Exhibit 10.14
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 5, 1999,
between the investors signatory hereto (each an "Investor"), and AVTEL
COMMUNICATIONS, INC., a Delaware corporation (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investor is purchasing from the Company, pursuant to an
Convertible Preferred Stock and Warrants Purchase Agreement dated the date
hereof (the "Purchase Agreement"), $1,500,000 liquidation preference amount of
Convertible Preferred Shares and Warrants to purchase up to 20,000 shares of the
Company's Common Stock (terms not defined herein shall have the meanings
ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investor the
registration rights set forth herein with respect to the shares of Common Stock
issuable upon conversion of the Convertible Preferred Shares purchased from time
to time pursuant to the Purchase Agreement, shares of Common Stock issuable as
dividends on the Convertible Preferred Shares and shares of Common Stock
issuable upon exercise of the Warrants (hereinafter referred to as the "Stock"
or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term "Registrable
Security" means the Securities until (i) the Registration Statement has been
declared effective by the Commission, and all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities have been otherwise transferred to holders who may trade
such Securities without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be deemed to 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 Agreement.
Section 2. RESTRICTIONS ON TRANSFER. The Investor acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. The Investor understands that no disposition or transfer of the
Securities may be made by Investor in the absence of (i) an opinion of counsel
to the Investor, in form and substance reasonably satisfactory to the Company,
that such transfer may be made without registration under the Securities Act or
(ii) such registration.
With a view to making available to the Investor the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investor to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Conversion Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
Section 3. REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES.
(a) The Company agrees that it will prepare and file with the
Securities and Conversion Commission ("Commission"), within forty-five (45) days
after the Closing Date a registration statement (on Form S-3, or other
appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of Investor, so as to permit a
public offering and resale of the Securities under the Act by the holders
thereof as selling stockholders and not as underwriters.
The Company shall use its best efforts to cause such Registration
Statement to become effective within ninety (90) days from the Closing Date (or
120 days if the SEC makes a "full review" of the Registration Statement), or, if
earlier, within five (5) days of SEC clearance to request acceleration of
effectiveness. The number of shares designated in the Registration Statement to
be registered shall include all the Warrant Shares, at least 750,000 shares
issuable upon conversion of the Convertible Preferred Shares, and such number of
shares as the Company deems prudent for the purpose of issuing shares of Common
Stock as dividends on the Convertible Preferred Shares, and shall include
appropriate language regarding reliance upon Rule 416 to the extent permitted by
the Commission. The Company will notify Investor of the effectiveness of the
Registration Statement within one Trading Day of such event. In the event that
the number of shares so registered shall be insufficient to register the resale
of all of the Securities, then the Company shall be obligated to file, within
thirty (30) days of notice from any Investor, a further Registration Statement
registering such remaining shares and shall use diligent best efforts to
prosecute such additional Registration Statement to effectiveness.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof effective under the
Securities Act until the earlier of (i) the date that none of the Convertible
Preferred Shares, the Warrant or the Securities covered by such Registration
Statement are or may become issued and outstanding, (ii) the date that all of
the Securities have been sold pursuant to such Registration Statement, (iii) the
date the holders thereof receive an opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor, that the Securities may
be sold under the provisions of Rule 144 without limitation as to volume, (iv)
all Securities have been otherwise transferred to Investors who may trade such
shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend, or (v) all Securities may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) or any similar
provision then in effect under the Securities Act in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to the Investor (the
"Effectiveness Period").
(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 subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Investor shall bear the cost
of underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Securities being registered and the fees and expenses of its
counsel. The Investor and its counsel shall have a reasonable
period, not to exceed three (3) Trading Days, to review the proposed
Registration Statement or any amendment thereto, prior to filing with the
Commission, and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall make reasonably available for
inspection by Investor, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney, accountant or other
agent retained by such Investor or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries, and cause the Company's officers, directors and employees
to supply all information reasonably requested by such Investor or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
PROVIDED, HOWEVER, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such Investor and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such Investor or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and PROVIDED FURTHER that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be coordinated
on behalf of the Investors and the other parties entitled thereto by one firm of
counsel designated by and on behalf of the majority in interest of Investors and
other parties. The Company shall qualify any of the securities for sale in such
states as any Investor reasonably designates and shall furnish indemnification
in the manner provided in Section 6 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, or which will require
the Company to qualify to do business in such state or require the Company to
file therein any general consent to service of process. The Company at its
expense will supply the Investors with copies of the applicable Registration
Statement and the prospectus included therein and other related documents in
such quantities as may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section 3 to include a
Investor's Securities in any Registration Statement which is to be filed if, in
the opinion of counsel for both the Investor and the Company (or, should they
not agree, in the opinion of another counsel experienced in securities law
matters acceptable to counsel for the Investor and the Company) the proposed
offering or other transfer as to which such registration is requested is 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 that (i) the Registration Statement to be filed by
the Company pursuant to Section 3(a) above is not filed with the Commission
within forty-five (45) days from the Closing Date, (ii) such Registration
Statement is not declared effective by the Commission within the earlier of
ninety (90) days from the Closing Date (or 120 days if the Commission makes a
"full review" of the Registration Statement) or five (5) days of clearance by
the Commission to request effectiveness, or (iii) such Registration Statement is
not maintained as effective by the Company for the period set forth in Section
3(b) above (each a "Registration Default") then the Company will pay Investor
(pro rated on a daily basis), as liquidated damages for such failure and not as
a penalty one percent (1%) of the aggregate market value of shares of Common
Stock purchased from the Company (including the Conversion Shares which would be
issuable upon conversion of the Convertible Preferred Shares on any date of
determination, and whether or not the Convertible Preferred Shares are then
Convertible pursuant to their terms) and held by the Investor for the first
month and two percent (2%) for every month thereafter until such Registration
Statement has been filed, and in the event of late effectiveness (in case of
clause (ii) above) or lapsed effectiveness (in the
case of clause (iii) above), one percent (1%) of the aggregate market value of
shares of Common Stock purchased from the Company and held by the Investor
(including the Conversion Shares which would be issuable upon conversion of the
Convertible Preferred Shares on any date of determination, and whether or not
the Convertible Preferred Shares are then Convertible pursuant to their terms)
for the first month and two percent (2%) for every month thereafter (regardless
of whether one or more such Registration Defaults are then in existence) until
such Registration Statement has been declared effective. Such payment of the
liquidated damages shall be made to the Investor in cash, within five (5)
calendar days of demand, 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 market value of the Common Stock for
this purpose shall be the closing price (or last trade, if so reported) on the
Principal Market for each day during such Registration Default. Notwithstanding
anything to the contrary contained herein, a failure to maintain the
effectiveness of a filed Registration Statement or the ability of a Investor to
use an otherwise effective Registration Statement to effect resales of
Securities during the period after 45 days and within 90 days from the end of
the Company's fiscal year resulting solely from the need to update the Company's
financial statements contained or incorporated by reference in such Registration
Statement shall not constitute a Registration Default and shall not trigger the
accrual of liquidated damages hereunder.
If the Company does not remit the payment to the Investor as set
forth above, the Company will pay the Investor reasonable costs of collection,
including attorneys' fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Investor'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 Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective date of
any Registration Statement, the Company notifies the Investor in writing of the
existence of a Potential Material Event (as defined in Section 3(h) below), the
Investor shall not offer or sell any Securities or engage in any other
transaction involving or relating to Securities, from the time of the giving of
notice with respect to a Potential Material Event until such Investor receives
written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material
Event; provided, however, that the Company may not so suspend the right to such
holders of Securities for more than thirty (30) days in the aggregate during any
twelve month period, during the periods any Registration Statement is required
to be in effect, and if such period is exceeded, such event shall be a
Registration Default. If a Potential Material Event shall occur prior to the
date a Registration Statement is required to be filed, then the Company's
obligation to file such Registration Statement shall be delayed without penalty
for not more than thirty (30) days, and such delay or delays shall not
constitute a Registration Default. The Company must, if lawful, give Investor
notice in writing at least two (2) Trading Days prior to the first day of the
blackout period.
(h) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, as determined in good faith by the Chief Executive
Officer, the Chief Financial Officer or the Board of Directors of the Company
that disclosure of such information in a Registration Statement would be
detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Chief Executive Officer, the Chief Financial Officer or the
Board of Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be accompanied by
a good faith determination by the Chief Executive Officer, the Chief Financial
Officer or the Board of Directors of the Company that the applicable
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. COOPERATION WITH COMPANY. Investor will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Investor and proposed manner of sale of
the Registrable Securities required to be disclosed in any Registration
Statement) and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable Securities and
entering into and performing its obligations under any underwriting agreement,
if the offering is an underwritten offering, in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering. Nothing
in this Agreement shall obligate the Investor to consent to be named as an
underwriter in any Registration Statement. The obligation of the Company to
register the Registrable Securities shall be absolute and unconditional as to
those Securities which the Commission will permit to be registered without
naming the Investor as an underwriter. Any delay or delays caused by the
Investor by failure to cooperate as required hereunder shall not constitute a
Registration Default.
Section 5. REGISTRATION PROCEDURES. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible, subject to
the Investor's assistance and cooperation as reasonably required with respect to
each Registration Statement:
(a) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Investor of such Registrable 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 promulgated under the Act) and (ii) take all lawful action
such that each of (A) the Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (B) the Prospectus forming part of the Registration
Statement, and any amendment or supplement thereto, does not at any time during
the Registration Period include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) (i) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the Investors as required by Section 3(c) and reflect in such documents all
such comments as the Investors (and their counsel) reasonably may propose
respecting the Selling Shareholders and Plan of Distribution sections (or
equivalents) and (ii) furnish to each Investor such numbers of copies of a
prospectus including a preliminary prospectus or any amendment or supplement to
any prospectus, as applicable, in conformity with the requirements of the Act,
and such other documents, as such Investor may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Investor;
(c) register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Investor shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Investor to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Investor, 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 Registrable Securities on the Principal Market, if the
listing of such Registrable Securities is then permitted under the rules of such
Principal Market;
(e) notify each Investor at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Act, of the happening of any event of which it 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 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, and the Company
shall prepare and file a curative amendment under Section 5(a) as quickly as
commercially possible;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the case
may be, as the Investors reasonably may request and registered in such names as
the Investor may request; and, within three business days after a Registration
Statement which includes Registrable Securities is declared effective by the
Commission, deliver and cause legal counsel selected by the Company to deliver
to the transfer agent for the Registrable Securities (with copies to the
Investors) an appropriate instruction and, to the extent necessary, an opinion
of such counsel;
(h) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common Stock.
Section 6. INDEMNIFICATION.
(a) To the maximum extent permitted by law, the Company agrees to
indemnify and hold harmless the Investor and each person, if any, who controls
the Investor within the meaning of the Securities Act ("Distributing Investor")
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
reasonable costs of defense and investigation and all reasonable attorneys'
fees), to which the Distributing Investor 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
any Registration Statement, or any related preliminary prospectus, final
prospectus 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 the Company will not 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 such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This Section 6(a) shall not inure to the
benefit of any Distributing Investor 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 Investor 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 such 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 Investor was obligated to
do so under the Securities Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Investor agrees that it will indemnify and hold harmless the Company, and each
officer, director of the Company or person, if any, who controls the Company
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 reasonable costs of defense and investigation and all
reasonable attorneys' fees) to which the Company 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 any Registration Statement, or any
related preliminary prospectus, final prospectus 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 or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 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 6, notify the indemnifying party in writing 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 except to the extent the failure of the indemnified party to
provide such written notification is prejudicial to the ability of the
indemnifying party to defend such action. 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 6 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 parties as a group shall have the right to employ one 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 unless (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 advised by its 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 or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in 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 the indemnified party, which firm shall be
designated in writing by the indemnified party). 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 7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof 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 Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Investor 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 reasonable
costs of defense and investigation and all reasonable 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 on the one hand
or the applicable Distributing Investor 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 the Distributing Investor
agree that it would not be just and equitable if contribution pursuant to this
Section 7 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 7. 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 7 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.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds to be received by
such Investor from the sale of such Investor's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) pursuant to
any Registration Statement under which such Registrable Securities are to be
registered under the Securities Act and (ii) underwriter be required to
undertake liability to any person hereunder for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the Registrable Securities underwritten by it and distributed
pursuant to such Registration Statement.
Section 8. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by reputable courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be as set forth
in the Purchase Agreement. Either party hereto may from time to time change its
address or facsimile number for notices under this Section 8 by giving at least
ten (10) days' prior written notice of such changed address or facsimile number
to the other party hereto.
Section 9. ASSIGNMENT. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. THE RIGHTS GRANTED THE INVESTOR UNDER THIS AGREEMENT MAY BE
ASSIGNED TO ANY PURCHASER OF SUBSTANTIALLY ALL OF THE REGISTRABLE SECURITIES (OR
THE RIGHTS THERETO) FROM INVESTOR, AS OTHERWISE PERMITTED BY THE PURCHASE
AGREEMENT. IN THE EVENT OF A TRANSFER OF THE RIGHTS GRANTED UNDER THIS
AGREEMENT, THE INVESTOR AGREES THAT THE COMPANY MAY REQUIRE THAT THE TRANSFEREE
COMPLY WITH REASONABLE CONDITIONS AS DETERMINED IN THE DISCRETION OF THE
COMPANY.
Section 10. ADDITIONAL COVENANTS OF THE COMPANY. The Company agrees that
at such time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.
Section 11. COUNTERPARTS/FACSIMILE. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
SECTION 12. REMEDIES. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
Section 13. CONFLICTING AGREEMENTS. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
prevents the Company from complying with all of its obligations hereunder.
Section 14. 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 15. GOVERNING LAW, ARBITRATION. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA")
in New York City, New York, and shall be finally and conclusively determined by
the decision of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on consecutive
business days in New York City, New York, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorneys' fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available.
Section 16. SEVERABILITY. If any provision of this Agreement shall for any
reason be held invalid or unenforceable, such invalidity or unenforceablity
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.
Section 17. CAPITALIZED TERMS. All capitalized terms not otherwise defined
herein shall have the meaning assigned to them in the Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
AVTEL COMMUNICATIONS, INC.
By: /S/ ANTHONY E. PAPA
--------------------
Anthony E. Papa
Chief Executive Officer
INVESTOR
AMRO INTERNATIONAL, S.A.
By: /S/ H.U. BACHOFEN
--------------------
H.U. Bachofen, Director
INVESTOR
AUSTINVEST ANSTALT BALZERS
By: /S/ W. GRILL
--------------------
W. Grill, Director
INVESTOR
ESQUIRE TRADE & FINANCE INC.
By: /S/ R. WINIGER
--------------------
R. Winiger, Director