EXHIBIT C
PARTICIPATION AGREEMENT
Dated: As of June 26, 2001
10% Guaranteed Secured Notes
of
Electronic Retailing Systems International, Inc.
TABLE OF CONTENTS
Page
ARTICLE I PARTICIPATIONS 1
ARTICLE II PARTICIPATION RIGHTS 2
ARTICLE III 8% NOTE OPTION 3
ARTICLE IV AGENT OBLIGATIONS 3
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF PARTICIPANTS 4
ARTICLE VI MISCELLANEOUS 5
Annex 1 - Participants
-ii-
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT dated as of the 26th day of June,
2001, by and among SYSTEMS HOLDING, INC., a corporation duly
organized and validly existing under the laws of the State of
Delaware (hereinafter referred to as the "Agent"), and the
parties, severally (hereinafter referred to, collectively, as the
"Participants" and, individually, as a "Participant") identified
on Annex 1 attached hereto who are signatories hereto.
W I T N E S S E T H:
WHEREAS, the Agent has accepted, or may hereinafter accept,
commitment letters (hereinafter referred to as the "Commitment
Letters") with the holders of certain 10% Guaranteed Secured Notes
due August 1, 2001 (hereinafter referred to as the "10% Notes")
issued by Electronic Retailing Systems International, Inc., a
Delaware corporation (hereinafter referred to as "ERS"), whereby
such holders have committed, or shall commit, to sell such 10%
Notes, and to grant an option (hereinafter referred to as the "8%
Note Option") to the Agent to acquire certain 8% Guaranteed
Secured Notes due August 1, 2001 (hereinafter referred to as the
"8% Notes") issued by ERS, upon the terms and subject to the
conditions set forth in such commitment letters and the definitive
agreements contemplated thereby; and
WHEREAS, the Participants desire to acquire a participating
interest in the 10% Notes, and a right-of-first offer to
participate in the 8% Notes, upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties
hereto hereby agree as follows:
ARTICLE I
PARTICIPATIONS
A. Each Participant hereby agrees to acquire from the
Agent, and the Agent hereby agrees to assign and transfer to such
Participant, an undivided interest (hereinafter referred to,
collectively, as the "Participations" and, individually, as a
"Participation") in each of the 10% Notes acquired by the Agent,
based upon an allocation to the Participants of interests in the
10% Notes in the respective percentages (each hereinafter referred
to as a "Participating Percentage") set forth opposite the names
of the Participants on Annex 1:
B. Each Participation shall entitle the Participant to the
payment rights set forth under Article II hereof, and to the other
rights, benefits and privileges set forth in this Agreement, which
shall in all respects be subject to the terms and provisions of
the 10% Notes.
C. The Participation of each Participant shall extend to
any 10% Note contemporaneously with the occurrence of the
following events: (i) the acquisition by the Agent of such 10%
Note from the holder thereof, as contemplated by the Commitment
Letter accepted by the Agent with such holder and any definitive
agreements in furtherance thereof; and (ii) the payment by such
Participant to the Agent, in cash, of an amount equal to the
product obtained by multiplying: (x) the Participating Percentage
of such Participant by (y) 50% of the aggregate of the outstanding
principal amount of such 10% Note plus all interest accrued
thereon.
D. The Participants acknowledge and agree that the Agent
shall be entitled to require payments form each Participant under
Paragraph C immediately preceding from time to time through
December 31, 2001 in respect of any or all of the 10% Notes issued
by ERS; and that, at the date of this Agreement, an aggregate
principal amount of $5,374,422.28 in 10% Notes is outstanding
(such amount exclusive of interest thereon subsequent to April 1,
2001). The Agent shall, in each event, deliver three days' prior
written notice to each Participant of its payment obligation
hereunder.
E. The parties acknowledge and agree that any obligation
under the Commitment Letters, or any definitive agreements in
furtherance thereof, to issue equity of the Agent or of ERS shall
remain the obligation of the Agent (in the context of its
agreements with ERS).
ARTICLE II
PARTICIPATION RIGHTS
A. Each Participation shall entitle the Participant to a
share of each payment or prepayment of principal, and all interest
thereon, and any applicable premium, under each 10% Note acquired
by the Agent, calculated on the basis of its Participating
Percentage, but after deducting therefrom any expenses of the
Agent in collecting such amount or otherwise enforcing such 10%
Note or administering the provisions of this Agreement.
B. The Participants each acknowledge and agree that each
10% Note, and all rights of the holder therein and under any
collateral or related agreements or documents, shall be held and
exercised by the Agent in its own name, or in the name of such
nominee as shall be selected by the Agent, subject in all events
to the terms of this Agreement. Except as expressly provided
otherwise under this Agreement, the Agent shall not be constrained
from taking any action, or omitting to take any action, under the
10% Notes, and under any collateral or related agreements or
documents, as the Agent, in its sole discretion, determine is in
the best interests of the Participants; provided, however, that
the Agent shall not agree, without the written consent of the
Required Participants (as hereinafter defined), to modify the
definition of "Required Holders" under any 10% Note, reduce the
rate of interest or the principal amount of any 10% Note, or make
any change in Section 10 of any 10% Note. It shall not be
necessary for the consent of any Participant under this Paragraph
B to approve the particular form of any such proposed amendment or
modification, but it shall be sufficient if such consent approves
the substance thereof. The Participants each acknowledge and agree
that the Agent may enter into an agreement with ERS whereby any
and all defaults under the 10% Notes, now or hereafter arising,
may be waived until such time as the Agent, in its sole
discretion, delivers notice of revocation of such waiver, in whole
or in part.
C. For purposes of this Agreement, the "Required
Participants" shall refer to those Participants holding
Participations representing in excess of a majority of the
Participating Percentages.
ARTICLE III
8% NOTE OPTION
A. The Participants acknowledge and agree that, without
limitation, the 8% Note Option shall continue to be held by the
Agent, and be exercisable by the Agent, in its sole discretion,
subject to the provisions of this Article III, provided, however,
that the 8% Note Option may be assigned by the Agent to ERS free
of any restriction under this Article III.
B. The Agent hereby grants to each Participant a right-of-
first offer to acquire a participation in each of the 8% Notes,
which the Agent, in its sole discretion, may, from time to time,
propose to acquire. Such right-of-first offer shall allow each
Participant to purchase its Participating Percentage in each such
8% Note, upon such terms and conditions as shall be prescribed by
the Agent so as in all material respects to extend such
Participant's Participation hereunder, as appropriate, to such 8%
Note.
C. If the Agent proposes to exercise the 8% Note Option
with respect to any 8% Note, it shall give each Participant
written notice thereof, setting forth therein the material terms
of such Participant's entitlement to participate therein. Each
Participant shall have five days from the date such notice is
given to determine whether to participate therein upon the terms
specified in the notice, by giving written notice thereof to the
Agent. If the Participants have not elected to acquire the entire
interest as aforesaid in any such 8% Note, then the Agent shall be
free to allocate any such interest not so acquired as the Agent,
in its sole discretion determines.
ARTICLE IV
AGENT OBLIGATIONS
The Participants acknowledge and agree that the Agent shall
not be responsible for the performance or observance by ERS or any
other party of any of the terms, covenants or conditions of the
10% Notes, or any collateral or related agreements or documents,
and the Agent may (including, without limitation, as hereinabove
set forth), in its sole discretion, waive the performance or
observance by any such party thereof. The Agent may act upon any
notice, consent, certificate, email, telecopy or other instrument
or writing believed by the Agent to be genuine and may consult
with legal counsel, independent accountants, appraisers and other
experts selected by the Agent and shall not be liable for any
action taken or omitted to be taken in good faith by the Agent in
accordance with the advice of such counsel, accountants,
appraisers and experts, or otherwise. Each Participant further
agrees that the Agent shall not be liable to the Participants, or
any of them, under any circumstances, except for actual losses, if
any, suffered by the Participants, or any of them, hereunder which
are caused either by the Agent's gross negligence, willful
misconduct or bad faith or by the Agent's violation of the
provisions of this Agreement. Notwithstanding the foregoing or any
other provision of this Agreement, the parties hereto expressly
acknowledge that each Participant is, and shall be, a third party
beneficiary of the provisions, and each of them, of the 10% Notes,
and any collateral or related agreement or document, and shall be
entitled to exercise any rights thereunder in the event of the
Agent's gross negligence, willful misconduct or bad faith with
respect thereto. The Agent agrees to advise each Participant of
any modification, amendment, waiver or other change of any of the
terms of the 10% Notes, or any of them.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARTICIPANTS
A. Each Participant hereby represents and warrants that:
(i) it has full power and authority to acquire the
Participation to be acquired by it hereunder and to execute
and deliver this Agreement;
(ii) it is an accredited investor, as defined in
Section 2(a)(15) of the Securities Act of 1933 (hereinafter
referred to as the "Securities Act"), and Section 501(a) of
Regulation D promulgated under the Securities Act, and has
such knowledge and experience in financial and business
matters as to be capable of alone evaluating the merits and
risks of an investment in the Participation to be acquired by
it, and in the 10% Notes, and has the financial ability to
bear the economic risk of such investment, has no need for
liquidity with respect to such investment and fully
understands and agrees that it must bear the economic risk of
such investment for an indefinite period of time because,
among other reasons, neither such Participation nor any 10%
Notes will be registered under the Securities Act or under
applicable state securities laws;
(iii) it has made its own investigation into the
business, prospects, operations, property, financial and
other condition of ERS, has been given access to all
information relating to the business and affairs of ERS which
it has requested, and all additional information which it has
considered necessary to verify the accuracy of the
information so received, and has carefully evaluated all such
materials and, on the basis thereof, is familiar with the
operations, business plans and financial condition of ERS;
(iv) it is acquiring the Participation to be acquired
by it for its own account and not with a view to, or for
sale in connection with, the distribution thereof in
violation of the Securities Act, and without limiting the
generality of the foregoing, has no current plan or agreement
for the distribution of such Participation in violation of
the Securities Act.
B. Without limiting any provision of Paragraph E of
Article VI hereof, each Participant agrees that it shall not sell,
transfer, convey, assign or otherwise dispose of its
Participation, or any interest therein, until either of the
following events has occurred: (x) the Agent has received an
opinion from counsel to it that registration thereof under the
Securities Act is not required; or (y) a registration statement
under the Securities Act covering such Participation or such
interest and the disposition hereof has become effective under the
Securities Act.
ARTICLE VI
MISCELLANEOUS
A. All notices, requests or instructions hereunder shall
be in writing and delivered personally or sent by registered or
certified mail, postage prepaid, or by telecopy (or like
transmission) or by a reputable courier as follows:
(1) if to the Agent:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chairman of the Board
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Krugman & Kailes LLP
Park ▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
(2) if to any Participant, to the address
set forth on Annex 1.
Any notice so addressed and mailed shall be deemed to be given
when so mailed. Any notices addressed and otherwise delivered
shall be deemed to be given when actually received by the
addressee. Any of the above addresses or telecopy numbers may be
changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be
effective only upon receipt.
B. This Agreement and the other Loan Documents referred to
herein contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby, and supersede all
prior understandings, arrangements and agreements with respect to
the subject matter hereof.
C. This Agreement shall be subject to amendment without
notice to any of the Participants, but with the written consent of
the Agent and the Required Holders; provided, however, that
without the consent of a Participant, an amendment may not, with
respect to such Participant:
(i) modify the definition of Required Participants;
(ii) reduce the Participating Percentage of such
Participant; or
(iii) make any change in this Paragraph C, or in the
provisions of Paragraph B of Article II hereof.
It shall not be necessary for the consent of any of the Required
Participants under this Paragraph C to approve the particular form
of any proposed amendment, but it shall be sufficient if such
consent approves the substance thereof. After an amendment under
this Paragraph C becomes effective, the Agent shall mail to each
Participant notice thereof. The failure to give such notice, or
any defect therein, shall not impair or affect the validity of an
amendment under this Paragraph C.
D. Except as otherwise set forth herein, each party shall
bear its own expenses in connection with the execution and
delivery of this Agreement. Each Participant shall reimburse the
Agent for all out-of-pocket fees and expenses incurred by it,
including without limitation the reasonable fees and expenses of
counsel, in the enforcement of this Agreement against such
Participant.
E. No Participant shall assign this Agreement, or any
rights hereunder, without the prior written consent of the Agent;
and the Agent shall not assign this Agreement, or any rights
hereunder, without the prior written consent of the Required
Participants. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns.
F. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut applicable in
the case of agreements made and to be performed entirely within
such State.
G. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the
meaning of the provisions of this Agreement.
H. In the event that one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been
contained herein.
I. Any and all payments required hereunder by any party
shall be made by wire transfer of immediately available funds to
such account as shall be specified reasonably in advance of the
due date of such payment by the party entitled to payment, or by
certified or bank check payable to the order of the payee.
Notwithstanding any other provision of this Agreement, all
payments under this Agreement shall be subject to any and all
withholding tax requirements imposed under applicable law.
J. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument. The provisions of
this Agreement shall be effective against any Participant once
executed and delivered to the Agent by such party. The Agent shall
distribute facsimile copies of this Agreement, as so executed and
delivered, to each Participant.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first-above written.
SYSTEMS HOLDING, INC.
By s/Norton ▇▇▇▇▇▇▇▇▇
-------------------------------
Norton ▇▇▇▇▇▇▇▇▇
Chairman
s/Norton ▇▇▇▇▇▇▇▇▇
---------------------------------
Norton ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ LIMITED PARTNERSHIP I
By: G.F. MANAGEMENT CORP.,
General Partner
By s/Norton ▇▇▇▇▇▇▇▇▇
-------------------------------
Norton ▇▇▇▇▇▇▇▇▇
Chairman
▇▇▇▇▇▇▇▇▇ LIMITED PARTNERSHIP II
By: G.F. MANAGEMENT CORP.,
General Partner
By s/Norton ▇▇▇▇▇▇▇▇▇
-------------------------------
Norton ▇▇▇▇▇▇▇▇▇
Chairman
s/▇▇▇▇▇ ▇. Failing, Jr.
---------------------------------
▇▇▇▇▇ ▇. Failing, Jr.
s/▇▇▇▇▇ ▇. Failing
---------------------------------
▇▇▇▇▇ ▇. Failing
THE FAILING TRUST
By s/▇▇▇▇▇ ▇. Failing
------------------------------
s/▇▇▇▇▇▇▇▇▇ ▇. Failing
---------------------------------
▇▇▇▇▇▇▇▇▇ ▇. Failing
s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
THE ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ TRUST
By s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
HANSEATIC AMERICAS LDC
By: Hansabel Partners LLC
By: Hanseatic Corporation
By s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
President
TMT PARTNERS LTD.
By s/▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ FAMILY TRUST
By s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
ANNEX 1
Name and Address Participating
of Participant Percentage
Norton ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 6.07
▇▇▇▇▇▇▇▇▇ Limited Partnership I
c/o Norton ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 4.55
▇▇▇▇▇▇▇▇▇ Limited Partnership II
c/o Norton ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 49.19
▇▇▇▇▇ ▇. Failing, Jr.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 12.42
▇▇▇▇▇ ▇. Failing, Jr. and
▇▇▇▇▇ ▇. Failing, jointly
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 0.15
The Failing Trust
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 9.99
▇▇▇▇▇▇▇▇▇ ▇. Failing
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 1.28
▇▇▇▇▇▇ ▇▇▇▇▇▇
Zilkha & Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 3.39
The ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 4.40
Hanseatic Americas LDC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 4.41
TMT Partners Ltd.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ 2.27
▇▇▇▇▇▇ Family Trust
▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 1.88
corp\ers\agreemnt\▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇▇▇▇
corp\ers\agreemnt\▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇▇▇▇
corp\ers\agreemnt\▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇▇▇▇
