Exhibit 4.2
NETGEAR, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
DATED AS OF FEBRUARY 7, 2002
TABLE OF CONTENTS
PAGE
1. CERTAIN DEFINITIONS..................................................... 2
2. REGISTRATION RIGHTS..................................................... 5
2.1 Required Registrations............................................ 5
2.2 Incidental Registration........................................... 8
2.3 Registration Procedures........................................... 10
2.4 Registration Expenses............................................. 13
2.5 Indemnification and Contribution.................................. 13
2.6 Other Matters with Respect to Underwritten Offerings.............. 15
2.7 Information by Holder............................................. 16
2.8 "Stand-Off" Agreement; Confidentiality of Notices................. 16
2.9 Limitations on Subsequent Registration Rights..................... 16
2.10 Rule 144 Requirements............................................. 17
2.11 Transfer or Assignment of Registration Rights..................... 17
2.12 Termination....................................................... 18
3. PREEMPTIVE RIGHTS OF STOCKHOLDERS WITH RESPECT TO CERTAIN ISSUANCES OF
SECURITIES BY THE COMPANY............................................... 18
3.1 Preemptive Rights of Stockholders................................. 18
3.2 Transfer or Assignment of Preemptive Rights....................... 22
3.3 Termination....................................................... 22
4. MUTUAL RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS AMONG THE STOCKHOLDERS 22
4.1 Offer of Sale; Notice of Proposed Sale............................ 22
4.2 Non-Selling Parties' Option to Purchase........................... 23
4.3 Failure to Fully Exercise Options................................. 24
4.4 Transfer or Assignment of Right of First Refusal and Co-Sale
Rights............................................................ 24
4.5 Termination of Right of First Refusal and Co-Sale Rights.......... 25
5. INSPECTION AND INFORMATION RIGHTS....................................... 25
5.1 Inspection Rights................................................. 25
5.2 Financial Statements and Other Information........................ 25
5.3 Reservation of Common Stock....................................... 26
5.4 Agreements with Employees......................................... 26
5.5 Board Meetings.................................................... 26
5.6 Termination of Covenants.......................................... 26
6. VOTING AGREEMENT........................................................ 26
6.1 Board of Directors................................................ 26
6.2 Voting............................................................ 27
6.3 Shares............................................................ 27
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6.4 Transfer of Rights............................................ 28
6.5 Termination................................................... 28
6.6 No Revocation................................................. 28
6.7 Bylaws........................................................ 28
7. Restrictions on Transfer of Shares................................. 28
7.1 Restricted Shares............................................. 28
7.2 Restrictions on Transfer...................................... 29
7.3 Requirements for Transfer..................................... 29
7.4 Permitted Transfers........................................... 29
7.5 Legends....................................................... 29
8. Miscellaneous...................................................... 31
8.1 Survival..................................................... 31
8.2 Further Assurances........................................... 31
8.3 Governing Law................................................ 32
8.4 Entire Agreement; Amendment.................................. 32
8.5 Notices...................................................... 32
8.6 Severability................................................. 33
8.7 Confidentiality.............................................. 33
8.8 Fees and Expenses............................................ 33
8.9 Counterparts................................................. 33
8.10 Telecopy Execution........................................... 34
8.11 Titles and Subtitles......................................... 34
8.12 Waiver and Termination of Prior Documents.................... 34
8.13 No Conflict.................................................. 34
8.14 Effectiveness. This Agreement shall only become effective
following the consummation of both the Series C Financing
and the Nortel Repurchase.................................... 34
EXHIBITS
Exhibit A List of Investors
Exhibit B Forms of Nondisclosure and Assignment of Inventions Agreement
with Employees
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NETGEAR, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (this "AGREEMENT"),
dated as of February 7, 2002 (the "CLOSING DATE"), is entered into by and among
(a) NETGEAR, Inc., a Delaware corporation (the "COMPANY"), and the individuals
and entities listed on EXHIBIT A attached hereto (such individuals and entities
and their successors and assigns, the "INVESTORS"), as consented to and
approved in its entirety by Nortel Networks Limited, a corporation organized
under the laws of Canada (together with its successors and assigns, "NORTEL
NETWORKS"), and (b) for purposes of Section 2, Section 5 and Section 8 herein
only, Nortel Networks with respect to any shares of Common Stock issued or
issuable upon conversion of that certain Subordinated Unsecured Convertible
Promissory Note, dated as of the date hereof, from the Company to Nortel
Networks (the "NORTEL NOTE") to be issued in connection with the repurchase or
redemption by the Company of any or all of the shares of Series A Preferred
Stock of the Company held by Nortel Networks (the "NORTEL REPURCHASE").
RECITALS
WHEREAS, Nortel Networks and certain of the Investors hold shares of
Series A Preferred Stock, par value $0.001 per share ("SERIES A PREFERRED
STOCK") of the Company and certain of the Investors hold shares of Series B
Preferred Stock, par value $0.001 per share ("SERIES B PREFERRED STOCK") of the
Company, and such parties possess: (a) certain registration rights, rights of
first refusal with respect to certain issuances of securities by the Company
and other rights and obligations pursuant to that certain Investor Rights
Agreement, dated as of March 10, 2000, as amended, by and among the Company,
Nortel Networks NA Inc. and the Investors (the "PRIOR RIGHTS AGREEMENT"); (b)
certain mutual rights of first refusal and co-sale rights with respect to
certain stock transfers by one another, inspection and information rights with
respect to the Company, stock transfer restrictions and other rights and
obligations pursuant to the terms and conditions of that certain Series B
Preferred Stock Purchase Agreement, dated as of March 10, 2000, as amended, by
and among the Company, Nortel Networks NA Inc. and the Investors (the "SERIES B
PURCHASE AGREEMENT"); and (c) certain voting rights and other rights pursuant
to that certain Stockholders' Voting Agreement, dated as of March 10, 2000, as
amended, by and among the Company, Nortel Networks NA Inc. and the Investors
(the "PRIOR VOTING AGREEMENT").
WHEREAS, the Company and certain of the Investors (the "PURCHASERS")
entered into a Series C Preferred Stock Purchase Agreement, dated January 28,
2002 (the "SERIES C PURCHASE AGREEMENT"), pursuant to which the Company, as of
the Closing Date, will raise equity financing and acquire certain contractual
liquidation preference rights from such Investors in consideration for the sale
and issuance of shares of Series C Preferred Stock, par value $0.001 per share
("SERIES C PREFERRED STOCK") of the Company, to such Investors.
WHEREAS, the Company and Nortel Networks are entering into a certain Series
A Preferred Stock Repurchase Agreement, dated January 28, 2002 (the "SERIES A
REPURCHASE AGREEMENT"), pursuant to which the Company, as of the Closing Date,
will repurchase all of the shares of Series A Preferred Stock of the Company
held by Nortel Networks immediately prior to the Closing Date in consideration
for issuing the Nortel Note to Nortel Networks, assuming certain contractual
liquidation preference obligations from Nortel Networks and paying Nortel
Networks approximately $4.7 million in cash.
WHEREAS, the Company, Nortel Networks and the undersigned Investors holding
the requisite number of shares of Series A Preferred Stock and Series B
Preferred Stock of the Company desire to enter into this Agreement to amend and
restate in its entirety all of the rights, preferences, privileges and
obligations granted pursuant to the Prior Rights Agreement in favor of the
rights, preferences, privileges and obligations set forth herein.
WHEREAS, the Company, Nortel Networks and the undersigned Investors holding
the requisite number of shares of Series A Preferred Stock and Series B
Preferred Stock of the Company desire to enter into this Agreement to amend and
restate in its entirety all of the rights, preferences, privileges and
obligations granted pursuant to Section 4 (Mutual Right of First Refusal),
Section 8 (Affirmative Covenants) and Section 9 (Transfer of Shares) of the
Series B Purchase Agreement in favor of the rights, preferences, privileges and
obligations set forth herein.
WHEREAS, the Company, Nortel Networks and the undersigned Investors holding
the requisite number of shares of Series A Preferred Stock and Series B
Preferred Stock of the Company desire to amend and restate in its entirety all
of the rights, preferences, privileges and obligations granted pursuant to the
Prior Voting Agreement in favor of the rights, preferences, privileges and
obligations set forth herein.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and mutual agreements set forth herein, and for other good and
valuable consideration, intending to be legally bound hereby, the parties hereto
agree that (a) Sections 4, 8 and 9 of the Series B Purchase Agreement, (b) the
Prior Rights Agreement and (c) the Prior Voting Agreement shall each be amended
and restated in their entirety by this Agreement, with the effect that such
sections and agreements shall no longer be valid, and the parties hereto further
agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings
(a) "Affiliate" means any person or entity directly or
indirectly controlling, controlled by or under direct or indirect common
control with a person or entity.
(b) "Commission" means the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
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(c) "Common Stock" means the common stock, $0.001 par value per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
(e) "Initiating Holders" means the Stockholders initiating a
request for registration pursuant to Section 2.1(a) and the Stockholders
electing to include their Shares in such registration pursuant to Section
2.1(b).
(f) "Other Holders" shall have the meaning set forth in Section
2.1(c).
(g) "Prospectus" means the prospectus included in any
Registration Statement, as amended or supplemented by an amendment or prospectus
supplement, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
(h) "Qualified Initial Public Offering" means the initial firm
commitment underwritten public offering of shares of Common Stock of the Company
pursuant to an effective Registration Statement under the Securities Act which
results in gross proceeds before deduction of selling and other related expenses
to the Company of at least $35,000,000 at a concurrent valuation of the Company
of not less than $250,000,000.
(i) "Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company, other than a registration statement relating (i) solely to
employee benefit plans, (ii) to the offer and sale of non-convertible debt
securities, (iii) to a corporate reorganization or other transaction on Form
S-4, or (iv) to any registration or registration form that does not permit
secondary sales by persons or entities other than the Company.
(j) "Registration Expenses" means the expenses described in
Section 2.4.
(k) "Registrable Shares" means (i) any shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) any shares of Common
Stock, and any shares of Common Stock issued or issuable upon the conversion or
exercise of any other securities, acquired by the Investors pursuant to Section
3 or Section 4 of this Agreement, (iii) any other shares of Common Stock issued
in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations or similar events), and (iv) any shares of
Common Stock issued to Nortel Networks upon conversion of the Nortel Note;
provided, however, that shares of Common Stock issued or issuable as set forth
above which are Registrable Shares shall cease to be Registrable Shares upon (i)
any sale of such shares pursuant to a Registration Statement (and during the
pendency of a registration of such shares) or Rule 144 under the Securities Act
or (ii) any sale of such shares in any manner to a person or entity which, by
virtue of Section 2.11 of this Agreement,
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is not entitled to the registration rights provided by this Agreement.
Wherever reference is made in this Agreement to a request or consent of holders
of a certain percentage of Registrable Shares, the determination of such
percentage shall include shares of Common Stock issuable upon conversion of the
Shares even if such conversion has not been effected.
(l) "Securities Act" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
(m) "Selling Stockholder" means any Stockholder and/or Nortel
Networks owning Registrable Shares included in a Registration Statement.
(n) "Shares" means the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock of the Company, and any shares of
Common Stock that may be issued upon conversion of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of the Company.
(o) "Stockholders" means the Investors (together with
Affiliates), to the extent they continue to hold securities of the Company, and
any persons or entities to whom such securities and the rights and obligations
granted under this Agreement have been transferred by the Investors, or their
successors or assigns, subject to the restrictions on transfer set forth in
Section 7 and elsewhere in this Agreement.
(p) Each of the following terms is defined in the Section set
forth opposite such term:
TERM SECTION
Available Undersubscription
Amount Section 3.1(b)
Basic Amount Section 3.1(a)
Closing Date Introduction
Company Offer Section 3.1(a)
Company Offered Securities Section 3.1(a)
Halyard Section 6.1(d)
Indemnified Party Section 2.5(c)
Indemnifying Party Section 2.5(c)
Non-Selling Parties Section 4.1
Nortel Note Recitals
Notice of Acceptance Section 3.1(b)
Option Period Section 4.3(a)
Pequot Section 6.1(b)
Permitted Transfer Section 7.4
Prior Rights Agreement Recitals
Prior Voting Agreement Recitals
Pro Rata Share Section 4.2(a)
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Refused Securities Section 3.1(c)
Remaining Stockholders Section 6.1(e)
Remaining Shares Section 4.2(b)
Restricted Shares Section 7.1
Selling Party Section 4.1
Series A Preferred Stock Recitals
Series B Preferred Stock Recitals
Series C Preferred Stock Recitals
Series B Purchase Agreement Recitals
Shamrock Section 3.1(g)(13)
Shamrock Warrants Section 3.1(g)(13)
Stockholder Offered Shares Section 4.1
Stockholder Sale Notice Section 4.1
Undersubscription Amount Section 3.1(a)
2. REGISTRATION RIGHTS.
2.1 Required Registrations. Beginning as of the date hereof and
provided that any requested registration which is for an initial public
offering shall be a Qualified Initial Public Offering:
(a) Each Stockholder or Stockholders holding in the aggregate
at least 10% of the Registrable Shares then issued and outstanding and held by
the Stockholders, may request, in writing, that the Company effect a
registration on Form S-1, Form S-2 or Form S-3 (or any successor form) of
Registrable Shares owned by such requesting Stockholder or Stockholders having
an aggregate value of at least $5,000,000 (based on the then current market
price or fair value), and, in addition to the foregoing, Nortel Networks may
request, in writing, that the Company effect a registration on Form S-1, Form
S-2 or Form S-3 (or any successor form) of Registrable Shares then issued and
outstanding and held by Nortel Networks; provided, however, that the Company
shall not be required to effect any registration within six months after the
effective date of any other Registration Statement of the Company; and
(b) Upon receipt of any request for registration pursuant to
this Section 2:
(i) the Company will promptly give written notice of such
proposed registration to all other Stockholders and Nortel Networks;
(ii) such Stockholders and Nortel Networks shall have the
right, by giving written notice to the Company within twenty (20) calendar days
after the Company provides its notice, to elect to have included in such
registration such of their Registrable Shares as such Stockholders and Nortel
Networks may request in such notice of election, subject in the case of an
underwritten offering to the approval of the managing underwriter as provided
in Section 2.1(d) below; and
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(iii) thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on an appropriate
registration form of all Registrable Shares which the Company has been requested
to so register, subject to the limitations set forth herein.
(c) If the Initiating Holders or Nortel Networks intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company. The right of any other person to include its
securities in such registration pursuant to this Section 2.1(c) shall be
conditioned upon such other person's participation in such underwriting, as
follows:
(i) Subject to Section 2.9 herein, if the Company
desires that any officers or directors of the Company holding securities of the
Company be included in any registration for an underwritten offering requested
pursuant to Section 2.1(c) or if other holders of securities of the Company who
are entitled, by contract with the Company entered into after the date of this
Agreement, to have securities included in such a registration (the "OTHER
HOLDERS") request such inclusion, the Company may include the securities of such
officers, directors and Other Holders in such registration and underwriting on
the terms set forth herein.
(ii) The Company shall (together with all Stockholders,
Nortel Networks, officers, directors and Other Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form (including without limitation customary indemnification and
contribution provisions on the part of the Company) with the managing
underwriter.
(iii) Notwithstanding any other provision of this Section
2.1(c), (x) in the case of a registration initiated by the Initiating Holders,
if the managing underwriter informs the Company that the inclusion of all shares
requested to be registered would adversely affect the offering, (A) the
securities of the Company held by officers or directors of the Company (other
than Registrable Shares) and the securities held by Other Holders (other than
Registrable Shares) shall be excluded from such registration and underwriting to
the extent deemed advisable by the managing underwriter, and (B) if a further
limitation of the number of shares is required, the number of shares that may be
included in such registration and underwriting shall be allocated among all
Stockholders requesting registration in any registration initiated by Initiating
Holders and Nortel Networks to the extent that Nortel Networks desires to
participate in such registration, as nearly as practicable, to the respective
number of Registrable Shares requested to be registered by them in the aggregate
at the time the respective requests for registration were made pursuant to
Section 2.1(a); provided, however, that in no event shall the number of
Registrable Shares requested to be registered (i) by the Stockholders in any
registration initiated by Initiating Holders be reduced to less than thirty
percent (30%) of any underwriting subsequent to the Qualified Initial Public
Offering of the Company and (y) in the case of a registration initiated by
Nortel Networks, if the managing underwriter informs the Company that the
inclusion of all shares requested to be registered would adversely affect the
offering, (A) the securities of the Company held by officers or directors of the
Company (other than Registrable Shares) and the securities held by Other Holders
(other than Registrable Shares) shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing
6
underwriter, and (B) if a further limitation of the number of shares is
required, the number of shares of the Stockholders that may be included in such
registration and underwriting shall be proportionately excluded from such
registration and underwriting to the extent deemed advisable by the managing
underwriter. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriter(s) may round the number of shares
allocated to any person to the nearest 100 shares.
(iv) If any holder of Registrable Shares, officer, director or
Other Holder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, and the securities so withdrawn
shall also be withdrawn from registration. If the managing underwriter has not
limited the number of Registrable Shares or other securities to be underwritten,
the Company may include securities for its own account in such registration if
the managing underwriter so agrees and if the number of Registrable Shares and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited.
(d) The Initiating Holders shall have the right to select the managing
underwriter(s) for any underwritten offering initiated by Initiating Holders and
Nortel Networks shall have the right to select the managing underwriter(s) for
any underwritten offering initiated by Nortel Networks pursuant to Section
2.1(a), subject to the approval of the Company, which approval will not be
unreasonably withheld.
(e) The Company shall not be required to effect, or take any action to
effect, any registration pursuant to this Section 2.1:
(i) with respect to Stockholders, after the Company has initiated
four (4) registrations requested by Stockholders pursuant to this Section 2.1;
(ii) with respect to Nortel Networks, after the Company has
initiated one (1) registration requested by Nortel Networks pursuant to this
Section 2.1;
(iii) subject to the Company's obligations under Section 2.2,
during the period starting with the effective date of the registration statement
and ending on a date one hundred eighty (180) calendar days after the effective
date of a Company-initiated registration.
For purpose of clauses (i) and (ii) of this Section 2.1(e), a registration
shall not be counted until such time as the related Registration Statement has
been declared or ordered effective by the Commission and (i) the Registration
Statement remains continuously effective for six months or (ii) all Registrable
Shares registered in such registration are sold, if earlier; provided, however,
that a registration shall not be counted if (x) after the related Registration
Statement has become effective, such registration or the related offer, sale or
distribution of Registrable Shares thereunder is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Selling
Stockholders and such interference is not thereafter eliminated, (y) the
conditions specified on the underwriting
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agreement, if any, entered into in connection with such Registration Statement
are not satisfied or waived, other than by reason of the Selling Stockholders
or (z) the related Registration Statement is withdrawn by the Selling
Stockholders and the Selling Stockholders have elected to bear all the
Registration Expenses pursuant to Section 2.4 hereof. The time period referred
to in Section 2.3(a)(ii) during which the Registration Statement must be kept
effective shall be extended for an additional number of business days equal to
the number of business days during which the right to sell the Registrable
Shares was interfered with as set forth in the preceding sentence. For purposes
of this Section 2.1(e), a registration shall be counted if the related
Registration Statement is withdrawn by the Stockholders or Nortel Networks, as
applicable, and the Stockholders or Nortel Networks, as applicable, have not
elected to bear the Registration Expenses pursuant to Section 2.4 hereof and
would, absent such election, have been required to bear such expenses. For
purposes of clarification, a registration shall not be counted for purposes of
this Section 2.1(e) if the related Registration Statement is withdrawn by the
Stockholders or Nortel Networks because the Company has taken actions or
suffered any consequences that would have a material adverse effect on the
Company or delay the effectiveness of such Registration Statement (whether
because (i) the Company has elected to delay such Registration Statement
pursuant to the Company's rights hereunder; (ii) there have been negative
developments with respect to the Company that would require disclosure in order
for such Registration Statement to not be misleading, or (iii) otherwise).
(f) If at the time of any request to register Registrable Shares by
Initiating Holders or Nortel Networks pursuant to this Section 2.1, the Company
is engaged or has plans to engage in a registered public offering or is engaged
in any other activity which, in the good faith determination of the Company's
Board of Directors, would be adversely affected by the requested registration,
then the Company may at its option direct that such request be delayed for a
period not in excess of ninety (90) calendar days from the date of such
request, such right to delay a request to be exercised by the Company not more
than twice in any 12-month period. If after a Registration Statement becomes
effective, the Company advises the Selling Stockholders that the Company
considers it appropriate that the Registration Statement be amended, the
holders of such shares shall suspend any further sales of their Registrable
Shares until the Company advises them that the Registration Statement has been
amended. The time period referred to in Section 2.3(a)(ii) during which the
Registration Statement must be kept effective shall be extended for an
additional number of business days equal to the number of business days during
which the right to sell shares was suspended as set forth in the preceding
sentence.
2.2 Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(other than a Registration Statement filed pursuant to Section 2.1 or a
Registration Statement covering shares to be sold solely for the account of
Other Holders) at any time and from time to time after the closing of the
Qualified Initial Public Offering of the Company, it will, prior to such
filing, give written notice to all Stockholders and Nortel Networks holding
Registrable Shares of its intention to do so; provided, that no such notice
need be given if no Registrable Shares are to be included therein as a result
of a determination of the managing underwriter pursuant to Section 2.2(b). Upon
the written request of a Stockholder, Stockholders or Nortel Networks given
within twenty (20) calendar
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days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), except as set forth
in Section 2.2(b), the Company shall use its best efforts to cause all
Registrable Shares which the Company has been requested by such Stockholder,
Stockholders or Nortel Networks to register to be included in such registration;
provided, that the Company shall have the right to delay, postpone or withdraw
any registration effected pursuant to this Section 2.2 without obligation to any
Stockholder, Nortel Networks or other party; provided, further; that in such
event a Stockholder or Nortel Networks may request a registration in accordance
with Section 2.1, subject to the limitations set forth therein.
(b) If the registration for which the Company gives notice pursuant
to Section 2.2(a) is a registered public offering involving an underwriting,
the Company shall so advise the Stockholders and Nortel Networks as a part of
the written notice given pursuant to Section 2.2(a), and, in such event:
(i) The right of any Stockholder and Nortel Networks to include
its Registrable Shares in such registration pursuant to this Section 2.2 shall
be conditioned upon such Stockholder's or Nortel Networks' participation in such
underwriting.
(ii) All Stockholders and Nortel Networks proposing to distribute
their securities through such underwriting (together with the Company, Other
Holders and any officers or directors distributing their securities through
such underwriting) shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for the underwriting by the
Company.
(iii) Notwithstanding any other provision of this Section 2.2, if
the managing underwriter determines that the inclusion of all shares requested
to be registered would adversely affect the offering, the Company may limit the
number of Registrable Shares to be included in the registration and
underwriting. If the underwriter so determines, the Company shall so advise all
Stockholders requesting registration, and the number of shares that are entitled
to be included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by officers and directors
of the Company (other than Registrable Shares) shall be excluded from such
registration and underwriting to the extent deemed advisable by the managing
underwriter, and, if a further limitation on the number of shares is required,
the number of shares that may be included in such registration and underwriting
shall be allocated among all Stockholders, Nortel Networks and Other Holders
requesting registration in proportion, as nearly as practicable, to the
respective number of shares of Common Stock (on an as-converted basis) which
they held at the time the Company gives the notice specified in Section 2.2(a),
provided, however, that the number of shares held by Stockholders or Nortel
Networks that may be included in such registration and underwriting may not be
reduced below thirty percent (30%) of any registration and underwriting after
the Qualified Initial Public Offering of the Company. If any Stockholder, Nortel
Networks or Other Holder would thus be entitled to include more securities than
such holder requested to be registered, the excess shall be allocated among
other requesting Stockholders, Nortel Networks and Other Holders pro rata in the
manner described in the preceding sentence. To facilitate the allocation of
shares in accordance with the above provisions, the
9
Company or the underwriter(s) may round the number of shares allocated to any
person to the nearest 100 shares.
(iv) If any Stockholder, Nortel Networks, officer,
director or Other Holder disapproves of the terms of any such underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
and any Registrable Shares or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Notwithstanding the foregoing, the Company shall not
be required, pursuant to this Section 2.2, to include any Registrable Shares in
a Registration Statement if such Registrable Shares can then be sold pursuant
to Rule 144(k) under the Securities Act; provided, however, that nothing in
this clause (c) shall relieve the Company of its obligations pursuant to
Section 2.2, with respect to any holder of Registrable Shares or any of its
Affiliates, if such holder or any of its Affiliates shall hold, in the
aggregate, five percent (5%) or more of the outstanding equity securities of
the Company.
2.3 Registration Procedures.
(a) If and whenever the Company is required by the provisions
of this Agreement to use its best efforts to effect the registration of any
Registrable Shares under the Securities Act, subject to the Company's right in
the case of a registration under Section 2.2 of this Agreement to delay,
postpone or withdraw any such registration without obligation to any
Stockholder or other party, the Company shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become effective as soon as possible; and at least ten
(10) business days before filing a registration statement or prospectus or at
least three (3) business days before filing any amendments or supplements
thereto (in the event of a registration pursuant to Section 2.2 of this
Agreement, the Company shall only have the obligation to provide copies of such
documents within a reasonable period of time prior to any such filing), the
Company will furnish counsel of the holders of a majority of the Registrable
Shares being registered copies of all documents proposed to be filed for that
counsel's review and approval, which approval shall not be unreasonably withheld
or delayed;
(ii) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to comply
with the provisions of the Securities Act (including the anti-fraud provisions
thereof) and to keep the Registration Statement effective for six (6) months
from the effective date or such lesser period until all such Registrable Shares
are sold;
(iii) as expeditiously as possible furnish to each Selling
Stockholder such reasonable numbers of copies of the Prospectus, including any
preliminary Prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Selling
10
Stockholder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Shares owned by such Selling Stockholder
and included in a registration pursuant to Section 2.1 or Section 2.2;
(iv) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the Selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Stockholder and included in a registration pursuant to Section
2.1 or Section 2.2; provided, however, that the Company shall not be required in
connection with this paragraph (iv) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction;
(v) as expeditiously as possible, cause all such Registrable
Shares to be listed on each securities exchange or automated quotation system on
which similar securities issued by the Company are then listed;
(vi) promptly provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(vii) promptly make available for inspection by the Selling
Stockholders, any managing underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant or
other agent retained by any such underwriter or selected by the Selling
Stockholders, all financial and other records and pertinent corporate documents
and properties of the Company and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement;
(viii) as expeditiously as possible, notify each Selling
Stockholder, promptly after it shall receive notice thereof, of the time when
such Registration Statement has become effective or a supplement to any
Prospectus forming a part of such Registration Statement has been filed;
(ix) as expeditiously as possible following the effectiveness of
such Registration Statement, notify each Selling Stockholder of (A) any request
by the Commission for the amending or supplementing of such Registration
Statement or Prospectus and (B) any event as a result of which the Prospectus
or any document incorporated therein by reference contains, to the Company's
knowledge, an untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not misleading, and, in
either case, prepare a supplement or amendment to the Prospectus or any such
document incorporated therein so that thereafter the Prospectus will not
contain, to the Company's knowledge, any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading;
11
(x) use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement complying with the
provisions of Section 11(a) of the Securities Act;
(xi) cooperate with each Selling Stockholder and each underwriter
participating in the disposition of such Registrable Shares and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD");
(xii) immediately notify each Selling Stockholder of any stop order
threatened or issued by the Commission and take all actions reasonably required
to prevent the entry of a stop order or if entered to have it rescinded or
otherwise removed; and
(xiii) take all other steps reasonably necessary to effect the
registration of the Registrable Shares contemplated hereby.
(b) If the Company has delivered a Prospectus to the Selling
Stockholders and after having done so the Prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholders and, if requested, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares. The time period referred to in Section 2.3(a)(ii) during
which the Registration Statement must be kept effective shall be extended for an
additional number of business days equal to the number of business days during
which the right to sell shares was suspended as set forth in this paragraph (b).
(c) In the event that, in the judgment of the Company, it is advisable
to suspend use of a Prospectus included in a Registration Statement due to
pending material developments or other events that have not yet been publicly
disclosed and as to which the Company believes public disclosure would be
detrimental to the Company, subject to the reporting and disclosure requirements
under the securities laws, the Company, subject to the reporting and disclosure
requirements under the securities laws, the Company shall notify all Selling
Stockholders to such effect, and, upon receipt of such notice, each such Selling
Stockholder shall immediately discontinue any sales of Registrable Shares
pursuant to such Registration Statement until such Selling Stockholder has
received copies of a supplemented or amended Prospectus or until such Selling
Stockholder is advised in writing by the Company that the then current
Prospectus may be used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in such
Prospectus. The time period referred to in Section 2.3(a)(ii) during which the
Registration Statement must be kept effective shall be extended for an
additional number of business days equal to the number of business days during
which the right to sell shares was suspended as set forth in the preceding
sentence.
12
2.4 Registration Expenses. The Company will pay all Registration Expenses
for all registrations under this Agreement. For purposes of this Section, the
term "Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation: all registration and filing fees; exchange listing fees; NASD
registration and filing fees; printing expenses; messenger, telephone and
delivery expenses; fees and expenses of counsel for the Company and the fees
and expenses of one counsel selected by the Selling Stockholders to represent
the Selling Stockholders; state Blue Sky fees and expenses; and the expense of
any special audits incident to or required by any such registration; provided,
that Registration Expenses shall exclude all underwriting discounts, selling
commissions and the fees and expenses of Selling Stockholders' own counsel
(other than the counsel selected to represent all Selling Stockholders).
2.5 Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the Selling Stockholders, each underwriter of Registrable
Shares hereunder, and each other person, if any, who controls such Selling
Stockholders or underwriter within the meaning of the Securities Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such Selling Stockholders, underwriter or controlling person
may become subject under the Securities Act, the Exchange Act, state securities
or Blue Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse such Selling Stockholders, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such Selling
Stockholders, underwriter or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or omission or alleged untrue statement or omission made in
such Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such Selling
Stockholders, underwriter or controlling person specifically for use in the
preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each Selling
Stockholder, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors and officers, each other Selling Stockholder
and each underwriter (if any) and each person, if any, who controls the
Company, each other Selling Stockholder or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the
13
Company, such directors and officers, each other Selling Stockholder,
underwriter or controlling person may become subject under the Securities Act,
Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
the statement or omission was made in reliance upon and in conformity with
information relating to such Selling Stockholder furnished in writing to the
Company by or on behalf of such seller specifically for use in connection with
the preparation of such Registration Statement, prospectus, preliminary
prospectus, amendment or supplement; provided, however, that the obligations of
a Selling Stockholder hereunder shall be limited to an amount equal to the net
proceeds to such Selling Stockholder from the sale of Registrable Shares sold in
connection with such registration.
(c) Each party entitled to indemnification under this Section (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 or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section except to the extent that the Indemnifying Party
is materially adversely affected by such failure. The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding; provided,
further, that in no event shall the Indemnifying Party be required to pay the
expenses of more than one law firm per jurisdiction as counsel for the
Indemnified Party. The Indemnifying Party also shall be responsible for the
reasonable expenses of such defense if the Indemnifying Party does not elect to
assume such defense. 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 of such claim or
litigation. 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 includes any
non-monetary remedies. No Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld.
14
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 2.5 is
due in accordance with its terms but for any reason is held to be unavailable to
an Indemnified Party in respect to any losses, claims, damages and liabilities
referred to herein, then the Indemnifying Party shall, in lieu of indemnifying
such Indemnified Party, contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities to
which such party may be subject in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the Stockholders on the
other 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 and the Selling Stockholders
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of material fact related to information supplied by the
Company or the Selling Stockholders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 2.5 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above.
(e) Notwithstanding the provisions of this Section 2.5, in no case
shall any one Selling Stockholder be liable or responsible for an amount in
excess of the net proceeds received by such Selling Stockholder from the
offering of Registrable Shares; provided, however, that 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. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve
such party from any other obligation it or they may have thereunder or otherwise
under this section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its prior written consent,
which consent shall not be unreasonably withheld.
(f) Notwithstanding any provision in this Agreement, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
2.6 Other Matters with Respect to Underwritten Offerings. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2.1, the Company agrees to: (a) enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering; (b) use its best efforts to cause
its legal counsel to render customary opinions to the underwriters with respect
to the Registration Statement; and (c) use its best efforts to
15
cause its independent public accounting firm to issue customary "cold comfort
letters" to the underwriters with respect to the Registration Statement. No
underwriting agreement will result in liability of a Stockholder or Nortel
Networks in excess of the net proceeds from the offering received by such
Stockholder or Nortel Networks, including any liability under Section 2.5 of
this Agreement.
2.7 Information by Holder. Each Selling Stockholder shall furnish to
the Company such information regarding such holder and the distribution proposed
by such holder as the Company may reasonably request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
2.8 "Stand-Off" Agreement; Confidentiality of Notices. Each
Stockholder and Nortel Networks, if requested by the Company or the managing
underwriter of an underwritten public offering by the Company of Common Stock,
shall not sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such person for a period of one hundred
eighty (180) calendar days following the effective date of a Registration
Statement, provided, that, (a) such agreement shall only apply to the Qualified
Initial Public Offering of the Company, and (b) all Stockholders of the Company
then holding at least 1% of the outstanding Common Stock (on an as converted
basis) and all officers and directors of the Company enter or have entered into
similar agreements. Compliance with such agreements may not be waived except to
the extent it is waived in the same manner for each of the Stockholders and
Nortel Networks.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such 180-day period. Any Stockholder and/or Nortel Networks
receiving any written notice from the Company regarding the Company's plans to
file a Registration Statement shall treat such notice confidentially and shall
not disclose such information to any person other than as necessary to exercise
its rights under this Agreement. Each Stockholder and Nortel Networks agrees to
execute a market standoff agreement with said underwriters in customary form
consistent with the provisions of this Section 2.8, provided, that all
Stockholders of the Company holding at least 1% of the outstanding Common Stock
(on an as converted basis) and all officers and directors of the Company enter
or have entered into similar agreements. Compliance with the agreements subject
to this paragraph may not be waived except to the extent it is waived in the
same manner for each of the Stockholders and Nortel Networks.
2.9 Limitations on Subsequent Registration Rights. The Company shall
not, without the prior written consent of (i) Nortel Networks and (ii) the
holders of at least 50% of the Registrable Shares then held by the
Stockholders, enter into any agreement (other than this Agreement) with any
holder or prospective holder of any securities of the Company which grant such
holder or prospective holder rights to include securities of the Company in any
Registration Statement, unless: (a) such rights to include securities in a
registration initiated by the Company, Stockholders or Nortel Networks pursuant
hereto are not more favorable than the rights granted to Other Holders under
Sections 2.1 and 2.2 of this Agreement, and (b) no rights are granted to
initiate a registration, other than registration pursuant to a registration
statement on Form S-3 (or its successor) in which
16
Stockholders or Nortel Networks are entitled to include Registrable Shares on a
pro rata basis with such holders based on the number of shares of Common Stock
(on an as-converted basis) owned by Stockholders, Nortel Networks and such
holders. Nortel Networks' rights under this Section 2.9 will terminate the later
of such time as when the Company's obligations under the Nortel Note are
cancelled, or Nortel Networks no longer holds any shares of Common Stock of the
Company issuable pursuant to the Nortel Note.
2.10 Rule 144 Requirements. After the earliest of (i) the closing of
the sale of securities of the Company pursuant to a Registration Statement, (ii)
effectiveness of the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) make and keep current public information about the Company
available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request (i)
a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) calendar days
following the date on which the Company became subject to the reporting
requirements of Section 13 of the Securities Act) and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
2.11 Transfer or Assignment of Registration Rights. The rights to
cause the Company to register securities granted to a Stockholder or Nortel
Networks by the Company under this Section 2 may be transferred or assigned, in
whole or in part, by a Stockholder or Nortel Networks in connection with the
transfer of Registrable Shares, and only with respect thereto, only to (i) a
transferee or assignee of not less than 500,000 shares of Registrable Shares (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits and the like), (ii) any constituent
partner or stockholder of such Stockholder or Nortel Networks, (iii) any
venture capital fund or investment entity for which such Stockholder or Nortel
Networks or their respective successors or assigns is the investment manager or
advisor or (iv) if such Stockholder is a corporation, a wholly owned subsidiary
of such corporation or a wholly owned subsidiary of Nortel Networks, or in a
distribution to its stockholders; provided, that the Company is given written
notice at the time or within a reasonable time after said transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned, and, provided, further, that the transfer or
assignment of the Registrable Shares is in compliance with the restrictions on
transfer set
17
forth in Section 7 of this Agreement, and the transferee or assignee of such
shares and rights assumes in writing the obligations of such Stockholder or
Nortel Networks under this Section 2.
2.12 Termination. All of the Company's obligations to register
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
upon the earlier of:
(a) three years after the closing of the Qualified Initial
Public Offering of the Company;
(b) with respect to the rights of any Stockholder under
Section 2.1, at any time such Stockholder does not own in the aggregate at least
100,000 Registrable Shares; or
(c) with respect to the rights of any Stockholder under
Section 2.2, on the date all shares of Registrable Shares held or entitled to be
held upon conversion by such parties may immediately be sold under Rule 144
during any ninety (90) day period; provided that after such date the Company
will have the obligation to register Registrable Shares held by such Stockholder
under Section 2.2 of this Agreement (subject to the limitations and
qualifications therein and elsewhere in this Agreement) if and only for so long
as such Stockholder is prohibited from making sales pursuant to Rule 144 solely
because of the failure of the Company to satisfy Rule 144(c); provided, further,
however, that nothing in this clause (c) shall relieve the Company of its
obligations to register Registrable Shares under Section 2.2, with respect to
any holder of Registrable Shares or any of its Affiliates, if such holder or any
of its Affiliates shall hold, in the aggregate, five percent (5%) or more of the
outstanding equity securities of the Company.
3. PREEMPTIVE RIGHTS OF STOCKHOLDERS WITH RESPECT TO CERTAIN ISSUANCES OF
SECURITIES BY THE COMPANY.
3.1 Preemptive Rights of Stockholders.
(a) Subject to the exceptions set forth in Section 3.1(g) of
this Agreement, the Company shall not issue, sell or exchange, enter into a
binding agreement to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange: (i) any shares of its Common Stock, (ii) any other
equity securities of the Company, including, without limitation, shares of
Preferred Stock, (iii) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any equity securities of the Company, or (iv) any
debt securities convertible into capital stock of the Company (collectively, the
"COMPANY OFFERED SECURITIES"), unless in each such case the Company shall have
first complied with this Section 3.1. The Company shall deliver to each
Stockholder a written notice of any proposed or intended issuance, sale or
exchange of the Company Offered Securities (the "COMPANY OFFER"), which Company
Offer shall: (i) identify and describe the Company Offered Securities, (ii)
describe the price and other terms upon which they are to be issued, sold or
exchanged, and the number or amount of the Company Offered Securities to be
issued, sold or exchanged, (iii) identify the persons or entities (if known) to
which or with which the Company Offered Securities are to be offered, issued,
sold or exchanged and (iv) offer to issue, sell or exchange with such
Stockholders: (A) a pro rata portion of the Company Offered Securities
18
determined by dividing (x) the aggregate number of shares of Common Stock then
held by such Stockholder (giving effect to the conversion of all outstanding
shares of Preferred Stock then held) by (y) the total number of shares of
Common Stock then outstanding (giving effect to the conversion of all
outstanding shares of Preferred Stock then held) (such pro rata portion of the
Company Offered Securities, the "BASIC AMOUNT"), and (B) any additional portion
of the Company Offered Securities as such Stockholder shall indicate it will
purchase or acquire should the other Stockholders subscribe for less than their
Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT").
(b) To accept a Company Offer, in whole or in part, a Stockholder must
deliver a written notice to the Company prior to the end of the fifteen (15) day
period of the Company Offer, setting forth the portion of the Stockholder's
Basic Amount that such Stockholder elects to purchase and, if such Stockholder
shall elect to purchase all of its Basic Amount, the Undersubscription Amount
(if any) that such Stockholder elects to purchase (the "NOTICE OF ACCEPTANCE").
If the Basic Amounts subscribed for by all Stockholders are less than the total
of all of the Basic Amounts available for purchase, then each Stockholder who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all of the Basic Amounts available for purchase and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Stockholder who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Stockholder bears to the total
Undersubscription Amounts subscribed for by all Stockholders, subject to
rounding by the Company to the extent it deems reasonably necessary.
(c) The Company shall have ninety (90) calendar days from the
expiration of the period set forth in Section 3.1(b) above to issue, sell or
exchange all or any part of such Company Offered Securities as to which a Notice
of Acceptance has not been given by the Stockholders (the "REFUSED SECURITIES"),
but only to the offerees or purchasers described in the Company Offer (if so
described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) which are not materially more
favorable, in the aggregate, to the acquiring person or persons or materially
less favorable to the Company than those set forth in the Company Offer. In the
event the Company has not sold the Refused Securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any Refused
Securities, without first again offering such securities to the Stockholders in
accordance with this Section 3.
(d) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms
specified in Section 3.1(c) above), then each Stockholder may, at its sole
option and in its sole discretion, reduce the number or amount of the Company
Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Company Offered Securities
that the Stockholder elected to purchase pursuant to Section 3.1(b) above
multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Company Offered Securities the Company actually proposes to issue,
sell or exchange (including Company Offered Securities to be issued or sold to
Stockholders
19
pursuant to Section 3.1(b) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Company Offered
Securities. In the event that any Stockholder so elects to reduce the number or
amount of Company Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Company Offered Securities unless and until such securities have again
been offered to the Stockholders that have provided a Notice of Acceptance in
accordance with Section 3.1(a) and Section 3.1(b) above.
(e) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Stockholders shall acquire from the
Company, and the Company shall issue to the Stockholders, the number or amount
of the Company Offered Securities specified in the Notices of Acceptance, as
reduced pursuant to Section 3.1(d) above if the Stockholders have so elected,
upon the terms and conditions specified in the Company Offer. The purchase by
the Stockholders of any Company Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Stockholders of a
purchase agreement relating to such Company Offered Securities reasonably
satisfactory in form and substance to the Company and respective Stockholders,
and their respective counsel.
(f) Any Company Offered Securities not acquired by the Stockholders
or other persons in accordance with Section 3.1(c) above within the time
periods specified therein may not be issued, sold or exchanged until they are
again offered to the Stockholders under the procedures specified in this
Section 3.
(g) The Company Offered Securities shall not include, and the rights
of the Stockholders under this Section 3 shall not apply to, the offer, sale,
issuance or exchange of the following securities by the Company or any of its
subsidiaries:
(1) securities purchased under the Series C Preferred Stock
Purchase Agreement, of even date herewith;
(2) shares of Common Stock issued or issuable upon conversion of
shares of Preferred Stock of the Company;
(3) shares of Common Stock or the grant of options therefor,
including shares issued upon exercise of options outstanding on the date of
this Agreement (such number to be proportionately adjusted in the event of any
stock splits, stock dividends, recapitalizations or similar events occurring on
or after the date of this Agreement), or issued pursuant to any stock option
exchange program (approved by the affirmative vote or consent of at least sixty
percent (60%) of the shares of Preferred Stock then outstanding), to directors,
officers, employees, consultants or advisors of the Company or any subsidiary
pursuant to any plan, agreement or arrangement approved by the Board of
Directors of the Company;
20
(4) securities issued or issuable directly in consideration
for the acquisition of another corporation by the Company by merger, purchase of
all or substantially all of the assets or other reorganization;
(5) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act;
(6) shares of Common Stock issued or issuable upon the
exercise of any options or warrants or other rights to subscribe for, purchase
or otherwise acquire any equity securities of the Company;
(7) shares of Common Stock issued or issuable as a dividend or
distribution on Preferred Stock or pursuant to any event for which adjustment is
made pursuant to Article IV, Section 4(e), (f), (g) and (h) of the Company's
Amended and Restated Certificate of Incorporation, as amended;
(8) securities issued or issuable to banks, equipment lessors
or other financial institutions pursuant to a commercial leasing or debt
financing transaction approved by the Board of Directors of the Company;
(9) shares of Common Stock or Preferred Stock which are
otherwise excluded by the affirmative vote or consent of the holders of at least
sixty percent (60%) of the shares of Preferred Stock then outstanding;
(10) securities issued to strategic investors as opposed to
financial investors and which are approved by the Board of Directors of the
Company;
(11) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of Company Offered
Securities pursuant to this Section 3.1(g);
(12) any shares of Common Stock issued or issuable upon
conversion of the Nortel Note; and
(13) those certain Common Stock warrant agreements, dated as
of the date hereof, issued by the Company to Shamrock Capital Advisors, Inc. or
its affiliates ("SHAMROCK") for services rendered to the Company (the "SHAMROCK
WARRANTS") or any shares of Common Stock issued or issuable upon exercise or
otherwise with respect to the Shamrock Warrants.
(h) The failure of any Stockholder to exercise its rights under this
Section 3 shall not be deemed to be a waiver of its rights hereunder in
connection with any subsequent issuance, sale or exchange of Company Offered
Securities.
21
3.2 Transfer or Assignment of Preemptive Rights. The preemptive
rights set forth in this Section 3 may be transferred or assigned, in whole or
in part, by a Stockholder in connection with the transfer of Shares, and only
with respect thereto, only to (i) a transferee or assignee of not less than
500,000 Shares (as presently constituted and subject to subsequent adjustments
for stock splits, stock dividends, reverse stock splits and the like), (ii) any
constituent partner or stockholder of such Stockholder, (iii) any venture
capital fund or investment entity (or any successor thereof) for which such
Stockholder or their respective successors or assigns is the investment manager
or advisor or (iv) if such Stockholder is a corporation, a wholly owned
subsidiary of such corporation or in a distribution to its stockholders;
provided, that the Company is given written notice at the time or within a
reasonable time after said transfer or assignment, stating the name and address
of the transferee or assignee and identifying the securities with respect to
which such preemptive rights are being transferred or assigned, and, provided,
further, that the transfer or assignment of the Shares is in compliance with
the restrictions on transfer set forth in Section 7 of this Agreement, and the
transferee or assignee of such shares and rights assumes in writing the
obligations of such Stockholder under this Section 3.
3.3 Termination. The rights and obligations granted pursuant to this
Section 3 shall terminate upon the earlier of the following events (provided
that the provisions of this Section 3 shall not apply to any sale of Shares
pursuant to a transaction referred to in Sections 3.3(a) or 3.3(b) herein):
(a) the sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise (except a merger
or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 50% by voting power of the
capital stock of the surviving corporation);
(b) the closing of a Qualified Initial Public Offering of shares
of the Company; or
(c) with respect to any Stockholder, at any time that such
Stockholder does not own in the aggregate at least 100,000 shares.
4. MUTUAL RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS AMONG THE
STOCKHOLDERS. As used in this Section 4, the term "Shares" shall include all
shares of capital stock of the Company held by the Stockholders, respectively,
whether now owned or hereafter acquired. For purposes of calculating any
Stockholder's "pro rata" ownership of Shares, all shares of Preferred Stock of
the Company shall be deemed to have been converted into Common Stock of the
Company.
4.1 Offer of Sale; Notice of Proposed Sale. If a Stockholder desires
to transfer any of his, her or its Shares, or any interest in such Shares, in
any transaction, other than pursuant to a Permitted Transfer or otherwise
pursuant to Section 4 of this Agreement, such person or entity (the "SELLING
PARTY") shall first deliver written notice of his, her or its desire to do so
(the "STOCKHOLDER SALE NOTICE") to the Company and each of the other
Stockholders (collectively, the "NON-SELLING
22
PARTIES"). The Stockholder Sale Notice must specify: (i) the number of Shares
the Selling Party proposes to sell or otherwise dispose of (the "STOCKHOLDER
OFFERED SHARES"), (ii) the consideration per Share to be delivered to the
Selling Party for the proposed sale, transfer or disposition of the Stockholder
Offered Shares, and (iii) all other material terms and conditions of the
proposed transaction.
4.2 Non-Selling Parties' Option to Purchase.
(a) Subject to Section 4.3(a), each Non-Selling Party shall
have the option, exercisable for a period of fifteen (15) calendar days from the
date of delivery of the Stockholder Sale Notice, to purchase, on a pro rata
basis according to the number of Shares owned by such Non-Selling Party, the
Stockholder Offered Shares for the consideration per share and on the terms and
conditions set forth in the Stockholder Sale Notice. Such option shall be
exercised by delivery by such Non-Selling Party of written notice to the Selling
Party and the Secretary of the Company. Alternatively, each Non-Selling Party
may, within the same fifteen (15) day period, notify the Selling Party and the
Secretary of the Company of its desire to participate pro rata in the sale of
the Shares (which sale may be conditioned upon the failure of the Non-Selling
Parties to fully exercise their options to purchase the Stockholder Offered
Shares) on the terms set forth in the Stockholder Sale Notice, and the number of
Shares it wishes to sell. Such Non-Selling Party may participate in the sale of
Shares up to a number of Shares of the Company equal to (its "PRO RATA SHARE")
the product of (x) the number of Stockholder Offered Shares times (y) the
quotient obtained by dividing (i) the number of Shares (on a fully-diluted
basis) owned by such Non-Selling Party, by (ii) the number of Shares (on a
fully-diluted basis) of the Company owned by all Stockholders, including the
Selling Parties, who have elected to participate in the proposed sale of Shares,
immediately prior to the transfer of the Stockholder Offered Shares to the
proposed transferee(s). If such Non-Selling Parties elect to participate in such
transfer, the Selling Party shall use his, her or its best efforts to obtain the
agreement of the prospective transferee(s) to the participation of such
Non-Selling Parties in any proposed transfer and shall not transfer any shares
of the capital stock of the Company to such prospective transferee(s) unless
such prospective transferee(s) allow(s) the participation of such Non-Selling
Parties on the terms specified in the Stockholder Sale Notice.
(b) In the event options to purchase have been exercised by
the Non-Selling Parties with respect to some but not all of the Stockholder
Offered Shares, those Non-Selling Parties who have exercised their options
within the fifteen (15) day period specified in Section 4.2(a) shall have an
additional option (and shall be so notified by the Selling Party prior to the
end of such fifteen (15) day period), for a period of five (5) calender days
next succeeding the expiration of such fifteen (15) day period, to purchase all
or any part of the balance of such Stockholder Offered Shares (the "REMAINING
SHARES") on the terms and conditions set forth in the Stockholder Sale Notice,
which option shall be exercised by the delivery of a written notice to the
Selling Party and the Secretary of the Company. In the event there are two or
more such Non-Selling Parties that choose to exercise the last-mentioned option
for a total number of Remaining Shares in excess of the number available, the
Remaining Shares available for each such Non-Selling Party's option shall be
allocated to such Non-Selling Party pro rata based on the number of Shares owned
by the Non-Selling Parties so electing.
23
(c) If the options to purchase the Stockholder Offered Shares
are exercised in full by the Non-Selling Parties, the Selling Party and the
Company shall immediately notify all of the exercising Non-Selling Parties of
that fact. The closing of the purchase of the Stockholder Offered Shares shall
take place at the offices of the Company no later than five (5) calendar days
after the date of such notice to the Non-Selling Parties.
4.3 Failure to Fully Exercise Options.
(a) If the Non-Selling Parties do not exercise their options to
purchase all of the Stockholder Offered Shares within the periods described in
this Agreement (the "OPTION PERIOD"), then all options of the Non-Selling
Parties to purchase the Remaining Shares not purchased by the Non-Selling
Parties shall terminate, and the Selling Party shall be free to sell such
shares to third parties.
(b) If the Selling Party wishes to transfer any such Shares at
a price per Share which differs from that set forth in the Stockholder Sale
Notice, upon terms different from those previously offered to the Stockholders,
or more than sixty (60) calender days after the expiration of the Option
Period, then, as a condition precedent to such transaction, such Shares must
first by offered to the Non-Selling Parties, on the same terms and conditions
given the offeror and in accordance with the procedures and time periods set
forth above.
(c) The proceeds of any sale made by the Selling Party without
compliance with the provisions of this Section 4.3 shall be deemed to be held
in constructive trust in such amount as would have been due the participating
Stockholders if the Selling Party had complied with this Agreement. Any attempt
to transfer Shares in violation of Sections 4.1, 4.2 or 4.3 of this Agreement
shall be void and the Company agrees that it will not effect such a transfer
nor will it treat any alleged transferee as the holder of such Shares.
4.4 Transfer or Assignment of Right of First Refusal and Co-Sale
Rights. The right of first refusal and co-sale rights set forth in this Section
4 may be transferred or assigned, in whole or in party, by a Stockholder in
connection with the transfer of Shares, and only with respect thereto, only to
(i) a transferee or assignee of not less than 500,000 Shares (as presently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits and the like), (ii) any constituent partner or
stockholder of such Stockholder, (iii) any venture capital fund or investment
entity (or any successor thereof) for which such Stockholder or their
respective successors or assigns is the investment manager or advisor or (iv)
if such Stockholder is a corporation, a wholly owned subsidiary of such
corporation or in a distribution to its stockholders; provided, that the
Company is given written notice at the time or within a reasonable time after
said transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such right of
first refusal and co-sale rights are being transferred or assigned, and,
provided, further, that the transfer or assignment of the Shares is in
compliance with the restrictions on transfer set forth in Section 7 of this
Agreement, and the transferee or assignee of such shares and rights assumes in
writing the obligations of such Stockholder under this Section 4.
24
4.5 Termination of Right of First Refusal and Co-Sale Rights. The
rights and obligations granted pursuant to this Section 4 shall terminate upon
the earlier of the following events (provided that the provisions of this
Section 4 shall not apply to any sale of Shares pursuant to a transaction
referred to in Sections 4.5(a) or 4.5(b) herein):
(a) the sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise (except a
merger or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least seventy five percent (75%) by
voting power of the capital stock of the surviving corporation); or
(b) the closing of a Qualified Initial Public Offering of
shares of the Company; or
(c) with respect to any Stockholder, at any time that such
Stockholder does not own in the aggregate at least 100,000 Shares.
5. INSPECTION AND INFORMATION RIGHTS. As used in this Section 5, the
term "Shares" shall include all shares of capital stock of the Company held by
the Stockholders, respectively, whether now owned or hereafter acquired.
5.1 Inspection Rights. The Company shall permit each Stockholder, as
long as such Stockholder holds at least 500,000 Shares (other than a
Stockholder deemed to be a competitor of the Company by a majority of the
members of the Company's Board of Directors), or any authorized representative
thereof, reasonable access to visit and inspect the properties of the Company,
including its corporate and financial records, and to discuss the Company's
business and finances with officers of the Company, during normal business
hours following reasonable notice.
5.2 Financial Statements and Other Information.
(a) The Company shall deliver to each Stockholder, as long as
such Stockholder holds at least 500,000 Shares (other than a Stockholder deemed
to be a competitor of the Company by a majority of the members of the Company's
Board of Directors):
(i) within ninety (90) calendar days after the end of each
fiscal year of the Company (beginning with the fiscal year ending December 31,
2000), an audited balance sheet of the Company as at the end of such year and
audited statements of operations, stockholders' equity and cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
GAAP consistently applied;
(ii) within forty five (45) calendar days after the end of
each fiscal quarter of the Company (other than the fourth quarter), an
unaudited balance sheet of the Company as at the end of such quarter, and
unaudited statements of operations, stockholders' equity and cash
25
flows of the Company for such fiscal quarter and for the current fiscal year to
the end of such fiscal quarter;
(iii) within fifteen (15) calendar days after the end of
each fiscal month of the Company, an unaudited balance sheet of the Company as
at the end of such month, and unaudited statements of operations, stockholders'
equity and cash flows of the Company for such month; and
(iv) as soon as available, but in no event later than
fifteen (15) calendar days before the start of each fiscal year, the Company's
proposed annual budget.
(b) The foregoing financial statements shall be prepared on a
consolidated basis if the Company then has any subsidiaries. The financial
statements delivered pursuant to clause (ii) of paragraph (a) shall be
accompanied by a certificate of the chief financial officer of the Company
stating that such statements have been prepared in accordance with GAAP
consistently applied (except as noted) and fairly present the financial
condition and results of operations of the Company at the date thereof and for
the periods covered thereby.
5.3 Reservation of Common Stock. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of the Shares.
5.4 Agreements with Employees. The Company shall require all persons
now or hereafter employed by the Company to enter into a nondisclosure and
assignment of inventions agreement substantially in the form(s) of attached as
EXHIBIT B.
5.5 Board Meetings. A meeting of the Company's Board of Directors
shall be held at least once every two (2) months, unless otherwise agreed by a
majority of directors.
5.6 Termination of Covenants. The covenants of the Company contained
in Sections 5.1, 5.2 and 5.4 shall terminate, and be of no further force or
effect, upon the closing of an initial public offering of shares of the Company.
6. VOTING AGREEMENT.
6.1 Board of Directors. In any and all elections of directors of the
Company (whether at a meeting or by written consent in lieu of a meeting), each
Stockholder shall vote or cause to be voted all Shares and other securities of
the Company owned by him, her or it, or over which he, she or it has voting
control, and otherwise use his, her or its respective best efforts, so as to
fix the number of directors of the Company at nine (9) members, and to elect:
(a) one representative of the Company, who shall be the
Company's Chief Executive Officer;
(b)(i) for so long as Pequot Private Equity Fund II, L.P.
("PEQUOT") owns at least 25% of the Shares it owns as of February 7, 2002, two
members designated by Pequot or (ii)
26
for so long as Pequot owns at least 10% of the Shares it owns as of February 7,
2002, one member designated by Pequot; and one of Pequot's initial designees
shall be ββββββ β. ββββ, with the second designee to be named at a later date;
(c)(i) for so long as Shamrock owns at least 25% of the Shares
it owns as of February 7, 2002, two members designated by Shamrock or (ii) for
so long as Shamrock owns at least 10% of the Shares it owns as of February 7,
2002, one member designated by Shamrock, and one of Shamrock's initial designees
shall be βββββββ β. βββββ, with the second designee to be named at a later date;
(d) for so long as Halyard Capital Fund, LP ("HALYARD") owns
at least 10% of the Shares it owns as of February 7, 2002, one member designated
by Halyard, and Halyard's initial designee shall be named at a later date;
(e) for so long as the remaining Stockholders (other than
Pequot, Shamrock and Halyard)(the "REMAINING STOCKHOLDERS") own at least 10% of
the Shares they own in the aggregate as of February 7, 2002, one member
designated by a majority of the Shares held by the Remaining Stockholders, and
the Remaining Stockholders' initial designee shall be named at a later date; and
(f) any remaining directors will be approved by a majority of
the Board of Directors of the Company.
Each of Pequot, Shamrock, Halyard and the Remaining Stockholders shall
notify the Secretary of the Company of their respective designees within thirty
(30) calendar days of receipt of notice of each election of directors. Any
director designated by Pequot, Shamrock, Halyard or the Remaining Stockholders
may only be removed upon being designated for removal by Pequot, Shamrock,
Halyard or the Remaining Stockholders, respectively, except any director may be
removed for cause, and the Board of Directors of the Company and the parties
hereto will act and use their best efforts to remove promptly any director so
designated for removal. If any director designated by Pequot, Shamrock, Halyard
or the Remaining Stockholders dies, resigns, is removed (including removal for
cause) or otherwise ceases to serve, or in the event of a vacancy in any such
position, as a member of the Board of Directors of the Company for any reason,
the Company shall give notice to Pequot, Shamrock, Halyard or the Remaining
Stockholders, as the case may be, and such party shall promptly designate a
successor and notify the other Stockholders and the Board of Directors of the
Company of its selection, and the parties hereto shall act promptly to fill the
vacancy with such designee.
6.2 Voting. Except as provided above, Pequot, Shamrock, Halyard or the
Remaining Stockholders shall not vote to remove any director designated by the
other, except for cause.
6.3 Shares. As used in this Section 6, the term "Shares" shall mean
and include any and all shares of common stock and/or shares of capital stock of
the Company, by whatever name called, which carry voting rights (including
voting rights which arise by reason of default) and shall
27
include any such shares now owned or subsequently acquired by a Stockholder,
however acquired, including without limitation stock splits, recapitalizations,
stock dividends and similar events.
6.4 Transfer of Rights. Any transferee to whom Shares are transferred
by a Stockholder, whether voluntarily or by operation of law, shall be bound by
the voting obligations imposed upon the transferor under this Agreement, to the
same extent as if such transferee were a Stockholder hereunder and no
Stockholder shall transfer any Shares unless the transferee agrees in writing to
be bound by this Agreement.
6.5 Termination. The voting agreement contained in this Section 6
shall terminate in its entirety on the earliest of:
(a) the tenth anniversary of the date of this Agreement;
(b) the sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise (except a merger
or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 50% by voting power of the
capital stock of the surviving corporation); or
(c) the closing of a Qualified Initial Public Offering of shares
of the Company.
6.6 No Revocation. The voting agreements contained herein are coupled
with an interest and may not be revoked, except by an amendment, modification or
termination effected in accordance with Section 8.6 hereof. Nothing contained in
this Section 6 shall be construed as limiting the provisions of Section 6.5 or
8.6 hereof.
6.7 Bylaws. Any amendment to the Bylaws which is inconsistent with the
terms of this Agreement shall require the affirmative vote of the holders of
sixty percent (60%) of the Shares.
7. RESTRICTIONS ON TRANSFER OF SHARES.
7.1 Restricted Shares. "RESTRICTED SHARES" means (i) the Shares, (ii)
the shares of Common Stock or other securities issued or issuable upon
conversion of the Shares, (iii) any shares of capital stock of the Company
acquired by the Stockholders pursuant to this Agreement, (iv) any other shares
of capital stock of the Company issued in respect of such shares (as a result of
stock splits, stock dividends, reclassifications, recapitalizations or similar
events), (v) any shares of capital stock of the Company issued or issuable by
the Company upon conversion of the Nortel Note, and (vi) any shares of capital
stock of the Company issued or issuable by the Company pursuant to the Shamrock
Warrants; provided, however, that shares of Common Stock which are Restricted
Shares shall cease to be Restricted Shares (x) upon any sale pursuant to a
registration statement under the Securities Act or Rule 144 under the Securities
Act or (y) at such time as they become eligible for sale under Rule 144(k) under
the Securities Act.
28
7.2 Restrictions on Transfer.
(a) Any sale, transfer or other disposition, whether voluntarily
or by operation of law of any of the Restricted Shares held by a Stockholder,
other than according to the terms of this Agreement, shall be void and transfer
no right, title or interest in or to any of such Restricted Shares to the
purported transferee.
(b) A copy of this Agreement, duly executed by each of the
parties hereto, shall be delivered to the Secretary of the Company and
maintained at the principal executive office of the Company and made available
for inspection by any person requesting it.
7.3 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for: (i) certain Permitted Transfers as set forth in
Section 7.4 of this Agreement, or (ii) a transfer made in accordance with Rule
144 under the Securities Act.
7.4 Permitted Transfers. Any Stockholder or Nortel Networks may
transfer Restricted Shares (subject to the restrictions on transfer with respect
to registration rights, preemptive rights on certain Company issuances of
securities, inspection and information rights and certain other rights), and no
registration or opinion of counsel shall be required, with respect to a transfer
by a Stockholder or Nortel Networks which is: (i) a partnership, to an affiliate
of such partnership; or a corporation, to a wholly owned subsidiary of such
corporation or in a distribution to its stockholders; (ii) a partnership or
affiliated partnership, to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner; or (iii) a limited liability company, to a member of
such limited liability company or a retired member who resigns after the date
hereof or to the estate of any such member or retired member; provided that the
transferee in each case agrees in writing to be bound by and subject to the
terms, conditions, restrictions, obligations and other limitations set forth in
this Agreement to the same extent as if it were an original party hereunder; and
provided, further, that a permitted transfer hereunder shall include the
repurchase by the Company of the shares of Series A Preferred Stock of the
Company held by Nortel Networks (each, a "PERMITTED TRANSFER").
7.5 Legends.
(a) Stockholder Legends. In addition to any legends required by
applicable federal and state laws, each certificate representing Restricted
Shares held by the Stockholders shall bear a legend substantially in the
following forms:
29
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF
A REGISTRATION STATEMENT RELATED TO A QUALIFIED INITIAL PUBLIC
OFFERING OF THE COMPANY AND THE SALE OR OTHER DISPOSITION OF ANY
OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY A
MUTUAL RIGHT OF FIRST REFUSAL AND CO-SALE RIGHTS, ALL PURSUANT TO
A CERTAIN AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT, AS
AMENDED FROM TIME TO TIME, BY AND AMONG THE COMPANY, THE
REGISTERED OWNER OF THIS CERTIFICATE AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION DURING NORMAL BUSINESS HOURS AT THE PRINCIPAL
EXECUTIVE OFFICE OF THE COMPANY.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VOTING AGREEMENTS PURSUANT TO A CERTAIN AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT, AS AMENDED FROM TIME TO TIME, BY AND
AMONG THE COMPANY, THE REGISTERED OWNER OF THIS CERTIFICATE AND
CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION DURING NORMAL BUSINESS HOURS AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY.
(b) Nortel Networks Legends. In addition to any legends required by
applicable federal and state laws, each certificate representing Restricted
Shares held by Nortel Networks shall bear a legend substantially in the
following forms:
30
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION
STATEMENT RELATED TO A QUALIFIED INITIAL PUBLIC OFFERING OF THE COMPANY pursuant
to a certain Amended and Restated
Investor Rights Agreement, as amended from
time to time, by and among the Company, the registered owner of this certificate
and certain other stockholders of the Company, a copy of which is available for
inspection during normal business hours at the principal executive office of the
company. Instructions.
(i) The first legend indicated above in each of clause (a)
and (b) regarding Restricted Shares shall be removed from the certificates
representing any Restricted Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act or are to be sold pursuant to Rule 144.
(ii) The second legend indicated above in clause (a)
regarding the mutual right of first refusal and co-sale rights contained in
Section 4 of this Agreement shall be removed from the certificates representing
any Restricted Shares at such time as such rights shall terminate pursuant to
the terms and conditions contained in Section 4.5 of this Agreement.
(iii) The third legend indicated above in clause (a)
regarding the voting agreements contained in Section 6 of this Agreement shall
be removed from the certificates representing the Shares at such time as the
voting agreements among the Stockholders shall terminate pursuant to the terms
and conditions contained in Section 6.5 of this Agreement.
8. Miscellaneous.
8.1 Survival. The representations and warranties of the parties
contained in or made pursuant to this Agreement shall survive the Closing Date.
Each of the covenants and agreements set forth in this Agreement will survive
the Closing Date and be performed in accordance with their terms.
8.2 Further Assurances. The parties hereto agree, upon the reasonable
request of any another party to this Agreement, to duly execute or cause to be
duly executed and delivered to the Company such further instruments, agreements
and documents and to do and cause to be done all
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things reasonably necessary or proper to carry into effect the provisions and
purposes of this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of
California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of
California or any other jurisdiction) that would cause the application of
laws of any other jurisdiction.
8.4 Entire Agreement; Amendment. Except as otherwise expressly set
forth in this Agreement, any term of this Agreement may be amended or terminated
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of (i) the Company, and (ii) the holders of more than fifty
percent (50%) of the Shares held by all of the Stockholders; provided, that (i)
with respect to Sections 6.1(b), 6.1(c), 6.1(d) and 6.1(e), Pequot's,
Shamrock's, Halyard's or the Remaining Stockholders' designee(s), as applicable,
shall not be modified, amended or terminated without the written consent of
Pequot, Shamrock, Halyard or the Remaining Stockholders, as applicable, and (ii)
this Agreement may be amended with the consent of the holders of less than all
Shares only in a manner which affects all such Stockholders in a similar
fashion; provided, further, that no amendment that will adversely affect Nortel
Networks will be valid without Nortel Networks' prior written consent. Any such
amendment, termination or waiver effected in accordance with this Section 8.6
shall be binding on all parties hereto, even if they do not execute such
consent. No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
8.5 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) three (3) business days after being sent by registered or
certified mail, return receipt requested, postage prepaid or (ii) one (1)
business day after being sent via a reputable nationwide overnight courier
service guaranteeing next business day delivery, in each case to the intended
recipient as set forth below:
If to the Company, at ββββ βββββ βββββββ βββββββ, βββββ βββββ, ββββββββββ
βββββ, Attention: President, or at such other address or addresses as may be
furnished in writing by the Company to the Stockholders, with a copy to ββββ β.
ββββββββ, Esq., ββββββ βββββββ ββββββββ & ββββββ, P.C., βββ ββββ ββββ ββββ,
ββββ ββββ, ββββββββββ βββββ.
If to Nortel Networks, at ββββ βββββ ββββ, βββββ βββ, ββββββββ, βββββββ,
ββββββ βββ βββ, or at such other address or addresses as may be furnished in
writing by Nortel Networks to the Company.
If to any other Stockholder, at his, her or its address set forth on
EXHIBIT A, or at such other address or addresses as may be furnished in writing
by any such Stockholder to the Company, with a copy to Ray La Soya, Fried,
Frank, Harris, βββββββ & ββββββββ, βββ βββββ βββββ ββββββ, ββββ βββββ, βββ
βββββββ, ββββββββββ βββββ.
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Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation:
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
8.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Confidentiality. Each Investor agrees that he, she or it will
keep confidential and will not disclose, divulge or use for any purpose other
than to monitor his, her or its investment in the Company any confidential,
proprietary or secret information which such Investor may obtain from the
Company pursuant to financial statements, reports and other materials submitted
or made available by the Company to such Investor pursuant to the terms and
conditions of this Agreement, including pursuant to any representations and
warranties ("CONFIDENTIAL INFORMATION"), unless such Confidential Information is
known, or until such Confidential Information becomes known, to the public
(other than as a result of a breach of this Section 8.7 by such Investor);
provided, however, that a Investor may disclose Confidential Information to: (i)
its attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with monitoring its investment
in the Company; (ii) any prospective purchaser of any Shares from such Investor
as long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section 8.7; (iii) any affiliate of such Investor or to a
partner, stockholder or subsidiary of such Investor, provided that such
affiliate, partner, stockholder or subsidiary agrees in writing to be bound by
the provisions of this Section 8.7; or (iv) as may otherwise be required by law,
provided that the Investor takes reasonable steps to minimize the extent of any
such required disclosure.
8.8 Fees and Expenses. Each party shall pay for its own fees,
expenses and disbursements in connection with the review of this Agreement, the
Series C Purchase Agreement and the Series A Repurchase Agreement contemplated
hereby and the closing of the transactions contemplated hereby and thereby;
provided, however, that on the Closing Date the Company shall reimburse the
reasonable fees and expenses of one legal counsel and one advisor to the
Purchasers with respect to the sale of the Series C Preferred Stock.
8.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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8.10 Telecopy Execution. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
8.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs and exhibits shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits attached hereto.
8.12 Waiver and Termination of Prior Documents. The execution
and delivery of this Agreement terminates and restates in their entirety any and
all rights, privileges, preferences and obligations of the parties pursuant to,
and the parties hereby expressly waive and discharge any such rights,
privileges, preferences and obligations under: (a) the Prior Rights Agreement;
(b) Sections 4, 8 and 9 of the Series B Purchase Agreement, and (c) the Prior
Voting Agreement.
8.13 No Conflict. In the event that any provision of this
Agreement conflicts with or is constructed to conflict with any provision in
that certain Stock Transfer Agreement, dated as of September 6, 2000, as amended
by Amendment No. 1 to the Stock Transfer Agreement, or as subsequently amended
in accordance with the terms thereof by and between the Company, Nortel Networks
and certain Investors, this Agreement shall be deemed to be controlling in all
matters, including without limitation any matters relating to the size of the
Company's Board of Directors, any rights of the parties with respect to
representation on the Company's Board of Directors and elections therefor.
8.14 Effectiveness. This Agreement shall only become effective
following the consummation of both the Series C Financing and the Nortel
Repurchase.
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