1 Exhibit 4.3 NETGEAR, INC. INVESTOR RIGHTS AGREEMENT This Agreement dated as of March __, 2000 is entered into by and among NETGEAR, Inc., a Delaware corporation (the "Company"), Nortel Networks NA Inc., a Delaware corporation ("Nortel Networks"), and the individuals and entities listed on Exhibit A attached hereto (such individuals and entities and their successors and assigns, the "Purchasers"). Recitals WHEREAS, the Company, Nortel Networks and the Purchasers have entered into a Series B Convertible Participating Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"); and WHEREAS, the Company, Nortel Networks and the Purchasers desire to provide for certain arrangements with respect to (i) the registration of shares of capital stock of the Company under the Securities Act of 1933 and (ii) the Purchasers' right of first refusal with respect to certain issuances of securities of the Company; NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Stock" means the common stock, $.001 par value per share, of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Initiating Holders" means the Stockholders initiating a request for registration pursuant to Section 2.1(a) and the Stockholders electing to include their Shares in such registration pursuant to Section 2.1(b). "Other Holders" shall have the meaning set forth in Section 2.1(d). "Prospectus" means the prospectus included in any Registration Statement, as amended or supplemented by an amendment or prospectus supplement, including post-effective 2 amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Qualified Initial Public Offering" means the initial firm commitment underwritten public offering of shares of Common Stock pursuant to an effective Registration Statement under the Securities Act which results in gross proceeds before deduction of selling and other related expenses to the Company of at least $25,000,000 at a concurrent valuation of the Company of not less than $300,000,000. "Registration Statement" means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). "Registration Expenses" means the expenses described in Section 2.4. "Registrable Shares" means (i) the shares of Common Stock issued or issuable upon conversion of the Shares and the shares of Common Stock issued or issuable upon exercise of the Warrant (as defined in the Purchase Agreement), (ii) any shares of Common Stock, and any shares of Common Stock issued or issuable upon the conversion or exercise of any other securities, acquired by the Purchasers pursuant to Section 3 of this Agreement and (iii) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares upon (i) any sale pursuant to a Registration Statement or Rule 144 under the Securities Act or (ii) any sale in any manner to a person or entity which, by virtue of Section 4 of this Agreement, is not entitled to the rights provided by this Agreement. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, the determination of such percentage shall include shares of Common Stock issuable upon conversion of the Shares even if such conversion has not been effected. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Selling Stockholder" means any Stockholder owning Registrable Shares included in a Registration Statement. "Shares" means the Series A Preferred Stock and Series B Preferred Stock of the Company, and any shares of Common Stock that may be issued upon conversion of the Series A Preferred Stock and Series B Preferred Stock of the Company. "Stockholders" means Nortel Networks, the Purchasers and any persons or entities to whom the rights granted under this Agreement are transferred by Nortel Networks, the Purchasers, their successors or assigns pursuant to Section 4 hereof. 2 3 2. Registration Rights. 2.1 Required Registrations. Beginning one year after March __, 2000, and provided that any requested registration which is an initial public offering shall be a Qualified Initial Public Offering: (a) Nortel Networks, or each Purchaser or Purchasers holding in the aggregate at least 25% of the Registrable Shares held by the Purchasers, may request, in writing, that the Company effect the registration on Form S-1, Form S-2 or Form S-3 (or any successor form) of registrable Shares owned by such requested Stockholder or Stockholders having an aggregate value of at least $5,000,000 (based on the then current market price of fair value); and (b) Upon receipt of any request for registration pursuant to this Section 2, the Company shall promptly give written notice of such proposed registration to all other Stockholders. Such Stockholders shall have the right, by giving written notice to the Company within 20 days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Stockholders may request in such notice of election, subject in the case of an underwritten offering to the approval of the managing underwriter as provided in Section 2.1(d) below. Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration on an appropriate registration form of all Registrable Shares which the Company has been requested to so register. (c) If the Initiating Holders intend to distribute the Registrable Shares covered by their request by means of an underwriting, they shall so advise the Company. The right of any other person to include its securities in such registration pursuant to Section 2.1(c) shall be conditioned upon such other person's participation in such underwriting on the terms set forth herein. Subject to Section 2.9 herein, if the Company desires that any officers or directors of the Company holding securities of the Company be included in any registration for an underwritten offering requested pursuant to Section 2.1(c) or if other holders of securities of the Company who are entitled, by contract with the Company entered into after the date of this Investor Rights Agreement, to have securities included in such a registration (the "Other Holders") request such inclusion, the Company may include the securities of such officers, directors and Other Holders in such registration and underwriting on the terms set forth herein. The Company shall (together with all Stockholders, officers, directors and Other Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form (including, without limitation, but subject to the provisions of Section 2.5(b) herein, customary indemnification and contribution provisions on the part of the Company) with the managing underwriter. Notwithstanding any other provision of this Section 2.1(c), if the managing underwriter gives the Company a written opinion that the inclusion of all shares requested to be registered would adversely affect the offering, the securities of the Company held by officers or directors of the Company (other than Registrable Shares) and the securities held by Other Holders (other than Registrable Shares) shall be excluded from such registration and underwriting to the extent deemed advisable by the managing underwriter, and if a further limitation of the number of shares is required, the number of shares that may be included in such registration and underwriting shall be allocated among all holders of Registrable Shares 3 4 requesting registration in proportion, as nearly as practicable, to the respective number of Registrable Shares requested to be registered by them in the aggregate at the time of the respective requests for registration were made pursuant to Section 2.1(a), PROVIDED, HOWEVER, THAT IN NO EVENT SHALL THE NUMBER OF REGISTRABLE SHARES REQUESTED TO BE REGISTERED BY NORTEL NETWORKS AND THE PURCHASERS BE REDUCED TO LESS THAN 30% OF ANY UNDERWRITING SUBSEQUENT TO THE QUALIFIED INITIAL PUBLIC OFFERING. If any holder of Registrable Shares, officer, director or Other Holder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, and the securities so withdrawn shall also be withdrawn from registration. If the managing underwriter has not limited the number of Registrable Shares or other securities to be underwritten, the Company may include securities for its own account in such registration if the managing underwriter so agrees and if the number of Registrable Shares and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (d) The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten offering requested pursuant to Section 2.1(a), subject to the approval of the Company, which approval will not be unreasonably withheld. (e) The Company shall not be required to effect more than four registrations requested by such Purchaser or Purchasers pursuant to Section 2.1(a). In addition, the Company shall not be required to effect any registration within six months after the effective date of any other Registration Statement of the Company. For purposes of this Section 2.1(e), a Registration Statement shall not be counted until such time as such Registration Statement has been declared effective by the Commission and remains continuously effective for the lesser of (i) the period during which all Registrable Shares registered in such registration are sold and (ii) six months; provided, however, that for purposes of this Section 2.1(e), a Registration Statement shall not be counted if (x) after such Registration Statement has become effective, such registration or the related offer, sale or distribution of Registrable Shares thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (y) the conditions specified in the underwriting agreement, if any, entered into in connection with such Registration Statement are not satisfied or waived, other than by reason of the Initiating Holders. The time period referred to in Section 2.3(a)(ii) during which the Registration Statement must be kept effective shall be extended for an additional number of business days equal to the number of business days during which the right to sell shares was suspended pursuant to the preceding sentence. (f) If at the time of any request to register Registrable Shares by Initiating Holders pursuant to this Section 2.1, the Company is engaged or has plans to engage in a registered public offering or is engaged in any other activity which, in the good faith determination of the Company's Board of Directors, would be adversely affected by the requested registration, then the Company may at its option direct that such request be delayed for a period not in excess of 90 days from the date of such request, such right to delay a request to be exercised by the Company not more than twice in any 12-month period. If after a Registration Statement becomes effective, the Company advises the holders of Registrable Shares that the Company considers it appropriate that the Registration Statement be amended, the holders of 4 5 such shares shall suspend any further sales of their Registrable Shares until the Company advises them that the Registration Statement has been amended. The time period referred to in Section 2.3(a)(ii) during which the Registration Statement must be kept effective shall be extended for an additional number of business days equal to the number of business days during which the right to sell shares was suspended pursuant to the preceding sentence. 2.2 Incidental Registration. (a) Whenever the Company proposes to file a Registration Statement (other than a Registration Statement filed pursuant to Section 2.1 and a Registration Statement covering shares to be sold solely for the account of Other Holders) at any time and from time to time after the closing of the Qualified Initial Public Offering, it will, prior to such filing, give written notice to all Stockholders of its intention to do so; provided, that no such notice need be given if no Registrable Shares are to be included therein as a result of a determination of the managing underwriter pursuant to Section 2.2(b). Upon the written request of a Stockholder or Stockholders given within 20 days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares which the Company has been requested by such Stockholder or Stockholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Stockholder or Stockholders; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 2.2 without obligation to any Stockholder. (b) If the registration for which the Company gives notice pursuant to Section 2.2(a) is a registered public offering involving an underwriting, the Company shall so advise the Stockholders as a part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Stockholder to include its Registrable Shares in such registration pursuant to Section 2.2 shall be conditioned upon such Stockholder's participation in such underwriting on the terms set forth herein. All Stockholders proposing to distribute their securities through such underwriting shall (together with the Company, Other Holders, and any officers or directors distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for the underwriting by the Company. Notwithstanding any other provision of this Section 2.2, if the managing underwriter determines that the inclusion of all shares requested to be registered would adversely affect the offering, the Company may limit the number of Registrable Shares to be included in the registration and underwriting. The Company shall so advise all holders of Registrable Shares requesting registration, and the number of shares that are entitled to be included in the registration and underwriting shall be allocated in the following manner. The securities of the Company held by officers and directors of the Company (other than Registrable Shares) shall be excluded from such registration and underwriting to the extent deemed advisable by the managing underwriter, and, if a further limitation on the number of shares is required, the number of shares that may be included in such registration and underwriting shall be allocated among all Stockholders and Other Holders requesting registration in proportion, as nearly as practicable, to the respective number of shares of Common Stock (on an as-converted basis) which they held at the time the Company gives the notice specified in Section 2.2(a), provided, however, that the number of shares held by Stockholders that may be included in such 5 6 registration and underwriting may not be reduced below thirty percent (30%) of any registration and underwriting after the Qualified Initial Public Offering. If any Stockholder or Other Holder would thus be entitled to include more securities than such holder requested to be registered, the excess shall be allocated among other requesting Stockholders and Other Holders pro rata in the manner described in the preceding sentence. If any holder of Registrable Shares or any officer, director or Other Holder disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company, and any Registrable Shares or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) Notwithstanding the foregoing, the Company shall not be required, pursuant to this Section 2.2, to include any Registrable Shares in a Registration Statement if such Registrable Shares can then be sold pursuant to Rule 144(k) under the Securities Act. 2.3 Registration Procedures. (a) If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any Registrable Shares under the Securities Act, the Company shall: (i) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become effective as soon as possible; at least ten (10) days before filing a registration statement or prospectus or at least three (3) business days before filing any amendments or supplements thereto, the Company will furnish counsel of the holders of a majority of the Registrable Shares being registered copies of all documents proposed to be filed for that counsel's review and approval, which approval shall not be unreasonably withheld or delayed; (ii) as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to comply with the provisions of the Securities Act (including the anti-fraud provisions thereof) and to keep the Registration Statement effective for six months from the effective date or such lesser period until all such Registrable Shares are sold; (iii) as expeditiously as possible furnish to each Selling Stockholder such reasonable numbers of copies of the Prospectus, including any preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by such Selling Stockholder; (iv) as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the Selling Stockholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the Selling Stockholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the Selling Stockholder; provided, however, that the Company shall not be required in 6 7 connection with this paragraph (iv) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction; (v) as expeditiously as possible, cause all such Registrable Shares to be listed on each securities exchange or automated quotation system on which similar securities issued by the Company are then listed; (vi) promptly provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement; (vii) promptly make available for inspection by the Selling Stockholders, any managing underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the Selling Stockholders, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement; (viii) as expeditiously as possible, notify each Selling Stockholder, promptly after it shall receive notice thereof, of the time when such Registration Statement has become effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed; (ix) as expeditiously as possible following the effectiveness of such Registration Statement, notify each seller of such Registrable Shares of (A) any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus and (B) any event as a result of which the Prospectus or any document incorporated therein by reference contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and, in either case, prepare a supplement or amendment to the Prospectus or any such document incorporated therein so that thereafter the Prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (x) use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement complying with the provisions of Section 11(a) of the Securities Act; (xi) cooperate with each seller of Registrable Shares and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the ""NASD"); (xii) immediately notify each seller of Registrable Shares of any stop order threatened or issued by the Commission and take all actions reasonably required to prevent the entry of a stop order or if entered to have it rescinded or otherwise removed; and 7 8 (xiii) take all other steps reasonably necessary to effect the registration of the Registrable Shares contemplated hereby. (b) If the Company has delivered a Prospectus to the Selling Stockholders and after having done so the Prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the Selling Stockholders and, if requested, the Selling Stockholders shall immediately cease making offers of Registrable Shares and return all Prospectuses to the Company. The Company shall promptly provide the Selling Stockholders with revised Prospectuses and, following receipt of the revised Prospectuses, the Selling Stockholders shall be free to resume making offers of the Registrable Shares. The time period referred to in Section 2.3(a)(ii) during which the Registration Statement must be kept effective shall be extended for an additional number of business days equal to the number of business days during which the right to sell shares was suspended pursuant to this paragraph (b). (c) In the event that, in the judgment of the Company, it is advisable to suspend use of a Prospectus included in a Registration Statement due to pending material developments or other events that have not yet been publicly disclosed and as to which the Company believes public disclosure would be detrimental to the Company, the Company shall notify all Selling Stockholders to such effect, and, upon receipt of such notice, each such Selling Stockholder shall immediately discontinue any sales of Registrable Shares pursuant to such Registration Statement until such Selling Stockholder has received copies of a supplemented or amended Prospectus or until such Selling Stockholder is advised in writing by the Company that the then current Prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The time period referred to in Section 2.3(a)(ii) during which the Registration Statement must be kept effective shall be extended for an additional number of business days equal to the number of business days during which the right to sell shares was suspended pursuant to the preceding sentence. 2.4 Registration Expenses. The Company will pay all Registration Expenses for all registrations under this Agreement. For purposes of this Section, the term "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation: all registration and filing fees; exchange listing fees; NASD registration and filing fees; printing expenses; messenger, telephone and delivery expenses; fees and expenses of counsel for the Company and the fees and expenses of one counsel selected by the Selling Stockholders to represent the Selling Stockholders; state Blue Sky fees and expenses; and the expense of any special audits incident to or required by any such registration; but excluding underwriting discounts, selling commissions and the fees and expenses of Selling Stockholders' own counsel (other than the counsel selected to represent all Selling Stockholders). 2.5 Indemnification and Contribution. (a) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the seller of such Registrable Shares, each underwriter of such Registrable Shares, and 8 9 each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such seller, underwriter or controlling person specifically for use in the preparation thereof. (b) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; provided, however, that the obligations of a Stockholder hereunder shall be limited to an amount equal to the net proceeds to such Stockholder of Registrable Shares sold in connection with such registration. (c) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the 9 10 Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section except to the extent that the Indemnifying Party is adversely affected by such failure. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding; provided, further, that in no event shall the Indemnifying Party be required to pay the expenses of more than one law firm per jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also shall be responsible for the expenses of such defense if the Indemnifying Party does not elect to assume such defense. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 2.5 is due in accordance with its terms but for any reason is held to be unavailable to an Indemnified Party in respect to any losses, claims, damages and liabilities referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities to which such party may be subject in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Stockholders on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Stockholders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact related to information supplied by the Company or the Stockholders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 2.5 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph of Section 2.5, (a) in no case shall any one Stockholder be liable or responsible for any amount in excess of the net proceeds received by such Stockholder from the offering of Registrable Shares and (b) the Company shall be liable and responsible for any amount in excess of such proceeds; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section, notify such 10 11 party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve such party from any other obligation it or they may have thereunder or otherwise under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its prior written consent, which consent shall not be unreasonably withheld. 2.6 Other Matters with Respect to Underwritten Offerings. In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Section 2.1, the Company agrees to (a) enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of the Company and customary covenants and agreements to be performed by the Company, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering; (b) use its best efforts to cause its legal counsel to render customary opinions to the underwriters with respect to the Registration Statement; and (c) use its best efforts to cause its independent public accounting firm to issue customary "cold comfort letters" to the underwriters with respect to the Registration Statement. No underwriting agreement will result in liability of a Stockholder in excess of the net proceeds from the offering received by such Stockholder, including such liability under Section 2.5 of this Agreement. 2.7 Information by Holder. Each holder of Registrable Shares included in any registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 2.8 "Stand-Off" Agreement; Confidentiality of Notices. The Company and each Stockholder, if requested by the Company and the managing underwriter of an underwritten public offering by the Company of Common stock, shall not sell or otherwise transfer or dispose of any Registrable Shares or other securities of the Company held by such Person for a period of 180 days following the effective date of a Registration Statement, provided that: (a) such agreement shall only apply to the Qualified Initial Public Offering; (b) all Stockholders of the Company then holding at least 1% of the outstanding Common Stock (on an as-converted basis) and all officers and directors of the Company enter into similar agreements. Compliance with such agreements may not be waived. The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of such 180-day period. Any Stockholder receiving any written notice from the Company regarding the Company's plans to file a Registration Statement shall treat such notice confidentially and shall not disclose such information to any person other than as necessary to exercise its rights under this Agreement. 2.9 Limitations on Subsequent Registration Rights. The Company shall not, without the prior written consent of both (i) Nortel Networks and (ii) the holders of at least 50% 11 12 of the Registrable Shares then held by the Purchasers, enter into any agreement (other than this Agreement) with any holder or prospective holder of any securities of the Company which grant such holder or prospective holder rights to include securities of the Company in any Registration Statement, unless (a) such rights to include securities in a registration initiated by the Company or by Stockholders are not more favorable than the rights granted to Other Holders under Sections 2.1 and 2.2 of this Agreement, and (b) no rights are granted to initiate a registration, other than registration pursuant to a registration statement on Form S-3 (or its successor) in which Stockholders are entitled to include Registrable Shares on a pro rata basis with such holders based on the number of shares of Common Stock (on an as-converted basis) owned by Stockholders and such holders. 2.10 Rule 144 Requirements. After the earliest of (i) the closing of the sale of securities of the Company pursuant to a Registration Statement, (ii) the registration by the Company of a class of securities under Section 12 of the Exchange Act, or (iii) the issuance by the Company of an offering circular pursuant to Regulation A under the Securities Act, the Company agrees to: (a) make and keep current public information about the Company available, as those terms are understood and defined in Rule 144; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to any holder of Registrable Shares upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. 2.11 Termination. All of the Company's obligations to register Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate: (i) three years after the closing of the Qualified Initial Public Offering, or (ii) as to Nortel Networks or any Purchaser, when Nortel Networks or such Purchaser (together with its affiliates) holds less than twenty-five percent (25%) of the original number of shares of Series A Preferred Stock or the Series B Preferred Stock, as the case may be, held on the date hereof (as adjusted for stock splits and similar events), on an as-converted basis. 3. PREEMPTIVE RIGHTS. 3.1 Rights of Purchasers and Nortel Networks. (a) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, (i) any shares of its Common Stock, (ii) any other equity securities of the Company, including, without limitation, shares of preferred stock, (iii) any option, warrant or other right to subscribe for, purchase or otherwise 12 13 acquire any equity securities of the Company, or (iv) any debt securities convertible into capital stock of the Company (collectively, the "Offered Securities"), unless in each such case the Company shall have first complied with this Section 3.1. The Company shall deliver to Nortel Networks and each Purchaser a written notice of any proposed or intended issuance, sale or exchange of Offered Securities (the "Offer"), which Offer shall (i) identify and describe the Offered Securities, (ii) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (iii) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (iv) offer to issue and sell to or exchange with Nortel Networks or such Purchaser (A) a pro rata portion of the Offered Securities determined by dividing (x) the aggregate number of shares of Common Stock then held by Nortel Networks or such Purchaser (giving effect to the conversion of all shares of convertible preferred stock then held and subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting the Common Stock) by (y) the total number of shares of Common Stock then outstanding (giving effect to the conversion of all outstanding shares of convertible preferred stock and subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting the Common Stock) (such pro rata portion of the Offered Securities, the "Basic Amount"), and (B) any additional portion of the Offered Securities attributable to the Basic Amounts of Nortel Networks and other Purchasers as Nortel Networks or such Purchaser shall indicate it will purchase or acquire should Nortel Networks or the other Purchasers subscribe for less than their Basic Amounts (the "Undersubscription Amount"). (b) To accept an Offer, in whole or in part, Nortel Networks or a Purchaser must deliver a written notice to the Company prior to the end of the 30-day period of the Offer, setting forth the portion of Nortel Networks' or the Purchaser's Basic Amount that Nortel Networks or such Purchaser elects to purchase and, if Nortel Networks or such Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount (if any) that Nortel Networks or such Purchaser elects to purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed for by Nortel Networks or all Purchasers are less than the total of all of the Basic Amounts available for purchase, then Nortel Networks or each Purchaser who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all of the Basic Amounts available for purchase and the Basic Amounts subscribed for (the "Available Undersubscription Amount"), Nortel Networks or each Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Undersubscription Amount subscribed for by Nortel Networks or such Purchaser bears to the total Undersubscription Amounts subscribed for by Nortel Networks and all Purchasers, subject to rounding by the Board of Directors to the extent it deems reasonably necessary. (c) The Company shall have 90 days from the expiration of the period set forth in Section 3.1(b) above to issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by Nortel Networks or the Purchasers (the "Refused Securities"), but only to the offerees or purchasers described in the Offer (if so described therein) and only upon terms and conditions (including, without limitation, 13 14 unit prices and interest rates) which are not more favorable, in the aggregate, to the acquiring person or persons or less favorable to the Company than those set forth in the Offer. (d) In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 3.1(c) above), then Nortel Networks and each Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that Nortel Networks or the Purchaser elected to purchase pursuant to Section 3.1(b) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Nortel Networks or Purchasers pursuant to Section 3.1(b) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that Nortel Networks or any Purchaser so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to Nortel Networks and the Purchasers in accordance with Section 3.1(a) above. (e) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, Nortel Networks and the Purchasers shall acquire from the Company, and the Company shall issue to Nortel Networks and the Purchasers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 3.1(d) above if Nortel Networks or the Purchasers have so elected, upon the terms and conditions specified in the Offer. The purchase by Nortel Networks or the Purchasers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and Nortel Networks or the Purchasers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to Nortel Networks or the Purchasers and their respective counsel. (f) Any Offered Securities not acquired by Nortel Networks or the Purchasers or other persons in accordance with Section 3.1(c) above may not be issued, sold or exchanged until they are again offered to Nortel Networks or the Purchasers under the procedures specified in this Agreement. (g) The rights of Nortel Networks and the Purchasers under this Section 3 shall not apply to: (1) the issuance of any shares of Common Stock upon conversion of shares of convertible preferred stock; (2) the issuance of shares of Common Stock or the grant of options therefor, including shares issued upon exercise of options outstanding on the date of this Agreement (such number to be proportionately adjusted in the event of any stock splits, stock dividends, recapitalizations or similar events occurring on or after the date of this Agreement) to officers, directors, consultants and employees of the Company or any subsidiary pursuant to any plan, agreement or arrangement approved by a vote of not less than a majority of the members of 14 15 the Board of Directors of the Company who are not employees of the Company or any of its subsidiaries; (3) securities issued solely in consideration for the acquisition (whether by merger or otherwise) by the Company or any of its subsidiaries of all or substantially all of the stock or assets of any other entity; (4) shares of Common Stock sold by the Company in an underwritten public offering pursuant to an effective registration statement under the Securities Act; (5) shares of Common Stock issued upon the conversion of any shares of preferred stock or upon the exercise of any options or warrants or other rights to subscribe for, purchase or otherwise acquire any equity securities of the Company; (6) shares of Common Stock issued in connection with debt or equipment financings approved by a majority of the Board of Directors; or (7) securities issued to strategic investors as opposed to financial investors. (h) The failure of any Purchaser to exercise its rights under this Section 3 shall not be deemed to be a waiver of its rights hereunder in connection with any subsequent issuance, sale or exchange, agreement to issue, sell or exchange, or reservation or setting aside for issuance, sale or exchange of Offered Securities. 3.2 Termination. This Section 3 shall terminate upon the earlier of the following events: (a) The sale of all or substantially all of the assets or business of the Company, by merger, sale of assets or otherwise; or (b) The closing of the Qualified Initial Public Offering. 4. Transfer of Rights. This Agreement, and the rights and obligations of each Stockholder hereunder, may be assigned, in whole or in part, by such Stockholder to (i) any person or entity to which at least 500,000 Shares are transferred by such Stockholder, (ii) any partner or stockholder of such Stockholder, (iii) any venture capital fund, investment entity or investment account for which Pequot Capital Management, Inc. or its successors or assigns is the investment manager or investment advisor or (iv) if such Stockholder is a corporation, a wholly owned subsidiary of such corporation or in a distribution to its stockholders, and in each case such transferee shall be deemed a "Stockholder" and, if applicable, a "Purchaser" for purposes of this Agreement; provided that the transferee provides written notice of such assignment to the Company and agrees in writing to be bound hereby. 15 16 5. General. (a) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (b) Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Purchaser shall be entitled to specific performance of the agreements and obligations of the Company hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of laws of any other jurisdiction. (d) Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered on receipt after being sent by registered or certified mail, return receipt requested, postage prepaid or via a reputable nationwide overnight courier service, in each case to the intended recipient as set forth below: If to the Company, at 4401 Great America Parkway, MS SC1-06, Santa Clara, California 95052, Attention: President, or at such other address or addresses as may have been furnished in writing by the Company to the Purchasers, with a copy to Bruce E. Schaeffer, Esq., Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301; or If to Nortel Networks, at 4401 Great America Parkway, MS SC2-05, Santa Clara, California 95052, Attention: Law Department, or at such other address or addresses as may have been furnished to the other parties hereto in writing by Nortel Networks; or If to a Purchaser, at his or its address set forth on Exhibit A, or at such other address or addresses as may have been furnished to the Company in writing by such Purchaser, with a copy to E. Ann Gill, Esq., Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York 10019, or as otherwise indicated on Exhibit A. Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section. (e) Complete Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 16 17 (f) Amendment and Waivers. Any term of this Agreement may be amended or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of (i) the Company, (ii) Nortel Networks and (iii) the holders of more than 50% of the Registrable Shares held by all of the Purchasers; provided, that this Agreement may be amended with the consent of the holders of less than all Registrable Shares only in a manner which affects all such holders in the same fashion. Any such amendment, termination or waiver effected in accordance with this Section 5(f) shall be binding on all parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. (g) Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. (h) Counterparts; Facsimile Signatures. This Agreement may be exceeded in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same document. This Agreement may be executed by facsimile signatures. (i) Section Headings. The section headings are for the convenience of the parties and in no way alter, amend, limit or restrict the contractual obligations of the parties. (j) Recapitalization, Exchange and Similar Events. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Common Stock issuable upon conversion of the Shares, (ii) any and all shares of voting common stock of the Company into which the Shares and/or the shares of Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the Shares and/or the shares of Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall cause any successor or assign (whether by merger, sale or otherwise) to enter into a new investor rights agreement with Nortel Networks and the Purchasers on terms substantially the same as those contained in this Agreement as a condition to any such transaction. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year above first written. NETGEAR, INC. By: _________________________________ 17 18 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year above first written. NETGEAR, INC. By: /s/ PATRICK LO ---------------------------------------- Name: Patrick Lo Title: Chief Executive Officer NORTEL NETWORKS NA INC. By: /s/ RICK TALLMAN ---------------------------------------- Name: Rick Tallman Title: Assistant Secretary PEQUOT PRIVATE EQUITY FUND II, L.P. By: Pequot Capital Management, Inc. Investment Manager By: ---------------------------------------- Name: David J. Malat Title: Chief Financial Officer, Pequot Capital Management, Inc. 18 19 Name: Patrick Lo Title: Chief Executive Officer NORTEL NETWORKS NA INC. By: ---------------------------------------- Name: Title: PEQUOT PRIVATE EQUITY FUND II, L.P. By: Pequot Capital Management, Inc., Investment Manager By: /s/ DAVID J. MALAT ---------------------------------------- Name: David J. Malat Title: Chief Financial Officer, Pequot Capital Management, Inc. 18 20 EXHIBIT A Purchasers Pequot Private Equity Fund II, L.P. 500 Nyala Farm Road Westport, Connecticut 06880 Attn: David J. Malat, Chief Financial Officer, Pequot Capital Management, Inc.