REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of the
15th day of May, 1998, by and among Datakey, Inc., a Minnesota corporation (the
"Company") and the Investors listed on Schedule A attached hereto (individually,
an "Investor" and collectively, the "Investors").
RECITALS
A. The Investors and the Company have entered into that certain
Preferred Stock Purchase Agreement, dated May 15, 1998 (the "Purchase
Agreement").
B. It is a condition to the transactions contemplated in the Purchase
Agreement that the Company provide the registration and other rights provided
herein and the parties hereto desire to provide for such rights on the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise noted, all capitalized terms used
herein shall have the meanings afforded them in the Purchase Agreement and the
Exhibits attached thereto.
2. Required Registration. Within 30 days of the Closing date (the "File
Date"), the Company shall file a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), in accordance with the provisions of
either Form S-1 or Form S-3, as required by the Securities and Exchange
Commission (the "Commission") covering the resale of the shares of the Company's
common stock (i) underlying the Preferred Stock, (ii) underlying the Warrants
issued by the Company to Investors of even date herewith (collectively, the
"Warrant"), and (iii) issuable by the Company in payment of the dividends on the
shares of the Preferred Stock (the "Dividends") and will use its best efforts to
have such Registration Statement become effective with the Commission as soon as
possible thereafter, and in any event, within 90 days of the date on which it is
filed. The shares of the Company's common stock underlying the Preferred Stock
and the Warrants and issuable in payment of the Dividends is referred to herein
as the "Registrable Stock."
3. Registration - General Provisions. In connection with the
registration of the Registrable Stock under the Securities Act, the Company
will:
(a) prepare and file with the Commission a registration
statement with respect to such securities, within 30 days of the Closing date,
and use its diligent, good faith efforts to cause such registration statement to
become effective within 90 days of the date it is filed and keep the prospectus
which is a part of such Registration Statement current until the earlier of the
date on which: (i) all such shares have been sold, or (ii) five years after the
date it is declared effective by the Commission;
(b) prepare and file with the Commission such amendments to
such Registration Statement and supplements to the prospectus contained therein
as may be necessary to keep such Registration Statement effective for the period
required by Section 3(a) above;
(c) provide the Investors' counsel with reasonable
opportunities to review and comment on, and otherwise participate in, the
preparation of such Registration Statement;
(d) furnish to the Investors participating in such
registration and to the underwriters of the securities being registered, if any,
such reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as the Investors and
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 securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as the Investors may
reasonably request, except that the Company shall not for any purpose be
required to execute a general consent to service of process (which shall not
include a "Uniform Consent to Service of Process" or other similar consent to
service of process which relates only to actions or proceedings arising out of
or in connection with the sale of securities, or out of a violation of the laws
of the jurisdiction requesting such consent) or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified;
(f) notify the Investors, promptly after it shall receive
notice thereof, of the time when such 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 Investors promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(h) prepare and file with the Commission, promptly upon the
request of the Investors, any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of counsel for the Investors (and
concurred in by counsel for the Company), is required under the Securities Act
or the rules and regulations promulgated thereunder in connection with the
distribution of the shares of the Company's common stock by the Investors;
(i) prepare and promptly file with the Commission and promptly
notify the Investors of the filing of such amendment or supplement to such
Registration Statement or prospectus 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 as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement 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 Investors, and the Investors' counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the effectiveness of
such Registration Statement 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 such Registration
Statement or prospectus to which the Investors shall 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 liabilities under any
applicable federal or state law and such filing will not violate applicable law;
and
(l) at the request of the Investors, furnish on the effective
date of the Registration Statement and, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement: (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 Investors making such request, covering such
matters as such underwriters or 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
Investors, covering such matters as such underwriters or 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.
4. Registration Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with the inclusion of shares of the
Company's common stock in any Registration Statement, or application to register
or qualify such shares under state securities laws, filed by the Company
hereunder, other than as set forth herein. For purposes of this Agreement, the
term "Registration Expenses" means the filing fees payable to the Commission,
any state agency and 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 Statement (and all amendments and
supplements thereto) with the Commission; and all expenses relating to the
printing of the Registration Statement, prospectuses and various agreements
executed in connection with the Registration Statement. Notwithstanding the
foregoing, the Investors will pay the fees and expenses of any legal counsel the
Investors may engage, as well as the Investors' proportionate share of any
custodian fees or commission or discounts which may be payable to any
underwriter.
5. Penalty Payments. In the event that the Registration Statement
relating to the resale of the Registrable Stock is not (i) filed with the
Commission by the Company on or before the File Date, or (ii) declared effective
by the Commission within 150 days of the Closing date, then, the Company shall
pay the Investors the following amounts ("Penalty Payments"): (i) 1% of the
purchase price of the Preferred Stock (the "Purchase Price") paid by the
Investors to the Company if (A) the Registration Statement is not filed with the
Commission by the File Date, and/or (B) the Registration Statement is not
declared effective by the Commission within 150 days of the Closing date, (ii)
an additional 1% of the Purchase Price if the Registration Statement is not
declared effective by the Commission within 180 days of the Closing date, and
(iii) an additional 3% of the Purchase Price for each 30-day period thereafter
in which the Registration Statement is not declared effective by the Commission.
Penalties for failure to file and/or to obtain effectiveness shall be
cumulative. The Company shall be liable to the Investor for a full 30-day
period, determined in accordance with the above schedule, regardless of by how
many days it misses one of the targeted filing or effective dates set forth
above. All such Penalty Payments shall be immediately payable by the Company to
the Investors (on a pro rata basis based on the number of shares of Preferred
Stock purchased by each under the Purchase Agreement) via wire transfer of
immediately available funds by the close of business on last day of each
respective period set forth above.
6. Indemnification. With respect to the registration of the resale of
the shares of Registrable Stock:
(a) to the extent permitted by law, the Company will indemnify
and hold harmless each Investor, the trustees, partners, officers and directors
of each Investor, any underwriter (as defined in the Securities Act) for such
Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), 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 or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) 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, or (iii) any violation or alleged
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 Statement; and the Company will reimburse each such
Investor, trustee, partner, officer, director, underwriter or controlling person
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 6
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for 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 an Investor,
trustee, partner, officer, director, underwriter or controlling person of an
Investor.
(b) to the extent permitted by law, each Investor will
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 Statement or any of such other Investor's, trustees,
partners, directors or officers or any person who controls such Investor,
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, or trustee, partner, director, officer or controlling
person of such other 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 Investor and stated to be specifically for use in
connection with such registration; and each 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, or trustee, partner,
officer, director or controlling person of such 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 the indemnity agreement contained in this Section 6 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 6 exceed the gross proceeds from
the offering received by such Investor unless the Violation is the result of
fraud on the part of such Investor.
(c) promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action (including any governmental
action), such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party under this Section, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party; and provided further, that if there is more than one
indemnified party, the indemnifying party shall pay for the fees and expenses of
one counsel for any and all indemnified parties to be mutually agreed upon by
such indemnified parties, unless representation of an indemnified party by the
counsel retained by the other indemnified parties would be inappropriate due to
actual or potential differing interests between such indemnified parties. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section.
(d) if the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law 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 indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. No person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the Securities
Act) shall be entitled to contribution from any person or entity who shall not
have been guilty of such fraudulent misrepresentation.
(e) the obligation of the Company and the Investors under this
Section shall survive the completion of any offering for resale of shares of the
Registrable Stock in the Registration Statement, and otherwise.
7. Limitation on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of all of the Investors, enter into any agreement with any person or persons
providing for the granting to such holder of registration rights pari passu or
senior to those granted to Investors pursuant to this Agreement, or of
registration rights which might cause a reduction in the number of shares
includable by the Investors in any registration.
8. Miscellaneous.
(a) The Company shall not hereafter enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Investors in this Agreement.
(b) 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 Investors.
(c) 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:
(i) if to an Investor, at the address set forth on
Schedule A attached hereto;
(ii) if to the Company, at the address set forth in the
Purchase Agreement.
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; when transmission is confirmed by the
sending unit, if by facsimile.
(d) 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 all of which taken
together shall constitute one and the same agreement.
(e) The headings to this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of choice or conflict of law thereof. Each of the Company and the
Investors irrevocably consent to the exclusive jurisdiction of the United States
Federal courts and state courts, located in New York County, New York, in any
suit or proceeding relating to, based on or arising under this Agreement and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Investor to serve
process in any manner permitted by law.
(g) 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 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.
(h) 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 a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
above.
Datakey, Inc. Special Situations Private Equity Fund, L.P.:
By: /s/ Xxxx Xxxxxx By: /s/ Xxxxx Greenhouse
Its: Chief Financial Officer Its:
Tax Identification Number:
Special Situations Technology Fund, L.P.: Xxxxxx X. Xxxxxxx
By: /s/ Xxxxx Greenhouse By: /s/ Xxxxxxx X. Xxxxxxx
Its: Attorney-in-Fact
Tax Identification Number: Tax Identification Number:
Xxxxxxx X. Xxxxxx, TTEE
FBO Xxxxxxx X. Xxxxxx Revocable Xxxxx X. Xxxxxxxx
Trust U/A DTD 7-3-96
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: Tax Identification Number:
Xxxxx Xxxxxxx as Custodian FBO Xxxxxxx Xxxxx Jaffray as Custodian
A. Xxxxxxxx XXX 000-000000-000 FBO Xxxxxxx X. Xxxxxxx
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: 00-0000000 Tax Identification Number: 00-0000000
Xxxxx X. Xxxxxxx, TTEE
FBO Xxxxx X. Xxxxxxx
Revocable Living Trust Pyramid Partners, L.P.
U/A DTD 6-1-97
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Attorney-in-Fact Attorney-in Fact
Tax Identification Number: Tax Identification Number:
Industricorp & Co., Inc. Xxxxxx X. & Xxxxxxxx X. Xxxxxxx XX
FBO Twin City Carpenters Pension Plan
/s/ Xxxxx XxXxxxxx /s/ Xxxxxx X. Xxxxxxx
By: Union Bank & Trust, Xxxxxx X. Xxxxxxx
Its Officer /s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Tax Identification Number:
Xxxx Xxxxxx XXX
/s/ Xxxx X. Xxxxxx
By: Xxxx Xxxxxx
Schedule A-1
SCHEDULE A
INVESTORS
Special Situations Private Equity Fund, L.P.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Special Situations Technology Fund, L.P.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxx XXX
Xxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxx, TTEE
FBO Xxxxxxx X. Xxxxxx Revocable Trust
U/A DTD 7-3-96
Xxxxx X. Xxxxxxxx
Xxxxx Xxxxxxx as Custodian
FBO Xxxxxxx X. Xxxxxxxx
XXX 000-000000-000
Xxxxx Xxxxxxx as Custodian FBO
Xxxxxxx X. Xxxxxxx
XXX 980-576-905-610
Xxxxx X. Xxxxxxx TTEE
FBO Xxxxx X. Xxxxxxx
Revocable Living Trust
U/A DTD 6-1-97
Pyramid Partners L.P.
Industricorp & Co., Inc.
FBO Twin City Carpenters Pension Plan
Xxxxxx X. and Xxxxxxx X. Xxxxxxx, XX
