EXHIBIT 10.3
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 10th day of July,
2000 by and among Avatar Systems, Inc., a Texas corporation (the "Company"),
Cybertec Holdings, Plc ("Cybertec"), Merchants Capital Holdings, Ltd. ("MCH"),
Xxxxxxx X. Xxxxxxx ("Xxxxxxx"), Xxxxxx X. Xxxxxx, Xx., Xxx Xxxxx and Xxxxx Xxxxx
(each of whom is referred to herein as an "Investor") and collectively as
"Investors").
The Company and each of the Investors are either parties to the Stock
Purchase Agreement of even date or certain exhibits attached thereto (the
"Purchase Agreement"), pursuant to which the Company sold and Cybertec purchased
1,600,000 shares of Common Stock of the Company. In order to induce Cybertec to
invest funds in the Company pursuant to the Purchase Agreement, the Company and
the Investors hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register pursuant to the terms herein shares
of Common Stock purchased by Cybertec, shares of Common Stock owned by the
Investors and shares of common stock issuable to the Investors upon exercise of
the Warrants issued to the Investors pursuant to the Purchase Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Purchase Agreement, the parties hereby agree
as follows:
1. Definitions.
1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time
administering the Securities Act.
(b) "Common Stock" shall mean the Common Stock, $1.00
par value, of the Company or any successor security intended
to be Common Stock.
(c) "Convertible Securities" shall mean any security
that is convertible into or exchangeable for any shares of the
Company's capital stock or other equity interests in the
Company.
(d) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(e) "Form S-1, Form SB-1, Form S-2, Form SB-2 and
Form S-3" shall mean a registration statement Form S-1, Form
SB-1, Form S-2, Form SB-2 or Form S-3, respectively,
promulgated by the Commission or any substantially similar
form then in effect.
(f) "Investors" shall mean, collectively, the
Investors, their assignees and transferees, and individually,
a Investor and any transferee or assignee of such Investor.
INVESTORS' RIGHTS AGREEMENT - Page 1
(g) "Person" means any individual, corporation,
partnership, limited liability company, trust, estate,
association, cooperative, government or governmental entity
(or any branch, subdivision or agency thereof) or any other
entity.
(h) "Public Offering" shall mean a public offering of
the Company's Common Stock pursuant to the Securities Act.
(i) "Public Merger" means the completion of a merger
of the Company into, or the acquisition of the Company by, a
public non-operating U.S. company (the "Public Company").
(j) The terms "Register," "Registered" and
"Registration" refer to a registration effected by preparing
and filing a Registration Statement in compliance with the
Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement.
(k) "Registrable Securities" shall mean the Shares
(as defined herein) so long as such shares either (a) are
ineligible for sale under subparagraph (k) of Rule 144, or (b)
constitute more than 10% of the Company's outstanding Common
Stock.
(l) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 1 hereof,
including, without limitation, all federal and state
registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses, the expense of any special audits
incident to or required by any such Registration and the
reasonable fees and disbursements of counsel for the Selling
Stockholders, as selling stockholders.
(m) "Registration Statement" shall mean Form S-1,
Form SB-1, Form S-2, Form SB-2 or Form S-3, whichever is
applicable.
(n) "Restriction Termination Date" shall mean, with
respect to any Registrable Securities, the earlier of (i) the
date that such Registrable Securities shall have been
Registered and sold or otherwise disposed of in accordance
with the intended method of distribution by the seller or
sellers thereof set forth in the Registration Statement
covering such securities or transferred in compliance with
Rule 144, and (ii) the date that an opinion of counsel to the
Company containing reasonable assumptions (which opinion shall
be subject to the reasonable approval of counsel to any
affected Purchaser) shall have been rendered to the effect
that any legends on the certificates of the Registrable
Securities can be properly removed in which event the Company
shall be obligated to effectuate such removal.
(o) "Rule 144" shall mean Rule 144 promulgated by the
Commission pursuant to the Securities Act.
INVESTORS' RIGHTS AGREEMENT - Page 2
(p) "Securities Act" shall mean the Securities Act of
1933, as amended.
(q) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of
Registrable Securities pursuant to this Agreement.
(r) "Selling Stockholders" shall mean a holder of
Registrable Securities who requests Registration under Section
2 herein.
(s) "Shares" shall mean the 1,600,000 shares of
Common Stock purchased by Cybertec pursuant to the Purchase
Agreement, shares of Common Stock of the Company currently
owned by the Investors, shares of Common Stock issued or to be
issued to an Investor upon exercise of options or warrants
issued to such Investor, shares of Common Stock purchased by
any Investor or issued to any Investor pursuant to Section 4
hereof, and any shares of Common Stock purchased by any
Investor from the Company or other shareholders of the Company
from time-to-time.
Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement.
2. Registration Rights. The Company covenants and agrees as
follows:
2.1 Required Registration. If the Company shall be
requested by holders of at least a majority of the outstanding Shares entitled
to request registration as set forth in Section 2.2(a) to effect the
Registration of Registrable Securities, then the Company shall promptly give
written notice of such proposed Registration to all holders of Shares, and
thereupon the Company shall promptly use its best efforts to effect the
Registration of the Registrable Securities that the Company has been requested
to Register for disposition as described in the request of such holders of
Shares and in any response received from any of the holders of Shares within ten
(10) days or such longer period as shall be set forth in the notice, after the
giving of the written notice by the Company; provided, however, that the Company
shall not be obligated to effect any Registration except in accordance with the
following provisions:
(a) The Company shall not be obligated to file and
cause to become effective more than two (2) Registration
Statements in which Registrable Securities are Registered
pursuant to this Section 2.1. A Registration requested
pursuant to this Section 2.1 is referred to herein as a
"Demand Registration." A Registration shall not count as a
Demand Registration until it has become effective and the
holders of Registrable Securities are able to register and to
sell all of the Registrable Securities requested to be
included in such Registration.
INVESTORS' RIGHTS AGREEMENT - Page 3
(b) The Company shall not include in any Demand
Registration any securities which are not Registrable
Securities without the prior written consent of the holders of
a majority of the Registrable Securities included in such
Registration, unless the holders of Registrable Securities are
able to register and to sell all of the Registrable Securities
requested to be included in such Registration. If a Demand
Registration is an underwritten offering and the managing
underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and, if permitted
hereunder, other securities requested to be included in such
offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold therein without
adversely affecting the marketability of the offering, the
Company shall include in such registration, prior to the
inclusion of any securities which are not Registrable
Securities, all Registrable Securities requested to be
included which in the opinion of such underwriters can be sold
without adversely affecting the marketability of the offering,
pro rata among the respective holders thereof on the basis of
the amount of Registrable Securities owned by each such
holder.
(c) The Company shall not be required to file a
registration statement pursuant to this Section 2.1: (i)
within six (6) months after any other registration by the
Company (other than under "Excluded Forms," as defined in
Section 2.2(a) below) or (ii) for six (6) months after the
request for Registration under this Section 2.1 if the Company
is then engaged in negotiations regarding a material
transaction for which it has reasonable expectations of
consummating and which has not otherwise been publicly
disclosed, or such shorter period ending on the date,
whichever first occurs, that such transaction is publicly
disclosed, abandoned or consummated.
(d) The registration rights granted pursuant to this
Section 2.1 shall have no force or effect until the earlier of
(i) the Company having completed a Public Merger, or (ii) the
Company otherwise having become obligated to file periodic or
other reports pursuant to Section 13 of the Exchange Act.
2.2 Piggyback Registration.
(a) Each time that the Company proposes to Register a
Public Offering solely of its Common Stock other than pursuant
to a Registration Statement on Form S-4 or Form S-8 or similar
or successor forms (collectively, "Excluded Forms"), the
Company shall promptly give written notice of such proposed
Registration to all holders of Shares, which shall offer such
holders the right to request inclusion of any Registrable
Securities in the proposed Registration.
(b) Each holder of Shares shall have thirty (30) days
or such longer period as shall be set forth in the notice from
the receipt of such notice to deliver to the Company a written
request specifying the number of shares of Registrable
Securities such holder intends to sell and the holder's
intended plan of disposition.
(c) In the event that the proposed Registration by
the Company is, in whole or in part, an underwritten public
offering of securities of the Company, any request under
Section 2.2(b) may specify that the Registrable Securities be
included in the underwriting on the same terms and conditions
as the shares of Common Stock, if any, otherwise being sold
through underwriters under such Registration.
INVESTORS' RIGHTS AGREEMENT - Page 4
(d) Upon receipt of a written request pursuant to
Section 2.2(b), the Company shall promptly use its best
efforts to cause all such Registrable Securities to be
Registered, to the extent required to permit sale or
disposition as set forth in the written request.
(e) Notwithstanding the foregoing, if the managing
underwriter of an underwritten public offering determines and
advises in writing that the inclusion of all Registrable
Securities proposed to be included in the underwritten public
offering, together with any other issued and outstanding
shares of Common Stock proposed to be included therein by
holders other than the holders of Registrable Securities (such
other shares hereinafter collectively referred to as the
"Other Shares"), would interfere with the successful marketing
of the securities proposed to be included in the underwritten
public offering, then the number of such shares to be included
in such underwritten public offering shall be reduced, and
shares shall be excluded from such underwritten public
offering in a number deemed necessary by such managing
underwriter, first, to the extent necessary, by excluding
Other Shares, pro rata, based on the number of shares of Other
Shares each such holder proposed to include, and then, to the
extent necessary, by excluding Registrable Securities, pro
rata, based on the number of shares of Registrable Securities
each such holder proposed to include; provided, however, that
this provision shall not be applicable to any shares of stock
requested to be registered by a Stockholder exercising a
Demand Registration right. Notwithstanding any other
provisions of this Section, if the underwritten offering is a
Company registration, then the shares being sold by the
Company shall not be excluded from such offering.
(f) All Shares that are not included in the
underwritten public offering shall be withheld from the market
by the holders thereof for a period, not to exceed 6 months
following a public offering, that the managing underwriter
reasonably determines as necessary in order to effect the
underwritten public offering. The holders of such Shares shall
execute such documentation as the managing underwriter
reasonably requests to evidence this lock-up.
2.3 Preparation and Filing. If and whenever the Company
is under an obligation pursuant to the provisions of this Section 2 to
use its best efforts to effect the Registration of any Registrable
Securities, the Company shall, as expeditiously as practicable:
(a) prepare and file with the Commission a
Registration Statement with respect to such Registrable
Securities and use its best efforts to cause such Registration
Statement to become and remain effective in accordance with
Section 2.3(b) hereof, keeping each Selling Stockholder
advised as to the initiation, progress and completion of the
Registration;
(b) prepare and file with the Commission such
amendments and supplements to such Registration Statements and
the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for
six months or, if shorter, until all Registrable Securities
covered by such Registration Statement have been sold, and to
comply with the provisions of the Securities Act with respect
to the sale or other disposition of all Registrable Securities
covered by such registration statement;
INVESTORS' RIGHTS AGREEMENT - Page 5
(c) furnish to each Selling Stockholder such number
of copies of any summary prospectus or other prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents
as such Selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of such
Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as
each Selling Stockholder shall reasonably request and do any
and all other acts or things which may be necessary or
advisable to enable such holder to consummate the public sale
or other disposition in such jurisdictions of such Registrable
Securities; provided, however, that the Company shall not be
required to consent to general service of process, qualify to
do business as a foreign corporation where it would not be
otherwise required to qualify or submit to liability for state
or local taxes where it is not liable for such taxes; and
(e) at any time when a prospectus covered by such
Registration Statement is required to be delivered under the
Securities Act within the appropriate period mentioned in
Section 2.3(b) hereof, notify each Selling Stockholder of the
happening of any event as a result of which the prospectus
included in such Registration, 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, at the request of such
seller, prepare, file and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus
shall not 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 statement therein not misleading in the
light of the circumstances then existing.
2.4 Expenses. The Company shall pay all Registration
Expenses incurred by the Company in complying with this Section 2;
provided, however, that all Selling Expenses applicable to the
Registrable Securities covered by registrations effected pursuant to
Section 2.2 hereof shall be borne by the seller or sellers thereof,
based on the number of Registrable Securities sold by such seller or
sellers.
2.5 Information Furnished by Selling Stockholders. It
shall be a condition precedent to the Company's obligations under this
Agreement as to any Selling Stockholder that each Selling Stockholder
furnish to the Company in writing such information regarding such
Selling Stockholder and the distribution proposed by such Selling
Stockholder as the Company may reasonably request.
INVESTORS' RIGHTS AGREEMENT - Page 6
2.6 Indemnification.
(a) Company's Indemnification of Selling
Stockholders. The Company shall indemnify each Selling
Stockholder, each of its officers, directors and constituent
partners, and each Person controlling such Selling
Stockholder, and each underwriter thereof, if any, and each of
its officers, directors, constituent partners, and each Person
who controls such underwriter, against all claims, losses,
damages or liabilities (or actions in respect thereof)
suffered or incurred by any of them, to the extent such
claims, losses, damages or liabilities arise out of or are
based upon any untrue statement (or alleged untrue statement)
of a material fact contained in any Registration Statement
covering the sale of Registrable Securities or any related
prospectus, or any 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
any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company
and relating to actions or inaction required of the Company in
connection with any such Registration; and the Company will
reimburse each such Selling Stockholder, each such
underwriter, each of their officers, directors and constituent
partners and each Person who controls any such Selling
Stockholder or underwriter, for any legal and any other
expenses as reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the indemnity
contained in this Section 2.6(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the
Company (which consent shall not to be unreasonably withheld
or delayed); and provided, however, that the Company will not
be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based
upon any untrue statement or omission based upon written
information furnished to the Company by such Selling
Stockholder, underwriter, controlling Person or other
indemnified Person for use in connection with the offering of
securities of the Company.
(b) Selling Stockholders' Indemnification of Company.
Each Selling Stockholder shall indemnify the Company, each of
its directors and officers, each underwriter, if any, of the
Company's Registrable Securities covered by a Registration
Statement, each Person who controls the Company or such
underwriter within the meaning of the Securities Act, and each
other Selling Stockholder, each of its officers, directors and
constituent partners and each Person controlling such other
Selling Stockholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) suffered or
incurred by any of them and arising out of or based upon any
untrue statement (or alleged untrue statement) of a material
fact contained in such Registration Statement or related
prospectus, or any 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
any violation by such Selling Stockholder of any rule or
regulation promulgated under the Securities Act applicable to
such Selling Stockholder and relating to actions or inaction
required of such Selling Stockholder in connection with the
INVESTORS' RIGHTS AGREEMENT - Page 7
Registration of the Registrable Securities pursuant to such
Registration Statement; and will reimburse the Company, such
other Selling Stockholders, such directors, officers,
partners, Persons, underwriters and controlling Persons for
any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim,
loss, damage, liability or action; such indemnification and
reimbursement shall be to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration
Statement or prospectus in reliance upon and in conformity
with written information furnished to the Company by such
Selling Stockholder for use in connection with the offering of
Registrable Securities.
(c) Indemnification Procedure. Promptly after receipt
by an indemnified party under this Section 2.6 of notice of
the commencement of any action which may give rise to a claim
for indemnification hereunder, such indemnified party will, if
a claim in respect thereof is to be made against an
indemnifying party under this Section 2.6, notify the
indemnifying party in writing of the commencement thereof and
generally summarize such action. The indemnifying party shall
have the right to participate in and to assume the defense of
such claim, and shall be entitled to select counsel for the
defense of such claim with the approval of any parties
entitled to indemnification, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, the
parties entitled to indemnification shall have the right to
employ separate counsel (reasonably satisfactory to the
indemnifying party) to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense
of such indemnified parties unless the named parties to such
action or proceedings include both the indemnifying party and
the indemnified parties and the indemnifying party or such
indemnified parties shall have been advised by counsel that
there are conflicting interests between the indemnified
parties and the indemnifying party (in which case, if the
indemnified parties notify the indemnifying party in writing
that they elect to employ separate counsel at the reasonable
expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action
or proceeding on behalf of the indemnified parties; it being
understood, however, that the indemnifying party shall not, in
connection with any such action or proceeding or separate or
substantially similar or related action or proceeding in the
same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and
expenses of more than one separate counsel at any time for all
indemnified parties, which counsel shall be designated in
writing by the holder of a majority of the Registrable
Securities).
(d) Contribution. If the indemnification provided for
in this Section 2.6 from an indemnifying party is unavailable
to an indemnified party hereunder in respect to any losses,
claims, damages, liabilities or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the
indemnifying party and indemnified party in connection with
the statements or omissions which result in such losses,
INVESTORS' RIGHTS AGREEMENT - Page 8
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party 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 such indemnifying party or indemnified
party and the parties' relative intent, knowledge, access to
information supplied by such indemnifying party or indemnified
party and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred
to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any action, suit, proceeding or
claim.
(e) Limitation on Liability. Notwithstanding any
provision of this Section 2 of this Agreement to the contrary,
the aggregate liability of each Selling Stockholder in
connection with any Registration Statement shall be limited to
the aggregate proceeds paid to such Selling Stockholder upon
the sale of such Selling Stockholder's Registrable Securities
pursuant to such Registration Statement.
3. Covenants of the Company.
3.1 Notification of Stop Orders. The Company will notify
the holders of Registrable Securities included in a Registration
Statement of the issuance by the Commission of any stop order
suspending the effectiveness of such Registration Statement or the
initiation of any proceedings for that purpose. The Company will make
every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the
earliest possible time.
3.2 Listing of Common Stock. If the Common Stock is then
listed on a national securities exchange, the Company will use its best
efforts to cause the Registrable Securities to be listed on such
exchange. If the Common Stock is not then listed on a national
securities exchange, the Company will use its best efforts to
facilitate the reporting of the Registrable Securities on the Nasdaq
National Market or Nasdaq SmallCap Market.
3.3 Company's Facilitation of Disposition of Registrable
Securities. The Company will take all other reasonable actions
necessary to expedite and facilitate disposition of the Registrable
Securities by the holders thereof pursuant to the Registration
Statement.
3.4 Rule 144. With a view to making available to the
holders of Registrable Securities the benefits of Rule 144 promulgated
under the Securities Act and any other 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, the Company, after
it has become obligated to file periodic or other reports pursuant to
Section 13 of the Exchange Act (a "Reporting Company") agrees to:
INVESTORS' RIGHTS AGREEMENT - Page 9
(a) make and keep public information available, as
those terms are understood and defined in Rule 144, at all
times after 90 days after the effective date of the first
Registration Statement filed by the Company for the offering
of its securities to the general public;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Shares, so long as such
holder of Shares owns any Shares, forthwith upon written
request: (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities
Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the
most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested and as
is publicly available in availing the holders of Shares of any
rule or regulation of the Commission which permits the selling
of any such securities without registration.
3.5 Drafts of Prospectus Pages Referring to Selling
Stockholders. Prior to the filing of the Registration Statement or any
amendment thereto (whether pre-effective or post-effective), and prior
to the filing of any prospectus or prospectus supplement related
thereto, the Company will provide each Selling Stockholder with copies
of all pages thereto, if any, which reference such Selling Stockholder.
3.6 Delivery of Financial Statements. After the Company
becomes a Reporting Company, it shall deliver to each Investor:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance
sheet of the Company and statement of stockholders' equity as
of the end of such year, and a statement of cash flows for
such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted
accounting principals ("GAAP"), and audited and certified by
independent public accountants of nationally recognized
standing selected by the Company;
(b) within forty-five (45) days of the end of each
quarter, an unaudited income statement and statement of cash
flows and balance sheet for and as of the end of such quarter,
in reasonable detail comparing actual performance to budget;
(c) as soon as practicable, but in any event
forty-five (45) days prior to the end of each fiscal year, a
budget and business plan for the next fiscal year, prepared on
a quarterly basis, including balance sheets and statements of
cash flows for such quarter and, as soon as prepared,
statements of operating goals for each of the Company's
functional units and any other budgets or revised budgets
prepared by the Company;
INVESTORS' RIGHTS AGREEMENT - Page 10
(d) with respect to the financial statements called
for in subsections (b) and (c) of this Section 3.6, an
instrument executed by the Chief Financial Officer or
President of the Company and certifying that such financials
were prepared in accordance with GAAP consistently applied
with prior practice for earlier periods (with the exception of
footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of
operation for the period specified, subject to year-end audit
adjustment; and
(e) such other information relating to the financial
condition, business, prospects or corporate affairs (including
press releases and the like) of the Company as such Investor
or any assignee of such Investor may from time-to-time
reasonably request, provided, however, that the Company shall
not be obligated under this Subsection (e) or any other
subsection of Section 3.6 to provide information which the
Company's Board deems in good faith to be a trade secret or
similar confidential information or which is available to the
general public.
3.7 Inspection. The Company shall permit each Investor,
at such Investor's expense, upon reasonable written notice, to visit,
during normal business hours, and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers; provided, however,
that the Company shall not be obligated pursuant to this Section 3.7 to
provide access to any information which it reasonably considers to be a
trade secret or similar confidential information.
3.8 Tax Matters. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable,
all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company
or any subsidiary; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently
be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all
such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have
attached as security therefor.
3.9 Maintenance of Properties and Leases. The Company
will keep its properties and those of its subsidiaries in good repair,
working order and condition, reasonable wear and tear excepted, and
from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company and
its subsidiaries will at all times comply with each material provision
of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise,
or operations of the Company.
3.10 Insurance. The Company will keep its assets and those
of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by
companies in the Company's line of business, and the Company will
maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar
businesses similarly situated.
INVESTORS' RIGHTS AGREEMENT - Page 11
3.11 Accounts and Records. The Company will keep true
records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its
business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
3.12 Maintenance of Corporate Existence. The Company shall
maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights in or to use patents,
processes, licenses, trademarks, trade names or copyrights owned or
possessed by it or any subsidiary and deemed by the Company to be
necessary to the conduct of their business.
3.13 Notice of Breach. The Company shall furnish to each
Investor within ten (10) days after becoming aware of (a) any material
default or breach of the terms of this Agreement, the Purchase
Agreement, or the Shareholders Agreement (collectively, the
"Transaction Agreements"), or any document or agreement delivered in
connection with the Transaction Agreements, or (b) any material adverse
event affecting the Company or its business, financial condition,
operations, prospects or affairs, a statement setting forth, in
reasonable detail, such default, breach or event, including the
Company's proposed response thereto.
3.14 Maintenance of a Standard System of Accounting. The
Company will maintain a standard system of accounting established and
administered in accordance with generally accepted accounting
principles.
4. Right of First Offer. Subject to the terms and conditions specified
in this Section 4, the Company hereby grants to each Investor a right of first
offer with respect to future sales by the Company of its Offer Shares (as
hereinafter defined). Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Offer Shares"), the Company shall first make an offering of such
Offer Shares to each Investor in accordance with the following provisions:
4.1 The Company shall deliver a notice by certified mail
("Notice") to each Investor stating (a) its bona fide intention to
offer such Offer Shares, (b) the number of such Offer Shares to be
offered, (c) a full description of the Offer Shares, and (d) the price
and terms upon which it proposes to offer such Offer Shares.
4.2 Within 20 calendar days after receipt of the Notice,
each Investor may elect in writing to purchase, at the price and on the
terms specified in the Notice, up to the total number of Offer Shares.
4.3 If over-subscribed, the right of first offer granted
hereunder to the Investors shall be allocated among the Investors pro
rata, based on their respective aggregate holdings of Shares. If an
Investor does not elect to purchase his entire pro rata portion of the
Offer Shares, then the other Investors may purchase such
non-participating Investor's unsubscribed portion. The
non-participating Investor's unsubscribed portion of the Offer Shares
shall be allocated among the other Investors pro rata, based on their
respective aggregate holdings of Shares.
INVESTORS' RIGHTS AGREEMENT - Page 12
4.4 If all Offer Shares that Investors are entitled to
obtain pursuant to subsections 4.2 and 4.3 are not elected to be
obtained as provided in such subsection, the Company may offer and sell
the remaining unsubscribed portion of such Offer Shares to any Person
or Persons at a price not less than, and upon terms no more favorable
to the offeree than, those specified in the Notice.
4.5 The right of first offer in this Section 4 shall not
be applicable to:
(a) options, warrants, or any other security,
including shares of Common Stock granted or issued pursuant to
or under any stock option or stock purchase agreement, plan or
other compensatory arrangement to employees, directors and
consultants: (x) in effect on the date hereof, or (y)
otherwise approved by the Board of Directors of the Company;
(b) Common Stock, options, warrants, or any other
security issued as a stock dividend or upon any subdivision or
combination of shares of Common Stock;
(c) Common Stock, options, warrants, or any other
security issued upon conversion or exercise of any convertible
securities, options or warrants of the Company outstanding on
the date hereof, or issued in compliance with this Section 4
or issued pursuant to the Transaction Agreements;
(d) Common Stock, options, warrants, or any other
security issued in connection with the acquisition of the
outstanding capital stock of another corporation by the
Company or the merger of another corporation into the Company;
(e) Common Stock, options, warrants, or any other
security issued as consideration for the acquisition by the
Company or a subsidiary of any of the assets of another
person;
(f) Common Stock issued in connection with a Public
Offering;
(g) Common Stock, options, warrants, or any other
security issued to the Company's customers, vendors, or
suppliers, outstanding on the date hereof or approved by the
director who was nominated to the Board by Cybertec;
(h) Any de minimis issuances of Common Stock by the
Company, provided, however, that any such issuance is approved
by the director who was nominated to the Board of Cybertec;
and
(i) Common Stock or other securities issued in
connection with a debt financing, corporate partnering
arrangement, joint venture or other arrangement that is not
intended to serve as an equity financing for the Company.
INVESTORS' RIGHTS AGREEMENT - Page 13
4.6 The Right of First Offer shall terminate on the date
of the earlier to occur: (i) completion by the Company of a Public
Offering which nets the Company at least $10 million or (ii) the Shares
owned by the Investors as a group constitute less than 10% of the
issued and outstanding shares of the Company's Common Stock (on a fully
diluted basis).
5. Miscellaneous.
5.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of
the parties (including transferees of any shares of Registrable
Securities who shall be treated as "Investors" with respect to such
shares). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
5.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Texas without giving
effect to conflict of law principles. Any legal action, suit or
proceeding arising out of or relating to this Agreement may be
instituted in any state or federal court of competent jurisdiction in
the State of Texas, and each party waives any objection which such
party may now or hereafter have to the laying of the venue in the
County of Dallas of any such action, suit or proceeding, and
irrevocably submits to the jurisdiction of any such court.
5.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
5.4 Titles and Subtitles. The headings used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5 Notices. Unless otherwise provided, all notices,
consents or other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have
been duly given: (i) when delivered personally, (ii) three business
days after being mailed by first-class mail, postage prepaid, or (iii)
one business day after being sent by a reputable overnight delivery
service, postage or delivery charges prepaid, to the parties at their
respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours
thereafter by a signed original sent in the manner provided in the
preceding sentence. Any party may change its address for notice and the
address to which copies must be sent by giving notice of the new
addresses to the other parties in accordance with this Section 5.5,
except that any such change of address notice shall not be effective
unless and until received.
5.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs
and necessary disbursements in addition to any other relief to which
such party may be entitled.
INVESTORS' RIGHTS AGREEMENT - Page 14
5.7 Amendments and Waivers. No failure or delay on the
part of any holder of the Registrable Securities in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the
Company and the holders of at least a majority of the Registrable
Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding or securities exercisable for
or convertible into Registrable Securities, each future holder of all
such Registrable Securities, and the Company.
5.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded
and shall be enforceable in accordance with its terms.
5.9 Confidential Information. Each Investor acknowledges
that the information received by them pursuant to Sections 3.6 and 3.7
of this Agreement may be confidential. Each Investor agrees that it
will not use such Confidential Information in violation of the Exchange
Act or reproduce, disclose or disseminate such information to any third
person (other than its employees, agents or attorneys), except in
connection with the exercise of any right hereunder. For purposes of
this Section 5.9, "Confidential Information" shall not include any
information that: (a) is or becomes generally available to the public
other than as a result of a disclosure by the Company or any of its
directors, officers, employees or agents, (b) is or becomes available
to the Investors on a non-confidential basis from a source other than
the Company, or (c) is independently acquired or developed by the
Investors without violating any of the Investors' obligations under
this Agreement.
5.10 Entire Agreement. This Agreement (including the
Exhibits hereto, if any) and the other Transaction Agreements
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof.
INVESTORS' RIGHTS AGREEMENT - Page 15
IN WITNESS WHEREOF, the parties have executed this Shareholders'
Agreement on the day and year indicated above.
THE COMPANY:
AVATAR SYSTEMS, INC.
By: /s/ Xxxxxx X. Xxxxxx, Xx.
----------------------------------------
Xxxxxx X. Xxxxxx, Xx., President
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
INVESTORS:
CYBERTEC HOLDINGS, PLC
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxx, Managing Director
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
MERCHANTS CAPITAL HOLDINGS, LTD.
By: /s/ Xxxxxxxx Xxxx
----------------------------------------
Xxxxxxxx Xxxx, Managing Director
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
/s/ Xxxxxxx X. Xxxxxxx
--------------------------------------------------------------------------------
XXXXXXX X. XXXXXXX
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
STOCKHOLDERS:
/s/ Xxxxxx X. Xxxxxx, Xx.
--------------------------------------------------------------------------------
XXXXXX X. XXXXXX, XX.
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
/s/ Xxx Xxxxx
--------------------------------------------------------------------------------
XXX XXXXX
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
/s/ Xxxxx Xxxxx
--------------------------------------------------------------------------------
XXXXX XXXXX
Address:
-----------------------------------
-------------------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
