REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
28, 2000, by and among Network Commerce Inc., a corporation organized under the
laws of the State of Washington (the "COMPANY"), and the undersigned (together
with its affiliates, the "INITIAL INVESTOR").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investor (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investor (i)
Convertible Notes (the "NOTES") that are convertible into shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), and (ii)
warrants (the "WARRANTS") to acquire shares of Common Stock. The shares of
Common Stock issuable upon conversion of or otherwise pursuant to the Notes are
referred to herein as the "CONVERSION SHARES" and the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are referred to
herein as the "WARRANT SHARES."
B. To induce the Initial Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investor and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (a) the Conversion
Shares, (b) the Warrant Shares and (c) any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution on or in
exchange for or otherwise with respect to any of the foregoing, whether as
default payments or otherwise.
(iv) "REGISTRATION STATEMENT" means a registration statement
of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare promptly and
file with the SEC as soon as practicable, but in no event later than the
thirtieth (30th) day following the date hereof (the "FILING DATE"), a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of all of the Registrable Securities, subject to the consent of the
Initial Investor) covering the resale of at least 8,000,000 Registrable
Securities. The Registration Statement filed hereunder, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Notes and exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The
Registrable Securities included in the Registration Statement shall be allocated
to the Investors as set forth in Section 11(k) hereof. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of) the Initial Investor and its counsel prior to its filing or other
submission.
b. UNDERWRITTEN OFFERING. If any offering pursuant to the
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investor if it is still holding Registrable Securities, shall have the
right to select one legal counsel to represent the Investors and an investment
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors elect not to
participate in such underwritten offering, the Registration Statement covering
all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investors participating in such
underwritten offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability of
nonparticipating Investors to sell from time to time and at any time during the
effectiveness of such Registration Statement). Notwithstanding the foregoing, if
the offering does not involve an underwritten offer, the Investors shall not be
entitled to require that the offering be underwritten.
c. PAYMENTS BY THE COMPANY. The Company shall cause the
Registration Statement required to be filed pursuant to Section 2(a) hereof to
become effective as soon as practicable, but in no event later than the
ninetieth (90th) day following the date hereof (the "REGISTRATION DEADLINE"). At
the time of effectiveness, the Company shall ensure such Registration Statement
covers at least 100% of the Registrable Securities issuable pursuant to the
Notes and Warrants (including, if necessary, by filing an amendment prior to the
effective date of the Registration Statement to increase the number of shares
covered thereby). If (i) (A) the Registration Statement required to be filed by
the Company pursuant to Section 2(a) hereof is not filed with the SEC prior to
the Filing Date or (B) such Registration Statement covering all of the
Registrable Securities is not declared effective by the SEC on or before the
Registration Deadline (except in the event that such Registration Statement
shall not have been declared effective solely as the result of a Fiscal Quarter
Delay (as defined herein)), or (ii) if, after such Registration Statement has
been declared effective by the SEC, sales of any of the Registrable Securities
required to be covered by such Registration Statement cannot be made pursuant to
such Registration Statement (by reason of a stop order or the Company's failure
to update the Registration Statement or any other reason outside the control of
the Investors) or (iii) the Common Stock is not listed or included for quotation
on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market ("SMALLCAP"),
the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX") at any time after the Registration Deadline hereunder, then the Company
will make payments to the Investors in such amounts and at such times as shall
be determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
Investor an amount equal to the product of (i)
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the aggregate Purchase Price of the Notes and Warrants held by such Investor
(including, without limitation, Notes that have been converted into Conversion
Shares and Warrants that have been exercised for Warrant Shares then held by
such Investor) (the "AGGREGATE SHARE PRICE"), multiplied by (ii) two hundredths
(.02), for each thirty (30) day period (or portion thereof) (A) after the Filing
Date and prior to the date the Registration Statement is filed with the SEC
pursuant to Section 2(a), (B) after the Registration Deadline and prior to the
date the Registration Statement covering all of the Registrable Securities is
declared effective by the SEC, and (C) during which sales of any Registrable
Securities cannot be made pursuant to any such Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the NNM, SmallCap, NYSE or AMEX; PROVIDED,
HOWEVER, that there shall be excluded from each such period any delays which are
solely attributable to changes (other than corrections of Company mistakes with
respect to information previously provided by the Investors) required by the
Investors in the Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the plan of
distribution. (For example, if the Registration Statement covering all of the
Registrable Securities is not effective by the Registration Deadline, the
Company would pay $20,000 for each thirty (30) day period thereafter with
respect to each $1,000,000 of Aggregate Share Price until the Registration
Statement becomes effective.) Such amounts shall be paid in cash or, at each
Investor's option, may be convertible into Common Stock at the "CONVERSION
PRICE" (as defined in the Notes) then in effect. Any shares of Common Stock
issued upon conversion of such amounts shall be Registrable Securities. If the
Investor desires to convert the amounts due hereunder into Registrable
Securities it shall so notify the Company in writing within two (2) business
days after the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the mechanics set forth under
Article III of the Notes), beginning on the last day upon which the cash amount
would otherwise be due in accordance with the following sentence. Payments of
cash pursuant hereto shall be made within five (5) days after the end of each
period that gives rise to such obligation, provided that, if any such period
extends for more than thirty (30) days, interim payments shall be made for each
such thirty (30) day period.
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) and during a
period in which the Registration Statement required to be filed pursuant to
Section 2(a) is not effective, the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each Investor written
notice of such filing and, if within fifteen (15) days after the date of such
notice, such Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering, the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
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distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; PROVIDED, HOWEVER, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not contractually entitled to inclusion of such securities
in such Registration Statement or are not contractually entitled to pro rata
inclusion with the Registrable Securities; and PROVIDED, FURTHER, HOWEVER, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the contractual right to include such securities in the Registration
Statement other than holders of securities contractually entitled to inclusion
of their securities in such Registration Statement by reason of demand
registration rights. Notwithstanding the foregoing, no such reduction shall
reduce the amount of Registrable Securities included in the registration below
twenty-five (25%) of the total amount of securities included in such
registration. No right to registration of Registrable Securities under this
Section 2(d) shall be construed to limit any registration required under Section
2(a) hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
e. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it will meet the requirements for the use of Form S-3 for registration of
the sale by the Initial Investor and any other Investor of the Registrable
Securities no later than October 4, 2000 and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
thereafter maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall respond promptly to any and all comments
made by the staff of the SEC to the Registration Statement required by Section
2(a), and shall submit to the SEC, before the close of business on the business
day immediately following the business day on which the Company learns (either
by telephone or in writing) that no review of such Registration Statement will
be made by the SEC or that the staff of the SEC has no further comments on such
Registration Statement, as the case may be, a request for acceleration of the
effectiveness of such Registration Statement to a time and date as soon as
practicable; PROVIDED, HOWEVER, that (unless expressly permitted in writing by
the Investors) no such request for acceleration shall be made during the period
beginning on the tenth trading day immediately preceding the end of a fiscal
quarter of the
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Company and ending on the second business day following the release by the
Company of its earnings statement for such fiscal quarter (such a delay in
filing a request for acceleration of the effectiveness of the Registration
Statement being referred to as a "FISCAL QUARTER DELAY"). The Company shall keep
such Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Initial Investor) may be
immediately sold to the public without registration or restriction pursuant to
Rule 144(k) under the Securities Act or any successor provision (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) (i) shall comply in all material respects
with the requirements of the Securities Act and the rules and regulations of the
SEC promulgated thereunder and (ii) shall not contain any 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. The financial
statements of the Company included in the Registration Statement or incorporated
by reference therein will comply as to form in all material respects with the
applicable accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto. Such financial statements will be
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed on summary statements and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to immaterial year-end adjustments).
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof
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which contains information for which the Company has sought confidential
treatment), (ii) on the date of effectiveness of the Registration Statement or
any amendment thereto, a notice stating that the Registration Statement or
amendment has been declared effective, and (iii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of
the Registrable Securities being offered in an offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor by telephone and facsimile of the
happening of any event, of which the Company has knowledge, as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and, use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.
g. The Company shall use its best efforts (i) to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and (ii) to
notify each Investor who holds
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Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof (and if such Registration Statement is supplemented or amended, deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request).
h. The Company shall permit a single firm of counsel designated
by the Initial Investor to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor in the case of an underwritten
public offering, the Company shall furnish, on the date of effectiveness of the
Registration Statement (i) an opinion, dated as of such date, from counsel
representing the Company addressed to the Investors and in form, scope and
substance as is customarily given in an underwritten public offering and (ii) a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall,
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upon learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein shall be deemed to limit
the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to promptly either (i)
cause all of the Registrable Securities covered by the Registration Statement to
be listed on the NYSE or the AMEX or another national securities exchange and on
each additional national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation of all of the Registrable
Securities covered by the Registration Statement on the NNM or SmallCap and,
without limiting the generality of the foregoing, to arrange for or maintain at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after the Registration Statement which includes Registrable
Securities is ordered effective by the
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SEC, the Company shall deliver, and shall cause legal counsel selected by the
Company to deliver, to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement), an opinion of such counsel in the form attached hereto
as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC.)
r. From and after the date of this Agreement, the Company shall
not, and shall not agree to, allow the holders of any securities of the Company
to include any of their securities which are not Registrable Securities in the
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders of a
majority in interest of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five
trading days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
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c. In the event Investors holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriter(s) of such offering and the Company and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of the Registrable Securities, unless such Investor has notified
the Company in writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
Notwithstanding anything to the contrary, subject to compliance with applicable
laws, the Company shall cause the transfer agent for the Registrable Securities
to deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Notes and Warrants in connection with any sale
of Registrable Securities with respect to which such Investor has entered into a
contract for sale prior to receipt of such notice and for which such Investor
has not yet settled.
e. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below, and (iv) complies with all applicable laws
in connection therewith. Notwithstanding anything in this Section 4(e) to the
contrary, this Section 4(e) is not intended to limit an Investor's rights under
Sections 2(a) or 3(b) hereof.
f. Based on the reasonable determination of the Company's Board
of Directors that there is a valid business purpose to do so, the Company may
suspend the use of the prospectus relating to the Registration Statement
required to be filed pursuant to Section 2(a) for two distinct periods, each
such period lasting twenty (20) days or less, within any twelve (12) month
period. The Company shall in no event be required to disclose the business
purpose for which it has suspended the use of such prospectus if the Company
determines in its good faith judgment that such business purpose should remain
confidential. The Investors shall notify the Company promptly after the last of
its Registrable Securities has been sold. The Investors agree not to sell any of
the Registrable Securities unless (A) the Registrable Securities have been sold
in accordance with the Registration Statement, the Securities Act and the rules
and regulations promulgated under the Securities Act and
11
any applicable state securities or blue sky laws and (B) the requirement of
delivering a current prospectus has been satisfied.
5. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the
Company or the Investors in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 above, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and the
fees and disbursements of one counsel selected by the Investors shall be borne
by the Company; PROVIDED, HOWEVER, that all underwriting discounts and
commissions shall be borne by the Investors and the fees and expenses of the
Investors' counsel shall be subject to the limitation on expenses set forth in
Section 4(f) of the Securities Purchase Agreement. In addition, the Company
shall pay all of the Investors' costs and expenses (including legal fees)
incurred in connection with the enforcement of the rights of the Investors
hereunder.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees and
agents of such Investor and each person who controls any Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, 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: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) 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 files 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each other Indemnified Person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which
12
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if such corrected prospectus was timely made available by the Company pursuant
to Section 3(c) hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
Violation and such Indemnified Person, notwithstanding such advice, used it.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9 hereof.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), 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 Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) 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 contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
13
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; PROVIDED,
HOWEVER, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are in conflict with those
available to such indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the Indemnified
Parties, as applicable, and such legal counsel shall be selected by Investors
holding a majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of the
Initial Investor if it holds Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
14
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
the Indemnified Person or Indemnified Party, as the case may be, on the other
hand, with respect to the Violation giving rise to the applicable Claim;
PROVIDED, HOWEVER, that (i) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the fault
standards set forth in Section 6, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("RULE 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents is required
for the applicable provisions of Rule 144; and
b. furnish to each Investor so long as such Investor Notes,
Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities under Rule
144 without registration.
15
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors
hereunder, including the right to have the Company register Registrable
Securities pursuant to this Agreement, shall be automatically assignable by each
Investor to any transferee of all or any portion of the Notes, the Warrants or
the Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (a) the name and address of such transferee or assignee,
and (b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (iv)
the transferee or assignee agrees in writing for the benefit of the Company to
be bound by all of the provisions contained herein, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement, the Notes and the Warrants, as applicable. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Securities Purchase Agreement, the Notes or the Warrants, the Securities (as
defined in the Securities Purchase Agreement) may be pledged, and all rights of
the Investors under this Agreement or any other agreement or document related to
the transactions contemplated hereby may be assigned, without further consent of
the Company, to a bona fide pledgee in connection with an Investor's margin or
brokerage account.
10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
written consent of the Company, the Initial Investor (to the extent the Initial
Investor still owns Notes, Warrants or Registrable Securities) and Investors who
hold a majority in interest of the Registrable Securities or, in the case of a
waiver, with the written consent of the party charged with the enforcement of
any such provision; PROVIDED, HOWEVER, that no amendment hereto which restricts
the ability of an Investor to elect not to participate in an underwritten
offering shall be effective against any Investor which does not consent in
writing to such amendment; PROVIDED, FURTHER, HOWEVER, that no consideration
shall be paid to an Investor by the Company in connection with an amendment
hereto unless each Investor similarly affected by such amendment receives a
pro-rata amount of consideration from the Company. Unless an Investor otherwise
agrees, each amendment hereto must similarly affect each Investor. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
16
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Network Commerce Inc.
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000 Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000)-000-0000
Attn: General Counsel
with a copy simultaneously transmitted by like means to:
Xxxxxxx Coie LLP
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000)-000-0000
Attn: Xxxxxx X. Xxxxxxxx
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Company irrevocably consents
to the jurisdiction of the United States federal courts and the state courts
located in the State of New York in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that all claims in respect of such
suit or proceeding may be
17
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon 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
Investors' right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement (including
all schedules and exhibits thereto), the Notes and the Warrants constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the Securities Purchase Agreement, the Notes and the Warrants
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents, approvals and other determinations to be made by
the Investors pursuant to this Agreement shall be made by the Investors holding
a majority in interest of the Registrable Securities (determined as if all Notes
and Warrants then outstanding had been converted into or exercised for
Registrable Securities) held by all Investors.
18
k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by any Investor shall be determined as
if all Notes and Warrants then outstanding were converted into or exercised for
Registrable Securities.
l. Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
m. For purposes of this Agreement, the term "business day" means
any day other than a Saturday or Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law, regulation or
executive order to close, and the term "trading day" means any day on which
NASDAQ or, if the Common Stock is not then traded on NASDAQ, the principal
securities exchange or trading market where the Common Stock is then listed or
traded, is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
NETWORK COMMERCE INC.
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxx
---------------------------------
Its: Chairman and CEO
----------------------------------
INITIAL INVESTOR:
CAPITAL VENTURES INTERNATIONAL
By: /s/ Xxxxxx Xxxxx
-----------------------------------
Name: Xxxxxx Xxxxx
---------------------------------
Its: President, Heights Capital
Management, Inc. its Authorized
Agent
----------------------------------
20
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: NETWORK COMMERCE INC.
Ladies and Gentlemen:
We are counsel to Network Commerce, Inc., a corporation organized under
the laws of the State of Washington (the "COMPANY"), and we understand that
[Name of Investor] (the "HOLDER") has purchased from the Company (i) Convertible
Notes that are convertible into shares of the Company's common stock, par value
$.___ per share (the "COMMON STOCK"), and (ii) warrants to acquire shares of
Common Stock. Pursuant to a Registration Rights Agreement, dated as of ____ ___,
2000, by and among the Company and the signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), the Company agreed with the Holder, among other things, to
register the Registrable Securities (as that term is defined in the Registration
Rights Agreement) under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, on __________, 200_, the Company filed a Registration Statement on
Form S-___ (File No. 333- _____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder. The
Registration Statement was declared effective by the SEC on _____________, 200_.
[Other customary introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
21
cc: [Name of Investor]
22
