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EXHIBIT 4.2
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144
UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. 001
WARRANT TO PURCHASE COMMON STOCK
of
NETGEAR, INC.
(void after May 15, 2001)
1. Number of Shares Subject to Warrant. FOR VALUE RECEIVED, on and after
the date of this Warrant, and subject to the terms and conditions herein set
forth, Holder (as defined below) is entitled to purchase from NETGEAR, Inc., a
Delaware corporation (the "Company"), at any time before 5:00 p.m. California
time on May 15, 2001 ("Termination Date"), at a price per share equal to the
Warrant Price (as defined below), the Warrant Stock (as defined below and
subject to adjustments as described below) upon exercise of this Warrant
pursuant to Section 6 hereof.
2. Definitions. As used in this Warrant, the following terms shall have
the definitions ascribed to them below:
(a) "Holder" shall mean Pequot Private Equity Fund II, L.P. and its
assigns.
(b) "Securities" shall mean shares of Common Stock of the Company.
(c) "Warrant Price" shall be equal to $10.00 per share, subject to
adjustment as described in Section 3 below.
(d) "Warrant Stock" shall mean shares of the Securities purchasable
upon exercise of this Warrant. The total number of shares to be issued upon
exercise of this Warrant, subject to adjustment as described in Section 3
below, shall be equal to 1,500,000 shares.
3. Adjustments and Notices. The Warrant Price and the number of shares
of Warrant Stock shall be subject to adjustment from time to time in accordance
with the following provisions:
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(a) Subdivision, Stock Dividends or Combinations. In case the
Company shall at any time subdivide the outstanding shares of the Securities or
shall issue a dividend in the form of Securities with respect to the
Securities, the Warrant Price in effect immediately prior to such subdivision
or the issuance of such dividend shall be proportionately decreased, and the
number of shares of Warrant Stock purchasable immediately prior to such
subdivision or issuance of dividend shall be proportionately increased, and in
case the Company shall at any time combine the outstanding shares of the
Securities, the Warrant Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Warrant Stock purchasable
immediately prior to such combination shall be proportionately decreased,
effective at the close of business on the date of such subdivision, dividend or
combination, as the case may be.
(b) Reclassification, Exchange, Substitute, In-Kind Distribution.
Upon any reclassifications, exchange, substitution or other event that results
in a change of the number and/or class of the securities issuable upon exercise
or conversion of this Warrant or upon the payment of a dividend in securities
or property other than Securities, the Holder shall be entitled to receive,
upon exercise or conversion of this Warrant, the number and kind of securities
and property that Holder would have received if this Warrant had been exercised
immediately before the record date for such reclassification, exchange,
substitution or other event or immediately prior to the record date for such
dividend. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 3(b) shall similarly apply to successive
reclassifications, exchanges, substitutions or other events and successive
dividends.
(c) Reorganization, Merger etc. In case of any (i) merger or
consolidation of the Company into or with another corporation where the Company
is not the surviving corporation, (ii) sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona fide lender) of
all or substantially all of the assets of the Company, or (iii) sale by the
Company's shareholders of 50% or more of the Company's outstanding securities
in one or more related transactions, the Company, or such successor or
purchasing corporation, as the case may be, shall, as a condition to closing
any such reorganization, merger or sale, duly execute and deliver to the Holder
hereof a new warrant so that the Holder shall have the right to receive, at a
total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of the
Securities theretofore issuable upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable upon
such reorganization, merger or sale by the holder of the number of shares of
Securities then purchasable under this Warrant. Such new warrant shall provide
for adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. The provisions of this subparagraph
(c) shall similarly apply to successive reorganizations, mergers and sales.
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(d) No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions
of this Section 3 and in taking all such action as may be necessary or
appropriate to protect the Holder's rights under this Section 3 against
impairment. If the Company takes any action affecting the Securities other than
as described above that adversely affects Holder's rights under this Warrant,
the Warrant Price shall be adjusted downward.
(e) Notice. Upon any adjustment of the Warrant Price and any
increase or decrease in the number of shares of the Securities purchasable upon
the exercise or conversion of this Warrant, then, and in each such case, the
Company, within thirty (30) days thereafter, shall give written notice thereof
to the Holder of this Warrant at the address of such Holder as shown on the
books of the Company which notice shall state the Warrant Price as adjusted and
the increased or decreased number of shares purchasable upon the exercise or
conversion of this Warrant, setting forth in reasonable detail the method of
calculation of each. The Company further agrees to notify the Holder of this
Warrant in writing of a reorganization, merger or sale in accordance with
Section 3(c) hereof at least forty-five (45) days prior to the effective date
thereof. The Company also agrees to notify the Holder of this Warrant in
writing of a proposed public offering at least thirty (30) days prior to the
effective date thereof.
(f) Fractional Shares. No fractional shares shall be issuable upon
exercise or conversion of the Warrant and the number of shares to be issued
shall be rounded down to the nearest whole share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying the Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full share.
4. No Shareholder Rights. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its Holder to any of the
rights of a shareholder of the Company.
5. Representations of the Company and Reservation of Stock. This Warrant
has been duly and validly authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company enforceable against
the Company in accordance with its terms. All Securities which may be issued
upon the exercise or conversion of this Warrant shall, upon issuance in
accordance with the terms hereof, be duly authorized, validly issued, fully
paid and nonassessable, and free of any liens and encumbrances, except for
restrictions on transfer provided for herein or under applicable federal and
state securities laws. On and after the date of this Warrant, the Company will
reserve from its authorized and unissued Securities a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise or
conversion of this Warrant. Issuance of this Warrant shall constitute full
authority to the Company's officers who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares
of Warrant Stock issuable upon the exercise or conversion of this Warrant.
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6. Exercise of Warrant. This Warrant may be exercised in whole or part by
the Holder within 45 days following the first of the following events to occur:
(i) the closing of a firm commitment underwritten public offering resulting in
gross proceeds to the Company of at least $25,000,000 at a valuation the
Company at not less than $300,000,000 prior to March 31, 2001; or (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation for total consideration greater than
$300,000,000 prior to March 31, 2001. The Holder may so exercise this Warrant
by the surrender of this Warrant, together with the Notice of Exercise and
Investment Representation Statement in the forms attached hereto as Attachments
1 and 2, respectively, duly completed and executed at the principal office of
the Company, specifying the portion of the Warrant to be exercised and
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the shares of Warrant Stock being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business of the
date of its surrender for exercise as provided above, and the person entitled
to receive the shares of Warrant Stock issuable upon such exercise shall be
treated for all purposes as Holder of such shares of record as of the close of
business on such date. As promptly as practicable after such date, but in any
event within ten (10) business days thereafter, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of full shares of Warrant Stock issuable upon such
exercise. If the Warrant shall be exercised for less than the total number of
shares of Warrant Stock then issuable upon exercise, promptly after surrender
of the Warrant upon such exercise, the Company will execute and deliver a new
Warrant, dated the date hereof, evidencing the right of the Holder to the
balance of the Warrant Stock purchasable hereunder upon the same terms and
conditions set forth herein.
7. Conversion. In lieu of exercising this Warrant or any portion hereof,
the Holder hereof shall have the right to convert this Warrant or any portion
hereof into Warrant Stock by executing and delivering to the Company at its
principal office the written Notice of Conversion and Investment Representation
Statement in the forms attached hereto as Attachments 2 and 3, specifying the
portion of the Warrant to be converted, and accompanied by this Warrant. The
number of shares of Warrant Stock to be issued to Holder upon such conversion
shall be computed using the following formula:
X=(P)(Y)(A-B)/A
where X= the number of shares of Securities to be issued to the Holder
for the portion of the Warrant being converted.
P= the portion of the Warrant being converted expressed as a
decimal fraction.
Y= the total number of shares of Securities issuable upon
exercise of the Warrant in full.
A= the fair market value of one share of Warrant Stock which
shall
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mean (i) the fair market value of the Company's stock
issuable upon conversion of such share as of the last
business day immediately prior to the date the notice of
conversion is received by the Company, as determined in good
faith by the Company's Board of Directors, provided that in
the event the Holder disagrees with the Board's good faith
determination, the valuation shall be determined by a
mutually agreeable valuation firm or if no firm can be
mutually agreed upon by a big six accounting firm selected
by an arbitrator determined by the rules of the American
Arbitration Association, or (ii) if this Warrant is being
converted in conjunction with a public offering of stock the
price to the public per share pursuant to the offering, or
(iii) if the Company's Stock is publicly traded on a stock
exchange or national market system, the average closing
price for the ten (10) trading day period immediately prior
to the date of conversion.
B = the Warrant Price on the date of conversion.
Any portion of this Warrant that is converted shall be immediately canceled.
This Warrant or any portion hereof shall be deemed to have been converted
immediately prior to the close of business on the date of its surrender for
conversion as provided above, and the person entitled to receive the shares of
Warrant Stock issuable upon such conversion shall be treated for all purposes
as Holder of such shares of record as of the close of business on such date. As
promptly as practicable after such date, but in any event within ten (10)
business days thereafter, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of full shares of Warrant Stock issuable upon such conversion. If the
Warrant shall be converted for less than the total number of shares of Warrant
Stock then issuable upon conversion, promptly after surrender of the Warrant
upon such conversion, the Company will execute and deliver a new Warrant, dated
the date hereof, evidencing the right of the Holder to the balance of the
Warrant Stock purchasable hereunder upon the same terms and conditions set
forth herein.
8. Transfer of Warrant. This Warrant may be transferred or assigned by
the Holder hereof in whole or in part, only if such transfer or assignment is a
transfer by a Holder which is a corporation to a wholly owned subsidiary of
such corporation or to its stockholders as a dividend, a transfer by a Holder
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 Holder 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
Warrant to the same extent as if it were the original Holder hereunder.
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9. Miscellaneous. This Warrant shall be governed by the laws of the
State of California, as such laws are applied to contracts to be entered into
and performed entirely in California by California residents. The headings in
this Warrant are for purposes of convenience and reference only, and shall not
be deemed to constitute a part hereof. Neither this Warrant nor any term hereof
may be changed or waived orally, but only by an instrument in writing signed by
the Company and the Holder of this Warrant. All notices and other
communications from the Company to the Holder of this Warrant shall be
delivered personally or mailed by first class mail, postage prepaid, to the
address furnished to the Company in writing by the last Holder of this Warrant
who shall have furnished an address to the Company in writing, and if mailed
shall be deemed given three days after deposit in the United States mail.
ISSUED: March 10, 2000
NETGEAR, INC.
By: [ILLEGIBLE]
--------------------------------
Title: CEO
-----------------------------
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Attachment 1
NOTICE OF EXERCISE
TO: NETGEAR, INC.
1. The undersigned hereby elects to purchase ________ shares of the
Warrant Stock of NETGEAR, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of Warrant Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------
(Name)
-------------------------
(Address)
-------------------------------- --------------------------------
(Date) (Name of Warrant Holder)
By:
-----------------------------
Title:
--------------------------
(Title and signature of
authorized person)
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Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Securities
(as defined in the attached Warrant) of
NETGEAR, INC.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to NETGEAR, Inc. (the "Company") as follows:
(a) The securities to be received upon the exercise of the Warrant (the
"Securities") will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and, except as contemplated by the Series B Convertible Participating
Preferred Stock Purchase Agreement dated March 10, 2000 by and between the
Company, Nortel Networks NA Inc., a Delaware corporation, and Pequot Private
Equity Fund II, L.P., (the "Agreement") and the exhibits thereto, the
undersigned has no present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the disposition thereof
provided that the disposition of Securities shall at all times be and remain
within its control subject to the provisions of the Agreement.
(b) The undersigned understands that the Securities issuable upon
exercise of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, on the ground that the issuance of such securities is exempt pursuant to
Section 4(2) of the Act and state law exemptions relating to offers and sales
not by means of a public offering, and that the Company's reliance on such
exemptions is predicated on the undersigned's representations set forth herein.
(c) The Securities shall not be sold or transferred unless either (i)
they first shall have been registered under the 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 Act.
(d) The undersigned acknowledges that an investment in the Company is
highly speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary, and has had all questions which have
been asked by it satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available. The
undersigned is aware of the provisions of Rule 144 promulgated under the Act
which permit limited resale of shares purchased in a private
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placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
not less than one (1) year after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market makers" (as provided by Rule 144(f)) and
the number of shares being sold during any three-month period not exceeding
specified limitations.
Dated:________________
________________________________
(Typed or Printed Name)
By:_____________________________
(Signature)
Title:__________________________
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Attachment 3
NOTICE OF CONVERSION
TO: NETGEAR, INC.
1. The undersigned hereby elects to acquire _____________ shares of the
Securities of NETGEAR, Inc. pursuant to the terms of the attached Warrant, by
conversion of ____ percent (__%) of the Warrant.
2. Please issue a certificate or certificates representing said shares of
Securities in the name of the undersigned or in such other name as is specified
below:
----------------------------
(Name)
----------------------------
(Address)
--------------------- ------------------------------------------------
(Date) (Name of Warrant Holder)
By:
---------------------------------------------
Title:
------------------------------------------
(Title and signature of authorized person)
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