EXHIBIT 4
FORM OF
DECLARATION OF REGISTRATION RIGHTS
THIS DECLARATION OF REGISTRATION RIGHTS (the "Declaration") is made by
DIGITAL ISLAND, INC., a Delaware corporation ("Island") for the benefit of
shareholders of SANDPIPER NETWORKS, INC., a California corporation (the
"Company"), pursuant and subject to Section 1.12 of that certain Agreement and
Plan of Reorganization dated as of October 24, 1999 by and among Island, Beach
Acquisition Corp., a California corporation and a wholly owned subsidiary of
Island, and the Company (the "Reorganization Agreement"). This Declaration is
subject in its entirety to the terms and conditions set forth in the
Reorganization Agreement and the Ancillary Documents. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the
Reorganization Agreement unless the context otherwise requires.
Section 1
Certain Definitions
-------------------
Certain Definitions. As used in this Declaration, the following terms
-------------------
shall have the following respective meanings:
1.1 "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder, as the
same shall be in effect from time to time.
1.3 The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
1.4 "Registrable Securities" means (i) the shares of Common Stock of
Island issuable or issued to each holder of Company Capital Stock or options or
warrants to acquire Company Capital Stock at the Effective Time by virtue of the
Merger (such holders collectively, the "Holders" and each individually, a
"Holder", and such shares of Common Stock, the "Stock"), excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which a
Holder's rights under this Declaration are not assigned; provided, however, that
Registrable Securities shall only be treated as Registrable Securities if and so
long as, they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.
1.5 "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder, as the
same shall be in effect from time to time.
1.6 An "Affiliate" of an entity referenced herein shall mean (i) any
entity who controls, is controlled by, or is under common control with such
entity, (ii) any constituent partner or shareholder of such entity, (iii) all
mutual funds or other pooled investment vehicles or entities under the control
or management of such entity, or the general partner or investment advisor of
such entity, or any Affiliate of such mutual funds, pooled investment vehicles,
general partner or investment advisor, or (iv) with respect to an individual,
such individual's spouse, siblings, ancestors and descendants (whether natural
or adopted), any spouses of such siblings, ancestors and descendants, any
siblings of such ancestors and descendants, and any trust established solely for
the benefit of one or more of such individual's spouse, siblings, ancestors
and/or descendants.
Section 2
Piggyback Rights
----------------
2.1 Notice of Registration. If at any time or from time to time,
----------------------
Island shall determine to register any of its equity securities for its own
account in an underwritten public offering or receives a valid request from a
party to the Existing Agreement (as defined below) to register any of its equity
securities in an underwritten public offering, Island will:
(i) promptly give to the Holders written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and underwriting, all the Registrable
Securities (subject to cutback as set forth in Section 2.2) specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from Island by any Holder.
2.2 Underwriting. The right of any Holder to registration pursuant
------------
to this Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. If any Holder proposes to distribute its securities
through such underwriting, such Holder shall (together with Island and any other
shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by Island. Notwithstanding any other provision
of this Section 2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration. Island shall so advise the Holder and the other shareholders
distributing their securities through such underwriting pursuant to piggyback
registration rights similar to this Section 2, and the number of shares of
Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among the Holder and any other
participating shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holder and other
securities held by other shareholders and entitled to registration rights at the
time of filing the registration statement, provided that the aggregate amount of
Registrable Securities held by
2
selling Holders included in the offering shall not be reduced below twenty
percent (20%) of the total amount of securities included in that offering. In
the event the managing underwriter does determine that marketing factors require
a limitation of the number of shares to be underwritten (the "Cutback"), such
Cutback shall be applied first to any participating shareholders other than
Holders of Registrable Securities before it shall be applied to Holders of
Registrable Securities, subject to the above mentioned twenty percent (20%)
reduction limit, if at all. To facilitate the allocation of shares in accordance
with the above provisions, Island or the underwriters may round the number of
shares allocated to each Holder or other shareholder to the nearest 100 shares.
If any Holder or other shareholder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to
Island and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one-hundred eighty (180) days
after the effective date of the registration statement relating thereto.
2.3 Right to Terminate Registration. The Island shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
Section 3
Obligations of Island
---------------------
Whenever Island is required by the provisions of this Declaration to
use its reasonable best efforts to effect the registration of the Registrable
Securities, Island shall: (i) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to make and to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities proposed to be registered in
such registration statement until the earlier of the sale of the Registrable
Securities so registered or one hundred twenty (120) days subsequent to the
effective date of such registration statement; (ii) furnish to any Holder such
number of copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus), in conformity with the requirements of the
Securities Act, as such Holder may reasonably request in order to effect the
offering and sale of the Registrable Securities to be offered and sold, but only
while Island shall be required under the provisions hereof to cause the
registration statement to remain current; (iii) use its reasonable best efforts
to register or qualify the Registrable Securities covered by such registration
statement under the securities or blue sky laws of such states as Holder shall
reasonably request, maintain any such registration or qualification current
until the earlier of the sale of the Registrable Securities so registered or one
hundred twenty (120) days subsequent to the effective date of the registration
statement, or, in the case of a shelf registration, until the earlier of the
sale of the Registrable Securities so registered or nine (9) months subsequent
to the effective date of such registration statement and, take any and all other
actions either necessary or reasonably advisable to enable Holders to consummate
the public sale or other disposition of the Registrable Securities in
jurisdictions where such Holders desire to effect such sales or other
disposition; (iv) cause all Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which the same class of securities
of Island are then listed; and (v) take all such other actions either necessary
or reasonably desirable to permit the Registrable
3
Securities held by a Holder to be registered and disposed of in accordance with
the method of disposition described herein, including causing Island's senior
management to use their commercially reasonable efforts in the marketing of any
securities pursuant to any underwritten public offering so registered.
Notwithstanding the foregoing, Island shall not be required to register or to
qualify an offering of the Registrable Securities under the laws of a state if
as a condition to so doing Island is required to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction,
unless Island is already subject to service in such jurisdiction.
Section 4
Expenses of Registration
------------------------
Island shall pay all of the fees and expenses incurred in connection
with any registration statement that is initiated pursuant to this Declaration,
including, without limitation, all SEC and blue sky registration and filing
fees, printing expenses, transfer agent and registrar fees, the fees and
disbursements of Island's outside counsel, the reasonable fees and disbursements
of one counsel to the Holders and independent accountants (the "Registration
Expenses"). Provided however, that any underwriting discounts, fees and
disbursements of any additional counsel to the Holders, selling commissions and
stock transfer or other taxes applicable to the Registrable Securities
registered on behalf of Holders shall be borne by the Holders of the Registrable
Securities included in such registration.
Section 5
Indemnification
---------------
5.1 Island. To the extent permitted by law, Island will indemnify
------
Holders and each person controlling Holders within the meaning of Section 15 of
the Securities Act, and each underwriter if any, of Island's securities, with
respect to any registration, qualification or compliance which has been effected
pursuant to this Declaration, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by Island of any rule or
regulation promulgated under the Securities Act applicable to Island in
connection with any such registration, qualification or compliance, and Island
will reimburse Holders and each person controlling Holders, and each
underwriter, if any, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that Island will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to Island by such Holder or controlling person or
underwriter seeking indemnification expressly for use therein; and provided
further, that the indemnity provided in this Section 5.1 with respect to any
losses, claims, damages, liabilities or actions, arising from a sale of
Registrable Securities
4
pursuant to a registration hereunder, based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state a
material fact in any preliminary or final prospectus (or amendment or supplement
thereto) of Island shall not inure to the benefit of or be available to the
Holders or any other person if a copy of the prospectus, as further amended or
supplemented, in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected is sent or given to those persons
asserting such losses, claims, damages, liabilities or actions within the time
required by the Securities Act and the Rules and Regulations thereto.
5.2 Holders. To the extent permitted by law, each Holder will, if
-------
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected (the
"Indemnifying Holder"), indemnify Island, each of its directors and officers and
each person who controls Island within the meaning of Section 15 of the
Securities Act, and each underwriter, if any, of Island's securities with
respect to any registration, qualification or compliance which has been effected
pursuant to this Declaration, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
such Indemnifying Holder of any rule or regulation promulgated under the
Securities Act applicable to such Indemnifying Holder in connection with any
such registration, qualification or compliance, and the Indemnifying Holder will
reimburse Island, such directors and officers and each person controlling Island
and each underwriter, if any, for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, in
reliance upon and in conformity with written information furnished to Island by
such Indemnifying Holder expressly for use therein, provided that in no event
shall any indemnity under this Section 5.2 exceed the gross proceeds of the
offering received by such Indemnifying Holder; and provided further, that the
indemnity provided in this Section 5.2 with respect to any losses, claims,
damages, liabilities or actions, arising from a sale of Registrable Securities
pursuant to a registration hereunder, based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state a
material fact in any preliminary or final prospectus (or amendment or supplement
thereto) of Island shall not inure to the benefit of or be available to Island
or any other person if the Holder corrected such untrue statement or alleged
untrue statement or omission or alleged omission and sent it to Island for
inclusion in the prospectus within the time required by the Securities Act and
the Rules and Regulations thereto.
5.3 Defense of Claims. Each party entitled to indemnification under
-----------------
this Section 5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party
5
to assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of the Indemnified
Party by counsel retained by the Indemnifying Party would be inappropriate due
to actual or potential differing interests between the Indemnified Party and any
other party represented by such counsel in such proceeding, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section 5
unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party which consent shall not be unreasonably withheld, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation and include a statement as to or an admission of fault, culpability
or a failure to act by or on behalf of any Indemnified Party. No Indemnifying
Party shall be required to indemnify any Indemnified Party with respect to any
settlement entered into without such Indemnifying Party's prior written consent.
Section 6
Rule 144 Reporting
------------------
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, Island agrees to use its
reasonable best efforts 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 from
and after the date hereof;
(b) File with the SEC in a timely manner all reports and other
documents required of Island under the Securities Act and the Exchange Act at
any time after it has become subject to such reporting requirements; and
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request a written statement by Island as to its
compliance with the reporting requirements of said Rule 144 (at any time from
and after the date hereof), and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of Island, and such other
reports and documents of Island, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing such Holder to sell any such securities without
registration.
6
Section 7
Termination of Rights
---------------------
Unless otherwise specified herein, the rights and provisions of this
Declaration shall terminate as to all Holders on July 15, 2006. The rights of
any individual Holder to receive notice and to participate in a registration
pursuant to the terms of Section 2 hereof shall terminate at such time as such
Holder (i) owns less than one percent (1%) of the outstanding Stock of Island
and (ii) could sell all of the Registrable Securities held by such Holder in any
one three-month period pursuant to Rule 144 (including Rule 144(k)) under the
Securities Act.
Section 8
Miscellaneous
-------------
8.1 Assignment. Subject to compliance with the Reorganization
----------
Agreement and the Ancillary Documents, the rights to cause Island to register
Registrable Securities granted to the Holders by Island under this Declaration
may be transferred or assigned by the Holders to an Affiliate or may be
transferred or assigned by any Holder to a transferee which acquires at least
100,000 Shares of the Registrable Securities owned as of the date of the
Effective Time by such Holder; provided that Island is given written notice at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes
the obligations of such Holder under this Declaration and agrees to be bound
hereby pursuant to a written instrument in form and substance reasonably
satisfactory to Island. Subject to the preceding sentence, this Declaration
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Any transferee or assignee shall
thereafter be treated as a Holder in all respects, subject to the limitations
herein. Until Island receives actual notice of any transfer or assignment, it
shall be entitled to rely on the then existing list of Holders and the failure
to notify Island of any transfer or assignment shall not affect the validity of
a notice properly given by Island to the Holders pursuant to lists maintained by
Island.
8.2 Aggregation of Shares. All shares of Registrable Securities held
---------------------
or acquired by affiliated entities or persons, including without limitation,
Affiliates, shall be aggregated together for the purpose of determining the
availability of any rights under this Declaration.
8.3 Governing Law. This Declaration shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
entered into solely between residents of and to be performed entirely within,
such state without regard to conflicts of law principles thereof.
8.4 Counterparts. This Declaration 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.
7
8.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Declaration are used for convenience only and are not to be considered in
construing or interpreting this Declaration.
8.6 Notices. All notices, requests, demands and other communications
-------
under this Declaration or in connection herewith shall be given to or made upon
the Holder at the addresses set forth in Island's records and, if to Island, at
the address previously furnished by Island to the Holders, addressed to the
attention of the President.
(a) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Declaration shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(b) Any party may, by written notice to the other, alter its address
or respondent, and such notice shall be considered to have been given three (3)
days after the airmailing or faxing thereof.
8.7 Attorneys' Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Declaration,
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.
8.8 Amendments and Waivers. Any term of this Declaration may be
----------------------
amended or any right hereunder waived with the written consent of Island and the
Holders of 66-2/3% of the shareholders of record of the Company immediately
prior to the Effective Time of the Merger, provided that Island has also
received any additional consent required under that certain Amended and Restated
Investors' Rights Agreement dated February 19, 1999, as amended, by and among
Island and the individuals or entities listed on the signature pages thereof
(the "Existing Agreement"). Any amendment or waiver effected in accordance with
this Section 8.8 shall be binding upon the Holders and each transferee of the
Registrable Securities, each future holder of all such Registrable Securities
and Island.
8.9 Severability. If one or more provisions of this Declaration are
------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Declaration, 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.
8.10 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party to this Declaration, upon any
breach or default of the other party, shall impair any such right, power or
remedy of such non-breaching party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Declaration, or any waiver on the part of any party of any provisions
8
or conditions of this Declaration, must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Declaration, or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.
9
IN WITNESS WHEREOF, the undersigned has executed this Declaration as
of the date first written above.
DIGITAL ISLAND, INC.
By:
----------------------------------------
Name:
Title:
10