REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
June 16, 1998 between ZITEL CORPORATION, a California corporation with
offices at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company")
and each of the entities listed under "Investors" on the signature page
hereto (each an "Investor" and collectively the "Investors"), each with
offices at the address listed under such Investor's name on Schedule I hereto.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Convertible Subordinated Debenture
Purchase Agreement by and between the Company and the Investors (the
"Purchase Agreement"), the Company initially has agreed to sell and issue to
the Investors, and the Investors have agreed to purchase from the Company, an
aggregate of $10 million principal amount of the Company's 3% Convertible
Subordinated Debentures (the "Initial Debentures" and, together with the Put
Debentures, the "Debentures") on the terms and conditions set forth therein;
WHEREAS, the Purchase Agreement contemplates that, subject to certain
terms and conditions, the Company shall have the right to sell to the
Investors an aggregate of $10 million principal amount of additional
debentures (the "Put Debentures") and the Company shall issue to the
Investors an aggregate of 150,000 additional Warrants; and
WHEREAS, the Purchase Agreement contemplates that the Debentures will
be convertible into shares (the "Common Shares") of common stock, no par
value, of the Company ("Common Stock") pursuant to the terms and conditions
set forth in the Debentures; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Purchase Agreement, the Company
has agreed to issue the Warrants exercisable for Warrant Shares and to
provide the Investors with certain registration rights with respect to the
Common Shares and Warrant Shares and certain other rights and remedies with
respect to the Debentures as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Purchase Agreement and this Agreement, the Company and the Investors agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed thereto in the Purchase
Agreement, Warrants or the Debentures. As used in this Agreement, the
following terms shall have the following respective meanings:
"CLOSING" and "CLOSING DATE" shall have the meanings ascribed to such
terms in the Purchase
Agreement.
"COMMISSION" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"OUTSTANDING PRINCIPAL AMOUNT" shall have the meaning ascribed to such
term in the Debentures.
"REGISTRABLE SECURITIES" shall mean: (i) the Common Shares and
Warrants Shares issued to each Holder or its permitted transferee or designee
upon conversion of the Debentures or exercise of the Warrants, as applicable,
or upon any stock split, stock dividend, recapitalization or similar event
with respect to such Common Shares or Warrant Shares; (ii) any securities
issued or issuable to each Holder upon the conversion, exercise or exchange
of any Debentures, Warrants, Warrant Shares, or Common Shares; and (iii) any
other security of the Company issued as a dividend or other distribution with
respect to, conversion or exchange of or in replacement of Registrable
Securities.
The terms "REGISTER", "REGISTEREDTM" and "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness
of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, reasonable fees and disbursements of counsel to
Holders (using a single counsel selected by a majority in interest of the
Holders) for a "due diligence" examination of the Company and review of the
Registration Statement and related documents, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
"HOLDER" and "HOLDERS" shall include an Investor or the Investors,
respectively, and any transferee of the Debentures, Warrants, Warrant Shares or
Common Shares or Registrable Securities which have not been sold to the public
to whom the registration rights conferred by this Agreement have been
transferred in compliance with this Agreement.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section 2(a)
herein.
"REGULATION D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"SECURITIES ACT" or "ACT" shall mean the Securities Act of 1933, as
amended.
"WARRANTS" shall mean the warrants in form and substance of EXHIBIT 1.1B
to the Purchase Agreement between the Company and the Investors, dated as of the
date hereof.
"WARRANT SHARES" shall mean shares of Common Stock of the Company
issued and issuable upon exercise of the Warrant.
2. REGISTRATION REQUIREMENTS. The Company shall use its best
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as would permit or facilitate the sale or
distribution of all the Registrable Securities in the manner (including
manner of sale) and in all states reasonably requested by the Holder. Such
best efforts by the Company shall include the following:
(a) The Company shall, as expeditiously as reasonably
possible after the Closing Date:
(i) But in any event within 30 days thereafter, prepare
and file a registration statement with the Commission pursuant to
Rule 415 under the Securities Act on Form S-3 under the Securities
Act (or in the event that the Company is ineligible to use such
form, such other form as the Company is eligible to use under the
Securities Act) covering the Registrable Securities ("Registration
Statement"). Such Registration Statement shall, in addition and
without limitation, register (pursuant to Rule 416 under the
Securities Act, or otherwise) such additional indeterminate number
of Registrable Securities as shall be necessary to permit the
conversion in full of the Debentures and the issuance of
additional shares of Common Stock to Holders pursuant to the
various reset provisions of the Debentures. Thereafter, the
Company shall use its best efforts to cause such Registration
Statement and other filings to be declared effective as soon as
possible, and in any event prior to 90 days following the Closing
Date. The Company shall provide Holders and their legal counsel
reasonable opportunity to review any such Registration Statement
or amendment or supplement thereto prior to filing.
(ii) 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 and notify the Holders of the filing and effectiveness
of such Registration Statement and any amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the Act,
copies of the Registration Statement, any amendment or supplement
thereto and any documents incorporated by reference therein and
such other documents as such Holder may reasonably require in
order to facilitate the disposition of Registrable Securities
owned by such Holder.
(iv) 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 each Holder; 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.
(v) Notify each Holder immediately of the happening of
any event as a result of which the prospectus (including any
supplements thereto or thereof) included in such Registration
Statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and use
its best efforts to promptly update and/or correct such
prospectus.
(vi) Notify each Holder immediately of the issuance by
the Commission or any state securities commission or agency of any
stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose.
The Company shall use its best efforts to prevent the issuance of
any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(vii) Permit a single firm of counsel, designated as
Holders' counsel by a majority of the Registrable Securities
included in the Registration Statement, to review the Registration
Statement and all amendments and supplements thereto within a
reasonable period of time prior to each filing, and shall not file
any document in a form to which such counsel reasonably objects.
(viii) Use its best efforts to list the Registrable
Securities covered by such Registration Statement with all
securities exchange(s) and/or markets on which the Common Stock is
then listed and prepare and file any required filings with the
National Association of Securities Dealers, Inc. or any exchange
or market where the Common Shares are traded.
(ix) Take all steps necessary to enable Holders to avail
themselves of the prospectus delivery mechanism set forth in Rule
153 (or successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events that
may arise that the Investors consider will interfere with the full enjoyment
of their rights under the Debentures, the Purchase Agreement and this
Agreement (the "Interfering Events"), and (II) certain remedies applicable in
each of these events.
Paragraphs (i) through (iv) of this Section 2(b)
describe the Interfering Events, provide a remedy to the Investors if an
Interfering Event occurs and provide that the Investors may require that the
Company redeem outstanding Debentures at a specified price if certain
Interfering Events are not timely cured.
Paragraph (v) provides, INTER ALIA, that if cash
payments required as the remedy in the case of certain of the Interfering
Events are not paid when due, the Company may be required by the Investors to
redeem outstanding Debentures at a specified price.
Paragraph (vi) provides, INTER ALIA, that the Investors
have the right to specific performance.
The preceding paragraphs in this Section 2(b) are meant
to serve only as an introduction to this Section 2(b), are for convenience
only, and are not to be considered in applying, construing or interpreting
this Section 2(b).
(i) DELAY IN EFFECTIVENESS OF REGISTRATION STATEMENT.
The Company agrees that it shall file the Registration Statement
complying with the requirements of this Agreement promptly and in
any event within 30 days following the date of the initial closing
of the Purchase Agreement (the "Closing Date") and shall use its
best efforts to cause such Registration Statement to become
effective as soon as possible and in any event within 90 days from
the Closing Date. In the event that such Registration Statement
has not been declared effective within 90 days from the Closing
Date, then the percentage (initially 90%) employed to determine
the "Conversion Price" pursuant to Section 5(c) of the Debentures
and all Conversion Price resets pursuant to Sections 5(d) and 5(e)
of the Debentures (the "Agreed Percentage") shall be reduced by 1%
during and after the 30-day period ("Default Period") from and
after the 90th day following the Closing Date during any part of
which such Registration Statement is not effective, and such
Agreed Percentage shall be further reduced by an additional 1.5%
during and after each Default Period thereafter. For example, if
the Registration Statement does not become effective until 120
days from the Closing Date, the Agreed Percentage from and after
day 91 shall be equal to 89%. If the Registration Statement is
not effective until the 150th day after the Closing Date, the
Agreed Percentage from and after day 121 from the Closing Date
shall be 87.5%. In each case, the Agreed Percentage and the
Conversion Price shall be subject to further adjustment as set
forth in the Debenture and the Purchase Agreement. If the
Registration Statement has not been declared effective within 120
days after the Closing Date, then each Holder shall have the right
in its sole discretion to sell its Debentures, Common Shares
and/or Warrant Shares to the Company (in whole or in part) at a
price in immediately available funds (the "Premium Redemption
Price") equal to (A) as to the Debentures, 1.3 times (i.e., 130%
of) the Outstanding Principal Amount of the Debentures plus any
accrued but unpaid or unrecognized interest or default payments
and (B) as to the Common Shares and/or Warrant Shares, 1.3 times
the dollar amount which is the product of (x) the number of shares
so to be redeemed pursuant to this paragraph, and (y) the fair
market value of such shares (as defined in the Debentures) at the
time such shares were received pursuant to conversion of
Debentures or exercise of Warrants. Payment of such amount shall
be
due and payable within 3 business days of demand therefor,
which demand shall be revocable by the Holder at any time prior to
its actual receipt of the Premium Redemption Price.
(ii) NO LISTING; PREMIUM PRICE REDEMPTION FOR DELISTING
OF CLASS OF SHARES.
(A) In the event that the Company fails, refuses
or is unable to cause the Registrable Securities covered by the
Registration Statement to be listed with the Approved Market and
each other securities exchange and market on which the Common
Stock is then traded at all times during the period ("Listing
Period") commencing the earlier of the effective date of the
Registration Statement or the 90th day following the Closing Date,
and continuing thereafter for so long as the Debentures are
outstanding, then the Company shall pay in cash to each Holder a
default payment at a rate (the "Default Payment Rate") equal to
two percent (2%) of the sum of (x) the Outstanding Principal
Amount of, (y) the accrued but unpaid interest on, plus (z) the
accrued but unpaid or unrecognized default payments on the
Debentures (the "Debenture Amount") held by such Holder for each
30-day period (or portion thereof) during the Listing Period from
and after such failure, refusal or inability to so list the
Registrable Securities until the Registrable Securities are so
listed.
(B) In the event that shares of Common Stock of
the Company are delisted from the Approved Market at any time
following the Closing Date and remain delisted for 5 consecutive
days, then at the option of each Holder and to the extent such
Holder so elects, the Company shall on 2 business days notice
redeem the Debentures and/or Common Shares and/or Warrant Shares
held by such Holder, in whole or in part, at a redemption price
equal to the Premium Redemption Price (as defined above);
provided, however, that such Holder may revoke such request at any
time prior to receipt of such payment of such redemption price.
Default payments shall no longer accrue on Debentures after such
shares have been redeemed by the Company pursuant to the foregoing
provision.
(iii) BLACKOUT PERIODS. In the event any Holder's ability
to sell Registrable Securities under the Registration Statement is
suspended:
(A) for more than (i) five (5) consecutive days or
(ii) ten (10) days in any calendar year ("Suspension Grace
Period"), including without limitation by reason of a suspension
of trading of the Common Stock on the Approved Market, any
suspension or stop order with respect to the Registration
Statement or the fact that an event has occurred as a result of
which the prospectus (including any supplements thereto) included
in such Registration Statement then in effect includes an untrue
statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then
existing; or
(B) for more than (i) fifteen (15) consecutive days
or (ii) twenty (20) days in
any calendar year ("Corporate Event Suspension Grace Period"),
by reason of any corporate event, including, without limitation,
a merger, acquisition or disposition;
then the Company shall pay in cash to each Holder a default
payment at the Default Payment Rate of the Debenture Amount for
the Debentures held by such Holder for each 30-day period (or
portion thereof) from and after the expiration of the Suspension
Grace Period or Corporate Event Suspension Grace Period.
Alternatively, a Holder shall have the right but not the
obligation to have the Company redeem its Debentures and Common
Shares and Warrant Shares at the price and on the terms (and
subject to the right to revoke) set forth in Section 2(b)(i)
above.
(iv) CONVERSION DEFICIENCY; PREMIUM PRICE REDEMPTION FOR
CONVERSION DEFICIENCY. In the event that the Company does not
have a sufficient number of Common Shares available to satisfy the
Company's obligations to any Holder upon receipt of a Conversion
Notice (as defined in the Debenture) or is otherwise unable or
unwilling to issue such Common Shares (including without
limitation by reason of the limit described in Section 10 below)
in accordance with the terms of the Debenture for any reason after
receipt of a Conversion Notice, then:
(A) The Company shall pay in cash to each Holder
a default payment at the Default Payment Rate on the Debenture
Amount for the Debentures held by such Holder for each 30-day
period (or portion thereof) that the Company fails or refuses to
issue Common Shares in accordance with the Debenture terms; and
(B) At any time five days after the commencement
of the running of the first 30-day period described above in
clause (A) of this paragraph (iv), at the request of any Holder
pursuant to a redemption notice, the Company promptly (1) shall
purchase from such Holder, at a purchase price equal to the
Premium Redemption Price, the Debenture Amount of Debentures equal
to such Holder's pro rata share of the "Deficiency", as such terms
are defined below, if the failure to issue Common Shares results
from the lack of a sufficient number thereof and (2) shall
purchase all (or such portion as such Holder may elect) of such
Holder's Debentures at such Premium Redemption Price if the
failure to issue Common Shares results from any other cause. The
"Deficiency" shall be equal to the Debenture Amount of Debentures
that would not be able to be converted for Common Shares, due to
an insufficient number of Common Shares available, if all the
outstanding Debentures were submitted for conversion at the
Conversion Price set forth in the Debentures as of the date such
Deficiency is determined. Any request by a Holder pursuant to
this paragraph (iv)(B) shall be revocable by that Holder at any
time prior to its receipt of the Premium Redemption Price.
(v) PREMIUM PRICE REDEMPTION FOR CASH PAYMENT DEFAULTS.
(A) the Company acknowledges that any failure,
refusal or inability by the Company described in the foregoing
paragraphs (i) through (iv) will cause the Holders to suffer
damages in an amount that will be difficult to ascertain,
including without limitation damages resulting from the loss of
liquidity in the Registrable Securities and the additional
investment risk in holding the Registrable Securities.
Accordingly, the parties agree that it is appropriate to include
in this Agreement the foregoing provisions for default payments,
discounts and mandatory redemptions in order to compensate the
Holders for such damages. The parties acknowledge and agree that
the default payments, discounts and mandatory redemptions set
forth above represent the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such
default payments, discounts and mandatory redemptions are
reasonable and will not constitute a penalty.
(B) Each default payment provided for in the
foregoing paragraphs (ii) through (iv) shall be in addition to
each other default payment; provided, however, that in no event
shall the Company be obligated to pay to any Holder default
payments in an aggregate amount greater than the Default Payment
Rate of the Debenture Amount of the Debentures held by such Holder
for any 30-day period (or portion thereof). All default payments
(which payments shall be pro rata on a per diem basis for any
period of less than 30 days) required to be made in connection
with the above provisions shall be paid in cash at any time upon
demand, and whether or not a demand is made, by the tenth (10th)
day of each calendar month for each partial or full 30-day period
occurring prior to that date. Until paid as required in this
Agreement, default payments shall be deemed added to, and a part
of, the Outstanding Principal Amount of a Holder's Debentures.
(C) In the event that the Company fails or refuses
to pay any default payment or honor any default adjustments of the
Agreed Percentage when due, at any Holder's request and option the
Company shall purchase all or a portion of the Debentures, Common
Shares and/or Warrant Shares held by such Holder (with default
payments accruing through the date of such purchase), within five
(5) days of such request, at a purchase price equal to the Premium
Redemption Price (as defined above), provided that such Holder may
revoke such request at any time prior to receipt of such payment
of such purchase price. Until such time as the Company purchases
such Debentures at the request of such Holder pursuant to the
preceding sentence, at any Holder's request and option the Company
shall as to such Holder pay such amount by adding and including
the amount of such default payment to the Outstanding Principal
Amount of a Holder's Debentures.
(vi) CUMULATIVE REMEDIES. The default payments and
mandatory redemptions provided for above are in addition to and
not in lieu
or limitation of any other rights the Holders may have at law,
in equity or under the terms of the Debentures, the Purchase
Agreement, the Warrants or this Agreement, including without
limitation the right to specific performance. Each Holder
shall be entitled to specific performance of any and all
obligations of the Company in connection with the registration
rights of the Holders hereunder.
(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder(s) shall so advise the
Company. Any such underwriting may only be administered by investment
bankers reasonably satisfactory to the Company. The Company shall only be
obligated to permit one underwritten offering, which offering shall be
determined by a majority-in-interest of the Holders.
(d) The Company shall enter into such customary agreements
for secondary offerings (including a customary underwriting agreement with
the underwriter or underwriters, if any) and take all such other reasonable
actions reasonably requested by the Holders in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities.
When Registrable Securities are to be sold in an underwritten offering the
Company shall:
(i) make such representations and warranties to the
Holders and the underwriter or underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters and holders in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions
of independent counsel to the Company, on and dated as of the
Effectiveness Date, which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Holders and the
underwriter(s), if any, and their counsel and covering, without
limitation, such matters as are customarily given to underwriters
and holders in underwritten offerings, addressed to the Holders
and each underwriter, if any;
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and at the time of
delivery of any Registrable Securities sold pursuant thereto), a
"comfort" letter from the Company's independent certified public
accountants addressed to the Holders and each underwriter, if any,
stating that such accountants are independent public accountants
within the meaning of the Securities Act and the applicable
published rules and regulations thereunder, and otherwise in
customary form and covering such financial and accounting matters
as are customarily covered by letters of the independent certified
public accountants delivered in connection with registered
offerings;
(iv) the underwriting agreement shall include customary
indemnification and contribution provisions to and from the
underwriters and procedures for secondary underwritten offerings;
and
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of the Registrable Securities
being sold or the managing underwriter or underwriters, if any, to
evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement, if any.
(e) The Company shall make available for inspection by the
Holders, representative(s) of all the Holders together, any underwriter
participating in any disposition pursuant to a Registration Statement, and
any attorney or accountant retained by any Holder or underwriter, all
financial and other records customary for purposes of the Holders' due
diligence examination of the Company and review of any Registration
Statement, all SEC Documents (as defined in the Purchase Agreement) filed
subsequent to the Closing, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such representative,
underwriter, attorney or accountant in connection with such Registration
Statement, provided that such parties agree to keep such information
confidential.
(f) Subject to Section 2(b) above, the Company may suspend
the use of any prospectus used in connection with the Registration Statement
only in the event, and for such period of time as, such a suspension is
required by the rules and regulations of the Commission. The Company will
use its best efforts to cause such suspension to terminate at the earliest
possible date.
(g) The Company shall file a Registration Statement with
respect to any newly authorized and/or reserved shares within five (5)
business days of any shareholders meeting authorizing same and shall use its
best efforts to cause such Registration Statement to become effective within
sixty (60) days of such shareholders meeting. If the Holders become
entitled, pursuant to an event described in clause (iii) of the definition of
Registrable Securities, to receive any securities in respect of Registrable
Securities that were already included in a Registration Statement, subsequent
to the date such Registration Statement is declared effective, and the
Company is unable under the securities laws to add such securities to the
then effective Registration Statement, the Company shall promptly file, in
accordance with the procedures set forth herein, an additional Registration
Statement with respect to such newly Registrable Securities. The Company
shall use its best efforts to (i) cause any such additional Registration
Statement, when filed, to become effective under the Securities Act, and (ii)
keep such additional Registration Statement effective during the period
described in Section 5 below. All of the registration rights and remedies
under this Agreement shall apply to the registration of such newly reserved
shares and such new Registrable Securities, including without limitation the
provisions providing for default payments contained herein.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses of a Holder shall be borne by such Holder.
4. REGISTRATION ON FORM S-3. The Company shall use its best efforts
to qualify for registration on Form S-3 or any comparable or successor form or
forms, or in the event that the Company is ineligible to use such form, such
form as the Company is eligible to use under the Securities Act.
5. REGISTRATION PERIOD. In the case of the registration effected by
the Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until the later of (a) the first anniversary of
the issue of the Debenture and Warrant and (b) the date upon which all shares of
Common
Stock issuable upon conversion of the Debentures have been sold freely
without restriction.
6. INDEMNIFICATION.
(a) THE COMPANY INDEMNITY. The Company will indemnify each
Holder, each of its officers, directors and partners, and each person
controlling each Holder, within the meaning of Section 15 of the Securities
Act and the rules and regulations thereunder with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls, within
the meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, any underwriter, against all 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 prospectus, offering circular or other document (including any related
registration statement, notification or the like) 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 the Company of the Securities Act or any state securities law or
in either case, any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to a Holder to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such
Holder or the underwriter (if any) therefor and stated to be specifically for
use therein. The indemnity agreement contained in this Section 6(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 will not be unreasonably withheld).
(b) HOLDER INDEMNITY. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities
as to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, partners, and each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act and the
rules and regulations thereunder, each other Holder (if any), and each of
their officers, directors and partners, and each person controlling such
other Holder(s) against all 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 omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein not
misleading, and will reimburse the Company and such other Holder(s) and their
directors, officers and partners, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating and 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 in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein, and provided that the maximum amount for which such Holder shall be
liable under this indemnity shall not exceed the net proceeds received by
such Holder from the sale of the Registrable Securities. The indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities if such
settlement is effected without the consent of
such Holder (which consent shall not be unreasonably withheld).
(c) PROCEDURE. Each party entitled to indemnification under
this Article (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 to assume
the defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and
the Indemnified Party may participate in such defense at such party's
expense, 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 Article except to the extent that the Indemnifying
Party is materially and adversely affected by such failure to provide notice.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, 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. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
7. CONTRIBUTION. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of
the exceptions provided therein), then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities as between the Company on the one hand and any Holder
on the other, in such proportion as is appropriate to reflect the relative
fault of the Company and of such Holder in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of
the Company on the one hand and of any Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact relates to information supplied by the Company or by such
Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Holders or the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no
Holder or underwriter shall be required to contribute any amount in excess of
the amount by which (i) in the case of any Holder, the net proceeds received
by such Holder from the sale of Registrable Securities or (ii) in the case of
an underwriter, the total price at which the Registrable Securities purchased
by it and distributed to the public were offered to the public exceeds, in
any such case, the amount of any damages that such Holder or underwriter has
otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. SURVIVAl. The indemnity and contribution agreements contained
in Sections 6 and 7 and the representations and warranties of the Company
referred to in Section 2(d)(i) shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or the Purchase
Agreement or any underwriting agreement, (ii) any investigation made by or on
behalf of any Indemnified Party or by or on behalf of the Company, and (iii)
the consummation of the sale or successive resales of the Registrable
Securities.
9. INFORMATION BY HOLDERS. Each Holder shall furnish to the
Company such information regarding such Holder and the distribution and/or
sale proposed by such Holder as the Company may reasonably request in writing
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement. The intended
method or methods of disposition and/or sale (Plan of Distribution) of such
securities as so provided by such Investor shall be included without
alteration in the Registration Statement covering the Registrable Securities
and shall not be changed without written consent of such Holder.
10. NASDAQ LIMIT ON STOCK ISSUANCES. Section 7(g) of the Debenture
shall govern limits imposed by NASDAQ rules on the conversion of Debentures
or the exercise of Warrants.
11. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Common Shares or Warrant Shares held by any Investor (or then Holder) may be
exchanged by such Investor (or such Holder) at any time and from time to time
for certificates with different denominations representing an equal aggregate
number of Common Shares or Warrant Shares, as reasonably requested by such
Investor (or such Holder) upon surrendering the same. No service charge will
be made for such registration or transfer or exchange.
12. TRANSFER OR ASSIGNMENT. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties
and their successors and permitted assigns. The rights granted to the
Investors by the Company under this Agreement to cause the Company to
register Registrable Securities may be transferred or assigned (in whole or
in part) to a transferee or assignee of Debentures or Warrants, and all other
rights granted to the Investors by the Company hereunder may be transferred
or assigned to any transferee or assignee of any Debentures or Warrants;
provided in each case that the Company must be given written notice by the
such Investor at the time of or within a reasonable time after said transfer
or assignment, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration rights
are being transferred or assigned; and provided further that the transferee
or assignee of such rights agrees in writing to be bound by the registration
provisions of this Agreement.
13. MISCELLANEOUS.
(a) REMEDIES. The Company and the Investors acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) JURISDICTION. THE COMPANY AND EACH OF THE INVESTORS (I)
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED
STATES SITTING IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (II)
HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH SUIT ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION
OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY AND EACH OF THE INVESTORS CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO
SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT
ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing by facsimile, mail or
personal delivery and shall be effective upon actual receipt of such notice.
The addresses for such communications shall be:
to the Company:
Zitel Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
to the Investors:
To each Investor at the address and/or fax number set forth
on Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
parties hereto.
(d) INDEMNITY. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement.
(e) WAIVERS. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter. The representations
and warranties and the agreements and covenants of the Company and each
Investor contained herein shall survive the Closing.
(f) EXECUTION. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(g) PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of any
Investor without its consent, unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such
requirement. The Company agrees that a copy of any public announcement
(other than the filing of the Purchase Agreement as an Exhibit on Form 8-K)
regarding the matters covered by this Agreement or any agreement or document
executed herewith and any public announcement including the name of an
Investor will be approved by each Investor, prior to the publication of such
announcements. Notwithstanding the foregoing, on the Closing Date the
Company may issue a public announcement stating only that (a) the Company has
completed a $10,000,000 financing of convertible debentures with an
institutional investor, and that (b) the convertible debentures are subject
to a conversion price fixed pursuant to a formula which includes a 10%
discount.
(h) ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement, the Debentures and the Warrants and the agreements and
documents contemplated hereby and thereby, contains the entire understanding
and agreement of the parties, and may not be modified or terminated except by
a written agreement signed by both parties.
(i) GOVERNING LAW; CONSENT OF JURISDICTION. THIS AGREEMENT
AND THE VALIDITY AND PERFORMANCE OF THE TERMS HEREOF SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED ENTIRELY IN
SUCH STATE.
(j) SEVERABILITY. The parties acknowledge and agree that
the Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors
hereunder are several and not joint, that no Investor shall have any
responsibility or liability for the representations, warrants, agreements,
acts or omissions of any other Investor, and that any rights granted to
"Investors" hereunder shall be enforceable by each Investor hereunder.
(k) JURY TRIAL. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL
BY JURY.
(l) TITLES. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
[ SIGNATURE PAGES FOLLOW ]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
ZITEL CORPORATION:
By:
--------------------------
Name:
Title:
INVESTORS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By:
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Director
PALLADIN PARTNERS I, L.P.
By: PALLADIN ASSET MANAGEMENT, L.L.C.
General Partner
By:
---------------------------------
Name:
Title:
PALLADIN OVERSEAS FUND LIMITED
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By:
----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By:
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Director
PALLADIN SECURITIES, LLC
By:
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Principal
COLONIAL PENN LIFE INSURANCE COMPANY
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By:
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Director
[SIGNATURE PAGE TO ZITEL CORPORATION REGISTRATION RIGHTS AGREEMENT]
SCHEDULE I
NAME OF PURCHASER NAME OF PURCHASER
------------------- -----------------
HALIFAX FUND, L.P. PALLADIN PARTNERS I, L.P.
c/o The Palladin Group, L.P. c/o Palladin Asset Management, LLC
Investment Manager ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
PALLADIN OVERSEAS FUND LIMITED THE GLENEAGLES FUND COMPANY
c/o The Palladin Group, L.P. c/o The Palladin Group, L.P.
Investment Manager Investment Manager
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
PALLADIN SECURITIES, LLC COLONIAL PENN LIFE INSURANCE COMPANY
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ c/o The Palladin Group, L.P.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Investment Manager
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇