EXHIBIT 10.17
SORRENTO NETWORKS, INC.
INVESTORS' RIGHTS AGREEMENT
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March 3, 2000
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TABLE OF CONTENTS
Page
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1. Registration Rights...................................................................................1
1.1 Definitions.....................................................................................1
1.2 Request for Registration........................................................................2
1.3 Company Registration............................................................................3
1.4 Obligations of the Company......................................................................3
1.5 Furnish Information.............................................................................5
1.6 Expenses of Demand Registration.................................................................5
1.7 Expenses of Company Registration................................................................5
1.8 Underwriting Requirements.......................................................................5
1.9 Delay of Registration...........................................................................6
1.10 Indemnification.................................................................................6
1.11 Reports Under the 1934 Act......................................................................8
1.12 Form S-3 Registration...........................................................................8
1.13 Assignment of Registration Rights...............................................................9
1.14 Limitations on Subsequent Registration Rights..................................................10
1.15 "Market Stand-Off"Agreement....................................................................10
1.16 Termination of Registration Rights.............................................................11
2. Covenants of the Company.............................................................................11
2.1 Delivery of Financial Statements...............................................................11
2.2 Inspection.....................................................................................11
2.3 Termination of Information and Inspection Covenants............................................11
2.4 Right of First Offer...........................................................................12
2.5 Redemption.....................................................................................13
2.6 Limitation on Debt.............................................................................14
3. Miscellaneous........................................................................................14
3.1 Successors and Assigns.........................................................................14
3.2 Governing Law..................................................................................15
3.3 Counterparts...................................................................................15
3.4 Titles and Subtitles...........................................................................15
3.5 Notices........................................................................................15
3.6 Expenses.......................................................................................15
3.7 Amendments and Waivers.........................................................................15
3.8 Severability...................................................................................15
3.9 Aggregation of Stock...........................................................................15
3.10 Entire Agreement; Amendment; Waiver............................................................15
SCHEDULE A - Schedule of Investors
(i)
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INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made as of the
3rd day of March, 2000, by and among Sorrento Networks, Inc., a California
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and the Investors are parties to that certain
Series A Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement"); and
WHEREAS, in order to induce the Company to enter into the Series A
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Series A Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investors to cause the Company to
register shares of the Company's Common Stock ("Common Stock") issuable to the
Investors and certain other matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means (1) the Common
Stock issuable or issued upon conversion of the Company's Series A Preferred
Stock ("Series A Preferred Stock"), and (2) any Common Stock 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, such Series A Preferred Stock or Common
Stock, excluding in all cases, however, any Registrable Securities sold in a
transaction in which the rights under this Section 1 are not assigned;
(d) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock outstanding which
have been issued pursuant to the exercise or conversion of securities which
were, and the number of shares of Common Stock which are issuable pursuant to
then exercisable or convertible securities which are, Registrable Securities.
(e) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
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(f) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier
of (i) six (6) months after the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan) or (ii)
March 1, 2001, a written request from the Holders of at least thirty-three and
one-third percent (33 1/3%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act for an anticipated
aggregate offering price, of not less than $20,000,000, then the Company shall
promptly give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b) below, effect as soon as practicable,
and in any event shall use its best efforts to effect within sixty (60) days of
the receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with Section 3.5 hereof.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a) above. The underwriter will be selected by the Company and
shall be reasonably acceptable to the holders of a majority of the Registrable
Securities held by the Initiating Holders. 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 (together with the
Company as provided in subsection 1.4(e) hereof) enter into an underwriting
agreement in customary form with the underwriter or underwriters approved for
such underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Initiating Holders and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting. If as a result of the limitation imposed by the underwriters
pursuant to this Section 1.2(b), the Initiating Holders are only permitted to
sell 50%
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or less of the Registrable Securities requested to be sold, then the Initiating
Holders shall be entitled to an additional demand registration pursuant to
Section 1.2(c).
(c) Subject to Section 1.6 hereof, the Company is obligated to
effect only two (2) registrations pursuant to this Section 1.2, so long as such
registrations have been ordered effective by the SEC.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Company's President stating that in the good faith
judgment of the Company's Board of Directors (the "Board"), it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, 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 shall not utilize this
right more than once in any twelve (12)-month period.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5 hereof, the Company shall, subject to the
provisions of Section 1.8 hereof, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, 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 its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of at least twenty percent (20%) of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 180 days and
notify each selling Holder of the happening of any event which makes any
statement made in any registration statement or related prospectus, or which
requires the making of any change to such statement or prospectus so that they
would not contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein to make the statements therein not
misleading; and promptly thereafter, use its best efforts to prepare and file
with the SEC and furnish an amendment or supplement to such prospectus so that
as thereafter delivered to the purchaser of such Registrable Shares, such
prospectus will not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein not misleading.
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(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 Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus and any amendments thereto, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents and
information as they or the underwriters may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them. The Company
shall provide access to its officers, directors and key employees to provide the
Holders and the underwriters with all information reasonably requested by them.
(d) Use its best 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 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 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.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or quotation system on which
similar securities issued by the Company are then listed or quoted.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, 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 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form
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and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
reasonably required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 hereof if, the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in subsection 1.2(a) or subsection 1.12(b)(2) hereof, whichever is
applicable.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 or Section 1.12
hereof, including (without limitation) all registration, filing 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, not to exceed $20,000, shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 hereof
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all Holders participating in such offering shall bear such expenses pro
rata based upon the number of Registrable Securities that such Holders proposed
to have registered), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2 hereof; 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 from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company 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 Section 1.2 hereof.
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 hereof for each Holder, including (without limitation)
all registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
one counsel for the selling Holders, not to exceed $20,000, but excluding
underwriting discounts and commissions and stock transfer taxes relating to
Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under
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Section 1.3 to include any of the Holders' securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
Holders according to the total amount of Registrable Securities entitled to be
included therein owned by each Holder or in such other proportions as shall
mutually be agreed to by such Holder), provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other shares of securities (except the securities proposed
to be sold by the Company in such underwriting unless such reduction shall be
necessary to accommodate the inclusion set forth in subsection 1.8(i) below) are
first entirely excluded from the underwriting and in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below twenty-five percent (25%) of the total amount of securities included in
such offering (including the Company securities), unless such offering is the
initial public offering of the Company's securities in which case the Holders
may be excluded provided that no other shareholder's securities are included if
the underwriters make the determination described above.
1.9 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 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, each director and officer of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 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 Act, or the 1934 Act, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (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 (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, or any rule or regulation
promulgated under the Act, or the 1934 Act; and the Company will pay to each
such Holder, underwriter or controlling person any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected
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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 any such Holder, underwriter or controlling person.
(b) 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 has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act, 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 pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 1.10(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(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; provided, that, in no event shall any
indemnity under this subsection 1.10(b) or any liability of a Holder under
subsection 1.10(d) exceed the net proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 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 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate 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 differing
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
1.10, 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 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable
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by such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders 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, the Company will:
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(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) 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 fifteen (15) 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 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) 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 (net of any
underwriters' discounts or commissions) of less than $5,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the Company's
President stating that in the good faith judgment of the Board, it would be
seriously detrimental to the Company and its shareholders 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 for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 1.12; provided, however, that the Company
shall not utilize this right more than once in any twelve (12)-month period; (4)
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 1.12; or (5) 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) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders not to exceed $20,000 and counsel for the Company, but excluding any
underwriters' discounts, commissions or stock transfer taxes associated with
Registrable Securities, shall be borne by the Company. Registrations effected
pursuant to this Section 1.12 shall not be counted as demands for registration
or registrations effected pursuant to Sections 1.2 or 1.3 hereof, respectively.
1.13 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
or affiliated group of transferees or assignees of such securities who, after
such assignment or transfer, holds at least 1,500,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act. The minimum shareholding requirements described above
shall not
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apply to (a) the transfer of registration rights by a Holder that is a
partnership or limited liability company to a partner or member of such
partnership or limited liability company or a retired partner or member of such
partnership or limited liability company who retires after the date hereof or
(b) to the Holder's spouse or issue, including adopted children, or to a trust
or a family limited partnership for the exclusive benefit of the Holder or the
Holder's spouse or issue. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership or limited liability company who are
partners or members or retired partners or members of such partnership or
limited liability company (including spouses and ancestors, lineal descendants
and siblings of such partners or spouses who acquire Registrable Securities by
gift, will or intestate succession) shall be aggregated together and with the
partnership or limited liability company; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.14 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 at least 75% of the outstanding Registrable Securities, 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 Sections 1.2, 1.3 or 1.12
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 its securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration on either Form S-1 or Form S-3.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, in which shares are
being offered by the Company, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except common stock included in such registration;
provided, however, that:
(a) such agreement shall not exceed 180 days after the
effective date for the first such registration statement of the Company which
covers Common Stock (or other securities) to be sold on its behalf to the public
in an underwritten offering or ninety (90) days after the effective date of any
subsequent registration statement; and
(b) the Company and all executive officers and directors of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. The Company agrees that it
shall enter into a similar market stand-off agreement upon the request of an
underwriter.
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1.16 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 1 after the earlier of (i) five
(5) years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public or (ii) such time as Rule 144 or another similar exemption under the Act
is available for the sale of all of such Holder's shares during a ninety
(90)-day period without registration.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. For so long as an Investor holds
at least 300,000 shares of Series A Preferred Stock or Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), the Company shall deliver to such Investor:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholders' equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("gaap"),
and if requested by the Holders holding a majority of the Registrable
Securities, audited and certified by independent public accountants of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, statement of cash
flows for such fiscal quarter, summaries of bookings and backlog for such fiscal
quarter, and an unaudited balance sheet as of the end of such fiscal quarter and
year to date, and management commentary;
(c) as soon as practicable, but in any event no later than the
beginning of each fiscal year, detailed financial projections for the next
fiscal year prepared on a quarterly basis.
2.2 Inspection. For so long as an Investor holds at least 300,000
shares of Series A Preferred Stock or Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), the Company shall permit such Investor, 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; provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The covenants
set forth in Section 2.1, Section 2.2 and Section 2.6 hereof shall terminate as
to Investors and be of no further force or effect upon the consummation of a
Qualified IPO (as defined in Section 2.4(d)).
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2.4 Right of First Offer. Subject to the terms and conditions specified
in this paragraph 2.4, the Company hereby grants to each Investor a right of
first offer with respect to future sales by the Company of its Shares (as
hereinafter defined). For purposes of this Section 2.4, Investor includes any
general partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after giving of the Notice, the
Investor may give notice of its intention to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of such Shares
which equals the proportion that the number of shares of common stock issued and
held, or issuable upon conversion of the Series A Preferred Stock then held, by
such Investor bears to the total number of shares of common stock of the Company
then outstanding (assuming full conversion of all convertible securities)
including but not limited to those issued and held, or issuable upon conversion
of the Series A Preferred Stock then held, by all the Investors. The Company
shall promptly, in writing, inform each Investor which purchases all the shares
available to it ("Fully-Exercising Investor") of any other Investor's failure to
do likewise. During the ten-day period commencing after the Company's giving of
such notice, each Fully-Exercising Investor shall be entitled to give notice of
its intention to purchase that portion of the Shares for which Investors were
entitled to subscribe but which were not subscribed for by the Investors which
is equal to the proportion that the number of shares of common stock issued and
held, or issuable upon conversion of Series A Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of common stock
issued and held, or issuable upon conversion of the Series A Preferred Stock
then held, by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed shares.
(c) The Company may concurrently with the giving of the first
Notice required above commence to sell the Shares which the Investors are not
entitled to elect to purchase upon terms no more favorable to the offeree than
those specified in the Notice. If all Shares which Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b) hereof, the Company may, during the 60-day period following
the expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Investors in accordance herewith; provided, however, none of the
elections to purchase Shares made by Investors shall be of any force or effect
if the Company determines not to sell any Shares.
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(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale after the date hereof of up to 20,000,000
shares of common stock (or options therefor) to employees, directors, officers,
consultants, service providers, vendors or strategic partners for the primary
purpose of soliciting or retaining their employment or services, (ii) to or
after consummation of a bona fide, firmly underwritten public offering of shares
of common stock, registered under the Act pursuant to a registration statement
on Form S-1, the public offering price of which was not less than $50,000,000 in
the aggregate (a "Qualified IPO"), (iii) the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities or (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise.
2.5 Redemption.
(a) The Company hereby agrees to use its reasonable commercial
efforts to cause a Qualified IPO to occur on or prior to March 1, 2001.
(b) (i) In the event that a Qualified IPO shall not have been
completed on or prior to March 1, 2001, upon the receipt by the Company at any
time beginning on March 1, 2001 of the written request of the holders of not
less than fifty percent (50%) of the then outstanding Series A Preferred Stock,
or (ii) at the Company's election upon providing written notice to the holders
of the then outstanding Series A Preferred Stock (each a "Redemption Request"),
the Company shall, to the extent it may lawfully do so, redeem beginning thirty
(30) days following the date on which a Redemption Request is first received,
all outstanding shares of the Series A Preferred Stock (or, if less, the maximum
amount it may lawfully redeem) by paying in cash therefor a sum per share equal
to $5.45 per share (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations) plus an amount equal to
declared but unpaid dividends (such total amount is hereinafter referred to as
the "Redemption Price") for the shares to be redeemed.
(c) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Company shall effect such redemption
pro rata according to the number of shares of Series A Preferred Stock held by
each holder thereof.
(d) At least fifteen (15) but no more than sixty (60) days
prior to the date fixed for any redemption of Series A Preferred Stock (the
"Redemption Date"), written notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock to
be redeemed, at the address last shown on the records of the Company for such
holder or given by the holder to the Company for the purpose of notice or if no
such address appears or is given at the place where the principal executive
office of the Company is located, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price, the place at which payment may be
obtained and the date on which such holder's Conversion Rights (as defined in
the Company's Restated Articles of Incorporation) as to such shares terminate
and calling upon such holder to surrender to the Company, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in this Section
2.5(d), on or after the Redemption Date, each holder of Series
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A Preferred Stock to be redeemed agrees to surrender to the Company the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(e) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
such redeemed shares as holders of Series A Preferred Stock (except the right to
receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such redeemed shares.
If the funds of the Company legally available for redemption of shares of Series
A Preferred Stock on any Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares to be redeemed.
The shares of Series A Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided in the Company's Amended and
Restated Articles of Incorporation. At any time thereafter when additional funds
of the Company are legally available for the redemption of shares of Series A
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Company has become obligated to redeem on any Redemption
Date but which it has not redeemed.
2.6 Limitation on Debt. For so long as any shares of Series A Preferred
Stock are outstanding, the Company shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
incur, agree to incur or have outstanding at any time Debt (as defined below)
exceeding $25,000,000 in the aggregate. For purposes of this Section 2.6 "Debt"
means: (A) all indebtedness, obligations or liabilities in respect of borrowed
money, including all indebtedness, obligations or liabilities of any person
which the Company may guarantee or for which the Company may otherwise be
responsible or liable (other than any liability arising out of the endorsement
of commercial paper for deposit or collection received in the ordinary course of
business, (B) the aggregate amount of rentals or other consideration payable by
the Company under all capitalized leases, and (C) obligations in connection with
the deferred purchase price of property or services (excluding trade accounts
payable incurred in the ordinary course of business, having an original maturity
of 90 days or less (and which are not more than 30 days past due)).
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
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3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of at least seventy-five
percent (75%) of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section 3.7 shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities 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.
3.10 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SORRENTO NETWORKS, INC.
By: βββ βββββ, Ph.D.
______________________________
Title: President
______________________________
Address: ββββ ββββ βββ ββββ
βββ βββββ, ββββββββββ βββββ
INVESTORS:
TELCOM-SNI INVESTORS, L.L.C.
By:
______________________________
Title:
______________________________
Address: ____________________________________
____________________________________
____________________________________
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-59
SIX RIVERS GROUP LTD.
By:
______________________________
Title:
______________________________
Address: ____________________________________
____________________________________
____________________________________
SUMMIT CAPITAL MANAGEMENT
By:
______________________________
Title:
______________________________
Address: ____________________________________
____________________________________
____________________________________
ββββββ CAPITAL PARTNERS
By:
______________________________
Title:
______________________________
Address: βββββ ββββββββ βββββ
ββ ββββββ, ββββββββββ βββββ
ββββββββ, ββββββββ & CO., L.P.
By:
______________________________
Title:
______________________________
Address: ββββ ββββββ ββ βββ ββββββββ
βββ ββββ, βββ ββββ βββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-60
ββββββββ, ββββββββ CAPITAL
CORPORATION
By:
______________________________
Title:
______________________________
Address: ββββ ββββββ ββ βββ ββββββββ
βββ ββββ, βββ ββββ βββββ
SORRENTO HOLDINGS, L.L.C.
By: βββββ ββββββββββ
______________________________
Title:
______________________________
Address: ββββ ββββββ ββ βββ ββββββββ
βββ ββββ, βββ ββββ βββββ
____________________________________
ββββ βββββββββββββ
Address: ____________________________________
____________________________________
____________________________________
____________________________________
βββββββ β. βββββββ
Address: ββββ ββ βββββ ββββββ βββββ
ββ βββββ, ββββββββββ βββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-61
VIRGO CAP, INC.
By:
______________________________
Title:
______________________________
Address: ββββ βββ ββββββ βββββ, ββββ ββββ
ββββββ, βββββββ βββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-62
BELMARKEN HOLDING B.V.
By:
______________________________
Title:
______________________________
Address: ββββ. ββββββββββββ βββ
ββββ ββ βββββββββ
β.β. βββ βββββ
ββββ ββ βββββββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-63
GENERAL SIGNAL HOLDINGS COMPANY
By:
______________________________
Title:
______________________________
Address: βββ βββββββ βββββ βββββ
ββββββββ, ββ βββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-64
ASM INVESTMENTS, L.L.C.
By:
______________________________
Title:
______________________________
Address: ββββ ββββββββ ββββ, βββββ βββ
ββββββ, ββ βββββ
Attention: βββββββ βββββββ
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
II-65
SCHEDULE A
Schedule of Investors
Telcom-SNI Investors, L.L.C.
Belmarken Holding BV
ββββββββ, ββββββββ & Co., β.β.
ββββββββ, ββββββββ Capital Corporation
Sorrento Holdings, L.L.C.
Summit Capital Management
Virgo Cap, Inc.
ββββββ Capital Partners
Six Rivers Group Ltd.
ββββ βββββββββββββ
βββββββ β. βββββββ
General Signal Holdings Company
ASM Investments, L.L.C.
A-1
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