REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement")
is made and entered into as of November __, 1997, by and between Avtel
Communications, Inc. (the "Company") and Matrix Telecom, Inc. ("Matrix") on
behalf of the Persons listed on Schedule A attached hereto, including their
successors, assigns and transferees (herein referred to collectively as the
"Holders" and individually as a "Holder").
WHEREAS, on the date hereof each Holder is or will become the
owner of Common Stock (as defined below) of the Company in connection with
that certain Stock Exchange Agreement, dated April 29, 1997, as amended,
(the "Stock Exchange Agreement") between the Company and Matrix; and
WHEREAS, in connection with the Stock Exchange Agreement, the
Holders have agreed to enter into the Lock-Ups (as defined below) as
provided in Section 2 below; and
WHEREAS, as a condition to the closing of the Stock Exchange
Agreement, the Company has agreed to grant the Holders the registration
rights provided for in Sections 3 and 4 below;
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Closing Price" of the Common Stock for any given day shall mean
(i) if the Common Stock is listed or admitted to trading on a national
securities exchange, the reported last sale price of the Common Stock,
regular way, on such day or, in case no such sale takes place on such day,
the average of the reported closing bid and asked prices, regular way, on
such national securities exchange on such day or (ii) if the Common Stock
is not listed or admitted to trading on any national securities exchange
but is quoted by the Nasdaq SmallCap Market or the Nasdaq National Market
of the Nasdaq Stock Market, Inc. ("NASDAQ"), the last reported sales price
per share, regular way, on such day or, in case no such sale takes place on
such day, or the last reported sales price is not quoted by NASDAQ, the
average of the reported closing bid and asked prices, regular way, on such
day.
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"Common Stock" shall mean the Common Stock, par value $.01, per
share, of the Company.
"Company" shall mean Avtel Communications, Inc., a Delaware
Corporation, and its successors.
"Dispose of" shall have the meaning provided in Section 2(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Holder" or "Holders" shall mean the persons listed on Schedule A
attached hereto, including their successors, assigns and transferees.
"Lock-ups" shall mean the restrictions on transfer to which the
Holders are subject pursuant to Section 2(a).
"Lock-up Period" shall mean the applicable time periods to which
the Holders have agreed to the Lock-ups.
"Person" shall mean an individual, partnership, corporation,
trust, unincorporated organization or other legal entity or a government or
agency or political subdivision thereof.
"Registrable Securities" shall mean the Shares, excluding (i)
Shares that have been disposed of under the Shelf Registration Statement or
any other effective registration statement, (ii) Shares sold or otherwise
transferred pursuant to Rule 144 under the Securities Act, (iii) Shares
that are held by Holders who are not affiliates of the Company that are or
become eligible for sale pursuant to Rule 144(k) under the Securities Act,
and (iv) Shares held by each Holder who is an affiliate of the Company if
all of such Shares are or become eligible for sale pursuant to Rule 144
under the Securities Act and could be sold in one transaction in accordance
with the volume limitations contained in Rule 144(e)(1)(i) under the
Securities Act.
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance with this Agreement, including, without
limitation: (i) all applicable registration and filing fees imposed by the
SEC, or the National Association of Securities Dealers, Inc. ("NASD"), (ii)
all fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws (including reasonable fees and disbursements
of counsel in connection with qualification of any of the Registrable
Securities under any state securities or blue sky laws and the preparation
of a blue sky memorandum) and compliance with the rules of the NASD, (iii)
all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing the Shelf Registration Statement, any
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Prospectus, certificates and other documents relating to the performance of
and compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities
on any securities exchange or exchanges pursuant to Section 4(l) hereof,
and (v) the fees and disbursements of counsel for the Company and of the
independent public accountants of the Company, including the expenses of
any special audits or "cold comfort" letters required by or incident to
such performance and compliance. Registration Expenses shall specifically
exclude underwriting discounts and commissions, the fees and disbursements
of counsel representing a selling Holder or any underwriter or agent acting
on behalf of a Holder, and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a selling Holder, all of which
shall be borne by such Holder in all cases.
"Registration Notice" shall have the meaning set forth in Section
4(b) hereof.
"Registration Statement" shall mean a registration statement,
including a Shelf Registration Statement, of the Company that covers all of
the Registrable Securities and all amendments (including post-effective
amendments) to such registration statement, and all exhibits thereto and
materials incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Shares" shall mean the Common Stock issued to the Holders
pursuant to the Stock Exchange Agreement.
"Shelf Registration Statement" shall mean a Registration Statement
covering the Registrable Securities filed pursuant to Rule 415 under the
Securities Act, or any similar rule established by the SEC.
"Stock Exchange Agreement" shall have the meaning set forth in the
recitals.
2. Lock-up Agreement. Each of the Holders identified in Schedule B
hereby agrees that, from the date hereof until two years following the
closing of the sale of Common Stock to the Holder pursuant to the Stock
Exchange Agreement, without the prior written consent of the Company, such
Holder will not offer, pledge, sell, contract to sell, grant any options
for the sale of or otherwise dispose of, directly or indirectly
(collectively, "Dispose of"), any Shares.
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3. Shelf Registration Under the Securities Act.
(a) Filing of Shelf Registration Statement. Following the date
hereof, the Company shall use its best efforts to become listed on the
Nasdaq SmallCap Market or the Nasdaq National Market of NASDAQ whereupon it
shall file, a Shelf Registration Statement providing for the sale by the
Holders of all of the Registrable Securities in accordance with the terms
hereof and will use its reasonable efforts to cause such Shelf Registration
Statement to be declared effective by the SEC as soon thereafter as is
practicable. The Company agrees to use its reasonable efforts to keep the
Shelf Registration Statement with respect to the Registrable Securities
continuously effective for a period expiring on the earlier of (i) the date
on which all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant thereto and (ii) the date on
which (A) all Shares held by Holders who are not affiliates of the Company,
in the opinion of counsel for the Company are eligible for sale pursuant to
Rule 144(k) under the Securities Act and (B) all Shares held by each Holder
who is an affiliate of the Company, in the opinion of counsel for the
Company are eligible for sale pursuant to Rule 144 under the Securities Act
and could be sold in one transaction in accordance with the volume
limitations contained in Rule 144(e)(1)(i) under the Securities Act.
(b) Demand Rights. Notwithstanding clause (a) above and subject to
the restrictions on disposition included in Section 2, if the Company is
unable to become listed on the Nasdaq SmallCap Market or the Nasdaq
National Market within six months of the date hereof, or is otherwise
unable to qualify for use of a Shelf Registration Statement, on the date
which is six months from the date hereof, the Company shall, upon receipt
of a notice (a "Registration Notice") given at least 14 days prior to the
six-month anniversary hereof, file on behalf of all Holders from whom it
shall have received a Registration Notice, and use its best efforts to
cause to become effective as soon as practical thereafter, a Registration
Statement registering the offering and sale of the Registrable Securities
which the Company has been requested to register by such Holders. In
addition, subject to the restrictions on disposition included in Section 2
and on a maximum of two separate occasions (and if the Company at such time
does not have an effective Shelf Registration Statement covering the
Registerable Securities), at any time after the six month anniversary of
the date hereof that the Company shall receive a Registration Notice from
Holders holding Shares representing in excess of 25% of the Shares, it
shall file, and use its best efforts to cause to become effective as soon
as practical thereafter, a Registration Statement registering the offering
and sale of the Registrable Securities held by such Holder (and those of
any other Holder, subject to Section 2, who requests to have its Shares
included in such Registration Statement). The Company shall promptly
following receipt of a Registration Notice pursuant to the last sentence
hereof notify the Holders of all other Registrable Securities and, upon
request of such Holders, allow such Holders to include their Registrable
Securities in the aforementioned Registration Statement. Notwithstanding
the above, (i) if a request
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for registration pursuant to this Section 2(b) is made within 30 days prior
to the conclusion of the Company's fiscal year, or within 40 days after the
end of the Company's fiscal year, the Company shall not be required to file
a registration statement until such time as the Company receives its
audited financial statements for such fiscal year, and (ii) the Company
shall be entitled to postpone for a reasonable period of time (not to
exceed 90 days, which may not thereafter be extended) the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to this Section 2(b) if (x) the Company is in possession of
material information that has not been disclosed to the public and the
Company deems it advisable not to disclose such information in the
registration statement or (y) the board of directors of the Company shall
determine in good faith that such offering will interfere with a pending or
contemplated financing, merger, acquisition, sale of assets,
recapitalization or other similar corporate action of the Company, and in
the case of clause (x) or (y) above, the Company shall have furnished to
the Holder or Holders of Registrable Securities requesting such
registration an officers' certificate to that effect.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Sections 3(a) or 3(b). The
Company shall not be liable for any underwriting discounts and commissions,
the fees and disbursements of counsel representing such Holder or any
underwriter or agent acting on behalf of a Holder, and transfer taxes, if
any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Registration Statement or Rule 144 under the
Securities Act.
(d) Inclusion in Registration Statement. Any Holder who does not
provide the information reasonably requested by the Company in connection
with any Registration Statement filed hereunder by the Company as promptly
as practicable after receipt of such request, but in no event later than
ten (10) days thereafter, shall not be entitled to have its Registrable
Securities included in any Registration Statement filed by the Company
pursuant to this Agreement.
4. Registration Procedures.
In connection with the obligations of the Company with respect to
the Registration Statements contemplated by Section 3 hereof, the Company
shall:
(a) prepare and file with the SEC, within the time period set
forth in Section 3 hereof, the Registration Statements, which Registration
Statements shall (i) be available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution by the selling Holders thereof and (ii) comply as to form in
all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith;
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(b) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company or otherwise is entitled to
have its Registrable Securities included in a Registration Statement,
without charge, as many copies of each Prospectus and any amendment or
supplement thereto in order to facilitate the public sale or other
disposition of the Registrable Securities; the Company consents to the use
of the Prospectus and any amendment or supplement thereto by each such
Holder of Registrable Securities in connection with the offering and sale
of the Registrable Securities covered by the Prospectus or amendment or
supplement thereto;
(c) use its reasonable efforts to register or qualify the
Registrable Securities by the time any Registration Statement is declared
effective by the SEC under all applicable state securities or blue sky laws
of such jurisdictions in the United States and its territories and
possessions as any Holder of Registrable Securities covered by the
Registration Statement shall reasonably request in writing, keep each such
registration or qualification effective during the period such Registration
Statement is required to be kept effective or during the period offers or
sales are being made by a Holder that has delivered a Registration Notice
to the Company, whichever is shorter; provided, however, that in connection
therewith, the Company shall not be required to (i) qualify as a foreign
corporation to do business or to register as a broker or dealer in any such
jurisdiction where it would not otherwise be required to qualify or
register but for this Section 4(c), (ii) subject itself to taxation in any
such jurisdiction, or (iii) file a general consent to service of process in
any such jurisdiction;
(d) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company or is otherwise entitled to
have its Registrable Securities included in a Registration Statement,
without charge, at least one conformed copy of the Registration Statement
and any post-effective amendment thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested);
(e) cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
Securities Act legend; and enable certificates for such Registrable
Securities to be issued for such numbers of shares and registered in such
names as the selling Holders may reasonably request at least two business
days prior to any sale of Registrable Securities;
(f) make available for inspection by the Holders of Registrable
Securities that have provided a Registration Notice to the Company and any
counsel, accountants or other representatives retained by such Holders all
financial and other records, pertinent corporate documents and properties
of the Company and cause the officers, directors and employees of the
Company to supply all such records, documents or information reasonably
requested by such Holders, counsel,
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accountants or representatives in connection with the Registration
Statement; provided, however, that such records, documents or information
which the Company determines in good faith to be confidential and notifies
such Holders, counsel, accountants or representatives in writing that such
records, documents or information are confidential shall not be disclosed
by such Holders, counsel, accountants or representatives unless (i) such
disclosure is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, or (ii) such records, documents or information
become generally available to the public other than through a breach of
this Agreement;
(g) use its reasonable efforts to cause all Registrable Securities
to be listed on any securities exchange or automated quotation or other
trading system on which similar securities issued by the Company are then
listed or traded;
The Company may require each Holder of Registrable Securities to
furnish to the Company in writing such information regarding the proposed
distribution by such Holder of such Registrable Securities as the Company
may from time to time reasonably request in writing.
5. Repurchase by Company of Shares Subject to Registration Notice.
Upon receipt by the Company of a Registration Notice, the Company may, but
shall not be obligated to, purchase from such Holder all, but not less than
all, of the Shares which are the subject of such Registration Notice at a
price per share equal to the average of the Closing Prices of the Common
Stock for the twenty trading days immediately preceding the date of the
Registration Notice. In the event the Company elects to purchase the Shares
which are the subject of a Registration Notice, the Company shall notify
the Holder of such Shares within five business days of the date of receipt
of the Registration Notice by the Company, which notice shall indicate: (i)
that the Company will purchase the Shares which are the subject of the
Registration Notice, (ii) the price per share, calculated in accordance
with the preceding sentence, which the Company will pay to such Holder and
(iii) the date upon which the Company shall repurchase such Shares, which
date shall not be later than the tenth business day after receipt of the
Registration Notice relating to such Shares.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder and its officers and directors and
each Person, if any, who controls any Holder within the meaning of Section
15 of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to which such Holder,
officer, director or controlling Person may become subject under
the Securities Act or otherwise (A) that arise out of or are based
upon any untrue statement or alleged untrue
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statement of a material fact contained in any Registration
Statement or any amendment thereto, or 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 (B) that arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
Prospectus or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or alleged untrue statement or any omission
or alleged omission, if such settlement is effected with the
written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, in each case
whether or not a party, or any claim whatsoever based upon any
such untrue statement or alleged untrue statement or omission or
alleged omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section
6(a) shall not apply to any Holder with respect to any loss, liability,
claim, damage or expense that arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
in reliance upon and in conformity with written information furnished to
the Company by such Holder expressly for use in a Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto.
(b) Indemnification by Holders. Each Holder severally agrees to
indemnify and hold harmless the Company and the other selling Holders, and
each of their respective directors and officers (including each director
and officer of the Company who signed the Registration Statement), and each
Person, if any, who controls the Company or any other selling Holder within
the meaning of Section 15 of the Securities Act, to the same extent as the
indemnity contained in Section 6(a) hereof, but only insofar as such loss,
liability, claim, damage or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged
omission made in the Shelf Registration Statement or any amendment thereto
or the
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Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such
selling Holder expressly for use therein.
(c) Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided,
however, that any Person entitled to indemnification hereunder shall have
the right to employ separate counsel and to participate in the defense of
such claim, but the fees and expenses of such counsel shall be at the
expense of such Person and not of the indemnifying party unless (x) the
indemnifying party has agreed to pay such fees or expenses, or (y) the
indemnifying party shall have failed to assume the defense of such claim or
employ counsel reasonably satisfactory to such Person, or (z) in the
reasonable judgment of the Person to be indemnified, a conflict of interest
may exist between such Person and the indemnifying party with respect to
such claims (in which case, if the Person notifies the indemnifying party
in writing that such Person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such Person). If
such defense is not assumed by the indemnifying party, the indemnifying
party will not be subject to any liability for any settlement made without
its consent (but such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgement or
enter into any settlement which does not include as an unconditional term
thereof the giving by all claimants or plaintiffs to such indemnified party
of a release from all liability in respect to such claim.
7. Rule 144 Sales.
(a) Compliance. The Company covenants that, so long as it is
subject to the reporting requirements of the Exchange Act, it will file the
reports required to be filed by it under the Exchange Act so as to enable
any Holder to sell Registrable Securities pursuant to Rule 144 under the
Securities Act.
(b) Cooperation with Holders. In connection with any sale,
transfer or other disposition by any Holder of any Registrable Securities
pursuant to Rule 144 under the Securities Act, the Company shall cooperate
with such Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing
any Securities Act legend, and enable certificates for such Registrable
Securities to be for such number of shares and registered in such names as
the selling Holders may reasonably request at least two business days prior
to any sale of Registrable Securities. The Company's obligation set forth
in the previous sentence shall be subject to the delivery, if reasonably
requested by the Company or its transfer agent, by counsel to such Holder,
in form and substance reasonably
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satisfactory to the Company and its transfer agent, of an opinion that such
Securities Act legend need not appear on such certificate.
8. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified,
supplemented or waived, nor may consent to departures therefrom be given,
without the written consent of the Company and the Holders of a majority of
the outstanding Registrable Securities. Notice of any such amendment,
modification, supplement, waiver or consent adopted in accordance with this
Section 8(a) shall be provided by the Company to each Holder of Registrable
Securities at least thirty (30) days prior to the effective date of such
amendment, modification, supplement, waiver or consent.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Holder, at such Holder's registered address appearing
on the share register of the Company or (ii) if to the Company, at its
corporate headquarters, Attention: President.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt is knowledged, if
telecopied; or at the time delivered if delivered by an air courier
guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders.
(d) Counterparts. 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) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to the conflicts of law provisions thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above
AVTEL COMMUNICATIONS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
MATRIX TELECOM, INC.
On behalf of all Holders
By:____________________________________
Name:__________________________________
Title:_________________________________
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Schedule A
HOLDERS
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Schedule B
Holders Subject to a Two Year Lock-up
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