EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
February 2, 1999 between ZITEL CORPORATION, a California corporation with
offices at 47211 Bayside Parkway, Fremont, California 94538 (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.
WITNESSETH:
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 $5 million principal amount of the Company's 3% Convertible
Subordinated Debentures (the "Debentures") on the terms and conditions set
forth therein;
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.
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"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", "REGISTERED" 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
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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.
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(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
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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 150 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:
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(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) twenty (20) consecutive days or
(ii) thirty (30) 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.
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(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
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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
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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
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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 se 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
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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
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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
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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
47211 Bayside Parkway
Fremont, California 94538
Attention: Chief Financial Officer
Facsimile: (510) 440-8526
to the Investors:
To each Investor at the address and/or fax number set forth
on Schedule I of this Agreement.
with copies to:
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Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, 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) 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.
(h) 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.
(i) 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.
(j) JURY TRIAL. Each party hereto waives the right to a trial by
jury.
(k) 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 ]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ZITEL CORPORATION
By: Anna M. McCann
-------------------------------
Name: Anna M. McCann
Title: V.P. Finance & Administration
INVESTORS:
HALIFAX FUND, L.P.
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN PARTNERS I, L.P.
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN OVERSEAS FUND LIMITED
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
[SIGNATURE PAGE TO ZITEL CORPORATION CONVERTIBLE SUBORDINATED DEBENTURE
PURCHASE AGREEMENT]
15
THE GLENEAGLES FUND COMPANY
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
PALLADIN SECURITIES, LLC
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
COLONIAL PENN LIFE INSURANCE COMPANY
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
LANCER SECURITIES LIMITED
By: PALLADIN GROUP L.P.
Attorney-in-Fact
By: Jeffrey E. Devers
-------------------------------
Name: Jeffrey E. Devers
Title: President
[SIGNATURE PAGE TO ZITEL CORPORATION CONVERTIBLE SUBORDINATED DEBENTURE
PURCHASE AGREEMENT]
16