October 30, 1997
Alliance Partners
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Dear Gentlemen and Ladies:
Reference is made to a certain agreement dated July 7,1995 (the
"Alliance Agreement") between EchoCath, Inc. (the "Company") and Alliance
Partners ("Alliance") pursuant to which the Company agreed, among other things,
to pay $750,000 to Alliance (the "Contingent Payment") upon receipt by the
Company of $23,040,000 in proceeds from the exercise of its outstanding lass B
Common Stock Warrants. The Contingent Payment is accounted for as a "capital
contribution subject to repayment" on the Company's balance sheet. This letter
shall document our agreement reached on September 17, 1997 with respect to the
matters set forth herein. The value of the Shares and the Option purchase price
of $2.00 per share have been determined through arms length negotiation between
the parties hereto and reflect the market prices for the Class A Common Stock
reported in the NASDAQ market during the period immediately preceding the final
agreement on September 17, 1997.
1. Closing; Conditions to Closing. The obligations of the parties hereunder
are subject to and conditioned upon the receipt by the Company of the final
determination from the NASDAQ Stock Market, Inc. ("NASDAQ Approval") approving
the continued listing of the Company's common stock on the NASDAQ SmallCap
Market. The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur and be effective on the date on which the Company
receives the NASDAQ Approval.
2. Contingent Liability. Upon Closing under this Agreement in accordance
with Paragraphs 1, 3 and 4 hereof, Alliance, and its designees Marathon
Investments L.L.C., Xx. Xxxxxxx Xxxxxxxxx and Xx. Xxxxx X. Xxxxxxxxx
(collectively, the "Investors"), hereby release and discharge the Company from
making the Contingent Payment and the provisions of the Alliance
Alliance Partners
October 30, 1997
Page 2
Agreement providing for the Contingent Payment are hereby rendered null and void
without any further force and effect whatsoever.
3. Issuance of Shares. At the Closing the Company shall issue to the
Investors, and the Investors shall receive (without payment of any additional
cash consideration), an aggregate of 50,000 shares (the "Shares") of the
Company's Class A Common Stock, without par value (the "Class A Common Stock")
to be allocated among each Investor as follows:
Marathon Investments L.L.C. - 25,000 Shares
Xx. Xxxxxxx Xxxxxxxxx - 16,667 Shares
Xxxxx X. Xxxxxxxxx - 8,333 Shares
4. Issuance of Options. At the Closing, the Company shall grant and issue
to the Investors, and the Investors shall accept (without payment of any
additional cash consideration), options (collectively, the "Stock Options")to
purchase an aggregate of 50,000 shares of the Company's Class A Common Stock.
Each Stock Option shall be evidenced by the Stock Option Agreement attached
hereto as Exhibit A, shall have an exercise price equal to $2.00, and shall be
for the number of shares set forth below:
Marathon Investments L.L.C. - 25,000 Shares
Xx. Xxxxxxx Xxxxxxxxx - 16,667 Shares
Xxxxx X. Xxxxxxxxx - 8,333 Shares
5. Representations and Warranties of the Company. The Company represents
and warrants to Alliance and the Investors that:
a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New Jersey, and the Company
has the corporate power and authority to perform it obligations hereunder; and
b) The Shares have been duly authorized and, when issued in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company.
c) The Company has all requisite power and authority to execute and
deliver this Agreement, and to perform th obligations of the Company hereunder;
and the execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company.
Alliance Partners
October 30, 1997
Page 3
d) This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with the terms.
6. Representations, Warranties and Covenants of Alliance and the Investors.
Alliance and the Investors each severally represent and warrant to and covenants
with the Company with respect to itself as follows:
a) Alliance and each Investor has sufficient knowledge and
experience in investing in companies similar to the Company so as to be able to
eval ate the risks and merits of its investment in the Company and it is able
financially to bear the risks thereof;
b) Marathon Investments L.L.C. has been duly created and is validly
existing under the laws of the jurisdiction of its creation; each of Alliance
and the Investors has all requisite power and authority to execute and deliver
this Agreement and to perform his or its obligations hereunder; and the
execution, delivery and performance by each of All ance and the Investors of
this Agreement and the consummation by each of Alliance and the Investors of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Alliance and such Investor.
c) This Agreement has been duly executed and delivered by each of
Alliance and the Investors and constitutes the valid and binding obligation of
each of Alliance and the Investors enforceable against them in accordance with
th terms.
d) The Shares have not been registered under the Securities Act of
1933, as amended (the "Securities Act") and, accordingly, must be held
indefinitely unless the Shares are subsequently registered under the Securities
Act, or an exemption from such registration is available.
e) Routine sales of securities made in reliance upon Rule 144 under
the Securities Act can be made only after the hol ing period provided by that
Rule has been satisfied, and, in any sales to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
f) The availability of Rule 144 may be dependent upon adequate
current public information with respect to the Company being available and, at
the time that Alliance may desire to make a sale pursuant to the Rule, the
Company may neither wish nor be able o comply with such requirement.
g) Each of the Investors is acquiring the Shares for his or its own
account for investment, and will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this
Alliance Partners
October 30, 1997
Page 4
representation and warranty, each Investor agrees that there may be a fixed to
the certificate for a legend as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and were
acquired by the registered holder pursuant to a representation and
warranty that such holder was acquiring the Shares for such holder's
own account and for investment, with no intention of transfer or
disposition of the same in violation of the registration requirements
of that Act. These securities may not be sold, pledged, or transferred
in the absence of an effective registration statement under such Act,
or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not
required under such Act."
h) The Investors further agree that the Company may place a stop
transfer order with its transfer agent, prohibiting the transfer of the Shares,
so long as the legend remains on the certificates representing the Shares.
7. Registration Rights.
a) If at any time, or from time to time, after the date hereof
until the second anniversary of the date of expiration of the Stock Option, the
Company proposes to register any of its Class A Common Stock under the
Securities Act, w ether of its own accord or at the request or demand of any
holder thereof, and if the registration form proposed to be used may be used for
the registration of Class A Common Stock (other than a registration statement on
Form S-4 or S-8 or any successor form to such forms or filed in connection with
an exchange offer or an offering of securities solely to the existing
shareholders or employees of the Company), the Company will thereupon give
prompt written notice to the Investors(including transferees thereof who provide
the Company their address) of its intention to proceed with the registration
(hereinafter the "Incidental Registration"). Upon the written request of any of
the Investors made within 15 days after the receipt of any such notice, the
Company will use its best efforts to include in such Incidental Registration all
of the Shares, plus any Shares of Class A Common Stock issued or issuable upon
exercise of the Stock Option (collectively, the "Registrable Shares") for which
the Company receives a written request for registration from an Investor. Such
written request shall specify the number of Registrable Shares to be registered
and the intended method of disposition thereof (which may be, without
limitation, from time to time pursuant to Rule 415). The Company agrees to use
its best efforts to to keep the Registration Statement relating to such
Incidental Registration continuously effective for a period of 90 days(or such
longer period as the Company is otherwise required to keep the registration
statement effective for the Incidental Registration)from the date on which the
SEC declares it effective or such shorter period which will terminate when all
the Registrable Securities covered by the Registration Statement have been sold.
Alliance Partners
October 30, 1997
Page 5
b) If an Incidental Registration is made in connection with
an underwritten public offering, and if the managing underwriters advise the
Company in writing that in their opinion the amount of securities requested to
be included in such registration (whether by the Company or holders of the
Company's securities pursuant to any rights granted by the Company to demand
inclusion of any such securities in such registration) exceeds the amount of
such securities which can be sold in such offering, the Company will include in
such offering the amount of securities requested to be included which in the
opinion of such underwriters can be sold as follows: (a) first, all the shares
shall be included which are proposed to be sold by the Company or any such
holder of a demand registration right (if the number of demand registration
rights held by such holder will be reduced by the Incidental Registration), and
(b) second, the number of shares of capital stock that may be included shall be
allocated among all holders of Class A Common Stock and of other stock having
and seeking to exercise incidental or "piggy back" registration rights in
proportion, as nearly as practicable, to the respective amounts of shares of
stock then owned by such holders (including shares issuable upon conversion of
convertible securities and upon exercise of warrants, options or other rights).
c) No Investor may participate in any underwritten Incidental
Registration unless such Investor (a) agrees to sell such Registrable Shares on
the basis provided in any underwriting arrangement approved by the Company and
(b) completes and executes all questionnaires, powers of attorney, indemnities,
agreements (including an underwriting agreement in customary form) and other
documents required under the terms of such underwriting arrangements.
d) All expenses incurred by the Company in complying with this
Section 7, including, without limitation (i) all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), (ii) all printing expenses, (iii) all fees and
disbursements of the Company's lega counsel and accountants for the Company and
(iv) all blue sky fees and expenses, shall be paid by the Company.
Notwithstanding the foregoing, all underwriting discounts and selling
commissions applicable to sales of the Registrable Shares in connection with any
Incidental Registration shall be borne by the seller thereof pro rata in
proportion to the dollar value of the shares of Class A Common Stock being sold
by each such seller. Each Investor shall also pay and be responsible for such
Investor's own costs and expenses in connection with any Incidental
Registration, including without limitation the fees and expenses of legal
counsel, if any.
e) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each selling holder of Registrable Securities from
and against any and all losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact ontained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses arise
Alliance Partners
October 30, 1997
Page 6
out of, or are based upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to the Company by such
selling holder or on such selling holder's behalf expressly for use therein and;
provided, further, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this paragraph shall not apply to the extent
that any such loss, claim, damage, liability or expense results from the fact
that a current copy of the prospectus was not sent or given to the person
asserting any such loss, claim, damage, liability or expense at or prior to the
written confirmation of the sale of the Registrable Securities concerned to such
person if it is determined that it was the responsibility of such selling holder
to provide such person with a current copy of the prospectus and such current
copy of the prospectus would have cured the defect giving rise to such loss,
claim, damage, liability or expense.
f) Indemnification by Holder of Registrable Securities. Each
Selling Holder agrees to indemnify and hold harmless the Company to the same
extent as the foregoing indemnity from the Company to such selling holder, but
only with respect to information furnished in writing by such selling holder or
on such selling holder's behalf expressly for use in any registration statement
or prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus.
g) Conduct of Indemnification Proceedings. If any action or
proceeding shall be brought or asserted against any person entitled to
indemnification under clauses (a) or (b) above (an "Indemnified Party") in
respect of which indemnity may be sought from any party who has agreed to
provide such indemnification (an "Indemnifying Party"), the Indemnifying Party
shall assume the defense thereof, including the employment of counsel reasonab y
satisfactory to such Indemnified Party, and shall assume the payment of all
expenses.
8. Miscellaneous.
a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
b) Entire Agreement. This Agreement constitutes the sole
and entire agree ent of the parties with respect to the subject matter hereof.
c) Counterparts. This Agreement and the Company's acceptance
may be executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
d) Amendments. This Agreement may not be amended or modified
without the written consent of the Company a d Alliance, and no provisions
hereof may be waived without the written consent of the party or parties in
favor of which such provision would operate without such waiver.
Alliance Partners
October 30, 1997
Page 7
e) Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
If you are in agreement with the foregoing, please signify your acceptance
by signing and returning to us the enclosed copy of this letter.
Very truly yours,
ECHOCATH, INC.
By
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APPROVED AND ACCEPTED:
ALLIANCE PARTNERS
By
------------------------- ------------------------ -----------------------
Title Xx. Xxxxxxx Xxxxxxxxx Xxxxx X. Xxxxxxxxx
MARATHON INVESTMENTS L.L.C.
By _____________________________
Title
