Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT


THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of February 19, 1998, by and among Ancor Communications, Incorporated, a corporation duly incorporated and existing under the laws of the State of Minnesota ("Company"), Dunwoody Brokerage Services, Inc. ("Dunwoody"), a Georgia limited liability company, and the subscribers (hereinafter referred to as "Subscribers") to the Company's Offering ("Offering") of up to Eleven Million Dollars ($11,000,000) of Series C Preferred Stock (the "Preferred Stock") pursuant to the Regulation D Subscription Agreements between the Company and each of the Subscribers ("Subscription Agreements").


1. DEFINITIONS. For purposes of this Agreement:
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(a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933 (the "Act"), and pursuant to Rule 415 under the Act or any successor rule, and the declaration or ordering of effectiveness of such registration statement or document;


(b) For purposes hereof, the term "Registrable Securities" means the shares of the Company's Common Stock together with any capital stock issued in replacement of, in exchange for or otherwise in respect of such Common Stock (the "Common Stock"), issuable or issued upon (i) conversion of the Preferred Stock, and (ii) exercise of the Warrants to purchase Common stock issued to Dunwoody in connection with the Offering (the "Placement Agent Warrants", also referred to as the "Warrants"), by Dunwoody or any subsequent Holder of the Warrant or portion thereof.


Notwithstanding the above:


1. Common Stock which would otherwise be deemed to be Registrable
Securities shall not constitute Registrable Securities if and to the
extent that those shares of Common Stock may be resold in a public
transaction pursuant to Rule 144(k) under the Act; and


2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.


(c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock which have been issued or are issuable upon conversion of the Preferred Stock and exercise of the then outstanding Warrants at the time of such determination;


(d) The term "Holder" means any person owning or having the right to acquire Registrable Securities;


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(e) The term "Filing Date" means the date which is twenty (20) days after the Last Closing Date (as defined in the Certificate of Designation of the Series C Preferred Stock) and the term "Due Date" means the date which is ninety (90) days after such Last Closing Date.


2. REQUIRED REGISTRATION.
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(a) The Company shall use its best efforts to file, by the Filing Date, a registration statement ("Registration Statement") on Form S-3 (or other suitable form, at the Company's discretion, but subject to the reasonable approval of the Holders), covering no more than 120,000 shares for holders of piggyback rights at the time of this Agreement, other than in connection with the Series B Preferred Stock, plus covering the resale of all of the Registrable Securities, which Registration Statement, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Stock and the exercise of the Warrants (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of changes in the conversion price of the Preferred Stock or the exercise price of the Warrants in accordance with the terms thereof, as the case may be. Such Registration Statement shall initially cover the number of shares issuable upon exercise of the Warrants plus at least Two Million Six Hundred Fifty Thousand (2,650,000) shares of Common Stock. The Company shall use its best efforts to have the Registration Statement declared effective as soon as possible. In the event that the Company is notified at any time by a Holder of Registrable Securities relating to the Preferred Stock ("Registrable Conversion Shares") that the Registration Statement does not cover a sufficient number of shares of Common Stock to effect the resales of a number of shares of Common Stock equal to at least (i) one hundred fifty percent (150%) of the number of shares of Common Stock issuable to such Holder upon conversion of all of such Holder's outstanding Preferred Stock (without regard to any limitations on conversions) for any five (5) business days out of any thirty (30) consecutive business days or (ii) one hundred and twenty-five percent (125%) of the number of shares of Common Stock issuable to such Holder upon conversion of all of such Holder's outstanding Preferred Stock (without regard to any limitations on conversions) for any two (2) consecutive business days (a "Registration Shortfall"), the Company shall, within seven (7) business days, amend the Registration Statement or file a new Registration Statement (an "Amended" or "New" Registration Statement, respectively), as appropriate, to add such number of additional shares as would be necessary to effect the resales of a number of shares of Common Stock equal to at least two hundred percent (200%) of the number of shares of Common Stock issuable to each Holder upon conversion of all outstanding Preferred Stock (without regard to any limitations on conversions). If for any reason or for no reason (including by exercise of the Company's rights pursuant to Section 6 hereof), the Registration Statement is not declared effective under the Securities Act on or prior to the Due Date or is not available for resales of all Registrable Securities at anytime thereafter ("Registration Failure Period"), the Company shall make payments to each Holder ("Registration Failure Payments") which shall accrue at the rate of 2% per month, accruing daily, on each Holder's "Illiquid Amount", as defined below, for the first 30 days of such Registration Failure Period and 3% per month, accruing daily, on the Illiquid Amount, for the remainder of such Registration Failure Period, payable (i) in shares of Common Stock ("Additional Shares"), valued at the Closing Bid Price


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(as defined in the Certificate of Designation) of the Common Stock on the business day immediately prior to the delivery of the Additional Shares to the extent that such Registration Failure Period occurred during the first 90 days after the Due Date or (ii) in cash, to the extent that such Registration Failure Period occurred following the 90th day after the Due Date, in each case payable within 5 business days of the last day of the calendar month in which they accrue (provided, however, that a Holder may elect to receive any cash Registration Failure Payments in Common Stock in such Holder's sole discretion.


For purposes hereof, the Holder's "Illiquid Amount" shall mean:


the difference of (a) the aggregate Total Value (as defined in the
Certificate of Designations) of all of Holder's outstanding Preferred Stock
minus (b) if such Registration Failure Payments accrued more than 1 year
after the Last Closing Date but less than 2 years after the Last Closing
Date, the 144 Dollar Amount (as defined below). For purposes of this
Section 2(a) "144 Dollar Amount" shall mean the product of (x) 1% of the
number of shares of Common Stock outstanding as shown by the most recent
report or statement publicly released by the Company and (y) the average of
the Conversion Prices (as defined in the Certificate of Designations) on
the trading days during the Registration Failure Period with respect to
which such payments have accrued.


Notwithstanding the above, no Registration Failure Payments shall accrue prior to the Due Date.


Such Additional Shares shall also be deemed "Registrable Securities" as defined herein. The Company covenants to use its best efforts to use Form S-3 for the registration required by this Section during all applicable times contemplated by this Agreement.


In the event the Company is informed by the SEC that the SEC will not declare the Registration Statement effective, or the Company's board of directors determines in its good faith judgment that the Registration Statement can not be made effective, Registration Failure Payments shall cease to accrue and the Holders shall be entitled to the remedies contained in Section 12 of the Certificate of Designation for a Triggering Event (as defined therein).


(b) The Registration Statement shall be prepared as a "shelf" registration statement under Rule 415, and shall be maintained effective until all Registrable Securities cease to exist.


(c) The Company represents that it is presently eligible to effect the registration contemplated hereby on Form S-3 and will use its best efforts to continue to take such actions as are necessary to maintain such eligibility.


(d) Notwithstanding anything contained herein to the contrary, the Company shall not be required to register additional shares hereunder if such shares are not available for issuance as a result of the unavailability of authorized but unreserved shares of Common Stock.


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(e) The initial number of Registrable Conversion Shares included in any Registration Statement and each increase in the number of Registrable Conversion Shares included therein shall be allocated pro rata among the Holders of Registrable Conversion Shares based on the number of Registrable Conversion Shares held by each Holder at the time the Registration Statement covering such initial number of Registrable Conversion Shares or increase thereof is declared effective by the SEC. In the event that a Holder of Registrable Conversion Shares sells or otherwise transfers any of such person's Registrable Conversion Shares (other than pursuant to the Registration Statement), each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Conversion Shares included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain allocated to any person which ceases to hold any Registrable Securities shall be allocated to the remaining of Holders of Preferred Stock, pro rata based on the number of Registrable Conversion Shares then held by such Holder.


3. PIGGYBACK REGISTRATION. If the Registration Statement described
---------------------- in Section 2 is not effective and if (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its Common Stock under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely for the sale of securities to participants in a Company stock plan or a registration on Form S-4 promulgated under the Act or any successor or similar form registering stock issuable upon a reclassification, upon a business combination involving an exchange of securities or upon an exchange offer for securities of the issuer or another entity), the Company shall, at such time, promptly give each Holder written notice of such registration (a "Piggyback Registration Statement"). Upon the written request of each Holder given by fax within ten (10) days after mailing of such notice by the Company, the Company shall cause to be included in such registration statement under the Act all of the Registrable Securities that each such Holder has requested to be registered ("Piggyback Registration") to the extent such inclusion does not violate the registration rights of any other security holder of the company granted prior to the date hereof; nothing herein shall prevent the ...