ELASTIC NETWORKS INC.
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of May 12, 1999 is entered into by and among
Elastic Networks Inc., a Delaware corporation (the "Company"), Nortel Networks
Inc., a Delaware corporation ("Nortel Networks"), and the individuals and
entities listed on Exhibit A attached hereto (such individuals and entities and
their successors and assigns, the "Purchasers").
Recitals
WHEREAS, the Company, Nortel Networks and the Purchasers have entered into
a Series A Redeemable Convertible Participating Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, the Company, Nortel Networks and the Purchasers desire to provide
for certain arrangements with respect to (i) the registration of shares of
capital stock of the Company under the Securities Act of 1933 and (ii) the
Purchasers' right of first refusal with respect to certain issuances of
securities of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" means the common xxxxx, x.X0 par value per share, of
the Company.
"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.
"Initiating Holders" means the Stockholders initiating a request for
registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
"Initial Public Offering" means the initial firm commitment
underwritten public offering of shares of Common Stock pursuant to an effective
Registration Statement under the Securities Act which results in net proceeds to
the Company of at least $30,000,000 at a price to the public of at least $6.50
(as adjusted for stock splits, stock dividends, recapitalizations and similar
events).
"Other Holders" shall have the meaning set forth in Section 2.1(d).
"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.
"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 on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 2.4.
"Registrable Shares" means (i) the 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 Purchasers pursuant to Section 3 of this
Agreement, (iii) any shares of Common Stock held by Nortel Networks and (iv) any
other shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares upon (i) any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) any sale in
any manner to a person or entity which, by virtue of Section 4 of this
Agreement, is not entitled to the 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.
"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.
"Selling Stockholder" means any Stockholder owning Registrable
Shares included in a Registration Statement.
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"Shares" shall have the meaning specified in Subsection 1.2 of the
Purchase Agreement.
"Stockholders" means Nortel Networks, the Purchasers and any persons
or entities to whom the rights granted under this Agreement are transferred by
Nortel Networks, the Purchasers, their successors or assigns pursuant to Section
4 hereof.
2. Registration Rights
2.1 Required Registrations.
(a) At any time after the closing of the Initial Public
Offering, each of (i) Nortel Networks and (ii) a Purchaser or Purchasers holding
in the aggregate at least 20% of the Registrable Shares held by the Purchasers,
may request, in writing, that the Company effect the registration on Form S-1 or
Form S-2 (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).
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request, in writing, that the
Company effect the registration on Form S-3 (or such successor form), of
Registrable Shares having an aggregate value of at least $2,000,000 (based on
the then current public market price).
(c) Upon receipt of any request for registration pursuant to
this Section 2, the Company shall promptly give written notice of such proposed
registration to all other Stockholders. Such Stockholders shall have the right,
by giving written notice to the Company within 20 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders 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. 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 (provided, however, that in the
case of a registration requested under Section 2.1(b), the Company will only be
obligated to effect such registration on Form S-3 (or any successor form)).
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2.1(a) or (b), as the case
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may be, and the Company shall include such information in its written notice
referred to in Section 2.1(c). The right of any other Stockholder to include its
Registrable Shares in such registration pursuant to Section 2.1(a) or (b), as
the case may be, shall be conditioned upon such other Stockholder's
participation in such underwriting on the terms set forth 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(d) or if other holders
of securities of the Company who are entitled, by contract with the Company, 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. The Company shall (together with all Stockholders, 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.
Notwithstanding any other provision of this Section 2.1(d), if the managing
underwriter advises the Company that the inclusion of all shares requested to be
registered would adversely affect the offering, 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 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 holders of Registrable Shares
requesting registration in proportion, as nearly as practicable, to the
respective number of Registrable Shares requested to be registered by them in
the aggregate at the time of the respective requests for registration were made
pursuant to Section 2.1(a) or (b), as the case may be. 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.
(e) The Initiating Holders shall have the right to select the
managing underwriter(s) for any underwritten offering requested pursuant to
Section 2.1(a) or (b), subject to the approval of the Company, which approval
will not be unreasonably withheld.
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(f) The Company shall not be required to effect more than (i)
two registrations requested by Nortel Networks pursuant to clause (i) of Section
2.1(a) or (ii) more than two registrations requested by the Purchasers pursuant
to clause (ii) of Section 2.1(a). No numerical limitation, however, shall apply
to registrations pursuant to Section 2.1(b). In addition, the Company shall not
be required to effect any registration (other than on Form S-3 or any successor
form relating to secondary offerings) within six months after the effective date
of any other Registration Statement of the Company. For purposes of this Section
2.1(f), a Registration Statement shall not be counted until such time as such
Registration Statement has been declared effective by the Commission (unless the
Initiating Holders withdraw their request for such registration (other than as a
result of information concerning the business or financial condition of the
Company which is made known to the Stockholders after the date on which such
registration was requested) and elect not to pay the Registration Expenses
therefor pursuant to Section 2.4) and remains continuously effective for the
lesser of (i) the period during which all Registrable Shares registered in such
registration are sold and (ii) six months; provided, however, that for purposes
of this Section 2.1(f), a Registration Statement shall not be counted if (x)
after such 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 Initiating Holders and such interference is not thereafter
eliminated or (y) the conditions specified in the underwriting agreement, if
any, entered into in connection with such Registration Statement are not
satisfied or waived, other than by reason of the Initiating Holders. 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 pursuant to the preceding sentence.
(g) If at the time of any request to register Registrable
Shares by Initiating Holders 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 90 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 holders of Registrable Shares 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
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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 pursuant to 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 and
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
Initial Public Offering, it will, prior to such filing, give written notice to
all Stockholders 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 or Stockholders given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares which the Company has been requested by such
Stockholder or Stockholders to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request of
such Stockholder or Stockholders; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 2.2
without obligation to any Stockholder.
(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 as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of any
Stockholder to include its Registrable Shares in such registration pursuant to
Section 2.2 shall be conditioned upon such Stockholder's participation in such
underwriting on the terms set forth herein. All Stockholders proposing to
distribute their securities through such underwriting shall (together with the
Company, Other Holders, and any officers or directors distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting by the Company. 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. The Company shall so advise all holders of Registrable Shares
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
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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 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). If any Stockholder 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 and Other Holders pro rata in the
manner described in the preceding sentence. If any holder of Registrable Shares
or any 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.
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, 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;
(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
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 Stockholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by such Selling Stockholder;
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(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; 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, 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 seller of such
Registrable Shares 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 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
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
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(x) use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
complying with the provisions of Section 11(a) of the Securities Act;
(xi) cooperate with each seller of Registrable Shares
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"); and
(xii) 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 pursuant to 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, 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
pursuant to the preceding sentence.
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2.4 Allocation of Expenses. The Company will pay all Registration
Expenses for all registrations under this Agreement; provided, however, that if
a registration under Section 2.1 is withdrawn at the request of the Initiating
Holders (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and if the Initiating Holders
elect not to have such registration counted as a registration requested under
Section 2.1, the requesting Stockholders shall pay the Registration Expenses of
such registration pro rata in accordance with the number of their Registrable
Shares included in such registration. 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; but excluding 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 seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller 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 seller, 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 seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, 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 made in such
Registration Statement, preliminary prospectus or prospectus,
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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
seller, 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 seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company 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 Company, such
directors and officers, 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 seller 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, amendment or
supplement; provided, however, that the obligations of a Stockholder hereunder
shall be limited to an amount equal to the net proceeds to such Stockholder 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 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
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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 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, and 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.
(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 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 Stockholders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the 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. Notwithstanding the provisions
of this paragraph of Section 2.5, (a) in no case shall any one Stockholder be
liable or responsible for any amount in excess of the net proceeds received by
such Stockholder from the offering of Registrable Shares and (b) the Company
shall be liable and responsible for any amount in excess of such proceeds;
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
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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.
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 cause its
independent public accounting firm to issue customary "cold comfort letters" to
the underwriters with respect to the Registration Statement.
2.7 Information by Holder. Each holder of Registrable Shares
included in any registration 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, if requested by the Company and 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 Stockholder for a period of 180 days following the
effective date of a Registration Statement; provided, that:
(a) such agreement shall only apply to the Initial Public
Offering; 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 into similar agreements.
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 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.
-13-
2.9 Limitations on Subsequent Registration Rights. The Company shall
not, without the prior written consent of both (i) Nortel Networks and (ii) the
holders of at least 50% of the Registrable Shares then held by the Purchasers,
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 or by Stockholders 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 Stockholders 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 and such holders.
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)
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 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 Termination. All of the Company's obligations to register
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
five years after the closing of the Initial Public Offering.
-14-
3. Preemptive Rights
3.1 Rights of Purchasers
(a) The Company shall not issue, sell or exchange, agree 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 "Offered Securities"),
unless in each such case the Company shall have first complied with this Section
3.1. The Company shall deliver to each Purchaser a written notice of any
proposed or intended issuance, sale or exchange of Offered Securities (the
"Offer"), which Offer shall (i) identify and describe the 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 Offered Securities to be issued,
sold or exchanged, (iii) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged
and (iv) offer to issue and sell to or exchange with such Purchaser (A) a pro
rata portion of the Offered Securities determined by dividing (x) the aggregate
number of shares of Common Stock then held by such Purchaser (giving effect to
the conversion of all shares of convertible preferred stock then held and
assuming the issuance of 1,285,527 shares (or 2,147,616 shares, as the case may
be) of Common Stock (subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalizations affecting the Common
Stock) in accordance with the Exit Special Adjustment provision of Article
Fourth, B.4(i)(i) of the Company's Amended and Restated Certificate of
Incorporation) by (y) the total number of shares of Common Stock then
outstanding (giving effect to the conversion of all outstanding shares of
convertible preferred stock and assuming the issuance of 1,285,527 shares (or
2,147,616 shares, as the case may be) of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations or other similar
recapitalizations affecting the Common Stock) in accordance with the Exit
Special Adjustment provision of Article Fourth, B.4(i)(i) of the Company's
Amended and Restated Certificate of Incorporation, and assuming, further, the
issuance of all authorized shares under the Company's 1999 Stock Incentive Plan,
as amended) (such pro rata portion of the Offered Securities, the "Basic
Amount"), and (B) any additional portion of the Offered Securities attributable
to the Basic Amounts of other Purchasers as such Purchaser shall indicate it
will purchase or acquire should the other Purchasers subscribe for less than
their Basic Amounts (the "Undersubscription Amount").
(b) To accept an Offer, in whole or in part, a Purchaser must
deliver a written notice to the Company prior to the end of the 30-day period of
the Offer, setting forth the portion of the Purchaser's Basic Amount that such
Purchaser
-15-
elects to purchase and, if such Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount (if any) that such Purchaser elects
to purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Purchasers are less than the total of all of the Basic Amounts available for
purchase, then each Purchaser 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 Purchaser 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
Purchaser bears to the total Undersubscription Amounts subscribed for by all
Purchasers, subject to rounding by the Board of Directors to the extent it deems
reasonably necessary.
(c) The Company shall have 90 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 Offered Securities as to which a Notice of Acceptance has not been
given by the Purchasers (the "Refused Securities"), but only to the offerees or
purchasers described in the Offer (if so described therein) and only upon terms
and conditions (including, without limitation, unit prices and interest rates)
which are not more favorable, in the aggregate, to the acquiring person or
persons or less favorable to the Company than those set forth in the Offer.
(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 Purchaser may, at its sole option
and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that the Purchaser
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 Offered Securities
the Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Purchasers pursuant to Section 3.1(b) above
prior to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Purchaser so elects to
reduce the number or amount of 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 Offered Securities unless and until such securities have
again been offered to the Purchasers in accordance with Section 3.1(a) above.
(e) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Purchasers shall acquire from
the Company, and the Company shall issue to the Purchasers, the number or amount
of
-16-
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 3.1(d) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Purchasers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Purchasers and
their respective counsel.
(f) Any Offered Securities not acquired by the Purchasers or
other persons in accordance with Section 3.1(c) above may not be issued, sold or
exchanged until they are again offered to the Purchasers under the procedures
specified in this Agreement.
(g) The rights of the Purchasers under this Section 3 shall
not apply to:
(1) Common Stock issued as a stock dividend to holders
of Common Stock or upon any subdivision or combination of shares of Common
Stock;
(2) the issuance of any shares of Common Stock upon
conversion of shares of convertible preferred stock;
(3) the issuance of 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) to officers,
directors, consultants and employees of the Company or any subsidiary pursuant
to any plan, agreement or arrangement approved by a vote of not less than a
majority of the members of the Board of Directors of the Company who are not
employees of the Company or any of its subsidiaries;
(4) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity;
(5) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act; or
(6) shares of Common Stock issued upon the conversion of
any shares of preferred stock or upon the exercise of any options or warrants or
-17-
other rights to subscribe for, purchase or otherwise acquire any equity
securities of the Company.
(h) The failure of any Purchaser 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, agreement to issue,
sell or exchange, or reservation or setting aside for issuance, sale or exchange
of Offered Securities.
3.2 Termination. This Section 3 shall terminate upon the earlier of
the following events:
(a) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise; or
(b) The closing of the Initial Public Offering.
4. Transfers of Rights. This Agreement, and the rights and obligations of
each Stockholder hereunder, may be assigned, in whole or in part, by such
Stockholder to (i) any person or entity to which at least 500,000 Shares are
transferred by such Stockholder, (ii) any partner or stockholder of such
Stockholder or (iii) any venture capital fund, investment entity or investment
account for which Pequot Capital Management, Inc. or its successors or assigns
is the investment manager or investment advisor, and such transferee shall be
deemed a "Stockholder" and, if applicable, a "Purchaser" for purposes of this
Agreement; provided that the transferee provides written notice of such
assignment to the Company and agrees in writing to be bound hereby.
5. General.
(a) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) Specific Performance. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, each Purchaser shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule
-18-
(whether of the Commonwealth of Massachusetts or any other jurisdiction) that
would cause the application of laws of any other jurisdiction.
(d) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one 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 0000 Xxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxxx,
Xxxxxxx 00000, Attention: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Xxxx X. Xxxxxxx, Esq., Xxxx and Xxxx LLP, 00 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000; or
If to Nortel Networks, at 000 Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxxx 00000,
Attention: President, or at such other address or addresses as may have been
furnished to the other parties hereto in writing by Nortel Networks, with a copy
to the Law Department at the same address; or
If to a Purchaser, at his or its address set forth on Exhibit A, or at
such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to E. Xxx Xxxx, Esq., Xxxxx Xxxxxxxxxx
LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or as otherwise
indicated on Exhibit A.
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.
(e) Complete Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
(f) Amendments and Waivers. 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, (ii) Nortel
Networks and (iii) the holders of more than 50% of the Registrable Shares held
by all of the
-19-
Purchasers; provided, that this Agreement may be amended with the consent of the
holders of less than all Registrable Shares only in a manner which affects all
such holders in the same fashion. Any such amendment, termination or waiver
effected in accordance with this Section 5(f) 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.
(g) Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
(h) Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
(j) Recapitalization, Exchanges and Similar Events. The
provisions of this Agreement shall apply to the full extent set forth herein
with respect to (i) the shares of Common Stock issuable upon conversion of the
Shares, (ii) any and all shares of voting common stock of the Company into which
the Shares and/or the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the Shares and/or the shares of Common Stock and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
The Company shall cause any successor or assign (whether by merger, sale or
otherwise) to enter into a new investor rights agreement with Nortel Networks
and the Purchasers on terms substantially the same as those contained in this
Agreement as a condition to any such transaction.
[Remainder of page intentionally left blank.]
-20-
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year above first written.
ELASTIC NETWORKS INC.
By: /s/ Xxx X. Xxxx
----------------------------------------------------
Name: Xxx X. Xxxx
Title: President
NORTEL NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
PEQUOT PRIVATE EQUITY FUND, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By:
----------------------------------------------------
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By: Pequot Capital Management, Inc., Investment Advisor
By:
----------------------------------------------------
Name:
Title:
PEQUOT VENTURE PARTNERS, L.P.
By: Pequot Capital Management, Inc., Investmnent Manager
By:
----------------------------------------------------
Name:
Title:
TEXAS INSTRUMENTS INCORPORATED
By:
----------------------------------------------------
Name:
Title:
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year above first written.
ELASTIC NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
NORTEL NETWORKS INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Vice President, Finance, Sales and
Business Development
PEQUOT PRIVATE EQUITY FUND, LP.
By: Pequot Capital Management, Inc., Investment Manager
By:
----------------------------------------------------
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By: Pequot Capital Management, Inc., Investment Advisor
By:
----------------------------------------------------
Name:
Title:
PEQUOT VENTURE PARTNERS, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By:
----------------------------------------------------
Name:
Title:
TEXAS INSTRUMENTS INCORPORATED
By:
----------------------------------------------------
Name:
Title:
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year above first written.
ELASTIC NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
NORTEL NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
PEQUOT PRIVATE EQUITY FUND, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------------
Name: Xxxxx X. Xxxxx
Title: CFO
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By: Pequot Capital Management, Inc., Investment Advisor
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------------
Name: Xxxxx X. Xxxxx
Title: CFO
PEQUOT VENTURE PARTNERS, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------------
Name: Xxxxx X. Xxxxx
Title: CFO
TEXAS INSTRUMENTS INCORPORATED
By:
----------------------------------------------------
Name:
Title:
[Investor Rights Agreement -- Signature Page]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year above first written.
ELASTIC NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
NORTEL NETWORKS INC.
By:
----------------------------------------------------
Name:
Title:
PEQUOT PRIVATE EQUITY FUND, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By:
----------------------------------------------------
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By: Pequot Capital Management, Inc., Investment Advisor
By:
----------------------------------------------------
Name:
Title:
PEQUOT VENTURE PARTNERS, L.P.
By: Pequot Capital Management, Inc., Investment Manager
By:
----------------------------------------------------
Name:
Title:
TEXAS INSTRUMENTS INCORPORATED
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Vice President Manager, Corporate Development
EXHIBIT A
Purchasers
Pequot Private Equity Fund, L.P.
000 Xxxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Pequot Offshore Private Equity Fund, Inc.
c/o Hemisphere Management Limited
Xxxxxxxxxx Xxxxx
0 Xxxxxx Xxxxxx
P.O. Box HM951
Xxxxxxxx, XX DX
Bermuda
Pequot Venture Partners, L.P.
000 Xxxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Texas Instruments Incorporated
0000 Xxxxxxxxx Xxx, XX 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxx
with a copy to:
Texas Instruments Incorporated
0000 Xxxxxx Xxxx, XX 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
