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EXHIBIT 10.7
FIRST AMENDED INVESTORS' RIGHTS AGREEMENT
This First Amended Investors' Rights Agreement (this "AGREEMENT") is
made and entered into as of March 31, 1999 by and among Chaparral Network
Storage, Inc. (formerly Chaparral Technologies Inc.), a Delaware corporation
(the "COMPANY"), the individuals and entities listed on Exhibit A attached
hereto (the "INITIAL INVESTORS"), and the individuals is listed on Exhibit B
attached hereto (the "NEW INVESTORS" and together with the Initial Investors,
the "INVESTORS").
A. The Initial Investors are party to that certain Investors' Rights
Agreement dated as of November 25, 1998 (the "ORIGINAL AGREEMENT").
B. The New Investors have agreed to purchase from the Company, and the
Company has agreed to sell to the New Investors, shares of the Company's Series
A Preferred Stock on the terms and conditions set forth in that certain Series A
Preferred Stock Purchase Agreement, dated March 25 August 13, 1999 by and
between the Company and each New Investors (the "PURCHASE AGREEMENT").
C. It is a condition to the New Investors' obligations to enter into
the Purchase Agreement that this Agreement be executed by the parties hereto.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as any Investor
holds shares of Series A Stock issued under the Purchase Agreement and/or shares
of Series B Stock issued under the Acquisition Agreement and/or the equivalent
number (on an as-converted basis) of shares of Common Stock of the Company
("COMMON STOCK") issued upon the conversion of such shares of Series A Stock or
Series B Stock ("CONVERSION STOCK") the Company will:
(a) Annual Reports. Furnish to such Investor, as soon
as practicable and in any event within 120 days after the end of each fiscal
year of the Company, a consolidated Balance Sheet as of the end of such fiscal
year, a consolidated Statement of Income and a consolidated Statement of Cash
Flows of the Company and its subsidiaries for such year, setting forth in each
case in comparative form the figures from the Company's previous fiscal year (if
any), all prepared in accordance with generally accepted accounting principles
and practices and audited by an independent certified public accounting firm;
and
(b) Quarterly Reports. Furnish to such Investor as
soon as practicable, and in any case within forty-five (45) days after the end
of each fiscal quarter of the Company (except the last quarter of the Company's
fiscal year), quarterly unaudited financial statements,
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including an unaudited Balance Sheet, an unaudited Statement of Income and an
unaudited Statement of Cash Flows, together with a comparison to the Company's
operating plan and budget and statements of the Chief Financial Officer of the
Company explaining any significant differences in the statements from the
Company's operating plan and budget for the period and stating that such
statements fairly present the consolidated financial position and consolidated
financial results of the Company for the fiscal quarter covered.
Each Investor agrees to hold all information received pursuant to this Section
in confidence, and not to use or disclose any of such information to any third
party, except to the extent such information may be made publicly available by
the Company.
1.2 Inspection Rights. The Company shall permit each Investor
holding shares of Series A Stock and/or Series B Stock and/or the equivalent
number (on an as-converted basis) of shares of Conversion Stock, or any
combination thereof, at such Investor's expense, to visit 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, all at such
reasonable times as may be requested by such Investor. Each Investor agrees to
hold all information received from such inspections in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.3 Board Rights. The Company shall permit Adaptec to have one
(1) representative attend all meetings of the Company's Board of Directors in a
non-voting observer capacity and to receive any communications directed to
members of the Board of Directors in their capacity as such. The Investors agree
to hold all information received from such meetings in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.4 Termination of Certain Rights. The Company's obligations
under Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement filed under the U.S. Securities Act of 1933, as amended
(the "SECURITIES ACT"), in which the gross proceeds raised for the Company's
account (calculated before deduction of underwriters' discounts and omissions)
exceeds $15,000,000 at a price greater than $1.10 per share of Common Stock
(such price to be proportionally adjusted to reflect stock splits, stock
dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER,"
"REGISTRATION" and "REGISTERED" and refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement.
(b) Registrable Securities. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any
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shares of Series A Stock or Series B Stock that are now owned or may hereafter
be acquired by the Investors or the Investors' permitted successors and assigns
and (ii) any shares of Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (i) of
this subsection (b); excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which rights under this Section 2 are not
assigned in accordance with this Agreement or any Registrable Securities sold to
the public or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which are Registrable Securities and (i) are
then issued and outstanding or (ii) are then issuable pursuant to the exercise
or conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) Holder. For purposes of this Section 2 and
Sections 3 and 4 hereof, the term "HOLDER" means any person owning of record
Registrable Securities that have not been sold to the public or pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of the Warrant or shares of Series A Stock or
Series B Stock convertible into such Registrable Securities shall be deemed to
be the Holder of such Registrable Securities; and provided, further, that the
Company shall in no event be obligated to register the Warrant or shares of
Series A Stock or Series B Stock, and that Holders of Registrable Securities
will not be required to convert the Warrant or their shares of Series A Stock or
Series B Stock into Common Stock in order to exercise the registration rights
granted hereunder, until immediately before the closing of the offering to which
the registration relates.
(e) Form S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
(g) Series A Stock. The term "SERIES A STOCK" shall
mean the Company's Series A Preferred Stock, par value $0.001 per share.
(h) Series B Stock. The term "SERIES B STOCK" shall
mean the Company's Series B Preferred Stock, par value $0.001 per share.
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2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after six (6) months after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least two-thirds of
the Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("REQUEST NOTICE") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must be at least twenty-five percent (25%)
of all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING HOLDERS") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall include such information
in the written notice referred to in subsection 2.2(a). In such event, the right
of any Holder to include his Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only two (2) such registrations pursuant to this
Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 2.2, a
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certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such right shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 2.2 or Section 2.4 of this Agreement or to any
employee benefit plan or a corporate reorganization) and will afford each such
Holder an opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or
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registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for
such underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to
stockholders exercising any demand registration rights, second to the Company,
and third, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by each such Holder; provided
however, that the right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting as described
above shall be restricted so that: (i) the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's initial public offering or an offering solely by stockholders
of the Company exercising demand registration rights, from which all Registrable
Securities may be excluded, and (ii) all shares that are not Registrable
Securities and are held by persons who are employees or directors of the Company
(or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder that is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all federal
and "blue sky" registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
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2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least twenty-five percent (25%) of all
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(i) if Form S-3 is not available for such
offering;
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $1,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered pursuant to this Section 2.4
as soon as practicable after receipt of the request or requests of the Holders
for such registration. The Company shall pay all expenses
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incurred in connection with each registration requested pursuant to this Section
2.4, (excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above.
2.5 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use reasonable,
diligent efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to
ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
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(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 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, "VIOLATIONS" and, individually, a "VIOLATION"):
(i) any untrue statement or alleged untrue
statement of a material fact contained in such 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
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(iii) any violation or alleged violation by
the Company of the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities Act, the 1934 Act
or any federal or state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this subsection
2.8(a) 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
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, 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 Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 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 Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
2.8(b) 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 Holder, which consent shall not be unreasonably withheld; and provided
further, that the total amounts payable in indemnity by a Holder under this
Section 2.8(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.8, 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
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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, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, 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 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
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(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the 1934 Act (at any time
after it has become subject to the reporting requirements of the 1934 Act), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as a
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Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration (at any time after the Company has become subject to the reporting
requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to
any request or requests for registration made by any Holder on a date more than
five (5) years after the closing date of the Company's initial public offering.
Notwithstanding anything to the contrary contained in Section 2.2 or 2.4, if any
Holder is eligible to sell Registrable Securities pursuant Rule 144(k) or any
successor provision under the Securities Act (an "Excluded Holder"), the
Registrable Securities of such Excluded Holder shall be disregarded in
determining the requisite percentage of Registrable Securities that are required
to initiate a registration pursuant to Section 2.2 or 2.4 (i.e., a registration
under Section 2.2 must be initiated by persons holding at least two-thirds of
the Registrable Securities held by all Holders who are not Excluded Holders and
a registration under Section 2.4 must be initiated by persons holding at least
25% of the Registrable Securities held by all Holders who are not Excluded
Holders). After a registration has been requested pursuant to Section 2.2 or
2.4, as the case may be, by the requisite percentage of shares held by Holders
who are not Excluded Holders, all Holders (including Excluded Holders) shall be
entitled to include their Registrable Securities in such registration subject to
the terms and conditions of this Agreement.
2.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and
any party to whom such Holder's rights under this Section 3 have been duly
assigned in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "RIGHTS HOLDER") has the right of first refusal to
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's "PRO
RATA SHARE" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of
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shares of Common Stock of the Company into which all then outstanding shares of
Preferred Stock of the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
the term "New Securities" does not include:
(a) up to 3,500,000 shares of the Company's Common
Stock (and/or options or warrants therefor) issued to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the Company;
(b) any shares of Series A Stock issued under the
Purchase Agreement, as such agreement may be amended.
(c) any securities issuable upon conversion of or
with respect to any then outstanding shares of Series A Stock or Series B Stock
of the Company or Common Stock or other securities issuable upon conversion
thereof;
(d) any securities issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("WARRANT SECURITIES") and any
securities issuable upon the conversion of any Warrant Securities or upon the
exercise or conversion of any securities, if such securities were first offered
to the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend;
(f) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(g) up to 250,000 shares of the Company's Common
Stock or Preferred Stock (and/or options or warrants therefor) issued or
issuable to parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing such number of shares being subject to proportional
adjustment to reflect subdivisions, combinations and stock dividends affecting
the number of outstanding shares of such stock; or
(h) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in which the
Company acquires, in a single transaction or series of related transactions, all
or substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
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3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder fails to so agree in writing within such ten (10) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "NONPURCHASING HOLDER"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "PURCHASING HOLDER") written
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"OVERALLOTMENT NOTICE"). Each Purchasing Holder shall have a right of
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120-day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate
(a) immediately before the closing of the first underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act, covering the
offer and sale of Common Stock to the public at an offering price of at least
$1.10 per share (such offering price being subject to proportional adjustment to
reflect subdivisions, combinations, stock dividends and similar transactions
affecting the number of outstanding shares of Common Stock) for an aggregate
gross public offering price (calculated before deduction of underwriters'
discounts and commissions) of at least $15,000,000 or (b) upon (i) the
acquisition of all or substantially all the assets of the Company or (ii) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction.
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4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of an Investor
under Section 1.1 or 1.2 or 1.4 hereof may be assigned only to a party who
acquires from an Investor (or an Investor's permitted assigns) at least 500,000
shares of Series A Stock and/or Series B Stock subject to this Agreement and/or
an equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion thereof.
(b) Registration Rights; Refusal Rights. The
registration rights of a Holder under Section 2 hereof and the rights of first
refusal of a Rights Holder under Section 3 hereof may be assigned only to a
party who acquires at least 500,000 shares of Series A Stock and/or Series B
Stock subject to this Agreement and/or an equivalent number (on an as-converted
basis) of Registrable Securities issued upon conversion thereof; provided,
however that no party may be assigned any of the foregoing rights unless the
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding shares of Series A Stock, Series B Stock and/or
Conversion Stock representing and/or convertible into a majority of all the
Investors' Shares (as defined below). As used herein, the term "INVESTORS'
SHARES" shall mean the shares of Common Stock then issuable upon conversion of
all then outstanding shares of Series A Stock issued and Series B Stock subject
to this Agreement plus all then outstanding shares of Conversion Stock that were
issued upon the conversion of any shares of Series A Stock and shares of Series
B Stock subject to this Agreement. Any amendment or waiver effected in
accordance with this Section 4.2 shall be binding upon each Investor, each
Holder, each permitted successor or assignee of such Investor or Holder and the
Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
(a) if to the Investors, at the addresses set forth
on Exhibit A or Exhibit B, as applicable.
(b) if to the Company, at ββββ β. βββββββ ββββββ,
ββββββββ, ββββββββ βββββ.
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17
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California, excluding that body of law relating
to conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
Preferred Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement
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shall automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
5.12 Arbitration Any disputes between the Company and the
Investors with respect to this Agreement shall be settled by binding, final
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association then in effect (the "AAA Rules"). Any arbitration
proceeding shall be conducted in Denver, CO. The following arbitration
provisions shall govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a single
arbitrator who shall be compensated for his or her services at a rate to be
determined by the parties or by the American Arbitration Association, but based
upon reasonable hourly or daily consulting rates for the arbitrator in the event
the parties are not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be
followed.
(c) Each party to such arbitration shall each advance an equal
portion of the initial compensation to be paid to the arbitrator in any such
arbitration and an equal portion of the costs of transcripts and other normal
and regular expenses of the arbitration proceedings; provided, however, that the
arbitrator shall have the discretion to grant to the prevailing party in any
arbitration an award of attorneys' fees and costs, and all costs of arbitration.
(d) The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of
proof shall be as it would be if the claim were litigated in a judicial
proceedings.
(f) Upon the conclusion of any arbitration proceeding
hereunder, the arbitrator shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by him or her and shall deliver such documents to each party to this
Agreement along with a signed copy of the award.
(g) The arbitrator chosen in accordance with these provisions
shall not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
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(h) The parties acknowledge that, except as specifically
provided in this Agreement, no other action need be taken by either party before
proceeding directly in accordance with the provisions of this Section.
(i) The arbitration provisions set forth in this Section 5.12
are intended by the parties to be exclusive for all purposes and applicable to
each and every controversy, dispute and/or claim in any manner arising out of or
relating to this Agreement, the meaning, application and/or interpretation of
this Agreement, any breach hereof and/or any voluntary or involuntary
termination of this Agreement with or without cause, including, without
limitation, any such controversy, dispute and/or claim which, if pursued through
any state or federal court or administrative agency, would arise at law, in
equity and/or pursuant to statutory, regulatory and/or common law rules,
regardless of whether any such dispute, controversy and/or claim would arise in
and/or from contract, tort or any other legal and/or equitable theory or basis.
The prevailing party in any action instituted pursuant to this Section 5.13(i),
or in any appeal from any arbitration conducted pursuant to this Section 5.13,
shall be entitled to recover from the other party its reasonable attorneys' fees
and other expenses incurred in such litigation.
5.13 Effectiveness; Termination of the Original Agreement This
Agreement shall become effective upon the later to occur of (a) its execution by
(i) holders of at least a majority of the Registrable Securities as defined in
the Original Agreement, (ii) the Company and (iii) the new Investors and (b) the
first closing of the sale of the Series A Preferred under the Purchase
Agreement. Upon effectiveness of this Agreement, the Original Agreement shall be
terminated and shall be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement as of the date first above written.
THE COMPANY:
Chaparral Network Storage, Inc.,
a Delaware corporation
By:
--------------------------------
Name:
Title:
THE INITIAL INVESTORS:
Adaptec, Inc.,
a Delaware corporation
By:
--------------------------------
Name:
Title:
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Chaparral Systems, Inc.
By:
--------------------------------
Name:
Title:
-----------------------------------
βββββββ β. Childs
-----------------------------------
ββββ βββββ
-----------------------------------
βββββ βββββββ
-----------------------------------
ββββββ ββββββ
Harvest Storage Technology Partners
LLC a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
Woodcarvers LLC
a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
-----------------------------------
βββ βββββββ
-----------------------------------
βββββ βββββββ
The Linde Company
By:
--------------------------------
Name:
Title
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THE NEW INVESTORS:
-----------------------------------
[Name]
Woodcarvers LLC
a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
-----------------------------------
βββ βββββββ
-----------------------------------
[Name]
-----------------------------------
[Name]
-----------------------------------
[Name]
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