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Exhibit 4.1
NETGEAR, INC.
SERIES B CONVERTIBLE PARTICIPATING PREFERRED
STOCK PURCHASE AGREEMENT
Dated as of March 10, 2000
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TABLE OF CONTENTS
Page
1. Authorization and Sale of Shares 1
1.1 Authorization 1
1.2 Sale of Shares 1
1.3 Use of Proceeds 2
2. The Closing 2
3. Representations of the Company 2
3.1 Organization and Standing 2
3.2 Capitalization 2
3.3 Subsidiaries, Etc. 3
3.4 Securityholder Lists and Agreements 3
3.5 Issuance of Shares 3
3.6 Authority for Agreement; No Conflict 3
3.7 Governmental Consents 4
3.8 Litigation 4
3.9 Financial Statements 5
3.10 Absence of Liabilities 5
3.11 Taxes 5
3.12 Property and Assets 5
3.13 Intellectual Property 5
3.14 Insurance 6
3.15 Material Contracts and Obligations 6
3.16 Compliance 6
3.17 Employees 7
3.18 ERISA 7
3.19 Books and Records 7
3.20 Leases 7
3.21 Environmental Matters 7
3.22 Inventory 7
3.23 Year 2000 Compliance 8
3.24 Investment Company Acts of 1940 8
3.25 Public Utility Holding Company Act of 1935 8
3.26 U.S. real Property Holding Corporation 8
3.27 Disclosures 8
4. Mutual Right of First Refusal 8
4.1 Restrictions of Transfer 8
4.2 Transfers Not Subject to Restrictions 9
4.3 Offer of Sale; Notice of Proposed Sale 9
4.4 Non-Selling Investors' Option to Purchase 9
4.5 Failure to Fully Exercise Options 10
4.6 Termination of Right of First Refusal 10
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TABLE OF CONTENTS
(continued)
Page
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5. Representations of the Purchasers.............................. 11
5.1 Investment............................................... 11
5.2 Authority................................................ 11
5.3 Experience............................................... 11
6. Conditions to the Obligations of the Purchasers................ 11
6.1 Accuracy of Representations and Warranties............... 11
6.2 Opinions of Counsel...................................... 12
6.3 Ancillary Agreements..................................... 12
6.4 Certificates and Documents............................... 12
6.5 Compliance Certificates.................................. 12
6.6 Board Representation..................................... 13
6.7 Warrant.................................................. 13
6.8 Other Matters............................................ 13
7. Condition to the Obligations of the Company.................... 13
7.1 Accuracy of Representations and Warranties............... 13
7.2 Compliance with Securities Laws.......................... 13
7.3 Investor Rights Agreement................................ 13
7.4 Intellectual Property License Agreement.................. 13
8. Affirmative Covenants.......................................... 13
8.1 Inspection............................................... 13
8.2 Financial Statements and Other Information............... 13
8.3 Reservation of Common Stock.............................. 14
8.4 Agreements with Employees................................ 14
8.5 Board Meetings; Observer Rights.......................... 15
8.6 Termination of Covenants................................. 15
9. Transfer of Shares............................................. 15
9.1 Restricted Shares........................................ 15
9.2 Requirements for Transfer................................ 15
9.3 Legend................................................... 15
10. Miscellaneous.................................................. 16
10.1 Successors and Assigns................................... 16
10.2 Confidentiality.......................................... 16
10.3 Survival of Representations and Warranties............... 16
10.4 Expenses................................................. 16
10.5 Brokers.................................................. 16
10.6 Severability............................................. 17
10.7 Governing Law............................................ 17
10.8 Notices.................................................. 17
10.9 Complete Agreement....................................... 17
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TABLE OF CONTENTS
(continued)
Page
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10.10 Amendments and Waivers......................... 18
10.11 Pronouns....................................... 18
10.12 Counterparts; Facsimile Signatures............. 18
10.13 Section Headings............................... 18
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EXHIBITS
Exhibit A - List of Purchasers
Exhibit B - Contribution Agreement
Exhibit C - Amended and Restated Certificate of Incorporation
Exhibit D - Disclosure Schedule
Exhibit E - Warrant to Purchase Common Stock
Exhibit F - Securityholders of the Company
Exhibit G - Investor Rights Agreement
Exhibit H - Transition Services Agreement
Exhibit I - Intellectual Property License Agreement
Exhibit J - Opinion of Gray Cary Ware & Freidenrich LLP
Exhibit K - Non-Disclosure and Assignment of Inventions Agreement
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NETGEAR, INC.
SERIES B CONVERTIBLE PARTICIPATING PREFERRED
STOCK PURCHASE AGREEMENT
This Agreement dated as of March 10, 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 hereto (the "Purchasers").
WHEREAS, the Company is a wholly-owned subsidiary of Nortel Networks,
formerly known as Bay Networks, Inc., which was acquired by Nortel Networks
Corporation, a Canadian corporation ("NNC") on August 31, 1998, and Nortel
Networks desires to transfer rights in and to certain assets relating to the
NETGEAR Business as defined in the Contribution Agreement dated as of the date
hereof by and among Nortel Networks and the Company attached as Exhibit B hereto
(the "Contribution Agreement");
WHEREAS, the parties hereto recognize that the Company will need
additional financing in the future; and
WHEREAS, the Company and Nortel Networks each desire and intend that
the Company obtain such financing from sources other than Nortel Networks,
which will dilute Nortel Networks' ownership interest in the Company.
In consideration of the mutual promises and covenants contained in
this Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the
Closing (as defined in Section 2) will have, duly authorized the sale and
issuance, pursuant to the terms of this Agreement, of one million eight hundred
ninety seven thousand four hundred fifty (1,897,450) shares of its Series B
Convertible Participating Preferred Stock, $0.001 par value per share (the
"Series B Preferred"), having the rights, restrictions, privileges and
preferences set forth in the Amended and Restated Certificate of Incorporation
attached hereto as Exhibit C (the "Restated Certificate"). The Company has, or
on or before the Closing will have, adopted and filed the Restated Certificate
with the Secretary of State of the State of Delaware.
1.2 Sale of Shares. Subject to the terms and conditions
of this Agreement, at the Closing the Company will sell and issue to each of
the Purchasers, and each of the Purchasers will purchase, the number of shares
of Series B Preferred set forth opposite such Purchaser's name on Exhibit A for
the purchase price of $7.90 per share (the "Purchase Price") payable in
accordance with the manner or method of payment for each Purchaser indicated on
Exhibit A. Except as referred to in Section 4 herein, the shares of Series B
Preferred sold under this Agreement are referred to as the "Shares." The
Company's agreement with each of the
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Purchasers is a separate agreement, and the sale of Shares to each of the
purchasers is a separate sale.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares to support its growth and for other general corporate purposes.
2. The Closing. The closing (the "Closing") of the sale and purchase of
the Shares under this Agreement shall take place at the offices of Gray Cary
Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301 at
10:00 a.m., Pacific Time, on March 10, 2000, or at such other time, date and
place as are mutually agreeable to the Company and the Purchasers, but in no
event later than March 17, 2000. At the Closing, the Company shall deliver to
each of the Purchasers a certificate for the number of Shares being purchased at
the Closing by such Purchaser, registered in the name of such Purchaser, against
payment to the Company of the Purchase Price, by wire transfer of funds to an
account designated by the Company, in the aggregate amount indicated on Exhibit
A. The date of the Closing is hereinafter referred to as the "Closing Date."
3. Representations of the Company. Except as disclosed by the Company in
Exhibit D hereto, the Company hereby represents and warrants to each of the
Purchasers that the statements contained in this Section 3 are true, complete
and correct. The term "Knowledge" or "Company's Knowledge" as used herein shall
mean the knowledge of Patrick Lo, Mark Merrill, or Rick Fabiano.
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and the Ancillary Agreements (as defined in Section 3.6)
and to carry out the transactions contemplated by this Agreement and the
Ancillary Agreements. The Company is duly qualified to do business as a foreign
corporation and is in good standing in the State of California and in every
other jurisdiction in which the failure so to qualify would have a material
adverse effect on the business, assets or financial condition of the Company (a
"Company Material Adverse Effect"). The Company has furnished to the Purchasers
true and complete copies of its Certificate of Incorporation and By-laws, each
as amended to date and presently in effect. The Company has at all times
complied with all provisions of its Certificate of Incorporation and By-laws and
is not in default under, or in violation of, any such provision.
3.2 Capitalization. The authorized capital stock of the Company
(immediately prior to the issuance of the Shares) consists of twenty million
(20,000,000) shares of common stock, $.001 par value per share (the "Common
Stock"), of which no shares are issued and outstanding, sixteen million eight
hundred ninety seven thousand four hundred fifty (16,897,450) shares of
Preferred Stock, $.001 par value per share, of which fifteen million
(15,000,000) shares have been designated as Series A Preferred Stock (the
"Series A Preferred"), of which fifteen million (15,000,000) shares are issued
and outstanding, and one million eight hundred ninety seven thousand four
hundred fifty (1,897,450) shares have been designated as Series B Preferred,
none of which shares are issued or outstanding. All of the issued and
outstanding shares of Common Stock and Series A Preferred have been duly
authorized and validly issued and are
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fully paid and nonassessable. Except as provided in this Agreement (including
Exhibit D and Exhibit G hereto) and the Warrant to Purchase Common Stock
attached hereto as Exhibit E (the "Warrant"), (i) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof, and (iv) there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. All of the issued and outstanding shares of capital
stock of the Company have been offered, issued and sold by the Company in
compliance with applicable federal and state securities laws. Sufficient Common
Stock has been reserved to provide for conversion of the Series A Preferred and
the Series B Preferred, and exercise of the Warrant. All Common Stock to be
issued upon conversion of the Series A Preferred and Series B Preferred, and
upon exercise of the Warrant, have been duly authorized, and when issued upon
such conversion or exercise, will be validly issued, fully paid and
nonassessable.
3.3 Subsidiaries, Etc. Other than NETGEAR International, Inc., a Delaware
corporation organized on November 10, 1999, wholly owned by the Company and not
currently involved in business activities, the Company has no subsidiaries and
does not own or control, directly or indirectly, any shares of capital stock of
any other corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise. NETGEAR International, Inc., does not have
any liabilities or, except to the extent equal to its stated capital, any
assets.
3.4 Securityholder Lists and Agreements. Attached as Exhibit F is a true
and complete list of the securityholders of the Company, showing the number of
shares of Common Stock or other securities of the Company held by each
securityholder as of the date of this Agreement and, in the case of options,
warrants and other convertible securities, the exercise price thereof and the
number and type of securities issuable thereunder. EXCEPT AS PROVIDED IN THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS (AS DEFINED IN SECTION 3.6), THERE ARE NO
AGREEMENTS, WRITTEN OR ORAL, BETWEEN THE COMPANY AND ANY HOLDER OF ITS
SECURITIES, OR, TO THE COMPANY'S KNOWLEDGE, AMONG ANY HOLDERS OF ITS SECURITIES,
RELATING TO THE ACQUISITION (INCLUDING WITHOUT LIMITATION RIGHTS OF FIRST
REFUSAL, ANTI-DILUTION OR PRE-EMPTIVE RIGHTS), DISPOSITION, REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR VOTING OF THE
CAPITAL STOCK OF THE COMPANY.
3.5 Issuance of Shares. The issuance, sale and delivery of the Shares in
accordance with this Agreement, and the issuance and delivery of the shares of
Common Stock issuable upon conversion of the Shares, have been, or will be on or
prior to the Closing, duly authorized by all necessary corporate action on the
part of the Company, and all such shares have been duly reserved for issuance.
The Shares when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of Common Stock
issuable upon conversion of the Shares, when issued upon such conversion, will
be duly and validly issued, fully paid and nonassessable.
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3.6 Authority for Agreement: No Conflict. The execution, delivery and
performance by the Company of this Agreement, the Contribution Agreement, the
Investor Rights Agreement attached hereto as Exhibit G (the "Investor Rights
Agreement"), the Transition Services Agreement by and among Nortel Networks and
the Company attached hereto as Exhibit H (the "Transition Services Agreement"),
the Intellectual Property License Agreement attached hereto as Exhibit I (the
"Intellectual Property License Agreement") and the Warrant (collectively, the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement has been, and the Ancillary Agreements when
executed at the Closing will be, duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable in
accordance with their respective terms, subject as to enforcement of remedies to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies. The execution of this
Agreement and the Ancillary Agreements and performance of the transactions
contemplated by this Agreement and the Ancillary Agreements and compliance with
their respective provisions by the Company will not (a) conflict with or violate
any provision of the Certificate of Incorporation or By-laws of the Company, (b)
require on the part of the Company any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (each of the foregoing is hereafter referred to as a
"Governmental Entity"), (c) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest (as
defined below) or other arrangement to which the Company is a party or by which
the Company is bound or to which its properties or assets are subject, other
than a breach that has been waived or any of the foregoing events listed in this
clause (c) which do not and will not, individually or in the aggregate, have a
Company Material Adverse Effect, (d) result in the imposition of any Security
Interest upon any properties or assets of the Company or (e) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its properties or assets. For purposes of this Agreement, "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge, or
other lien (whether arising by contract or by operation of law).
3.7 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
Governmental Entity is required on the part of the Company in connection with
the execution and delivery of this Agreement or the Ancillary Agreements, the
offer, issuance, sale and delivery of the Shares, the issuance and delivery of
the shares of Common Stock issuable upon conversion of the Shares or the other
transactions to be consummated at the Closing, as contemplated by this Agreement
and the Ancillary Agreements, except such filings as shall have been made prior
to and shall be effective on and as of the Closing and such filings required to
be made after the Closing under applicable federal and state securities laws.
Based in part on the representations made by each of the Purchasers in Section 5
of this Agreement, the offer and sale of the Shares to each of the Purchasers
will be in compliance with applicable federal and state securities laws.
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3.8 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the Company's Knowledge,
any threat thereof, against the Company or its subsidiary, which questions the
validity of this Agreement or the right of the Company or Nortel Networks to
enter into it, or which might result, either individually or in the aggregate,
in a Company Material Adverse Effect, nor is there any litigation pending, or,
to the Company's Knowledge, any threat thereof, against the Company, its
subsidiary or Nortel Networks by reason of the proposed activities of the
Company or its subsidiary or negotiations by the Company and/or Nortel Networks
with possible investors in the Company. Neither the Company nor its subsidiary
is subject to any outstanding judgment, order or decree.
3.9 Financial Statements. Set forth on Exhibit D is a complete and
correct copy of the income statements, statements of assets and liabilities and
statements of cash flows of the Company as of and for the fiscal years ended
December 31, 1997, 1998 and 1999 (the "Financial Statements"). Such Financial
Statements include the assets, liabilities, revenues and expenses that were
directly related to the NETGEAR Business (as defined in the Contribution
Agreement, the "NETGEAR Business" herein), including expenses charged to the
NETGEAR Business by Nortel Networks. Except as set forth on Exhibit D, the
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") consistently applied, are
complete and correct and present fairly the financial condition and results of
operations of the Company.
3.10 Absence of Liabilities. Except as disclosed in Exhibit D, the
Company did not have, at December 31, 1999, any liabilities of any type which in
the aggregate exceeded $100,000, whether absolute or contingent, which were not
fully reflected on the Financial Statements. Except as set forth in Exhibit D,
from December 31, 1999 through the Closing Date, being the date on which certain
assets and liabilities of the NETGEAR Business were transferred to the Company,
the NETGEAR Business did not incur or otherwise become subject to any of the
liabilities or obligations referred to in the preceding sentence except in the
ordinary course of business.
3.11 Taxes. Except as set forth on Exhibit D, the Company has not been
required to file any federal, state, county, local or foreign tax returns, and
any returns prepared by it or on its behalf are true and correct and all taxes
have been timely paid with exceptions not material to the Company and the
Company has no liability for any Federal, state or other tax liability asserted
by the Internal Revenue Service or any other competent taxing authority or
jurisdiction.
3.12 Property and Assets. The Company has good title to, or a valid
leasehold interest in, all of its material properties and assets, including all
properties and assets reflected in the statement of assets and liabilities of
the Company at December 31, 1999 (the "Balance Sheet") except those disposed of
since the date thereof in the ordinary course of business, and none of such
properties or assets is subject to any mortgage, pledge, lien, security
interest, lease, charge or encumbrance other than (A) minor imperfections of
title, if any, that have arisen in the ordinary course of business consistent
with best practice, none of which is substantial in amount or materially impairs
the use of the property subject thereto, (B) liens for current taxes not yet due
or (C) software incorporated therein, the material terms of which are described
in the Balance Sheet or in Exhibit D.
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3.13 Intellectual Property.
(a) The Company owns or is licensed to use all of the Intellectual
Property Rights material to the NETGEAR Business.
(b) Except for the Intellectual Property License Agreement and the
agreements referenced in Section 7.02(c) of the Contribution Agreement, there is
no other written agreement relating to Intellectual Property Rights that is
material to the NETGEAR Business.
(c) Except as set forth on Exhibit D, the Company has not received any
notice of any written claims during the past two (2) years that the conduct of
the NETGEAR Business infringes any Intellectual Property Right of any third
person and to its Knowledge no such claims are threatened.
(d) Except as set forth on Exhibit D, the Company has no Knowledge
that the NETGEAR Business infringes or misappropriates any Intellectual Property
Right of any third person.
(e) Except as set forth on Exhibit D, there are no claims, suits, or
actions against the Company relating to the ownership, licensing or
enforceability of any Intellectual Property Right that is material to the
NETGEAR Business, and to its Knowledge, no such claims, suits or actions are
threatened.
(f) All capitalized words and terms used in this Section 3.13 and not
defined in this Agreement shall have the respective meanings ascribed to them in
the Contribution Agreement.
3.14 Insurance. NNC, on behalf of the Company, maintains valid insurance
policies with respect to the Company's properties and business of the kinds and
in the amounts not less than is customarily obtained by corporations of
established reputation engaged in the same or similar business and similarly
situated, including, without limitation, insurance against loss, damage, fire,
theft, public liability and other risks. The Company is named as an additional
insured on the workers' compensation policy maintained by Trinet Employer Group,
Inc. ("Trinet") for Company employees pursuant to a Services Agreement between
Trinet and the Company effective as of the date hereof. NNC maintains valid
directors and officers insurance policies with respect to the Company, which
will remain in place so long as Nortel Networks' equity ownership of the Company
remains above 50% of the Company's total outstanding capital stock.
3.15 Material Contracts and Obligations. Exhibit D sets forth a list of all
agreements to which the Company is a party or agreements by which the Company is
bound and which have a material effect on the NETGEAR Business, including
without limitation (a) any agreement or agreements which individually or
collectively requires future expenditures by the Company in excess of $100,000
or which might result individually or collectively in payments to the Company in
excess of $100,000, (b) any employment and consulting agreements, employee
benefit, bonus, pension, profit-sharing, stock option, stock purchase and
similar plans and arrangements, (c) any agreement with any current or former
stockholder, officer or director of
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the Company, or any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity and (d) any material
agreement relating to the Intellectual Property Rights necessary for the
conduct of the NETGEAR Business as presently conducted or as contemplated to be
conducted on the Closing Date.
3.16 Compliance. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its present and proposed
business, and Exhibit D sets forth a list of all material governmental permits
and governmental licenses required thereby. To the Company's Knowledge, no
employee of the Company is in violation of any term of any contract or covenant
(either with the Company or with another entity) relating to employment,
patents, assignment of inventions, proprietary information disclosure,
non-competition or non-solicitation.
3.17 Employees. Except as set forth in Exhibit D, the Company has no
Knowledge that any employee of the Company, Nortel Networks or NNC necessary for
the operation of the NETGEAR Business has plans to terminate his or her
employment relationship with the Company subsequent to the consummation of the
transactions contemplated by this Agreement. To the Knowledge of the Company,
all employees necessary to operate the NETGEAR Business are willing to be
employed by the Company.
3.18 ERISA.
(a) The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), other than a 401(k) plan
(the "401(k) Plan") and a short-term disability plan, each of which will be
adopted by the Company's Board of Directors effective as of the Closing, and,
as of the Closing, the Company will have made all required contributions and
will have complied with all applicable laws in connection therewith.
(b) Immediately following the Closing, no entity that is treated as a
single employer with the Company under Section 414 of the Code will maintain,
contribute to or have any liability with respect to any employee benefit plan
that is subject to the requirements of Section 412 of the Code or Title IV of
ERISA.
3.19 Books and Records. The minute books of the Company contain complete
and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors. The stock ledger of the Company is
complete and reflects all issuances, transfers, repurchases and cancellations of
shares of capital stock of the Company.
3.20 Leases. Set forth on Exhibit D is a list of all leases to which the
Company is a party. All such leases are valid and subsisting and are in full
force and effect.
3.21 Environmental Matters. There is no pending or, to the Knowledge of
the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental
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Entity, relating to environmental matters involving the Company, including
without limitation those arising under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, or any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment, which violation would have a
Company Material Adverse Effect.
3.22 Inventory. Set forth on Exhibit D is a description of all the
inventory of the Company as of the Closing usable and saleable in the NETGEAR
Business.
3.23 Year 2000 Compliance. Both before and after January 1, 2000, the
Company's products shall function, during the warranty period for such products,
without any material, service-affecting nonconformance to the applicable
specifications. The Year 2000 Problem (as defined below) will not have a
material adverse effect on the NETGEAR Business. The "Year 2000 Problem" as used
herein means any significant risk that computer hardware or software used by the
Company in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation of
mechanical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
3.24 Investment Company Act of 1940. The Company is not and, after
the consummation of the transactions contemplated hereby, will not be an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
3.25 Public Utility Holding Company Act of 1935. The Company is not
and, after the consummation of the transactions contemplated hereby, will not be
a "holding company" or "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company," as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended.
3.26 U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.27 Disclosures. Neither this Agreement nor any Exhibit hereto, when
read together, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading.
4. Mutual Right of First Refusal. As used in this Section 4, the term
"Shares" shall include all shares of capital stock of the Company held by Nortel
Networks and the Purchasers (collectively, the "Investors" and individually, an
"Investor"), whether now owned or hereafter acquired. For purposes of
calculating any Investor's "pro rata" ownership of Shares, all shares
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of Preferred Stock of the Company shall be deemed to have been converted into
Common Stock of the Company.
4.1 Restrictions on Transfer.
(a) Any sale, transfer or other disposition, whether voluntarily or
by operation of law ("Transfer"), of any of the Shares by an Investor, other
than according to the terms of this Agreement, shall be void and transfer no
right, title, or interest in or to any of such Shares to the purported
transferee.
(b) An original copy of this Agreement, duly executed by each of the
parties hereto, shall be delivered to the Secretary of the Company and
maintained at the principal executive office of the Company and made available
for inspection by any person requesting it.
(c) Each of the Investors agrees to present the certificates
representing the Shares presently owned or hereafter acquired by him or it to
the Secretary of the Company and cause the Secretary to stamp on the
certificate in a prominent manner the following legend, in addition to any
legends required pursuant to Section 9.3 hereof:
"The sale of other disposition of any of the shares represented
by this certificate is restricted by a Right of First Refusal, as
amended from time to time, among certain of the stockholders of
the corporation and the corporation (the "Right of First Refusal").
The terms of the Right of First Refusal are available for inspection
during normal business hours at the principal executive office of the
corporation."
The foregoing legend shall be removed from the certificates representing any
Shares at such time as the Right of First Refusal terminates pursuant to
Section 4.6 herein.
4.2 Transfers Not Subject to Restrictions. Any Investor may Transfer
Shares without compliance with the provisions of this Agreement as follows:
with respect to a Transfer of at least 500,000 Shares (subject to adjustment
for stock splits, adjustments, and the like) by an Investor which is (i) a
partnership, to an affiliate of such partnership, or a corporation, to a wholly
owned subsidiary of such corporation or in a distribution to its stockholders;
(ii) a partnership or affiliated partnership, to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner; or (iii) a limited
liability company, to a member of such limited liability company or a retired
member who resigns after the date hereof or to the estate of any such member or
retired member; provided that the transferee in each case agrees in writing to
be subject to the terms of this Agreement to the same extent as if it were an
original Investor hereunder.
4.3 Offer of Sale; Notice of Proposed Sale. If any Investor desires to
Transfer any of his or its Shares, or any interest in such Shares, in any
transaction other than pursuant to Section 4 of this Agreement, such person or
entity (the "Selling Investor") shall first deliver written notice of his
desire to do so (the "Notice") to the Company and each of the other Investors
(collectively, the "Non-Selling Investors"), in the manner prescribed in
Section 10.8 of this Agreement. The Notice must specify: (i) the number of
Shares the Selling Investor
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proposes to sell or otherwise dispose of (the "Offered Shares"), (ii) the
consideration per Share to be delivered to the Selling Investor for the proposed
sale, transfer or disposition, and (iii) all other material terms and conditions
of the proposed transaction.
4.4 Non-Selling Investors' Option to Purchase.
-----------------------------------------
(a) Subject to Section 4.5(a), each Non-Selling Investor shall have
the option, exercisable for a period of 15 calendar days from the date of
delivery of the Notice, to purchase, on a pro rata basis according to the number
of Shares owned by such Non-Selling Investor, the Offered Shares for the
consideration per share and on the terms and conditions set forth in the Notice.
Such option shall be exercised by delivery by such Non-Selling Investor of
written notice to the Secretary of the Company. Alternatively, each Non-Selling
Investor may, within the same 15-day period, notify the Secretary of the Company
of its desire to participate pro rata in the sale of the Shares (which sale may
be conditioned upon the failure of the Non-Selling Investors to fully exercise
their options to purchase the Offered Shares) on the terms set forth in the
Notice, and the number of Shares it wishes to sell. Such Non-Selling Investor
may participate in the sale of Shares up to a number of Shares of the Company
equal to (its "Pro Rata Share") the product of (x) the number of Offered Shares
times (y) the quotient obtained by dividing (i) the number of Shares (on a
fully-diluted basis) owned by such Non-Selling Investor, by (ii) the number of
Shares (on a fully-diluted basis) of the Company owned by all Investors,
including the Selling Investor, who have elected to participate in the proposed
sale of Shares, immediately prior to the Transfer of the Offered Stock to the
proposed transferee(s). If such Non-Selling Investors elect to participate in
such Transfer, the Selling Investor shall use his, her or its best efforts to
obtain the agreement of the prospective transferee(s) to the participation of
such Non-Selling Investors in any proposed Transfer and shall not Transfer any
shares of the capital stock of the Company to such prospective transferee(s)
unless such prospective transferee(s) allow(s) the participation of such
Non-Selling Investors on the terms specified in the Notice.
(b) In the event options to purchase have been exercised by the
Non-Selling Investors with respect to some but not all of the Offered Shares,
those Non-Selling Investors who have exercised their options within the 15-day
period specified in Section 4.4(a) shall have an additional option (and shall be
so notified by the Company prior to the end of such 15-day period), for a period
of five days next succeeding the expiration of such 15-day period, to purchase
all or any part of the balance of such Offered Shares (the "Remaining Shares")
on the terms and conditions set forth in the Notice, which option shall be
exercised by the delivery of written notice to the Secretary of the Company. In
the event there are two or more such Non-Selling Investors that choose to
exercise the last-mentioned option for a total number of Remaining Shares in
excess of the number available, the Remaining Shares available for each such
Non-Selling Investor's option shall be allocated to such Non-Selling Investor
pro rata based on the number of Shares owned by the Non-Selling Investors so
electing.
(c) If the options to purchase the Offered Shares are exercised in
full by the Non-Selling Investors, the Company shall immediately notify all of
the exercising Non-Selling Investors of that fact. The closing of the purchase
of the Offered Shares shall take place at the offices of the Company no later
than five days after the date of such notice to the Non-Selling Investors.
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4.5 Failure to Fully Exercise Options.
(a) If the Non-Selling Investors do not exercise their options
to purchase all of the Offered Shares within the periods described in this
Agreement (the "Option Period"), then all options of the Non-Selling Investors
to purchase the Remaining Shares not purchased by the Non-Selling Investors
shall terminate, and the Selling Investor shall be free to sell such shares to
third parties.
(b) If the Selling Investor wishes to Transfer any such Shares
at a price per Share which differs from that set forth in the Notice, upon
terms different from those previously offered to the Investors, or more than 60
days after the expiration of the Option Period, then, as a condition precedent
to such transaction, such Shares must first be offered to the Non-Selling
Investors on the same terms and conditions as given the Offeror, and in
accordance with the procedures and time periods set forth above.
(c) The proceeds of any sale made by the Selling Investor
without compliance with the provisions of this Section 4.5 shall be deemed to
be held in constructive trust in such amount as would have been due the
Participating Investors if the Selling Investor had complied with this
Agreement. Any attempt to Transfer Shares in violation of Sections 4.3, 4.4 or
4.5 of this Agreement shall be void and the Company agrees that it will not
effect such a Transfer nor will it treat any alleged transferee as the holder
of such Shares.
4.6 Termination of Right of First Refusal.
(a) This Right of First Refusal shall terminate upon the
earlier of the following events:
(i) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise (except a
merger or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 75% by voting power of the
capital stock of the surviving corporation); or
(ii) The closing of the Company's initial public offering
of shares of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), resulting in at least
$25,000,000 of gross proceeds before deduction of selling and other related
expenses to the Company at a concurrent valuation of the Company of not less
than $300,000,000 (the "Qualified Initial Public Offering").
(b) The provisions of Sections 4.3, 4.4 and 4.5 hereof shall
not apply to any sale of Shares pursuant to a transaction referred to in
Sections 4.6(a)(i) or 4.6(a)(ii) above.
5. Representations of the Purchasers. Each of the Purchasers severally
represents and warrants to the Company as follows:
5.1 Investment. Such Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for his, her or
its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor
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with any present intention of distributing or selling the same; and, except as
contemplated by this Agreement and the Exhibits hereto, such Purchaser has no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof provided that
the disposition of Shares and such shares of Common Stock shall at all times be
and remain within its control subject to the provisions of this Agreement. Such
Purchaser is an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
5.2 Authority. Such Purchaser has full power and authority to enter
into and to perform this Agreement and any Ancillary Agreement to which such
Purchaser is a party in accordance with their respective terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
5.3 Experience. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry and a due diligence investigation concerning the Company, its
business and its personnel; the officers of the Company have made available to
such Purchaser any and all written information which he, she or it has requested
and have answered to such Purchaser's satisfaction all inquiries made by such
Purchaser; and such Purchaser has sufficient knowledge and experience in finance
and business that he, she or it is capable of evaluating the risks and merits of
his, her or its investment in the Company and such Purchaser is able financially
to bear the risks thereof.
6. Conditions to the Obligations of the Purchasers. The obligation of
each of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. Each representation
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made
on and as of that date, and the Company shall have complied with each covenant
to be performed by it on or prior to the Closing Date.
6.2 Opinions of Counsel. Each Purchaser shall have received an
opinion from Gray Cary Ware & Freidenrich LLP, counsel for the Company, dated
the Closing Date, addressed to the Purchasers, and satisfactory in form and
substance to each Purchaser, to the effect set forth on Exhibit J.
6.3 Ancillary Agreements.
(a) Investor Rights Agreement. The Investor Rights Agreement
shall have been executed and delivered by the Company, Nortel Networks and each
of the Purchasers.
(b) Contribution Agreement. The Contribution Agreement shall
have been executed and delivered by each of the parties thereto.
(c) Transition Services Agreement. The Transition Services
Agreement shall have been executed and delivered by each of the parties thereto.
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(d) Intellectual Property License Agreement. The Intellectual
Property License Agreement shall have been executed and delivered by each of
the parties thereto.
6.4 Certificates and Documents. The Company shall have delivered to the
Purchasers:
(a) The Certificate of Incorporation of the Company, as amended and
in effect as of the Closing Date (including the Restated Certificate),
certified by the Secretary of State of the State of Delaware;
(b) A certificate, as of the most recent practicable date, as to the
corporate good standing of the Company issued by the Secretary of State of the
State of California;
(c) By-laws of the Company, certified by its Secretary or Assistant
Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors and stockholder of the
Company, authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of the Company as of the Closing Date.
(e) The Warrant shall have been executed and delivered by the
Company.
6.5 Compliance Certificates. The Company shall have delivered to the
Purchasers a certificate, executed by the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 6.1, 6.3 and 6.4 of this Agreement and to the effect that the Company
has complied with each of its covenants under this Agreement and the Ancillary
Agreements to be complied with prior to the date hereof.
6.6 Board Representation. The authorized number of members of the
Company's Board of Directors shall consist of seven (7) members and shall be
comprised of: (i) one representative of the Company; (ii) two representatives
of Purchasers and (iii) four representatives of Nortel Networks.
6.7 Other Matters. All documents and instruments incident to the
transactions contemplated by this Agreement and the Ancillary Agreements shall
be reasonably satisfactory in substance and form to the Purchasers, and the
Purchasers shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
7. Condition to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following conditions on or before the Closing:
7.1 Accuracy of Representations and Warranties. The representations and
warranties of the Purchasers contained in Section 5 shall be true on and as of
the Closing Date
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with the same effect as though such representations and warranties had been
made on and as of that date.
7.2 Compliance with Securities Laws. The Company shall be satisfied that
the offer and sale to the Purchasers shall be qualified or exempt from
registration or qualification under all applicable federal and state securities
law.
7.3 Investor Rights Agreement. The Investor Rights Agreement shall have
been executed and delivered by each of the Purchasers and Nortel Networks.
7.4 Intellectual Property License Agreement. The Intellectual Property
License Agreement shall have been executed and delivered by each of the parties
thereto.
8. Affirmative Covenants.
8.1 Inspection. The Company shall permit each Purchaser and Nortel
Networks, or any authorized representative thereof, reasonable access to visit
and inspect the properties of the Company, including its corporate and
financial records, and to discuss its business and finances with officers of
the Company, during normal business hours following reasonable notice.
8.2 Financial Statements and Other Information.
(a) The Company shall deliver to Nortel Networks, as long as it
and/or its affiliates hold at least 25% of its original number of Series A
Preferred Stock (subject to stock splits and similar adjustments), and each
Major Purchaser (as defined below):
(i) within 90 days after the end of each fiscal year of the
Company (beginning with the fiscal year ending December 31, 1999), an audited
balance sheet of the Company as at the end of such year and audited statements
of operations, stockholders' equity and cash flows of the Company for such
year, certified by certified public accountants of established national
reputation selected by the Company, and prepared in accordance with GAAP
consistently applied;
(ii) within 45 days after the end of each fiscal quarter of the
Company (other than the fourth quarter), an unaudited balance sheet of the
Company as at the end of such quarter, and unaudited statements of operations,
stockholders' equity and cash flows of the Company for such fiscal quarter and
for the current fiscal year to the end of such fiscal quarter;
(iii) within 15 days after the end of each fiscal month of the
Company, an unaudited balance sheet of the Company as at the end of such month,
and unaudited statements of operations, stockholders' equity and cash flows of
the Company for such month; and
(iv) as soon as available, but in no event later than 30 days
before the start of each fiscal year, the Company's annual budget.
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(b) The foregoing financial statements shall be prepared on a
consolidated basis if the Company then has any subsidiaries. The financial
statements delivered pursuant to clause (ii) of paragraph (a) shall be
accompanied by a certificate of the chief financial officer of the Company
stating that such statements have been prepared in accordance with GAAP
consistently applied (except as noted) and fairly present the financial
condition and results of operations of the Company at the date thereof and for
the periods covered thereby.
(c) For purposes of this Agreement, the term "Major Purchaser"
shall mean a Purchaser (other than a Purchaser deemed to be a competitor of the
Company by a majority of the members of the Company's Board of Directors) owning
(together with its affiliates) at least twenty-five percent (25%) of the
original number of Shares (as adjusted for stock splits and similar adjustments)
on an as-converted basis at the time the Company is required to produce such
information.
For purposes of this Section 8.2, the term "Company" shall include, prior
to the date hereof, the NETGEAR Business, whether or not separately operated
within the Company's corporate structure.
8.3 Reservation of Common Stock. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
8.4 Agreements with Employees. The Company shall require all persons
now or hereafter employed by the Company to enter into nondisclosure and
assignment of inventions agreements substantially in the form of Exhibit K.
8.5 Board Meetings. A meeting of the Company's Board of Directors
shall be held at least once per month, unless otherwise agreed by a majority of
directors.
8.6 D&O Insurance. NNC's directors and officers insurance policies
with respect to the Company shall remain in place so long as Nortel Networks'
equity ownership of the Company remains above 50% of the Company's total
outstanding capital stock.
8.7 Termination of Covenants. The covenants of the Company contained
in Sections 8.1 and 8.5 shall terminate, and be of no further force or effect,
upon the closing of a Qualified Initial Public Offering.
9. Transfer of Shares.
9.1 Restricted Shares. "Restricted Shares" means (i) the Shares,
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by the
Purchasers pursuant to the Investor Rights Agreement, and (iv) any other shares
of capital stock of the Company issued in respect of such shares (as a result of
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Restricted
Shares shall cease to be Restricted Shares (x) upon any sale pursuant to a
registration statement under the Securities Act or Rule 144 under the Securities
Act or (y) at such time as they become eligible for sale under Rule 144(k) under
the Securities Act.
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9.2 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or (ii) the
Company first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Purchaser which is a
corporation to a wholly owned subsidiary of such corporation or to its
stockholders as a dividend, a transfer by a Purchaser which is a partnership to
a partner of such partnership or a retired partner of such partnership who
retires after the date hereof, to an affiliate of such partnership or to the
estate of any such partner or retired partner, or a transfer by a Purchaser
which is a limited liability company to a member of such limited liability
company or a retired member who resigns after the date hereof or to the estate
of any such member or retired member; provided that the transferee in each case
agrees in writing to be subject to the terms of this Section 9 to the same
extent as if it were the original Purchaser hereunder, or (ii) a transfer made
in accordance with Rule 144 under the Securities Act.
9.3 Legend. Each certificate representing Restricted Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged
or hypothecated unless and until such shares are registered
under such Act or an opinion of counsel satisfactory to the
corporation is obtained to the effect that such registration
is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act or are to be sold pursuant to Rule 144.
10. Miscellaneous.
10.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Subject to the terms of Section 9 herein, this Agreement,
and the rights and obligations of each Purchaser hereunder, may be not assigned
by such Purchaser.
10.2 Confidentiality. Each Purchaser agrees that he, she or it will
keep confidential and will not disclose, divulge or use for any purpose other
than to monitor his, her or its investment in the Company any confidential,
proprietary or secret information which such Purchaser may obtain from the
Company pursuant to financial statements, reports and other materials submitted
by the Company to such Purchaser pursuant to this Agreement, or pursuant to
visitation or inspection rights granted hereunder ("Confidential Information"),
unless such
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Confidential Information is known, or until such Confidential Information
becomes known, to the public (other than as a result of a breach of this Section
10.2 by such Purchaser); provided, however, that a Purchaser may disclose
Confidential Information (i) to its attorneys, accountants, consultants, and
other professionals to the extent necessary to obtain their services in
connection with monitoring its investment in the Company, (ii) to any
prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 10.2, (iii) to any affiliate of such Purchaser or to a partner,
stockholder or subsidiary of such Purchaser, provided that such affiliate agrees
in writing to be bound by the provisions of this Section 10.2 or (iv) as may
otherwise be required by law, provided that the Purchaser takes reasonable steps
to minimize the extent of any such required disclosure.
10.3 Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
10.4 Expenses. The Company shall pay, at the Closing, the reasonable
fees, expenses and disbursements (up to a maximum of $35,000) of Dewey
Ballantine LLP, counsel to the Purchasers, in connection with the review of
this Agreement and the other agreements contemplated hereby and the closing of
the transactions contemplated hereby.
10.5 Brokers. The Company, Nortel Networks and each Purchaser
(i) represents and warrants to the other parties hereto that he, she or it has
not retained a finder, broker or consultant in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or
obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
10.6 Severability. In the event that any provision of this Agreement is
found to be invalid, voidable or unenforceable, the parties to this Agreement
each agree such invalidity, voidability or unenforceability shall affect
neither the validity of this Agreement nor the remaining portions hereof, and
that the provision in question shall be deemed to be replaced with a valid and
enforceable provision most closely reflecting the intent and purpose of the
original provision.
10.7 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.
10.8 Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed delivered (i) two
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid or (ii) one business day after being sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient as set forth below:
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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, unless 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.
10.9 Complete Agreement. This Agreement (including its Exhibits)
and the Ancillary Agreements constitute 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.
10.10 Amendments and Waivers. Except as otherwise expressly set
forth in this Agreement, any term of this Agreement may be amended or terminated
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company, Nortel Networks, and
the holders of more than 50% of the shares of Common Stock issued or issuable
upon conversion of the Shares. Notwithstanding the foregoing, this Agreement
may be amended with the consent of the holders of less than all of the shares
of Common Stock issued or issuable upon conversion of the Shares only in a
manner which affects all such holders in the same fashion. Any amendment,
termination or waiver effected in accordance with this Section 10.10 shall be
binding upon each holder of any Shares (including shares of Common Stock into
which such Shares have been converted), even if they do not execute such
consent, and each future holder of all such securities and the Company. 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.
10.11 Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural,
and vice versa.
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10.12 Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
10.13 Section Headings. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date 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.
[Series B Convertible Participating Preferred Stock Purchase Agreement -
Signature Page]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date above first written.
NETGEAR, INC.
By:
___________________________________________
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.
[Series B Convertible Participating Preferred Stock Purchase Agreement --
Signature Page]
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LIST OF EXHIBITS
Exhibit A -- List of Purchasers
Exhibit B -- Contribution Agreement
Exhibit C -- Amended and Restated Certificate of Incorporation
Exhibit D -- Disclosure Schedule
Exhibit E -- Warrant to Purchase Common Stock
Exhibit F -- Securityholders of the Company
Exhibit G -- Investor Rights Agreement
Exhibit H -- Transition Services Agreement
Exhibit I -- Intellectual Property License Agreement
Exhibit J -- Opinion of Gray Cary Ware & Freidenrich LLP
Exhibit K -- Non-Disclosure and Assignment of Inventions Agreement
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EXHIBIT A
LIST OF PURCHASERS
No. of Shares of
Series B Preferred Aggregate
Name and Address of Purchaser @$7.90/Share Purchase Price
- ----------------------------- ------------------ --------------
Pequot Private Equity Fund II, L.P. 1,897,450 $14,989,855
500 Nyala Farm Road
Westport, Connecticut 06880
Attn: David J. Malat, Chief Financial Officer,
Pequot Capital Management, Inc.
TOTAL: 1,897,450 $14,989,855
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EXHIBIT D
NETGEAR, INC.
SERIES B CONVERTIBLE PARTICIPATING PREFERRED
STOCK PURCHASE AGREEMENT
DISCLOSURE SCHEDULE
Pursuant to Section 3 of the Series B Convertible Participating Preferred
Stock Purchase Agreement dated March 10, 2000 (the "Agreement") 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 thereto (the "Purchasers"), the Company hereby delivers this
Disclosure Schedule (the "Schedule"). The section numbers in the Schedule
correspond to the section numbers in the Agreement. Any information disclosed
under any section in the Schedule is deemed to qualify all of the
representations and warranties contained in Section 3 of the Agreement,
regardless of the heading under which a disclosure is made. Capitalized terms
used in the Schedule, unless otherwise specified, have the same meanings given
them in the Agreement.
3.9 Financial Statements.
Follow this page.
30
3.10 Absence of Liabilities.
The Company has paid for 14 licenses of Impromptu Software (a report writer
produced by Cognos, Inc.), but is currently using up to 31 copies. The
Company intends to purchase 17 additional licenses at $800 each, totaling
$13,600.
Balance Sheet as attached in Section 3.9: Final 12/31/1999 Price Protection
reconciliation is in process as part of the Deloitte & Touche year-end
audit. The Company does not expect that there will be material changes to
the price protection actuals and liabilities as stated in the attached
financials.
For Final 12/31/1999 liabilities associated with international operations,
the financial statements include amounts provided by Nortel for each
geography. However, in most cases detail has not yet been provided to the
Company, nor has there been a contact available, to confirm the accuracy of
the balances.
The equity section of the attached financials will be adjusted according to
the final closing, including adjustments for Nortel paid in capital, future
warrants, and other items as required per the final agreements.
The Company's FY99 audit is currently underway. Adjustments to deferred
revenue and other liabilities may be required as a result of Deloitte &
Touche's review.
3.12 Property and Assets.
In all material respects all property and assets associated with NETGEAR
operations worldwide have been included as Fixed Assets in the attached
financial statements. The actual sale of these assets, and establishment of
the associated tax liability, has not yet been completed. For domestic
assets, an estimated tax liability of $19.7K will be due to the State of
California as a result of the sale of assets.
3.14 Insurance.
From Trinet Contract Section X.A.2: TRINET shall obtain and maintain in
effect such workers' compensation insurance and other employee insurance
coverages with respect to NETGEAR Employees that employers are required by
applicable Regulation to provide to their employees. TRINET agrees to cause
its workers' compensation carrier to name NETGEAR as an additional insured
on TRINET's workers' compensation insurance policy and to include in such
policy an endorsement which shall provide payment of workers' compensation
benefits on behalf of NETGEAR if applicable Regulation requires that
NETGEAR, rather than or in addition to TRINET, pays such workers'
compensation benefits to NETGEAR Employees.
3.15 Material Contracts and Obligations.
Vendor agreements:
Celestica Asia
31
Celestica Hong Kong Limited
CONVERGYS
DELTA ELECTRONICS INC.
D-LINK CORPORATION
LOGISTIX
MALLIET CONSULTING
SYSTEMS UNION, INC
TED MADER ASSOCIATES (TMA)
THE HOFFMAN AGENCY
ZYXEL COMMUNICATIONS CORP
PO by PO agreement Vendors:
4P, INC.
AIL SYSTEMS, INC./TSO
AIRBORNE EXPRESS
BEL FUSE INC.
BUREAU OF TRANSLATION SERVICES
BUSINESS WIRE
C&I PHOTOGRAPHY
CABLE EXPRESS CORP.
CDW
CIRCUIT CITY STORES, INC
CompuCare Marketing
COMPUCARE, INC
CompUSA
COMPUTER MARKET RESEARCH, LTD
CONTACT EAST
CONTINENTAL PROMOTIONS GROUP
COSTCO WHOLESALE
CRESCENT TRUCK LINES, INC
DATACOM WAREHOUSE - CANADA
DELTA NETWORKS, INC.
DELTA PRODUCTS CORP
DHL WORLDWIDE EXPRESS
DIGITAL NETWORK SERVICES
E & I DESIGN
E-POWER MARKETING, INC
EXACT DUPLICATES
EXPEDITORS INTERNATIONAL
EXPRESS FREIGHT SYSTEM
EXPRESS PRINTING & GRAPHICS
FDX SUPPLY CHAIN SERVICES
FEDERAL EXPRESS
FEDEX N.A. LOGISTICS
FORWARD COMPANIES
FRY'S ELECTRONICS
32
GARTNER GROUP, INC.
GEORGE P. JOHNSON CO.
GLOBAL COMPUTER SUPPLIES
HARDWARESTREET.COM, INC.
HIRE KNOWLEDGE
HOW2HQ
IDC
IMS FREIGHT
IMS FREIGHT HONG KONG
INGRAM MICRO, INC
Insight
INSTY-PRINTS
Intelligence Network Online
INTERAMERICAN MRKTG SERVICES
INTERMEMORY CORP.
J&R MUSIC/COMPUTER WORLD
JP DIGITAL
K/P CORPORATION
KIN-SHINE PRINTING CORP
LITE-ON COMMUNICATIONS CORP
LOGISTIX - MA
MCI Worldcom
MERGE Technologies Group, Inc.
MicroCenter, inc
MICROSTANDARD DISTRIBUTORS
MICROWAREHOUSE, INC
MILLER TOMBACK
NECX HOME & OFFICE COMPUTER
NETCOM SYSTEMS, INC
NETIS TECHNOLOGY
NIPPON EXPRESS
OVERNITE
PAR LITHOGRAPHIC COMMUNICATION
PC CONNECTION, INC
PC WAREHOUSE
PHIL PELLOUCHOUD
PORTLINK USA INCORPORATED
Postmaster
PRECISION CONSULTING
PROGRESSIVE SOLUTIONS
RAPID DISPLAYS
RCS COMPUTER EXPERIENCE
RED HOT RADIO
SAN JOSE SABERCATS
SERVICE PLUS
SHOPNOW.COM NETWORK
33
SLIMWARE, INC
STEWART OFFICE SUPPLIES
TCN
THE CHASM GROUP
TIGER DIRECT
UNITED PARCEL SERVICE
UNITED STATES POSTAL SERVICE
VALUE AMERICA, INC
VIKING FREIGHT
VINCE MACKEL, INC
WATKINS MOTOR LINES, INC.
YELLOW FREIGHT SYSTEM, INC
YOKOGAWA CORP
ZD EVENTS
Sales Rep Firms with Agreements:
ASI
ASTROKAM
INNOVATIVE -- VANGUARD
LINEAU ASSOCIATES
ONSALE
SALESTREAM
SELECT SALES
TECH DATA -- CANADA
TECH PLUS
YOHAY ASSOCIATES
Employee Agreements:
Patrick Lo
Mark Merrill
Rick Fabiano
Stephen Dix
Chip Smith
Jean-Michel Bielli
Magnus Erlandsson
Ian McLean
Gin Gyeom Kim
Hirohito Nakagawa
Hiroshi Taeuchi
David Soares
Sue Ponder
Marco Peters
Bonus Plan:
All Permanent NETGEAR Employees participate in a bonus plan. Annual Targeted
Bonus Opportunity is 20% of Annual Base Salary, and is paid out based on
achievement of
34
financial objectives (Revenue and Profit). Prior to July, 1999 NETGEAR's bonus
plan period was based on a July-June fiscal year. For the July-December, 1999
period, the bonus plan (as well as other variable compensation including sales
commissions) was set for the 6-month period to allow NETGEAR to move
bonus/commission plans to a calendar year starting 1/1/2000.
Based on actual achievement of financial objectives for the July-December, 1999
period, NETGEAR's VP of Finance and CEO determined that a payout of 11.5% of
annual salary (115% of target) was due employees. Of this amount, 10% of salary
had been accrued in the operating results for July-December, 1999 and 1.5% of
salary was a variance due to overachievement of target financial results.
However, because the plan had not been formally approved by Nortel HR, the
bonus payout has not yet taken place. This item will be included in the agenda
of the initial post-closing NETGEAR board meeting to be held in early March.
NETGEAR intends to continue to offer the NEGEAR Bonus to all permanent
employees at a targeted rate of 20% in the future. Starting in 2000, the plan
period will be January 1, 2000 through December 31, 2000. Monthly accruals will
continue to be booked at this rate and will be adjusted according to financial
performance throughout the fiscal year.
3.20 Leases
3 Dell Latitude CPi 366 laptops and 19" monitors in the US (Malloy,
Gregory, Hill)
1 PC (Takeuchi in Japan)
1 PC (Robbins in Australia)
Office lease - Werdann (through 10/31/00), Executive Offices USA, 2516
Highway 35, Manasquan, NJ 08736, 732-223-4444, Monthly Lease Payment -
$650.00, Lease includes rental of Office Space #2 and office furniture.
Does not, include incidentals such as: copies, fax's, mail, etc.
Automobile - Erlandsson (Handelsbanken Finans, expire 2002-04-30, Monthly
lease including insurance are SEK 5926 exkl. VAT. ($690).
Automobile - Bielli (Renault Megane Scenic, # 612 BQA 92), Contract
finishing 23 Oct 2001, 75000 KM (47000 Miles), Value: FF 3159,94 FF (plus
609F taxes)/month, plus Insurance: approx. 5000F/year
Automobile - Germany (2)
3.22 Inventory.
35
- -------------------------------------------------------------------------------------------------------------------------
Inventory Reconciliation
- -------------------------------------------------------------------------------------------------------------------------
Period: December CY99
- -------------------------------------------------------------------------------------------------------------------------
CURRENT MONTH
- -------------------------------------------------------------------------------------------------------------------------
QTY AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
CFXSR Clear FEDEX Stk Tot 119 $ 21,198.57
- -------------------------------------------------------------------------------------------------------------------------
CFXWR Clear FEDEX Wty 240 24,425.89
- -------------------------------------------------------------------------------------------------------------------------
CLRHK $
- -------------------------------------------------------------------------------------------------------------------------
CLRHK Clear S/B 0 3 $ 486.87
- -------------------------------------------------------------------------------------------------------------------------
CONSG Consig UK S/B 0 $
- -------------------------------------------------------------------------------------------------------------------------
CSCRP Clear Scrap 2 $ 310.26
- -------------------------------------------------------------------------------------------------------------------------
FGIHK HK Finish Goods $
- -------------------------------------------------------------------------------------------------------------------------
FGISJ SJ Finish Goods 82 $ 5,026.76
- -------------------------------------------------------------------------------------------------------------------------
1 $ 69.85
- -------------------------------------------------------------------------------------------------------------------------
MSRSJ SJ Mis-ship Return 1,926 $ 129,745.23
- -------------------------------------------------------------------------------------------------------------------------
RFIHK HK Refurb Invent 4,561 $ 387,608.29
- -------------------------------------------------------------------------------------------------------------------------
RFISJ SJ Refurb Invent 973 $ 84,654.87
- -------------------------------------------------------------------------------------------------------------------------
SRRHK HK Stock Rotation 198 $ 22,946.58
- -------------------------------------------------------------------------------------------------------------------------
SRRSJ SJ Stock Rotation 5,455 $ 495,706.85
- -------------------------------------------------------------------------------------------------------------------------
WRFHK HK Wty test failures 129 $ 6,790.11
- -------------------------------------------------------------------------------------------------------------------------
WRIHK HK Warranty Rtns 569 $ 56,394.51
- -------------------------------------------------------------------------------------------------------------------------
WRISJ SJ Warranty Rtns 7,306 $ 530,719.93
- -------------------------------------------------------------------------------------------------------------------------
WRTHK HK Wty Rtns in-trans -817 $ (54,851.06)
- -------------------------------------------------------------------------------------------------------------------------
WRTSJ 2,148 262,887.49
- -------------------------------------------------------------------------------------------------------------------------
WRWHK 6,643 $ 462,096.74
- -------------------------------------------------------------------------------------------------------------------------
WRZHK 21,705 $ 452,598.20
- -------------------------------------------------------------------------------------------------------------------------
XSIHK HK Components 9,628 $ 1,172,106.11
- -------------------------------------------------------------------------------------------------------------------------
XSISJ SJ Components 5,270 $ 1,511,850.27
- -------------------------------------------------------------------------------------------------------------------------
ZRMHK HK Components $
- -------------------------------------------------------------------------------------------------------------------------
ZXESC $
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total 66,141 $ 5,572,772.32
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
2500 Balance in G/L - Sun $ 5,572,772.32
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Difference $
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Reconciliation of difference
- -------------------------------------------------------------------------------------------------------------------------
IMS Adjustments Adj S/b done
to invent report
as Sun G/L has
been expensed
- -------------------------------------------------------------------------------------------------------------------------
IMS Adjustments
- -------------------------------------------------------------------------------------------------------------------------
Adj S/b done
to G/L for revalue
on std costing for
the Excess inv
- -------------------------------------------------------------------------------------------------------------------------
Accrual to correct inventory for double receipts
difference between carrying value and std cost
changes
- -------------------------------------------------------------------------------------------------------------------------
Excess/Obsolete Reserve
Inventory reserve E and O $(1,267,386.63)
- -------------------------------------------------------------------------------------------------------------------------
Stock rotation reserve in COS Aug INTECK
- -------------------------------------------------------------------------------------------------------------------------
36
[GRAY CARY WARE LETTERHEAD]
Our File No:
1020821-907000
March 10, 2000
Purchaser Listed on Exhibit A
to the Series B Convertible Participating
Preferred Stock Purchase Agreement
Re: Series B Convertible Participating Preferred Stock Purchase Agreement,
dated as of March 10, 2000 by and between NETGEAR, Inc., a Delaware
corporation, and the Purchaser listed on Exhibit A thereto
Ladies and Gentlemen:
We are legal counsel to NETGEAR, Inc., a Delaware corporation (the
"Company"), and we are rendering this opinion pursuant to Section 6.1 of the
Series B Convertible Participating Preferred Stock Purchase Agreement, dated
March 10, 2000, between the Company and you (the "Agreement") in connection with
the sale and issuance of 1,897,450 shares of Series B Preferred Stock (the
"Shares"). Capitalized terms used in this opinion, unless specifically defined
herein, have the meanings assigned them in the Agreement.
In connection with this opinion, we have reviewed only the documents of the
Company listed on Exhibit A hereto. As to factual matters, we have relied solely
upon, and assumed the accuracy, completeness, and genuineness of, a certificate
of an officer of the Company (the "Certificate"), certificates of public
officials and oral and written representations made to us by officers of the
Company. We have made no independent investigation of any of the facts stated in
any such certificate or representation; however, nothing has come to our
attention which would lead us to believe that such facts or the opinions express
herein are inaccurate. In particular, with respect to our opinion in Paragraph 1
regarding the Company's qualification as a foreign corporation, we have relied
solely on the Certificate and the oral and written representations made to us by
the officers of the Company that the Company owns or leases no property, has no
employees and has no sales outside California. With respect to our opinion in
Paragraph 4 hereof that all issued and outstanding shares are fully paid, we
have relied exclusively upon a representation concerning receipt by the Company
of consideration for such shares made to us in the Certificate. With respect to
our opinion in Paragraph 5 hereof that the shares of Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrant will be validly
issued, we have assumed that such shares will be evidenced by appropriate
certificates, duly executed and delivered. With respect to our opinion in
Paragraph 6 hereof regarding material agreements of the Company, we have relied
solely upon (i) our review
[LETTERHEAD FOOT]
37
March 10, 2000
Page Two
of the material agreements provided to us by the Company and (ii) our review of
the Company's minute book and all documents referred to in such minute book and
a representation from officers of the Company that the agreements listed on
Exhibit A hereto are all of the Company's material agreements. With respect to
our opinion in Paragraph 6 regarding judgments, decrees and orders, we have
relied solely upon a representation made to us in the Certificate to the effect
that except as may otherwise be set forth in the Agreement and the Exhibits
thereto, there are no judgments, decrees or orders binding upon the Company. We
are not aware of any judgment, decree or order binding upon the Company. With
respect to our opinion in Paragraph 7, we have relied solely upon an inquiry of
officers of the Company concerning pending or threatened litigation or
governmental or other proceedings or investigations, representations made to us
in certificates executed by officers of the Company and an inquiry of attorneys
within our firm who perform legal services for the Company; we have not made
any examination of public records (including, without limitation, the plaintiff
or defendant indices of any state or federal courts). In providing our opinion
in Paragraph 9 hereof, we have also relied upon the Certificate with respect to
certain factual information relating to the offerees of the Shares.
Where we render an opinion "to our knowledge" or concerning an item "known
to us" or our opinion otherwise refers to our knowledge, it is intended to
indicate that during the course of our representation of the Company, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to the attention of those attorneys currently in this
firm who have rendered or are rendering substantive legal services to the
Company in the transactions contemplated by the Agreement. However, except as
otherwise expressly indicated, we have not undertaken any independent
investigation to determine the accuracy of such statement and any limited
inquiry undertaken by us during the preparation of this opinion letter should
not be regarded as such an investigation; no inference as to our knowledge of
any matters bearing on the accuracy of any such statement should be drawn from
the fact of our representation of the Company.
In addition, we have assumed that the representations and warranties as to
factual matters made by the Company and you in Sections 3 and 4, respectively,
of the Agreement are true and correct. We have also assumed the genuineness and
authenticity of all documents submitted to us as originals (other than the
signatures of the Company), the conformity to originals of all documents
submitted to us as copies, the due execution and delivery of the Agreement and
all other documents referenced therein by any party other than the Company when
due execution and delivery are a prerequisite to the effectiveness thereof, that
you have received all of the documents that you were required to receive under
the Agreement, and that the Agreement and all other documents referenced therein
are binding obligations on you.
We express no opinion concerning any law other than the law of the State
of California, the Delaware General Corporation Laws ("Delaware Law") and the
federal law of the United States. As to matters of Delaware Law, we have based
our opinion solely upon our examination of such laws and the rules and
regulations of the authorities administering such laws, all as reported in
standard, unofficial compilations. Opinions of counsel licensed to practice
law in
38
March 10, 2000
Page Three
states other than the State of California have not been obtained to support the
opinions contained herein.
With respect to the opinions set forth in the numbered Paragraphs 1
through 9 below, we express no opinion as to (i) the availability of equitable
remedies, including specific performance, (ii) the enforceability of the
provisions of Section 2.5 of the Rights Agreement regarding indemnification of
the Purchaser and the Company with respect to the registration of the sale of
the Company's securities with the Securities and Exchange Commission, (iii)
compliance or noncompliance with the antifraud provisions of state and federal
laws, rules and regulations concerning the issuance of securities, (iv) the
effect of bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (v) the enforceability of the Agreement under
Section 1670.5 of the California Civil Code, and (vi) the effect of Section
1698 of the California Civil Code and similar statutes and federal laws and
judicial decisions providing that oral modifications to a contract or waivers
of contractual provisions may be enforceable, if the modification was
performed, notwithstanding any express provision in the agreement that the
agreement may only be modified or an obligation thereunder waived in writing or
creating an implied agreement from trade practices or course of conduct.
Subject to the foregoing, it is our opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted.
2. The Company has all requisite corporate power to enter into the
Agreement, the Investor Rights Agreement, the Contribution Agreement, the
Transition Services Agreement, the Intellectual Property License Agreement, the
Transition Services Agreement, the Warrant and the Stockholders' Voting
Agreement (collectively, the Agreement, the Investor Rights Agreement, the
Contribution Agreement, the Transition Services Agreement, the Intellectual
Property License Agreement, the Transition Services Agreement, the Warrant and
the Stockholders' Voting Agreement are referred to herein as the "Transaction
Agreements"), to sell the Shares, and to carry out and perform its obligations
under the terms thereof. The Transaction Agreements have been duly authorized by
all necessary corporate action on the part of the Company and have been duly
executed and delivered by the Company. The Transaction Agreements are valid and
binding obligations of the Company, enforceable in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting the enforcement of
creditors' rights.
3. The Amended and Restated Certificate of Incorporation (the "Amended
Certificate") has been duly authorized and adopted by the Board of Directors of
the Company and has been approved by a majority of the stockholders of the
Company.
39
March 10, 2000
Page Four
4. The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, $0.001 par value per share (the "Common Stock"), and
16,897,450 shares of Preferred Stock, $0.001 par value per share, 15,000,000 of
which have been designated Series A Preferred Stock and 1,897,450 of which have
been designated Series B Preferred Stock. Prior to the issuance of the Shares at
the Closing, there were issued and outstanding no shares of Common Stock,
15,000,000 shares of Series A Preferred Stock, and no shares of Series B
Preferred Stock. The Series A Preferred Stock has, and when issued, the Series B
Preferred Stock shall have, the rights, preferences, privileges and restrictions
set forth in the Amended Certificate. Sufficient Common Stock has been reserved
to provide for conversion of the Series A Preferred Stock and the Series B
Preferred Stock, and exercise of the Warrant. To our knowledge and except
for the Warrant or as disclosed in the Schedule of Exceptions to the Agreement,
there are no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
5. The Shares, when issued in compliance with the provisions of the
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable. The issuance of the Shares is not subject to any preemptive
rights or, to our knowledge, rights of first refusal, created by the Company
which have not been complied with or waived. The shares of Common stock issuable
upon conversion of the Shares and upon exercise of the Warrant, have been duly
and validly reserved and are not subject to any preemptive rights or, to our
knowledge, rights of first refusal created by the Company and, upon conversion
of the Shares in accordance with the Company's Amended Certificate and
cancellation of the Shares, or upon exercise of the Warrant, will be duly
authorized, validly issued, fully paid and nonassessable.
6. Neither the execution, delivery or performance of the Agreement, nor the
issuance of the Shares nor the issuance of the Common Stock issuable upon
conversion thereof and upon exercise of the Warrant, will violate any term of
the Amended Certificate or Bylaws; and, to our knowledge, such transactions will
not, in any material respect, violate or conflict with or constitute a default
under the provisions of any judgment, decree or order binding upon the Company.
7. To our knowledge, except as described or disclosed in the Agreement or
in exhibits thereto, no action, suit, proceeding or investigation is pending or
threatened against the Company, its subsidiary NETGEAR International, Inc., or
their respective properties.
8. All consents, approvals and authorizations of and filings with any
federal or state governmental authority required on the part of the Company, if
any, in connection with the valid execution and delivery of the Transaction
Agreements, or the consummation of the transactions contemplated thereby, have
been obtained or made, except, if required after the sale of the Shares, filings
to be made under the Securities Act of 1933, as amended, and the California
Corporate Securities Law of 1968, as amended, which filings are to be filed
after the Closing in the time prescribed by law.
40
March 10, 2000
Page Five
9. The offer and sale of the Shares in conformity with the terms of the
Agreement, and the Common Stock issuable upon conversion of the Shares or upon
exercise of the Warrant, are in compliance with or exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended and the
qualification requirements of the California Corporate Securities Law of 1968,
as amended.
This opinion may be relied upon by you only in connection with the
Transaction Agreements and the transactions contemplated therein and may not be
used or relied upon by you or any other person for any other purpose without our
prior written consent.
Very truly yours,
GRAY CARY WARE & FREIDENRICH LLP
41
March 10, 2000
Page Six
EXHIBIT A
1. Copies of the Certificate of Incorporation of the Company as amended to the
date hereof.
2. Copies of the Bylaws of the Company, as amended to the date hereof and as
certified to be complete and true by the Secretary of the Company.
3. The minute book of the Company containing minutes of meetings of the Board
of Directors and stockholders and written consents of the Board of
Directors and stockholders through the date hereof.
4. The Agreement and all other agreements or documents referenced therein or
in the exhibits thereto, including all exhibits thereto.
5. The stock certificates representing the Shares.
42
NETGEAR, INC. EMPLOYEE INVENTION ASSIGNMENT AND
PROPRIETARY INFORMATION AGREEMENT
I, the undersigned, acknowledge, represent, and agree, in consideration of the
commencement or continuation of my employment by Netgear, Inc. ("Netgear"), a
subsidiary of Netgear, or an affiliate of Netgear (collectively "Netgear"), and
the compensation promised me, that:
1. I understand that my employment by Netgear creates a relationship of
confidence and trust with respect to any information of a confidential or
secret nature that may be developed by me in my capacity as an employee of
Netgear or may be disclosed to me by Netgear that relates to the business
of Netgear or to the business of any parent, subsidiary, affiliate,
customer or supplier of Netgear, or of any other third party who entrusted
the same to Netgear ("Proprietary Information"). Such Proprietary
Information includes, but is not limited to, technical and business
information relating to Netgear's inventions or products, research and
development, marketing plans, product plans, business strategies, financial
information, forecasts, production, manufacturing and engineering
processes, personnel lists and information relating to skill set and
compensation, and customer and prospective customer lists whether or not it
is in written or permanent form. Such Proprietary Information does not
include any information which is or becomes part of the public domain not
in violation of any agreement with Netgear.
2. At all times, both during the period I am employed by Netgear and after
termination of my employment, I will keep all Proprietary Information in
confidence and trust, and I will not use or disclose any Proprietary
Information without the written consent of Netgear, except as authorized by
Netgear. Upon termination of my employment by Netgear or upon request by
Netgear, I will promptly deliver to Netgear all documents and materials of
any nature pertaining to my work with Netgear, and I will not take with me
any documents or material or copies thereof containing any Proprietary
Information. I agree to be bound by all obligations and restrictions
imposed by third parties on Netgear regarding inventions made during the
course of work under agreements with those third parties or regarding the
confidential nature of that work.
3. I will promptly disclose in writing to Netgear all inventions, improvements,
original works of authorship, formulas, processes, computer programs,
databases, technical developments and trade secrets ("Inventions"), whether
or not patentable, copyrightable, or subject to protection as trade
secrets, that are made or conceived or first reduced to practice or created
by me, either alone or jointly with others, during the period of my
employment by Netgear, whether or not in the course of my work for Netgear.
4. I hereby assign and agree to assign to Netgear, my entire right, title and
interest in and to all Inventions, patents (and all related applications)
that are developed by me, alone, or with others using equipment, supplies,
facilities, or trade secrets of Netgear; that result from work performed by
me for Netgear; or that relate to the business or the actual or anticipated
research or development of Netgear, and agree that all and any such
Inventions will be the sole and exclusive property of Netgear. Any previous
work done by me for Netgear relating in any way to the conception, design,
development or support of products for the company is the property of
Netgear. This agreement to assign shall specifically not apply to any
invention developed by me which qualifies under the provision of California
Labor Code Section 2870.
5. I will assist Netgear and its designees, both during and after my
employment, to obtain, maintain and enforce patents, copyrights and other
legal protections for Inventions in any and all countries as Netgear deems
appropriate at the company's expense. I will keep and maintain adequate and
current written records of all Inventions, which shall be and remain the
property of Netgear. I hereby waive all claims to moral rights in any
Inventions.
Employment Invention Assignment and Proprietary Information Agreement 091699
Page 1 of 2
43
6. This agreement does not apply to the specific inventions (if any) listed on
Page 2 of this Agreement, but I will give Netgear such further
non-confidential information as may be necessary to assist in the evaluation
of the extent and significance of such inventions.
7. I agree that upon termination of my employment and for a period of one year
thereafter (without regard to the reason for my employment ending) I will
not recruit, or attempt to recruit or induce or solicit or assist in
recruiting or inducing or soliciting Netgear employees to terminate their
employment with Netgear, nor will I solicit, or attempt to divert or take
away, the business or patronage of any of the customers or accounts, or
prospective customers or accounts of Netgear which were contracted,
solicited or served by Netgear during the course of my employment.
8. I represent that my performance of all the terms of this Agreement and my
duties as an employee of Netgear will not breach any invention assignment,
proprietary information, non-competition, or other agreement with any former
employer or other party. I represent that I will not bring with me or use in
the performance of my duties for Netgear any proprietary information or
documents or materials of a former employer, or any other person or entity
that has retained me, that I am now or shall become aware of which belongs
to any of my former employers' or to anyone other than the company and which
are not generally available to the public.
9. During my employment by Netgear, I will not engage in any employment,
consulting or other activity in any business competitive with Netgear's
business as presently conducted or as conducted at any future time during my
employment.
10. I hereby authorize Netgear, without limitation to notify others, including
customers of Netgear, other persons or entities that retain me and my future
employers, of the terms of this Agreement and my responsibilities hereunder.
11. Unless there is a written employment agreement for a specified term in
effect, I understand that my employment may be terminated at any time, with
or without cause, by me or Netgear. This Agreement does not obligate Netgear
to employ me for any particular length of time. This Agreement shall survive
termination of the Employee's employment.
12. I understand that in the event of a breach of this Agreement by me, Netgear
may suffer irreparable harm and shall be entitled to injunctive relief to
enforce this Agreement.
13. This Agreement supersedes all other agreements relating to the subject
matter herein. If a court finds any provision of this Agreement invalid or
unenforceable as applied to any circumstance, the other provisions of this
Agreement will remain in full force and effect. This Agreement shall be
effective as of the first day I am affiliated or was employed by Netgear,
namely ___________, 19___.
Employee: Netgear, Inc.:
Signature:______________________________ By:____________________________________
Printed Name:___________________________ Printed Name:__________________________
Title:_________________________________
Employee's Prior Inventions (if any):
________________________________________________________________________________
Employment Invention Assignment and
Proprietary Information Agreement 021600 Page 2 of 2
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This is a true and complete list. Initial: Date:
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Employment Invention Assignment and Proprietary Information Agreement 021600
Page 2 of 2