1
EXHIBIT 4.2
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
REDBACK NETWORKS INC.
JULY 2, 1998
2
TABLE OF CONTENTS
1. Registration Rights ................................................... 1
1.1 Definitions .................................................. 1
1.2 Request for Registration ..................................... 2
1.3 Company Registration ......................................... 4
1.4 Obligations of the Company ................................... 4
1.5 Furnish Information .......................................... 5
1.6 Expenses of Demand Registration .............................. 5
1.7 Expenses of Company Registration ............................. 6
1.8 Underwriting Requirements .................................... 6
1.9 Delay of Registration ........................................ 7
1.10 Indemnification ............................................. 7
1.11 Reports Under Securities Exchange Act of 1934 ............... 9
1.12 Form S-3 Registration ....................................... 9
1.13 Assignment of Registration Rights ........................... 10
1.14 "Market Stand-Off" Agreement Rights ......................... 11
1.15 Termination of Registration Rights .......................... 11
2. Covenants of the Company .............................................. 12
2.1 Delivery of Financial Statements ............................. 12
2.2 Inspection ................................................... 12
2.3 Termination of Information and Inspection Covenants .......... 13
2.4 Right of First Offer ......................................... 13
2.5 Qualified Small Business Stock ................................ 14
3. Voting Provisions ..................................................... 14
3.1 Agreement to Vote ............................................ 14
3.2 Election of Director ......................................... 15
4. Miscellaneous ......................................................... 15
4.1 Successors and Assigns ....................................... 15
4.2 Governing Law ................................................ 15
4.3 Counterparts ................................................. 15
4.4 Titles and Subtitles ......................................... 15
4.5 Notices ...................................................... 15
4.6 Expenses ..................................................... 16
4.7 Termination of Prior Agreement ............................... 16
4.8 Amendments and Waivers ....................................... 16
4.9 Severability ................................................. 16
4.10 Aggregation of Stock ....................................... 16
4.11 Entire Agreement ............................................ 16
Schedule A Schedule of Investors
Schedule B Schedule of Management Holders
i
3
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of July 2, 1998, by and among RedBack Networks Inc., a
Delaware corporation (the "Company"), and the investors listed on Schedule A
hereto, each of which is herein referred to as an "Investor," and the founders
listed on Schedule B hereto, each of which is herein referred to as a "Founder."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors")
have heretofore purchased Series A, Series B and Series C Preferred Stock from
the Company and possess registration and other investor rights contained in that
certain Investors' Rights Agreement dated October 23, 1997 (the "Prior
Agreement");
WHEREAS, the Company and certain of the Investors (the "Series D
Investors") are parties to the Series D Preferred Stock Purchase Agreement dated
July 2, 1998 (the "Series D Agreement") between the Company and the Investors
listed on the Schedule of Investors attached thereto, pursuant to which the
Series D Investors are purchasing shares of Series D Preferred Stock of the
Company;
WHEREAS, in order to induce the Company to enter into the Series
D Agreement and to induce the Series D Investors to invest funds in the Company
pursuant to the Series D Agreement, the Existing Investors and the Company
desire to terminate the Prior Agreement and provide that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein;
WHEREAS, by executing this Agreement, the Existing Investors
agree to waive the right of first offer contained in the Prior Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1 Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
4
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(e) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, (ii) the shares of Common Stock issued to the Founders;
provided, however, that such shares of Common Stock shall not be deemed
Registrable Securities and the aforementioned individuals shall not be deemed
Holders for the purposes of Sections 1.2, 1.12 and 4.8, and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of the
shares referenced in (i) and (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier
of (i) July 2, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request from the Holders
of a majority of the Registrable Securities then outstanding that the Company
file a registration statement under the Act covering the registration of at
least twenty-five percent (25%) of the Registrable Securities then outstanding
(or a lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $7,500,000), then the
Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
2
5
(ii) effect as soon as practicable, and in any event
within sixty (60) days of the receipt of such request, the registration under
the Act of all Registrable Securities that the Holders request to be registered,
subject to the limitations of subsection 1.2(b), within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 4.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
3
6
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 4.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
4
7
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders
(provided such counsel
5
8
shall be the same as counsel for the Company) shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, that the underwriters determine in their sole discretion
will not jeopardize the success of the offering (any reduction in the securities
so included shall be first taken from the securities of selling stockholders who
are former employees of the Company; thereafter, any remaining reduction shall
be apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each such selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but in no event shall (i) the amount of securities of the
selling Holders included in the offering be reduced below twenty-five percent
(25%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling
6
9
stockholder that is a holder of Registrable Securities and that is a partnership
or corporation, the partners, retired partners and stockholders of such holder,
or the estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder, and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages
7
10
or liabilities (joint or several) to which any of the foregoing persons may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b) in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld); provided that
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, 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 such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
8
11
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, 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.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the first registration statement filed by the Company for the offering
of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
9
12
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any twelve (12) month period; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 1.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company and including any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 400,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations after the date hereof), provided: (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the
10
13
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.14 below; and (c) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
1.
1.14 "Market Stand-Off" Agreement Rights. Each Investor hereby
agrees that, during the period of duration specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the Act,
it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(c) such market stand-off time period shall not exceed one
hundred eighty (180) days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public or, as to any Holder, such earlier time at which all Registrable
Securities held by such Holder can be sold in any three (3) month period without
registration in compliance with Rule 144 of the Act.
11
14
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver
to each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("gaap"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications after the date hereof), as soon as
practicable, but in any event within forty-five (45) days after the end of each
of the first three (3) quarters of each fiscal year of the Company, an unaudited
income statement and statement of cash flows for such fiscal quarter and an
unaudited balance sheet and a statement of stockholder's equity as of the end of
such fiscal quarter;
(c) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), within thirty (30) days of the end of each
month, an unaudited income statement and statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail;
(d) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget for the next
fiscal year, prepared on a monthly basis, including balance sheets and
statements of cash flows, for such months, and, as soon as prepared, any other
budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with gaap consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
gaap) and fairly present the financial condition of the Company and its results
of operations for the period specified, subject to year-end audit adjustment.
2.2 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall
12
15
not be obligated pursuant to this Section 2.2 to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information.
2.3 Termination of Information and Inspection Covenants. The
covenants set forth in Section 2.1 and Section 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean any Investor who holds at least
400,000 shares of Common Stock issued or issuable upon conversion of the Series
A, Series B, Series C or Series D Preferred Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations after the date hereof). For purposes of this Section 2.4,
Investors include any general partners and affiliates of an Investor. An
Investor shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate. For the purposes of this Section 2.4, any entities affiliated with
Accel Partners, Sequoia Capital or Xxxxxxxx Fund may aggregate their share
holdings and may allocate such aggregated amounts among such entities as they
deem appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for, any shares of any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A, Series B, Series C and Series D Preferred Stock then held, by such
Major Investor bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion, exercise and exchange of all
convertible, exercisable or exchangeable securities).
(c) If all Shares referred to in the Notice which Major
Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected
to be obtained as provided in subsection
13
16
2.4(b) hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees or directors of or consultants to the Company for the
primary purpose of soliciting or retaining their services, (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
Common Stock, registered under the Act pursuant to a registration statement on
Form S-1 or SB-2, (iii) the issuance of securities pursuant to the conversion,
exercise or exchange of convertible, exercisable or exchangeable securities,
(iv) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, or (v) the issuance of stock,
warrants or other securities or rights to persons or entities with which the
Company has business relationships, provided such issuances are for other than
primarily equity financing purposes.
(e) The right of first offer set forth in this Section 2.4 may
not be assigned or transferred, except (i) to any transferee of 250,000 shares
or more of Registrable Securities (subject to appropriate adjustment for all
stock splits, dividends, subdivisions, combinations, recapitalizations and the
like), (ii) by each Investor to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Acts controlling,
controlled by or under common control with, any such Investor and (iii) between
and among any of the Investors.
2.5 Qualified Small Business Stock. As of the Closing, (i) the
Company will not have made any purchases of its own stock during the one-year
period preceding the Closing which would cause the Series D Preferred Stock
issued pursuant to the Series D Agreement to fail to qualify as "qualified small
business stock" within the meaning of Section 1202 of the Internal Revenue Code
of 1986, as amended (the "Code"), by reason of Code Section 1202(c)(3)(B), and
(ii) the Company's aggregate gross assets, as defined by Code Section
1202(d)(2), at no time through the Closing exceeded or will exceed $50 million,
taking into account the assets of any corporation required to be aggregated with
the Company in accordance with Code Section 1202(d)(3). The Company will use
reasonable efforts to comply with the reporting and record keeping requirements
of Code Section 1202 and any regulations thereunder.
3. Voting Provisions.
3.1 Agreement to Vote. Each Investor, as a holder of the
Company's Preferred Stock (the "Preferred Stock"), hereby agrees on behalf of
itself and any transferee or
14
17
assignee of any such shares of the Preferred Stock, to hold all of the shares of
Preferred Stock registered in its name (and any securities of the Company issued
with respect to, upon conversion of, or in exchange or substitution of the
Preferred Stock, and any other voting securities of the Company subsequently
acquired by such Investor) (hereinafter collectively referred to as the
"Investor Shares") subject to, and to vote the Investor Shares in accordance
with, the provisions of this Agreement. Each Common Holder, as a holder of
Common Stock of the Company, hereby agrees on behalf of himself or herself and
any transferee or assignee of any such shares of Common Stock, to hold all of
such shares of Common Stock and any other securities of the Company acquired by
him or her in the future (and any securities of the Company issued with respect
to, upon conversion of, or in exchange or substitution for such securities) (the
"Common Holder Shares") subject to, and to vote the Common Holder Shares in
accordance with, the provisions of this Agreement. Except as provided by this
Agreement, each Investor and Common Holder shall exercise the full rights of a
stockholder with respect to the Investor shares and Common Holder Shares.
3.2 Election of Director. The director elected to the Company's
Board of Directors pursuant to subsection 5(b)(iii) of Article IV of the Amended
and Restated Certificate (as defined in the Series D Agreement) shall have
relevant industry experience for the Company's business and shall receive the
affirmative votes of holders of a majority of the Preferred Stock and a majority
of the Common Stock.
4 Miscellaneous.
4.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, except that Section 3 hereof shall be governed by the Delaware
General Corporation Law.
4.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 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.
4.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon
15
18
personal delivery to the party to be notified or upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
4.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.7 Termination of Prior Agreement. The Prior Agreement is
hereby terminated and of no further force and effect.
4.8 Amendments and Waivers. Any term of this Agreement, except
as provided in this section 4.8, may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding; provided, however, that in the event such amendment or waiver
adversely affects the rights and/or obligations of the Founders under this
Agreement in a different manner than the other Holders, such amendment or waiver
shall also require the written consent of a majority of the Common Stock held by
the Founders. Section 3.2 of this Agreement may not be amended without the
approval of the holders of a majority of the Preferred Stock and a majority of
the Common Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
4.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
4.10 Aggregation of Stock. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
4.11 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
16
19
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
REDBACK NETWORKS INC.
By:
-------------------------------------
Xxxxxx X. Xxxxxxx, President
Address: 0000 Xxxxxxx Xxxx Xxxxx
Xxxxxxxxx, XX 00000
Signature Page to Investors' Rights Agreement
20
INVESTORS:
XXXXXXXX VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: XXXXXXXX VIII MANAGEMENT, L.L.C.
------------------------------------
A DELAWARE LIMITED LIABILITY
COMPANY, Its General Partner
By:
-------------------------------------
XXXXXXXX ASSOCIATES FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
By: XXXXXXXX VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY
COMPANY, Its General Partner
By:
-------------------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Signature Page to Investors' Rights Agreement
21
SEQUOIA CAPITAL VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1995 LLC
SQP 1997
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1997
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC
-------------------------------------
a California Limited Liability Company,
its General Partner
By:
-------------------------------------
----------------------------------------
Print Name
----------------------------------------
Title
Address: 0000 Xxxx Xxxx Xxxx, Xxxxxxxx 0,
Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Signature Page to Investors' Rights Agreement
22
ACCEL V L.P.
By: Accel V Associates L.L.C.
-------------------------------------
Its General Partner
By:
------------------------------
Managing Member
ACCEL INTERNET/STRATEGIC
TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology
Fund
-----------------------------------
Associates L.L.C.
Its General Partner
By:
------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
-------------------------------------
Its General Partner
By:
------------------------------
Managing Member
ACCEL INVESTORS '96 L.P.
By:
-------------------------------------
General Partner
XXXXXXX X. XXXXXXXXX PARTNERS
By:
-------------------------------------
General Partner
Address: 000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Signature Page to Investors' Rights Agreement
23
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By Lighthouse Management
Partners II, L.P.,
Its General Partner
By Lighthouse Capital Partners, Inc.,
Its General Partner
By:
-------------------------------------
Xxxxxxx X. Xxxxxxxxxxxx, Managing
Director
Address: 000 Xxxxxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000-0000
XXXXXXXX XXXXX
By:
-------------------------------------
Address: 00000 Xxxxxx Xxxxx
Xxx Xxxxx Xxxxx, Xxxxxxxxxx 00000
XXXXXX XXXXXX
By:
-------------------------------------
Address: 000 Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Signature Page to Investors' Rights Agreement
24
FOUNDERS:
----------------------------------------
Xxxxxx Xxxx
Signature Page to Investors' Rights Agreement
25
G & H Partners
By:
-------------------------------------
Signature Page to Investors' Rights Agreement
26
G & H Partners
By:
-------------------------------------
Signature Page to Investors' Rights Agreement
27
SCHEDULE A
SCHEDULE OF INVESTORS
SEQUOIA CAPITAL VII
SEQUOIA TECHNOLOGY PARTNERS VII
SEQUOIA 1995 LLC
SQP 1997
SEQUOIA 1997
ACCEL V L.P.
ACCEL INTERNET/STRATEGIC TECHNOLOGY
FUND L.P.
ACCEL KEIRETSU V L.P.
ACCEL INVESTORS '96 X.X.
XXXXXXX X. XXXXXXXXX PARTNERS
XXXXXXXX ASSOCIATES FUND III
XXXXXXXX VIII
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
XXXXXXXX XXXXX
XXXXXX XXXXXX
XXXXXXX X. XXXXXX
STANFORD UNIVERSITY
XXXXXX X. AND XXXXXXXXX X. XXXXXX TRUST
XXXXX X. XXXXXX TRUST
G&H PARTNERS
28
F. XXXXX XXXX
XXX XXXXX
XXXXXX XX
29
SCHEDULE B
SCHEDULE OF MANAGEMENT HOLDERS
FOUNDER
Xxxxxx Xxxx
