EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of the 17th day of October, 2003, by and among Datakey, Inc., a
Minnesota corporation (the "Company") and each Investor listed on Exhibit A
attached hereto and incorporated herein by reference (each, an "Investor" and
collectively, the "Investors").
RECITALS
A. The Company is in need of working capital for the operations
of its business and for the marketing of the Company's "smart cards."
B. The Investors have agreed to lend the Company an aggregate of
$2,000,000 in a bridge financing transaction pursuant to the terms and
conditions of that certain Secured Convertible Promissory Note Purchase
Agreement, dated as of the date hereof, by and between the Company and the
Investors (the "Purchase Agreement").
C. In connection with the execution of the Purchase Agreement,
the Company has executed those certain Secured Convertible Promissory Notes,
dated as of the date hereof, in favor of the Investors (the "Notes") and those
certain Warrants to purchase the capital stock of the Company (the "Warrants").
D. The Company is required to issue shares of capital stock upon
conversion of the Notes under certain conditions and is required to issue shares
of capital stock upon exercise of the Warrants.
E. In order to induce the Lenders to invest $2,000,000 in the
Company, the Company has agreed to enter into this Agreement pursuant to the
terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Registration Rights. As used in this Agreement, "Registrable
Securities" means any and all shares of capital stock, regardless of class or
series, issued or issuable upon conversion of the Notes and upon exercise of the
Warrants.
2. Demand Registrations.
(a) Investors who together hold at least Five Hundred
Thousand (500,000) shares of the Registrable Securities may make one
request on or before August 17, 2005 that the Company file a
Registration Statement covering the resale or distribution by the
Investors of the Registrable Securities (the "Initial Demand
Registration"). Any Investor who is, immediately following the closing
of the transactions contemplated by the
Purchase Agreement, an Affiliate of the Company may make one request
that the Company file a Registration Statement covering the resale or
distribution by such Investor of the Registrable Securities provided
that such Investor is an Affiliate at the time of such request (an
"Affiliate Demand Registration"). The Initial Demand Registration and
the Affiliate Demand Registration are each referred to herein as a
"Demand Registration." Upon the receipt of a request for a Demand
Registration, the Company will promptly file a registration statement
on an appropriate form under the Securities Act of 1933, as amended
(the "Securities Act"), relating to all Registrable Securities and
shall use its best efforts to cause such registration statement to be
declared effective no later than one hundred twenty (120) days after
the date of the request from the Investors. Notwithstanding the
foregoing, if at the time of the request to register the Registrable
Securities, the Company is engaged in, or has fixed plans to engage in
any other activity which, in the good faith determination of the Board
of Directors of the Company, would be adversely affected by the Demand
Registration to the material detriment of the Company, then the Company
may at its option direct that such demand registration be delayed for a
period not to exceed ninety (90) days. In addition, the Company shall
not be required to effect any Demand Registration within ninety (90)
days after the effective date of any other registration statement of
the Company. For the purposes of this Agreement, "Affiliate" has the
meaning given to it in Rule 144 of the Securities Act.
(b) The Demand Registration by the Investors shall state
the intended method of disposition of the Registrable Securities. Upon
receiving a request for a Demand Registration, the Company shall
promptly take such steps as are necessary or appropriate to prepare for
the registration of all of the Registrable Securities.
(c) A registration shall not constitute a Demand
Registration until it has become effective and remains continuously
effective for the Registration Period described in Section 4 hereof. In
addition, a registration shall not constitute a Demand Registration if
(i) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities is interfered with by any stop order, injunction or other
order or requirement of the Securities and Exchange Commission (the
"Commission") or other governmental agency or court for any reason not
attributable to the Investors and such interference is not thereafter
eliminated, or (ii) the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such
Demand Registration are not satisfied or waived, other than by reason
of a failure by the Investors.
(d) Notwithstanding the foregoing, the Company may at any
time effect the Initial Demand Registration (prior to receipt of any
request by Investors to do so) by filing the registration statement
contemplated by this Section 2, notifying all Investors thereof and
otherwise complying with all obligations of the Company hereunder in
connection with such Initial Demand Registration, including without
limitation the obligations of the Company under Section 4.
3. Incidental Registrations. At any time after the date of this
Agreement, if the Company proposes to file a registration statement under the
Securities Act with respect to an
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offering by the Company for its own account or pursuant to a demand registration
of any other investor, then the Company shall give written notice of such
proposed filing to each of the Investors at least thirty (30) days before the
anticipated filing date. Such notice shall describe the proposed registration
and distribution and shall offer the Investors the opportunity to register all
or a portion of the Registrable Securities then owned by such Investor (an
"Incidental Registration"). The Company shall (within ten (10) days of the
notice provided for in the preceding sentence) cause the managing underwriter or
underwriters of a proposed underwritten offering (the "Managing Underwriter") to
permit each of the Investors who have requested in writing to participate in the
Incidental Registration to include such Investors' Registrable Securities in
such offering on the same terms and conditions as the securities of the Company
included therein, subject to the right of the Company and its underwriters to
reduce the number of shares proposed to be registered pursuant to the Incidental
Registration in view of market conditions. Such reduction shall not exceed 25%
of the securities to be registered in the Incidental Registration. If there is
any reduction in the number of Registrable Securities offered pursuant to the
Incidental Registration, then no party other than the Company and the Investors
may sell shares registered in the Incidental Registration.
4. Registration Period. The Company shall use its reasonable best
efforts to keep any registration statement filed pursuant to this Agreement (a
"Registration Statement") continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Investors for the
following periods: (a) in the case of the Initial Demand Registration, until
October 17, 2005, and (b) in the case of an Affiliate Demand Registration, for a
period of 12 months from the date of its effectiveness. Notwithstanding the
foregoing the Company shall not be obligated to keep effective any Registration
Statement after all Registrable Securities (x) have been sold pursuant thereto
or (y) are no longer restricted securities (as defined in Rule 144 under the
Securities Act). The period during which any Registration Statement is required
hereunder to be kept effective is referred to as the "Registration Period." The
Company shall be deemed not to have used its best efforts to keep the
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Investors owning Registrable Securities
covered thereby not being able to offer and sell such Shares during that period.
5. Compliance with Laws. Notwithstanding any other provisions of
this Agreement to the contrary, the Company shall cause all Registration
Statements and the related prospectuses and any amendments or supplements
thereto, as of the effective date of the Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
6. Registration - General Provisions. In connection with any and
all Registration Statements, the Company will comply with the following
provisions:
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(a) if the Registration Statement is to be underwritten,
then the Company shall select the underwriters who shall be reasonably
acceptable to the Investors selling Registrable Securities thereunder
(the "Selling Investors");
(b) prepare and file with the Commission such amendments
to the Registration Statements and supplements to the prospectus
contained therein as may be necessary to keep the Registration
Statements effective for the period during which the prospectus is
required to be current during the Registration Period;
(c) prior to filing the Registration Statements with the
Commission, provide the Selling Investors with reasonable opportunities
to review and comment on the Registration Statements;
(d) furnish to the Selling Investors and to the
underwriters of the securities being registered, if any, such
reasonable number of copies of the Registration Statements, preliminary
prospectuses, final prospectuses and such other documents as the
Selling Investors and the underwriters may reasonably request in order
to facilitate the public offering of such securities;
(e) use its diligent, good faith efforts to register or
qualify the resale of the Registrable Securities under such state
securities or blue sky laws of such jurisdictions as the Selling
Investors may request;
(f) notify the Selling Investors promptly after the
Company receives notice of the time when the Registration Statement has
become effective or a supplement to any prospectus forming a part of
such Registration Statement has been filed with the Commission;
(g) notify the Selling Investors promptly of any request
by the Commission for the amending or supplementing of the Registration
Statements or prospectuses or for additional information;
(h) prepare and file with the Commission, promptly upon
the request of the Selling Investors, any amendments or supplements to
the Registration Statements or prospectuses which, in the opinion of
the Selling Investors, are required under the Securities Act or the
rules and regulations promulgated thereunder in connection with the
distribution of the Registrable Securities;
(i) prepare and promptly file with the Commission any
required amendment or supplement to the Registration Statements or
prospectuses, and promptly notify the Selling Investors of the filing
of such amendment or supplement to the Registration Statements or
prospectuses, as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities
is required to be delivered under the Securities Act, any event shall
have occurred, the result of which is that any such prospectus or any
other prospectus then in effect would include an untrue statement
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of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances in which they
were made, not misleading;
(j) advise the Selling Investors promptly after it
receives notice or obtains knowledge of the issuance of any stop order
by the Commission or other governmental agency suspending the
effectiveness of such Registration Statements or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(k) not file any amendment or supplement to the
Registration Statements or prospectuses to which the Selling Investors
have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations
promulgated thereunder, after having been furnished with a copy thereof
at least five business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or
supplement is reasonably necessary to protect the Company from any
material liabilities under any applicable federal or state law and such
filing will not violate applicable law;
(l) give the Selling Investors 30 days' written notice
prior to the voluntary termination of any registration statement in an
Incidental Registration;
(m) at the request of the Selling Investors, furnish on
the effective date of the Registration Statement: (i) opinions, dated
such respective dates, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any,
and to the Selling Investors, covering such matters as the underwriters
or Selling Investors may reasonably request, and (ii) letters, dated
such respective dates, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the Selling Investors, covering such matters as the underwriters or
the Selling Investors may reasonably request, in which letter such
accountants shall state (without limiting the generality of the
foregoing) that they are independent certified public accountants
within the meaning of the Securities Act and that in the opinion of
such accountants the financial statements and other financial data of
the Company included in the Registration Statement or the prospectus or
any amendment or supplement thereto comply in all material respects
with the applicable accounting requirements of the Securities Act.
7. Registration Expense. The Company shall pay all Registration
Expenses (as defined below) in connection with the inclusion of the Registrable
Shares in any registration statement, or application to register or qualify such
shares under state securities laws, filed by the Company hereunder. For purposes
of this Agreement, the term "Registration Expenses" means the filing fees
payable to the Commission, any state agency and the National Association of
Securities Dealers (the "NASD"); the fees and expenses of the Company's legal
counsel and independent certified public accountants in connection with the
preparation and filing of the Registration Statements (and all amendments and
supplements thereto) with the Commission;
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and all expenses relating to the printing of the Registration Statements,
prospectuses and various agreements executed in connection with the Registration
Statements. The Company shall also bear all registration expenses of the Selling
Investors (exclusive of underwriting discounts and commissions), including the
expenses of one special counsel of the Selling Investors to be selected by a
majority in interest of the Selling Investors.
8. Indemnification. With respect to the registration of the
resale of the shares of Registerable Securities:
(a) To the fullest extent permitted by law, the Company
will indemnify and hold harmless the Selling Investors, and their
respective officers, directors, equity holders, employees, agents,
independent contractors and underwriters (as defined in the Securities
Act) and each person, who controls the Investors or its underwriters
within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (all such persons indemnified
under this subsection shall be referred to herein as the "Indemnified
Parties"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement of a material fact contained in the Registration Statements,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by the Registration Statements;
and the Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this Section shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished to it expressly for
use in connection with such registration by the Indemnified Parties.
(b) To the fullest extent permitted by law, each Selling
Investor will, severally and not jointly, indemnify and hold harmless
the Company, each of its directors, each of its officers, each person,
if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other investor selling securities under
the Registration Statements against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such
investor may become subject under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are
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 by such Selling Investor and
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directly incorporated into the Registration Statements; and such
Investor will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person,
underwriter or other investor, in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation; provided
however, that in no event shall any indemnity under this Section exceed
the gross proceeds from the offering received by such Selling Investor
unless the Violation is the result of fraud on the part of such Selling
Investor.
(c) The obligation of the Company and each Selling
Investor under this Section shall survive the completion of any
offering for resale of shares of the Registerable Securities in the
Registration Statements, and otherwise.
9. Termination of Rights. The registration rights granted under
this Agreement shall terminate as to any Investor on the date on which all
shares held by such Investor can be resold without restrictions pursuant to Rule
144 promulgated by the Securities and Exchange Commission, as amended from time
to time.
10. Miscellaneous.
(a) Except as otherwise provided herein, the provisions
of this Agreement may not be amended, modified or supplemented, and
waivers or consents to or departures from the provisions hereof may not
be given or made unless the Company has obtained the written consent of
the holders of at least 70% of the outstanding principal remaining on
the Notes.
(b) All notices and other communications provided for or
permitted hereunder shall be made by hand delivery, telex, facsimile,
overnight courier or registered first-class mail to the address set
forth above for the Company and to the addresses set forth on Exhibit
A, if to the Investors. All such notices and communications shall be
deemed to have been duly given when delivered, if by hand, overnight
courier or mail; when the appropriate answer back is received, if by
telex; and when transmission is confirmed by the sending unit, if by
facsimile.
(c) This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and both of
which taken together shall constitute one and the same agreement.
(d) The headings to this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to the principles of choice or conflict of law thereof.
(f) In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any
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respect for any reason, the validity, legality and enforceability of
such provision in every other respect and of the remaining provisions
contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Investors and the
Company shall be enforceable to the fullest extent permitted by law.
(g) The remedies provided for in this Agreement shall be
cumulative and in addition to all other remedies available, at law or
in equity, and nothing herein shall limit any party's right to pursue
actual damages for any failure to comply with the terms of this
Agreement.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above:
DATAKEY, INC., a Minnesota corporation
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Vice President and CFO
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above:
INVESTORS:
________________________________________
By: _________________________________
Name: _________________________________
Title: _________________________________
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above:
INVESTORS:
_________________________________
Sign Name
_________________________________
Print Name
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EXHIBIT A
NAMES AND ADDRESSES OF INVESTORS
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