EXHIBIT 10.4
Efficient Networks, Inc
INVESTORS' RIGHTS AGREEMENT
July 30, 1993
TABLE OF CONTENTS
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Page
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1. Registration Rights 1
1.1 Definitions 1
1.2 Request for Registration 2
1.3 Company Registration 3
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 5
1.8 Underwriting Requirements 6
1.9 Delay of Registration 6
1.10 Indemnification 7
1.11 Reports Under Securities Exchange Act of 1934 9
1.12 Form S-3 Registration 10
1.13 Assignment of Registration Rights 11
1.14 Limitations on Subsequent Registration Rights 11
1.15 "Market Stand-Off" Agreement 12
1.16 Termination of Registration Rights 12
2. Covenants of the Company 13
2.1 Delivery of Financial Statements 13
2.2 Inspection 14
2.3 Termination of Information and Inspection Covenants 14
2.4 Right of First Offer 14
2.5 Key-Person Insurance 15
2.6 Management Stock 16
2.7 Election of Directors; Board Meeting Expenses; Indemnities 16
2.8 Use of Proceeds 17
2.9 Salaries of Officers 17
2.10 Payment of Dividends 17
2.11 Termination of Certain Covenants 17
3. Miscellaneous 17
3.1 Successors and Assigns 17
3.2 Governing Law 18
3.3 Counterparts 18
3.4 Titles and Subtitles 18
3.5 Notices 18
3.6 Expenses 18
3.7 Amendments and Waivers 18
3.8 Severability 19
3.9 Aggregation of Stock 19
3.10 Entire Agreement; Amendment; Waiver 19
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INVESTORS' RIGHTS AGREEMENT
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THIS INVESTORS' RIGHTS AGREEMENT is made as of the 30th day of July, 1993,
by and between Efficient 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."
RECITALS
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WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Company to enter into the Series A
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Series A Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock issuable to the Investors and certain other
matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
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1.1 Definitions. For purposes of this Section 1:
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(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "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;
(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, and (2) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A Preferred Stock or Common Stock, 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;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of
shares of Common Stock issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities.
(e) 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; and
(f) 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 Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Request for Registration.
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(a) If the Company shall receive at any time after the earlier of
(i) July 30, 1995, or (ii) one (1) year 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 at
least fifty percent (50%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least twenty percent (20%) of the Registrable Securities then
outstanding (or a lesser percent if the aggregate offering price of would exceed
$5,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), effect as soon as practicable, and in
any event shall use its best efforts to effect within 60 days of the receipt of
such request, the registration under the Act of all Registrable Securities which
the Holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 3.5.
(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 this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. 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
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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 by a majority in
interest of the Initiating Holders. 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 which 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) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) 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 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 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 such filing
for a period of not more than 60 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 month period.
1.3 Company Registration. If (but without any obligation to do so)
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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, or a
registration on any form which 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), 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 3.5, 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.
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1.4 Obligations of the Company. Whenever required under this
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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 up to one hundred twenty (120) days.
(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.
(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) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are
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delivered to the underwriters for sale in connection with a registration
pursuant to this Section 1, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
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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.
1.6 Expenses of Demand Registration. All expenses other than
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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 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
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all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities
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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
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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, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
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 thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities 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 stockholder which is a holder of Registrable
Securities and which 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
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or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy
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that might arise with respect to the interpretation or implementation of this
Section 1.
1.10 Indemnification. In the event any Registrable Securities are
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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 Securities Exchange Act of 1934, as amended (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 which 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, 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
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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 which 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
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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 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
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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 ninety (90) days
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
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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 which 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
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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:
(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 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 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 60 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 month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected one registration on Form S-3 for the
Holders pursuant to this Section 1.12; (5) within one hundred eighty days (180)
days of any prior registration statement under the Act; or (6) in any particular
jurisdiction in which the
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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 one counsel for the selling Holder or
Holders and counsel for the Company, but excluding 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
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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 500,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided 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 securities with respect to which such
registration rights are being assigned; and provided, further, that 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 Limitations on Subsequent Registration Rights. From and after the
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date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a)
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to include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
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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 which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(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.
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.
1.16 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 (i) after six (6) 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
(ii) to the extent any individual Holder is eligible to sell all of such
Holder's Registrable Securities pursuant to Rule 144(k).
-12-
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock:
(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 schedule as to the sources and
applications of funds 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) 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 profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event sixty (60) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets and sources
and applications of funds statements for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company. The Company's
Board of Directors shall endeavor to provide input to management on the budget
submitted such that it is approved by the Company's Board of Directors at least
thirty (30) days prior to the end of the fiscal year prior to the year for which
such budget applies;
(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 and 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 operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may
-13-
from time to time request, provided, however, that the Company shall not be
obligated under this subsection (f) or any other subsection of Section 2.1 to
provide information which it deems in good faith to be a trade secret or similar
confidential information.
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 not be obligated
pursuant to this Section 2.2 to provide access to any information which 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 Investor 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, Investor includes
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.
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 Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors 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) Within 20 calendar days after receipt of the Notice, the
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 which equals the
proportion that the number of shares of common stock issued and held, or
issuable
-14-
upon conversion of the Series A Preferred Stock then held, by such Investor
bears to the total number of shares of common stock of the Company then
outstanding (assuming full conversion of all convertible securities). The
Company shall promptly, in writing, inform each Investor which purchases all the
shares available to it ("Fully-Exercising Investor") of any other Investor's
failure to do likewise. During the ten-day period commencing after receipt of
such information each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares not subscribed for by the Investors which is equal to the
proportion that the number of shares of common stock issued and held, or
issuable upon conversion of Series A Preferred Stock then held, by such Fully-
Exercising Investor bears to the total number of shares of common stock issued
and held, or issuable upon conversion of the Series A Preferred Stock then held,
by all Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares.
(c) If all Shares which Investors are entitled to obtain pursuant
to subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 30-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 30 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 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, consultants, directors or officers for the primary
purpose of soliciting or retaining their employment or service when the total
number of shares of Common Stock so issued (and not repurchased at cost by the
Company in connection with the termination of employment or service), does not
exceed 4,000,000 (subject to appropriate adjustment for stock splits, stock
dividends, combinations or other recapitalizations) since the date of the
Company's incorporation, or (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, (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, or (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.
2.5 Key-Person Insurance. The Company shall obtain and maintain in
--------------------
full force and effect from the date of Closing until all of the shares of Series
A Preferred Stock have been
-15-
redeemed by the Company or have been converted into shares of Common Stock of
the Company, term life insurance in the amount of $1,000,000 on the life of Xxxx
Xxxxx and $3,000,000 on the life of Xxxxx Xxxxxx, with proceeds payable to the
Company.
2.6 Management Stock.
----------------
(a) Employee Reserve. An initial pool of 4,000,000 shares of the
----------------
Company's Common Stock (taking into account the issuance of all shares of Common
Stock or options therefor since the date of the Company's incorporation) shall
be reserved for purchase or incentive grants to employees, consultants,
directors or officers under those stock purchase or stock option plans or other
arrangements as determined in the discretion of the Company's Chief Executive
Officer and Chief Technical Officer, subject to approval by the Board of
Directors ("Employee Reserve").
(b) Vesting. The shares or options issued from the employee
-------
reserve provided for in Section 2.6 shall generally vest in equal monthly
installments over the forty-eight (48) months following the grant or issuance of
such shares or options, subject to a one year cliff period. Shares initially
issued to Xxxx Xxxxx and Xxxxx Xxxxxx shall not be subject to the one year cliff
period, but shall be subject to the forty-eight month vesting schedule.
(c) Right of First Refusal and Co-Sale Agreement. The Company
--------------------------------------------
shall require, all common stockholders and option holders as of the Closing of
the issuance of Series A Preferred Stock under the Series A Agreement to enter
into a Right of First Refusal and Co-Sale Agreement as a condition to such
issuance or grant, and the Company shall require future common stockholders and
option holders as determined by the Company's Board of Directors to enter into a
Right of First Refusal and Co-Sale Agreement.
2.7 Election of Directors; Board Meeting Expenses; Indemnities.
----------------------------------------------------------
(a) The Company agrees to take all reasonable actions required to
ensure that any person who is nominated for the directorships to which directors
are to be elected by the holders of Common Stock and the holders of Series A
Preferred Stock voting together will first be approved for such nomination by
both the board representatives of the Series A Preferred Stock and the board
representatives of the Common Stock. The Company will not avoid or seek to avoid
the observance or performance of any of the terms to be performed by the Company
under this paragraph, and will at all times in good faith assist in the carrying
out of all of the provisions.
(b) The out-of-pocket expenses incurred by the Company's outside
directors in attending Board meetings
-16-
(including, without limitation, airfare, hotel, rental car, and meals) shall be
reimbursed by the Company.
(c) The Company shall take all actions necessary to indemnify its
directors to the maximum extent permitted by applicable law, including, without
limitation, amending the Company's Certificate of Incorporation and Bylaws and
entering into contracts with the directors to provide such indemnification;
provided, however, that the Company shall not be required to obtain directors
and officers insurance unless authorized by the Board of Directors.
(d) The Bylaws of the Company shall provide that the Board of
Directors of the Company shall consist of five (5) persons which number shall
not be changed by an Amendment to the Certificate of Incorporation or the Bylaws
without the consent of at least four out of the five directors of the Company's
Board of Directors.
2.8 Use of Proceeds. Proceeds received at the Closing shall be used
---------------
exclusively to fund the working capital requirements of the Company.
2.9 Salaries of Officers. The position, title and salary of the
--------------------
Company's officers shall be subject to the approval by the Board of Directors.
2.10 Payment of Dividends. The Company shall declare dividends on the
--------------------
Series A Preferred Stock in the full preferential amount each year in which the
Company makes a profit sharing payment to its management or employees. The
compensation committee of the Board of Directors may approve bonuses for
management or employees which are outside any existing or future profit sharing
plan, and such bonus payments shall not constitute a profit sharing payment
which triggers a dividend on the Series A Preferred Stock. Notwithstanding the
foregoing, the Company's Board of Directors may in its discretion declare and
pay dividends on the Series A Preferred Stock in accordance with applicable law.
2.11 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Section 2.4 shall terminate and be of no further force or effect upon the
consummation of 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.
3. Miscellaneous.
-------------
3.1 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
-17-
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.
3.2 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.
3.3 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. It is expressly
contemplated by the parties to this Agreement that purchaser(s) of shares of the
Company's Series A Preferred Stock pursuant to the Series A Agreement in
closings subsequent to the date of this Agreement shall execute and deliver
counterparts to this Agreement and shall automatically become a party to this
Agreement and shall be included in the definition of "Investor" for purposes of
this Agreement.
3.4 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.
3.5 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon 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.
3.6 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.
3.7 Amendments and Waivers. Any term of this Agreement 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. 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.
-18-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EFFICIENT NETWORKS, INC., a
Delaware corporation
By: /s/ M. A. Xxxxx
---------------
----------------
Address: 000 X Xxxxxxx #0000
Xxxxxx, XX 00000
INVESTORS:
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Signature Illegible
-------------------------
General Partner
Address: 00000 XxxXxxxxx Xxxx.
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
CROSSPOINT 1993 ENTERPRENEURS FUND
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 00000 XxxXxxxxx Xxxx.
Xxxxx 000
Xxxxxx, XX 00000
ENTERPRISE PARTNERS II, L.P.
By: Enterprise Management Partners
II, L.P., Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 00000 Xxx Xxxxxxx Xxxx.
Xxxxx 000
Xxx Xxxxxxx, XX 00000
-19-
ENTERPRISE PARTNERS II ASSOCIATES,
L.P.
By: Enterprise Management Partners
II, L.P., Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 00000 Xxx Xxxxxxx Xxxx.
Xxxxx 000
Xxx Xxxxxxx, XX 00000
OCEAN PARK VENTURES, L.P.
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 00000 Xxx Xxxxxxx Xxxx.
Xxxxx 000
Xxx Xxxxxxx, XX 00000
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 000 Xxxx Xxxxxxxx Xxxx.,
Xxxxx 000
Xxxxxxxx, XX 00000
[SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT]
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 000 Xxxx Xxxxxxxx Xxxx.,
Xxxxx 000
Xxxxxxxx, XX 00000
EL DORADO TECHNOLOGY IV, L.P.,
a California Limited Partnership
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 000 Xxxx Xxxxxxxx Xxxx.,
Xxxxx 000
Xxxxxxxx, XX 00000
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
-22-
SCHEDULE A
SCHEDULE OF INVESTORS
Crosspoint Venture Partners 1993
00000 XxxXxxxxx Xxxx., Xxx 000
Xxxxxx, XX 00000
Crosspoint 1993 Entrepreneurs Fund
00000 XxxXxxxxx Xxxx., Xxx 000
Xxxxxx, XX 00000
Enterprise Partners II, L.P.
00000 Xxx Xxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Enterprise Partners II Associates, L.P.
00000 Xxx Xxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Ocean Park Ventures, L.P.
00000 Xxx Xxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
El Dorado Ventures III, L.P.
000 Xxxx Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx, XX 00000
El Dorado C&L Fund, L.P.
000 Xxxx Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx, XX 00000
El Dorado Technology IV, L.P.
000 Xxxx Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx, XX 00000
A-1
