EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 24th day of July, 1998,
between the entities listed on Schedules A and B (the "A Purchasers" and "B
Purchasers" or collectively, the "Holders"), issued pursuant to the Purchase
Agreement of even date herewith (the "Purchase Agreement"), and DATA RACE, INC.,
a Texas corporation having its principal place of business at 12400 Network
Blvd., San Antonio, Texas 78249 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Holders have agreed to purchase from the Company, pursuant to the
Purchase Agreement an aggregate of Four Million ($4,000,000) Dollars principal
amount of Preferred Stock and Warrants to purchase an aggregate of Eight Hundred
Forty Seven Thousand Two Hundred eighty Eight (847,288) shares of Common Stock.
The Common Stock of the Company underlying the Preferred Stock is referred to as
the "Conversion Shares", and the Common Stock of the Company underlying the
Warrants is referred to as the "Warrant Shares" (capitalized terms defined in
the Purchase Agreement and not otherwise defined herein have the meanings
specified in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
Registrable Securities means the Conversion Shares, and the Warrant Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
of 1933, as amended (the Securities Act) and disposed of pursuant thereto,
(ii) registration under the Securities Act is no longer required for the
immediate public distribution of such security as a result of the provisions of
Rule 144, or (iii) it has ceased to be outstanding. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Conversion Shares and Warrant
Shares as provided herein, the Securities are "restricted securities" as defined
in Rule 144 promulgated under the Securities Act. The Holders understand that
no disposition or transfer of the Securities may be made by Holder in the
absence of (i) an opinion of counsel reasonably satisfactory to the Company that
such transfer may be made or (ii) a registration statement under the Securities
Act is then in effect with respect thereto.
Section 3. Registration Rights. The Company agrees that it will
prepare and file with the Securities and Exchange Commission ("SEC"), within
thirty (30) days after receipt of
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written demand by a Holder ("Demand Date"), a registration statement which shall
include any and all amendments thereto (the "Registration Statement"), or in the
event more than one Registration Statement is required to be filed to include
such items as newly authorized shares, such further Registration Statement shall
be filed thirty (30) days after the issuance of such newly authorized shares or
other event, as the case may be. In the event that such Registration Statement
is not effective within ninety (90) days after the Demand Date, then Section
3(e) liquidated damages shall apply, at the sole expense of the Company (except
as provided in Section 3(c) hereof), in respect of all holders of Registrable
Securities, so as to permit resale of the Registrable Securities under the
Securities Act, provided, the Company shall not be obligated to take any action
to effect any such registration, qualification or compliance pursuant to this
Section 3(a) in any jurisdiction in which the Company would be required to
qualify as a dealer in securities, under the securities or blue sky laws of such
jurisdiction.
The Company agrees that it will cause the Registration Statement to
become effective within ninety (90) days after the Demand Date. The number of
Registrable Securities to be registered shall be two hundred (200%) percent of
the number of shares that would be required if all of the Registrable Securities
were converted in accordance with the Statement of Designation, on a date which
is five (5) business days prior to the filing of the Registration Statement, or
such lower number of shares as may be issuable in accordance with Nasdaq
regulations.
(b) The Company will maintain the Registration Statement or post-
effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
that the Registrable Securities may be sold under the provisions of Rule 144 or
(iii) two years three months after the effective date of the Registration
Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under Section 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holders shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and all of other the fees and expenses of such
registration, including of its counsel and such other expenses as are necessary
to qualify the sale of Securities in compliance with any state Blue Sky laws.
The Company shall qualify any of the securities for sale in such states as such
Holders reasonably designate and shall furnish indemnification in the manner
provided in Section 9 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers. The Company at its expense will supply the
Holders with copies of such Registration Statement and the prospectus or
offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3 to include
Holder's Registrable Securities in the Amended Registration Statement which is
to be filed if, in the opinion of counsel for both the Holders and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is
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exempt from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not restricted
securities, as defined in Rule 144 under the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed by the Company by the
thirtieth (30th) day after the Demand Date, or if the Registration Statement is
not declared effective by the SEC by the ninetieth (90th) day after the Demand
Date (the Effective Date), then the Company will pay, in cash, to the Holders
who made such a demand, on a pro-rata basis by wire transfer, as liquidated
damages for such failure and not as a penalty, two (2%) percent of the principal
amount of the outstanding Preferred Stock and Warrants that have been exercised
by the Holder, each month thereafter until the Registration Statement has been
filed and/or declared effective. The liquidated damages shall be payable within
seven (7) calendar days of written demand by the Holder.
If the Company does not remit the damages to the Holder as set forth
above, the Company will pay the to the Holders the reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Holders in cash immediately if the
registration of the Securities are not effected; provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) The initial number of Registrable Securities included in any
Registration Statement and each increase in the number of Registrable Securities
included therein shall be allocated pro rata among the Holders based on the
number of Registrable Securities held by each Holder at the time of such
establishment or increase, as the case may be. In the event a Holder shall sell
or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in 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 holders, pro rata
based on the number of Registrable Securities then held by such Holders. For
the purposes hereof, the number of Registrable Securities held by any Holder
shall be determined as if all Preferred Stock and Warrants then outstanding were
then converted into or exercised for Registrable Securities (whether or not such
securities are then convertible or exercisable).
Section 4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. Whenever the Company is required
by the
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provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective as
per Section 3(b) herein and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by such
registration statement when the Holder or Holders of such securities shall
desire to sell or otherwise dispose of the same (including prospectus
supplements with respect to the sales of securities from time to time in
connection with a registration statement pursuant to Rule 415 under the
Securities Act);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
(c) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holder, shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
(d) list such securities on the Nasdaq National Market System or any
securities exchange on which the Common Stock is then listed, if the listing of
such securities is then permitted under the rules of such system or exchange;
(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
Section 6. Assignment. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unnecessarily withheld. In the event of a transfer
of the rights granted under this Agreement, the
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Holders agree that the Company may require that the transferee comply with
reasonable conditions as determined in the discretion of the Company. This
Agreement is binding upon and inures to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns.
Section 7. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferees or assignees) upon the occurrence of any of the following:
(a) all of that particular Holder's securities subject to this
Agreement have been registered;
(b) such Holder's securities subject to this Agreement may be sold
without such registration pursuant to Rule 144 promulgated by the SEC pursuant
to the Securities Act; or
(c) all of such Holder's securities subject to this Agreement can be
sold pursuant to Rule 144(k).
Section 8. Indemnification.
(a) The Company and all key operating subsidiaries agree to indemnify
and hold harmless the Holders and each officer, director of the Holders, or
person, if any, who controls each Holder within the meaning of the Securities
Act (Distributing Holders) against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all attorneys'
fees), to which the Distributing Holders may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that neither the Company
nor all key operating subsidiaries will be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment, or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Holders, specifically for use in the preparation thereof. This
Section shall not inure to the benefit of any Distributing Holder with respect
to any person asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the Distributing Holder
failed to send or give (in violation of the Securities Act or the rules and
regulations promulgated thereunder) a copy of the prospectus contained in the
Registration Statement to such person at or prior to the written confirmation to
such person of the sale of such Registrable Securities, where the Distributing
Holder was obligated to do so under the Securities Act or the rules and
regulations promulgated hereunder. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the
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Company and each officer, director of the Company, or person, if any, who
controls the Company and all key operating subsidiaries within the meaning of
the Securities Act, against any losses, claims, damages or liabilities (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees) to which the Company
and all key operating subsidiaries or any such officer, director or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses claims, damages or liabilities (or actions in respect thereof); arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement prepared by the Company
and all key operating subsidiaries, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company and
all key operating subsidiaries by such Distributing Holder, specifically for use
in the preparation thereof. This indemnity agreement will be in addition to any
liability which the distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section, except where such omission materially
prejudices the indemnifying party's rights. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party, or (ii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have been reasonably advised by such counsel
that there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the indemnified party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party,
it being understood, however, that the indemnifying party shall, in
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connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for all indemnified parties, which
firm shall be designated in writing by the indemnified parties holding a
majority of the Registrable Securities). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 9. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holders, or the Company or all key operating subsidiaries, makes a claim for
indemnification, but is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that the express
provisions of this Agreement provide for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
Distributing Holder, or the Company or all key operating subsidiaries, then the
Company and all key operating subsidiaries and the applicable Distributing
Holder shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and all key operating subsidiaries on the one hand or
the applicable Distributing Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and all key operating subsidiaries and
the Distributing Holders agree that it would not be just and equitable if
contribution pursuant to this Section were determined by pro rata allocation or
by any other method of allocation which does not take account of the equitable
considerations referred to in this Section. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 10. "Piggy-Back" Registration. The Holders of this Registration
Rights Agreement shall have the right to include all Registrable Securities as
part of any registration of securities filed by the Company (other than that
required to be filed pursuant to the terms herein, and in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to
Form S-8) and must be notified in writing of such filing; provided, however,
that the Holders agree it shall not have any piggy-back registration rights
pursuant to this Agreement if the Registrable Securities may be sold in the
United States pursuant to the provisions of Rule 144. Holders shall have five
(5) business days to notify the Company in writing as to whether the Company is
to include Holders or not include Holders as part of the registration; provided,
however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section
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be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters and the Holders agree
to enter into an underwriting agreement in customary form reasonably acceptable
to the Holders. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holders,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering pursuant
to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed ninety (90) days, which the
underwriter may reasonably determine is necessary in order to effect such
underwritten offering. The Company shall have the right to terminate or withdraw
any registration initiated by it under this Agreement prior to the effectiveness
of such registration whether or not any Holder elected to include securities in
such registration. All registration expenses incurred by the Company in
complying with this Agreement shall be paid by the Company, exclusive of
underwriting discounts, commissions and legal fees and expenses for counsel to
the Holders.
Section 11. Notices. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holders, to its, his or her address set forth on
Schedule A and Schedule B attached to this Agreement.
(b) If to the Company, at the address set forth herein, or to such
other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Governing Law, Venue. This Agreement will be construed
and enforced in accordance with and governed by the laws of the State of New
York, except for matters arising under the Securities Act, without reference to
principles of conflicts of law. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
State of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non
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conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any state or country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 14. Severability/Defined Terms. If any provision of this
Agreement shall for any reason be held invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provision hereof and this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the Purchase Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Attest: DATA RACE, INC.
By: /s/ Gregory T. Skalla By: /s/ Gregory T. Skalla
---------------------- -------------------------------------
Name: Gregory T. Skalla Name: Gregory T. Skalla
Title: Secretary Title: Vice President-Finance
Chief Financial Officer
SOVEREIGN PARTNERS L.P.
"A" Purchaser
By /s/ Mark Valentine
--------------------------------------
Mark Valentine
DOMINION CAPITAL FUND, LTD.
"A" Purchaser
By /s/ Mark Valentine
--------------------------------------
Mark Valentine
FIRST CAPITAL GROUP OF TEXAS II, L.P.,
"B" Purchaser
By: First Capital Group Investment
Partners, LP, its General Partner
By: First Capital Group Management
Company, LP, its General Partner
By /s/ Jeffrey P. Blanchard
--------------------------------------
Jeffrey P. Blanchard, Managing Partner
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