, additional certificates
representing a number of fully paid, non-assessable shares of Common Stock
equal to 2% of the aggregate of such Shares and any Default Shares issued
under this Section 4(h)(i);
(ii) In the event that the registration statement required to
be filed pursuant to Section 4(b)
20
relating to the Shares delivered at the Second Closing shall not be
declared effective by the SEC within 180 days from the date of the Second
Closing, the Company shall issue and deliver, free of charge and without
cost, to the Investors (i) within 10 days of such 180th day, certificates
representing a number of fully paid, non-assessable shares of Common Stock
equal to the aggregate of 2% of the Shares issued or issuable with
respect to the Second Closing and (ii) within 10 days of the last date of
each additional 30-day period in which such registration statement shall
not have been declared effective by the SEC, additional certificates
representing a number of fully paid, non-assessable shares of Common Stock
equal to 2% of the aggregate of such Shares and any Default Shares issued
under this Section 4(h)(ii). The obligation of the Company to issue
shares of Common Stock under this Section 4(h)(ii) is separate and
distinct from its obligation under Section 4(h)(i) and shall be
cumulative and in addition to its obligation under Section 4(h)(i).
(iii) Any Default Shares shall be allocated pro rata among the
Investors based on the number of Shares purchased by each under this
Agreement. Any and all shares of Common Stock issued and delivered by the
Company pursuant to this Section 4(h) shall constitute "Registrable
Securities," and the Company shall be required to register them under the
Securities Act in accordance with the provisions of this Agreement.
(iv) The remedies provided for in this Section 4(h) shall be
in addition to any other remedies available to the Investors under this
Agreement, at law or in equity.
5. COVENANTS OF THE COMPANY. The Company hereby covenants that:
(a) EXCHANGE ACT FILINGS. The Company shall use its best efforts
to file in a timely manner all reports required to be filed by it under the
Exchange Act, and, promptly upon filing, deliver copies of such reports to
each Investor. The Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or
the rules and regulations promulgated thereunder would permit such
termination.
(b) USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Shares as set forth on Schedule 5(b) annexed hereto.
21
(c) TRADING REQUIREMENTS; MARKET MAKERS. The Company shall use
its best efforts to continue to meet any requirements or take any actions
necessary for trading of the Common Stock in the OTCBB. The Company
shall use its best efforts to arrange for or maintain at least two market
makers to remain registered with the NASD as such with respect to the Common
Stock.
(d) GRANTS OF REGISTRATION, PREEMPTIVE OR OTHER RIGHTS. During
the period (the "RESTRICTED PERIOD") commencing on the date of the First Closing
and ending upon the earlier of (i) the third anniversary of the date of the
First Closing, or (ii) the first date after the Second Closing on which the
Investors shall own, in the aggregate, less than 10% of the issued and
outstanding shares of the Common Stock, the Company shall not grant or issue to
any person or entity (other than the Investors) any registration rights or any
preemptive rights, first refusal rights or any similar rights to acquire
securities of the Company.
(e) CERTAIN LEGAL EXPENSES. The Company shall pay to Xxxxxxx,
Calamari and Xxxxxxx, counsel to the Investors, at each Closing, its fees (in an
amount not to exceed $15,000 in the aggregate) and expenses with respect to this
Agreement and the transactions contemplated hereby.
(f) MANAGEMENT AND OTHER RIGHTS. At no time during the period
(the "PROHIBITION PERIOD") commencing on the date of the First Closing and
ending upon the earlier of (i) the third anniversary of the date of the First
Closing, or (ii) the first date on which the closing bid price of a share of
Common Stock shall have exceeded $5.00 (as equitably adjusted to reflect any
stock dividend, stock split, reverse stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization or
similar transaction of, or in any manner involving, the Company after the date
hereof) on each of the previous 22 trading days, shall the Company have
outstanding (or enter into any other commitments or agreements which call for
the grant or issuance of) (i) shares of Common Stock and/or (ii) options,
warrants, securities or other rights to acquire, exercisable for, convertible
into or exchangeable for shares of Common Stock, in each case, which were issued
or granted to management, other employees, directors or consultants as
compensation, and which exceed, in the aggregate, two million one hundred
thousand (2,100,000) shares of Common Stock (which number shall be subject to
equitable adjustment to reflect any stock division, stock split, reverse stock
split, share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or similar transaction
of, or in any manner involving, the
22
Company after the date hereof); PROVIDED, however, that, for purposes of the
foregoing limitation, (x) shares of Common Stock issued and outstanding on
November 6, 1997, and (y) 750,000 shares of Common Stock subject to warrants
issued to L. Xxxx Xxxxxx pursuant to the Xxxxxx Employment Agreement (as
defined in Section 5(k) hereof) shall not be taken into account.
(g) REMOVAL OF LEGENDS. Any legend endorsed on a certificate
pursuant to Section 2(g) and any related stop transfer instructions with respect
to the Shares represented by such certificates shall be removed, and the Company
shall issue promptly a certificate without such legend to the holder thereof, if
(i) such Shares shall be registered under the Securities Act, (ii) such legend
may be properly removed under the terms of Rule 144 or (iii) such holder shall
provide the Company with an opinion of counsel, reasonably satisfactory to the
Company, to the effect that a sale, transfer or assignment of such Shares may be
made without registration.
(h) BUY-IN RIGHTS. In the event that (i) the Company shall fail
to remove any restrictive legend on any certificates evidencing Shares as and
when required under Section 5(g) hereof, and (ii) thereafter, an Investor shall
purchase (in an open market transaction or otherwise) shares of Common Stock to
make delivery in satisfaction of a sale by the Investor of such legended Shares
of Common Stock (the "SOLD SHARES"), then the Company shall pay to such Investor
(in addition to any other remedies available to such Investor) the amount by
which (x) such Investor's total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased shall exceed (y) the net
proceeds received by such Investor from the sale of the Sold Shares. The
Company shall make any payments required pursuant to this Section 5(h) within
five days after receipt of written notice from an Investor setting forth the
calculation of the amount due hereunder.
(i) STOCKHOLDER MEETING. The Board of Directors of the Company
shall call and hold a special meeting of the stockholders, as soon as
practicable after the date of this Agreement, in order to approve the following
amendments to the Company's Certificate of Incorporation: (A) an amendment (the
"AUTHORIZED SHARE AMENDMENT") to increase the total number of authorized shares
of Common Stock to an aggregate of 20,000,000, and (B) an amendment (the
"REVERSE STOCK SPLIT AMENDMENT" and, together with the Authorized Share
Amendment, the "AMENDMENTS") to effect a reverse stock split, effective no later
than August 15, 1998, of the Common Stock on either a one-for-three or a one-
for-four basis. The Company shall promptly file the Authorized Share
23
Amendment with the Delaware Secretary of State after such Amendment shall have
been approved, and shall file the Reverse Stock Split Amendment with the
Delaware Secretary of State not later than August 15, 1998, if such Amendment
shall have been approved; PROVIDED, however, that the Company shall not be
required to file the Reverse Stock Split Amendment, or to effect the
transactions contemplated therein, if the last reported bid price on the OTCBB
of a share of the Common Stock shall have exceeded $5.00 on each of the ten
trading days immediately preceding August 1, 1998. The Company shall
promptly notify the Investors of the approval or disapproval of each of the
Amendments by the stockholders and of the filing of each of the Amendments. In
the event either of the Amendments is not validly approved by the Company's
stockholders or the Authorized Share Amendment is not filed with the Delaware
Secretary of State on or before March 31, 1998, the Company shall pay to the
Investors, in addition to any other remedies available to the Investors,
$100,000, which shall be divided between the Investors in proportion to the
number of Shares purchased by each of them. In the event that the Company shall
be required to file the Reverse Split Amendment with the Delaware Secretary of
State pursuant to this Section 5 (i), and shall not have done so on or before
August 15, 1998, the Company shall, in addition to any other remedies available
to the Investors, issue and deliver, free of charge and without cost, to the
Investors (x) within 10 days of August 15, 1998, certificates representing
20,000 fully paid, non-assessable shares of Common Stock, and (y) within 10 days
of the last date of each additional 30-day period in which the Reverse Stock
Split Amendment shall not have been filed with the Delaware Secretary of State,
certificates representing an additional 20,000 fully paid, non-assessable shares
of Common Stock, divided, in each case, between the Investors in proportion to
the number of Shares purchased by each of them. Any and all shares of Common
Stock issued and delivered by the Company pursuant to this Section 5(i) shall
constitute "Registrable Securities, 11 and the Company shall be required to
register them under the Securities Act in accordance with the provisions of this
Agreement.
(j) FUTURE ISSUANCES. The Company shall not (i) grant or issue
any additional shares of Common Stock, (ii) grant or issue any options, warrants
or other rights exercisable for, convertible into or exchangeable for Common
Stock or (iii) enter into any other commitments or agreements which call for the
issuance of any of the foregoing, until the Authorized Share Amendment shall
have been approved by the Company's stockholders and shall have become
effective.
24
(k) EXECUTIVE COMPENSATION. The Company shall not, without the
prior written consent of the Investors, modify or amend or terminate the Amended
and Restated Employment and Settlement Agreement between it and L. Xxxx Xxxxxx,
dated as of the First Closing Date (the "XXXXXX EMPLOYMENT AGREEMENT"), or
increase the compensation or benefits payable to L. Xxxx Xxxxxx under such
agreement or otherwise, until after the expiration of the Prohibition Period.
(l) PRE-EMPTIVE RIGHTS.
(i) The Company shall, prior to any issuance by it of any of
its debt or equity securities, offer to each Investor, by written notice
(the "OFFER NOTICE"), the right to purchase any amount of such securities,
up to such Investor's Proportionate Share (as hereinafter defined) thereof,
at the same price and on the same terms upon which such securities are to
be issued. For purposes hereof, "PROPORTIONATE SHARE" shall mean the
percentage of the Company's outstanding Common Stock owned by such Investor
on the date of the Offer Notice.
(ii) The Offer Notice shall describe the securities that the
Company proposes to issue and specify the number, price and payment terms.
An Investor may accept the Company's offer to purchase up to its
Proportionate Share of the securities subject to the Offer Notice by
written notice thereof given to the Company within fifteen days after
receipt of the Offer Notice, in which event the Company shall promptly sell
and such Investor shall buy, upon the terms specified, the number of
securities agreed to be purchased by such Investor.
(iii) The Company shall be free at any time prior to 90 days
after the date of the Offer Notice to offer and sell to any third party or
parties the number of such securities not purchased by the Investors at a
price and on payment terms no less favorable to the Company than those
specified in the Offer Notice. However, if such third party sale or sales
are not consummated within such 90-day period, the Company shall not sell
any such securities which shall not have been purchased within such period
without again complying with the provision of this Section 5(l).
(iv) The provisions of this Section 5(l) shall cease to apply
after the expiration of the Restricted Period.
25
(m) BOARD REPRESENTATION. So long as the Investors shall own,
in the aggregate, at least 500,000 shares of Common Stock, they shall have the
right to designate one person as a director on the Board of Directors of the
Company. The Company shall use its best efforts to insure that the
Investors' designee shall be promptly elected or appointed as a director on such
Board and shall continue in such capacity at all times during which the
Investors shall own the number of Shares specified in the preceding sentence,
which number shall be equitably adjusted to reflect any stock dividend, stock
split, reverse stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization, liquidation
or similar transaction of or in any manner involving the Company. In the event
the designee of the Investors shall not be appointed or elected to the Company's
Board of Directors within 15 days after any designation by the Investors
pursuant to this Section 5(m), then the Company shall pay to the Investors (in
addition to any other remedies available to them), $50,000, to be divided
between the Investors in proportion to the number of Shares then owned by each
of them, for each full or partial 30-day period after such 15-day period, during
which such designee shall not be a member of the Company's Board of Directors.
6. CONDITIONS TO OBLIGATIONS OF THE INVESTORS AT EACH CLOSING. The
obligation of each Investor to purchase the Shares set forth on such Investor's
signature page at each Closing shall be subject to the fulfillment on or prior
to each Closing Date of the following conditions, any of which may be waived by
the Investors:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
The representations and warranties of the Company set forth in this Agreement
shall be true and correct when made, and shall be true and correct on each
Closing Date with the same force and effect as if they had been made on and as
of said date, except for representations and warranties made as of a specific
date which shall be true and correct as of such date. The Company shall
have performed, satisfied and complied with all obligations and conditions
required to be performed or observed by it under this Agreement on or prior to
each Closing Date.
(b) CONSENTS AND WAIVERS. The Company shall have made all filings
and obtained any and all consents (including, without limitation, all
governmental or regulatory consents, approvals or authorizations required in
connection with the valid execution and delivery of this Agreement), permits and
waivers necessary or appropriate for
26
(c) NO LITIGATION OR LEGISLATION. No Federal, state or local
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, government inquiry or investigation shall be pending,
which prohibits or seeks to prohibit or materially restricts the consummation of
the transactions contemplated by this Agreement or the other agreements referred
to herein, or materially restricts or impairs the ability of the Investor to own
an equity interest in the Company.
(d) CERTIFICATES. The Company shall have delivered to each
Investor a duly executed certificate representing the Shares issuable to such
Investor.
(e) TRADING. The Common Stock shall be trading on the OTCBB and no
suspensions of trading shall be in effect.
(f) EQUITABLE ADJUSTMENT AGREEMENTS. The Company shall have obtained
from each holder of any outstanding options, warrants, debentures or other
securities exercisable for, or convertible into, Common Stock an executed letter
agreement whereby the holder of the referenced securities agrees that the
options, warrants, debentures or other securities exercisable for, or
convertible into, Common Stock which are held by said holder shall be subject to
equitable adjustment to reflect any stock dividend, stock split, reverse stock
split, share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or similar transaction of
or in any manner involving the Company. Holders of the Company's options,
warrants, debentures or other securities exercisable for, or convertible into,
Common Stock which are currently subject to appropriate adjustment provisions
similar to those set forth above, shall not be required to execute the letter
agreement contemplated by this Section 6(f).
(g) OPTION EXERCISE MORATORIUM. The Company shall have obtained
irrevocable written agreements, in form satisfactory to the Investors and
their counsel, from (i) L. Xxxx Xxxxxx that he will not exercise any portion
of (A) the option granted to him on February 24, 1997, to purchase 280,000
shares of Common Stock at $1.25 per share, and (B) the option granted to him
on April 1, 1997, to purchase 190,934 shares of Common Stock at $1.25 per
share, (ii) Xxx X. XxXxxxxxx that she will not exercise any portion of the
option granted to her on March 1, 1997, to purchase 250,000 shares of Common
Stock at $1.25 per share, (iii) W. Xxxx Xxxxxxx that he will not exercise any
portion of the option granted to him on October 14, 1997, to purchase 200,000
shares of Common Stock at $1.06 per share, (iv) Xxx Xxxxxx
27
that he will not exercise more than 200,000 of the warrants granted to him on
February 28, 1997, to purchase 420,000 shares of Common Stock at $1.25 per
share, and (v) TDC Partners, Inc. that it will not exercise any portion of the
option granted to it on May 15, 1997, to purchase 113,333 shares of Common Stock
at $1.50 per share, in each case until after the Authorized Share Amendment
shall have been approved by the Company's stockholders and shall have become
effective. All of such agreements shall explicitly waive any obligation of
the Company to reserve shares of Common Stock with respect to such options and
warrants until after the Authorized Share Amendment shall have been approved by
the Company's stockholders and shall have become effective.
(h) VOTING AGREEMENTS. The Investors shall have received from
each of the stockholders of the Company listed on Schedule 6(h) annexed hereto,
an irrevocable agreement, in a form acceptable to the Investors and their
counsel, to vote all of their shares of Common Stock listed on such Schedule
6(h) in favor of each of the Amendments at the meeting described in Section 5(i)
hereof.
(i) XXXXXX EMPLOYMENT AGREEMENT. The Company and Xxxx Xxxxxx shall
have entered into the Xxxxxx Employment Agreement in the form annexed hereto as
Exhibit B.
(j) COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Investors a certificate, executed by the Chairman of the Board and Chief
Executive Officer of the Company, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Section 6(a) hereof.
(k) OPINION OF COUNSEL. The Investors shall have received from
Xxxxxxx Xxxxxx L.L.P., counsel to the Company, an opinion addressed to the
Investors, dated the Closing Date, in substantially the form attached hereto as
Exhibit C.
7. CONDITIONS TO OBLIGATION OF THE COMPANY AT EACH CLOSING. The
obligation of the Company to sell and issue the Shares to the Investors at each
Closing shall be subject to the fulfillment on or prior to the Closing Date of
the following conditions, any of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Investors in this Agreement shall be true and correct
when made, and shall be true and correct on each Closing Date with the same
force and effect as if they had been made on and as of said date.
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(b) NO LITIGATION OR LEGISLATION. No Federal, state or local
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, government inquiry or investigation shall be pending,
which prohibits or seeks to prohibit or materially restricts the consummation of
the transactions contemplated by this Agreement or the other agreements referred
to herein, or materially restricts or impairs the ability of the Investor to own
an equity interest in the Company.
(c) PURCHASE PRICE. Each Investor shall have delivered the
purchase price for the Shares to be purchased by such Investor hereunder.
8. CONDITIONS TO SECOND CLOSING. The obligation of each Investor to
purchase Shares at the Second Closing as set forth on such Investor's signature
page, and the obligation of the Company to sell and issue such Shares, shall be
subject to the fulfillment or waiver, on or prior to such Closing of the
following conditions (except that the Company's obligation to sell and issue
such Shares shall not be subject to the condition specified in Section 8(b)
hereof):
(a) AUTHORIZED SHARE AMENDMENT. The Authorized Share Amendment
shall have been approved by the Company's stockholders as required by law and by
the Company's Certificate of Incorporation and By-Laws. The Company shall have
filed the Authorized Share Amendment with the Secretary of State of Delaware and
such Amendment shall have become effective.
(b) REVERSE STOCK SPLIT AMENDMENT. The Reverse Stock Split
Amendment shall have been approved by the Company's stockholders as required by
law and by the Company's Certificate of Incorporation and By-Laws.
9. MISCELLANEOUS.
(a) SURVIVAL. All representations, warranties and covenants of the
parties contained herein shall survive each Closing.
(b) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
Company and the Investors irrevocably consents to the exclusive jurisdiction of
the United States Federal courts located in New York County, New York, in any
suit or proceeding based on or arising under this Agreement and irrevocably
agree that all claims in respect of such suit or proceeding may be determined in
such courts. The Company irrevocably waives the defense of an
29
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Investor to serve
process in any other manner permitted by law.
(c) FINDER'S FEE. Each party agrees to indemnify and hold the others
harmless from any liability for any commission or compensation in the nature of
a finders, fee (and the costs and expenses of defending against such liability
or asserted liability) for which such party or any of its officers, partners,
employees or representatives shall be responsible.
(d) FURTHER ASSURANCES. Each party, whether prior to or after
either Closing, shall execute, acknowledge and deliver all such other
instruments and documents, and shall take all such other actions, as may be
reasonably requested by any other party for the purpose of effecting and
evidencing the consummation of the transactions contemplated by this Agreement.
(e) SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of the parties hereto;
PROVIDED, however, that the rights of an Investor hereunder may be transferred
in connection with a transfer by such Investor of all or part of the Shares in
accordance with the terms of this Agreement. Any transferee of any of the
Shares to whom rights are so transferred, other than an affiliate of the
Investors, shall be required, as a condition precedent to acquiring such Shares,
to agree in writing to be bound by all the terms and conditions of this
Agreement.
(f) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(g) ENTIRE AGREEMENT. This Agreement, including and incorporating
all Schedules and all Exhibits hereto and referred to herein, constitutes and
contains the entire agreement and understanding of the parties regarding the
subject matter of this Agreement and supersedes any and all prior negotiations,
correspondence, understandings and agreements, written or oral, among the
parties with respect to the subject matter hereof.
(h) NOTICES. All notices required to be given hereunder shall be in
writing and shall be given by personal
30
delivery, facsimile transmission, nationally recognized overnight carrier
(prepaid) or registered or certified mail, postage prepaid with return receipt
requested. Notices shall be addressed, if to the Company, at its
principal corporate offices located at 0000 Xxxxxxx Xxxx - Xxxxx 000, Xxxxxx,
Xxxxx 00000, facsimile No.: (000) 000-0000 Attention: W. Xxxx
Xxxxxxx; if to Special Situations Private Equity Fund, L.P., at 000 X. 00xx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile No.: (212)
832-6141, Attention: Xxxxxx X. Xxxxx; and if to Special Situations Cayman
Fund, L.P., at c/o AWM Investment Company, Inc., 000 X. 00xx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, facsimile No. : (000) 000-0000, Attention: Xxxxxx X.
Xxxxx. Notices delivered personally shall be deemed given as of actual
receipt; notices sent via facsimile transmission shall be deemed given as of one
business day following receipt by the sender of written confirmation of
transmission thereof; notices sent via overnight courier shall be deemed given
as of one business day following sending; and notices mailed shall be deemed
given as of five business days after proper mailing. A party may change his or
its address by written notice in accordance with this Section 9(h).
(i) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
this Agreement may not be amended, and no term of the Agreement may be waived,
except pursuant to the written consent of the Company and the Investors.
(j) SEVERABILITY. If one or more provisions of this Agreement
shall be held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement to the extent unenforceable and the balance of this
Agreement shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
(k) EXPENSES. Except as otherwise provided herein, the parties
hereto shall pay their own costs and expenses.
(l) PUBLICITY. The parties shall consult with each other, to the
extent practicable, as to the form and content of any press releases and other
third party communications or disclosures relating to this Agreement or the
transactions contemplated hereby, and shall use reasonable efforts, acting
in good faith, to agree upon disclosure which shall be satisfactory to both
parties.
(m) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form a part of, or affect the interpretation of, this
Agreement.
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(n) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ELECTRONIC TRANSMISSION CORPORATION
By: L. Xxxx Xxxxxx
-------------------------------
Name: L. Xxxx Xxxxxx
-----------------------------
Title: Chairman, CEO
----------------------------
SPECIAL SITUATIONS PRIVATE
EQUITY FUND, L.P.
By: MG Advisers, L.L.C.,
General Partner
By: Xxxxxx Xxxxx
-------------------------------
Name: Xxxxxx Xxxxx
-----------------------------
Title: Managing Director
----------------------------
SUBSCRIPTION AMOUNT FOR FIRST CLOSING:
Number of Shares: 1,631,812
Aggregate Purchase Price: $815,906
SUBSCRIPTION AMOUNT FOR SECOND CLOSING:
Number of Shares*: 368,188
Aggregate Purchase Price: $184,094
* Subject to adjustment in the event of a reverse stock
split, as set forth in Section 1(a) hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ELECTRONIC TRANSMISSION CORPORATION
By: L. Xxxx Xxxxxx
-------------------------------
Name: L. Xxxx Xxxxxx
-----------------------------
Title: Chairman, CEO
----------------------------
SPECIAL SITUATIONS
CAYMAN FUND, L.P.
By: AWM Investment Company,
Inc., General Partner
By: Xxxxxx Xxxxx
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SUBSCRIPTION AMOUNT FOR FIRST CLOSING:
Number of Shares: 815,907
Aggregate Purchase Price: $407,953.50
SUBSCRIPTION AMOUNT FOR SECOND CLOSING:
Number of Shares*: 184,093
Aggregate Purchase Price: $ 92,046.50
* Subject to adjustment in the event of a reverse stock
split, as set forth in section 1(a) hereof.
