SEVENTH AMENDED AND RESTATED
RIGHTS AGREEMENT
This SEVENTH
AMENDED AND RESTATED RIGHTS AGREEMENT (this “ Rights
Agreement ”) is entered into as of October 20,
2004, by and among ShoreTel, Inc., a California corporation (the
“ Company ”), the persons and entities
listed on Exhibit A hereto (the “
Investors ”), Edwin J. Basart, Michael
Harrigan, Ray C. Combs, David P. Dix and David S. Korn (each a
“ Common Holder ” and collectively, the
“ Common Holders ”) and with respect to
Section 1 only, Silicon Valley Bank (“ SVB
”).
A. Certain of
the Investors have agreed to purchase shares of the Company’s
Series H Preferred Stock (the “Series H
Preferred Shares” ) pursuant to a Series H
Preferred Stock Purchase Agreement dated of even date herewith
(such agreement, as it may be amended from time to time is referred
to herein as the “Series H
Agreement” ).
B. The
holders of the Company’s currently outstanding shares of
Preferred Stock have certain information and registration rights
and rights of first refusal under a Sixth Amended and Restated
Rights Agreement dated March 1, 2004 by and among the Company
and such persons and entities (the “Prior Rights
Agreement” ).
C. The
Series H Agreement provides that, as a condition to the
purchase by certain of the Investors of Series H Preferred
Shares thereunder, the Company will enter into this Agreement and
the Investors will be granted the rights set forth herein.
Accordingly, the Company and the Investors desire to enter into
this Agreement in order to amend, restate and replace the rights
and obligations of the parties under the Prior Rights Agreement
with the rights and obligations set forth in this Agreement.
Section 4.1 of the Prior Rights Agreement provides that the
Prior Rights Agreement may be amended by the written consent of the
holders of at least a majority of the “Registrable
Securities” (as defined in the Prior Rights Agreement), and
the undersigned parties to this Agreement hold in excess of a
majority of such “Registrable Securities”.
NOW, THEREFORE, in
consideration for and of the foregoing and of the mutual promises,
covenants and conditions set forth herein and other good and
valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as
follows:
ShoreTel (Series H) –
Rights Agmt
1.1
Definitions . As used in this Rights Agreement, the
following terms shall have the following respective
meanings:
(a)
The term “ Affiliate ” shall mean a
person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person specified and includes without limitation
any person meeting the definition of “affiliate” set
forth in Rule 405 of the Securities Act.
(b)
The term “ Preferred Stock ” shall mean
the preferred stock of the Company.
(c)
The terms “ register ,” “
registered ” and “
registration ” refer to a registration effected
by preparing and filing a registration statement in compliance with
the Securities Act of 1933, as amended (the “
Securities Act ”), and the declaration or
ordering of the effectiveness of such registration
statement.
(d)
The term “ Registrable Securities ” means
(i) any and all shares of common stock of the Company (“
Common Stock ”) issued or issuable upon
conversion of the Company’s Preferred Stock (the “
Conversion Shares ”), (ii) any and all
shares of Common Stock or other securities issued or issuable in
respect of the current or previously authorized and outstanding
Preferred Stock, including without limitation a total of 3,814,741
shares of Common Stock issued to holders of Series E Preferred
Stock on October 11, 2002, (iii) the shares of Common
Stock (the “ SVB Shares ”) issuable upon
conversion of the shares of the Company’s Series F
Preferred Stock issuable upon exercise of that certain Warrant to
Purchase Stock issued by the Company to SVB in September 2003,
and (iv) any and all shares of Common Stock or other
securities issued or issuable upon any conversion of the Preferred
Stock upon any stock split, stock dividend, recapitalization or
similar event, excluding in all cases, however, Registrable
Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned; provided ,
however , that notwithstanding anything herein to the
contrary, the SVB Shares and any shares of Common Stock described
in clause (iv) of this Section 1.1(d) that are issued in
respect of any SVB Shares shall not be Registrable Securities for
purposes of Section 1.2 of this Agreement; provided ,
further , that any and all shares described in clauses
(i)-(iv) above which have been resold to the public shall cease to
be Registrable Securities upon such resale and any shares as to
which registration rights have terminated pursuant to
Section 1.14 below shall cease to be Registrable Securities
upon such termination. Registrable Securities shall also include,
but solely for purposes of Sections 1.3, 1.5, 1.6, 1.7, 1.8,
1.12 and 1.14 of this Rights Agreement, any and all shares of
Common Stock held, now or hereafter, by the Common
Holders.
(e)
The number of shares of “ Registrable
Securities ” outstanding shall be determined by the
number of shares of Common Stock outstanding that are, and the
number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable
Securities.
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Rights Agmt
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(f)
The terms “ Holder ” or “
Holders ” means the Investors and any person or
persons to whom Registrable Securities were transferred under
Section 1.10 hereof who hold Registrable Securities. The terms
Holder and Holders shall also include, but solely for purposes of
Sections 1.3, 1.5, 1.6, 1.7, 1.8, 1.12 and 1.14 of this Rights
Agreement, the Common Holders.
(g)
The term “ Initiating Holders ” means any
Holder or Holders holding 50% or greater of the aggregate of the
Registrable Securities then outstanding; provided, however, the
term “Initiating Holders” shall mean any Holder or
Holders holding any percentage of the aggregate of Registrable
Securities outstanding if the anticipated aggregate offering price
of the securities to be registered in the proposed registration
exceeds $20,000,000.
(h)
The term “ SEC ” means the Securities and
Exchange Commission.
(i)
The term “ Registration Expenses ” shall
mean all expenses incurred by the Company in complying with
Sections 1.2, 1.3 and 1.4 hereof, including, without
limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel
for the Company, reasonable fees and disbursements of one counsel
for all Holders which are selling Registrable Securities under such
registration statement, blue sky fees and expenses, and the expense
of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees
of the Company which shall be paid in any event by the
Company).
1.2
Demand Registration .
(a)
Request for Registration . In case the Company shall receive
from Initiating Holders a written request that the Company effect a
registration with respect to Registrable Securities, the Company
will:
(i)
promptly give written notice of the proposed registration to all
other Holders; and
(ii)
as soon as practicable, use its best efforts to effect all such
registrations (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualifications under the applicable blue sky or other state
securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested
and as would permit or facilitate the sale and distribution of all
or such portion of such Initiating Holder’s or Initiating
Holders’ Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a written request given within thirty (30) days
after receipt of such written notice from the Company;
provided , however , that the Company shall
not be obligated to take any action to effect such registration
pursuant to this Section 1.2:
(A)
at any time prior to the earlier to occur of (1) March 1,
2007 or (2) 180 days following the effective date of the
registration statement
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Rights Agmt
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under the
Securities Act for the Company’s initial registered
underwritten public offering of its securities to the general
public (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a SEC Rule 145
transaction) with a per share price of at least $0.645 per share
(as adjusted for stock splits, combinations, and the like) and
aggregate proceeds in excess of $20,000,000 (the “
Qualified IPO ”);
(B)
in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and
except as required by the Securities Act; or
(C)
after the Company has effected two (2) such registrations
pursuant to this Section 1.2(a) and such registrations have
been declared or ordered effective.
Subject to the
foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, but in any event
within ninety (90) days, after receipt of the request or
requests of the Initiating Holders; provided ,
however , that if the Company shall furnish to such
Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the
Company’s board of directors (the “ Board of
Directors ”), it would be detrimental to the Company
and its shareholders for such registration statement to be filed on
or before the date filing would be required and it is therefore
essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of
not more than ninety (90) days after the receipt of the
request of the Initiating Holders; and, provided further, however,
that the Board of Directors shall not exercise such right to defer
a filing more than once in any consecutive twelve (12) month
period.
(b)
Underwriting . If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as part
of their request made pursuant to Section 1.2(a) and the
Company shall include such information in the written notice
referred to in Section 1.2(a)(i). In such event, the
underwriter shall be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the
Company. The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the
number of shares to be underwritten, the Initiating Holders shall
so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders; provided ,
however , that the number of shares of Registrable
Securities to be included in such underwriting shall not
ShoreTel (Series H) –
Rights Agmt
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be reduced
unless all other securities are first entirely excluded from the
underwriting. If any Holder of Registrable Securities disapproves
of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company, the underwriter and the
Initiating Holders. Any Registrable Securities which are excluded
from the underwriting by reason of the underwriter’s
marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.
(c)
Company Shares . If the managing underwriter has not limited
the number of Registrable Securities to be underwritten, the
Company may include securities for its own account or for the
account of others in such registration if the managing underwriter
so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting
will not thereby be limited.
1.3
Company Registration .
(a)
Registration . If at any time or from time to time, the
Company shall determine to register any of its securities, for its
own account or the account of any of its shareholders, other than a
registration relating solely to employee stock option or purchase
plans, or a registration relating solely to an SEC Rule 145
transaction, or a registration on any other form (other than Form
S-1, S-2, S-3 or S-18, or their successor forms) or any successor
to such forms, which does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company
will:
(i)
promptly give to each Holder written notice thereof and
(ii)
include in such registration (and compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within twenty
(20) days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in
Section 1.3(b) below.
(b)
Underwriting . If the registration of which the Company
gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of
the written notice given pursuant to Section 1.3(a)(i). In
such event the right of any Holder to registration pursuant to
Section 1.3 shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the
Company and the other shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding any other
provision of this Section 1.3, if the underwriter determines
that marketing factors require a limitation of the number of shares
to be underwritten, and (i) if such registration is in
connection with the Qualified IPO, the underwriter may limit the
number of Registrable Securities to be included in the registration
and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting, or (ii) if such
registration is other than the first registered offering of the
sale of the Company’s securities to the general public, the
underwriter may
ShoreTel (Series H) –
Rights Agmt
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limit the
amount of securities to be included in the registration and
underwriting by the Company’s shareholders; provided ,
however , the number of Registrable Securities to be
included in such registration and underwriting under this
Section 1.3(b)(ii) shall not be reduced to less than 25% of
the aggregate securities included in such registration without the
prior consent of the Holders of not less than a majority of the
Registrable Securities proposed to be included in such registration
and underwriting. The Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and
underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among Holders requesting
registration in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each of such
Holders as of the date of the notice pursuant to Section 1.3(a)(i)
above; provided , however , that in no
instance shall shares of any other selling shareholder or
Registrable Securities held by the Common Holders be included in
such registration and underwriting if such inclusion would reduce
the number of shares of Registrable Securities held by other
Holders able to be included in such registration and underwriting.
If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company
and the underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration.
1.4
Form S-3 . In addition to the rights and obligations
set forth in Section 1.2 above, if Holders holding 20% or more
of the Registrable Securities then outstanding (“ S-3
Holders ”) request that the Company file a
registration statement on Form S-3 (or any successor to Form S-3)
for a public offering of shares of Registrable Securities, the
reasonably anticipated aggregate price to the public of which (net
of underwriting discounts and commissions) would exceed $1,000,000
and the Company is then a registrant entitled to use Form S-3 (or
any successor form to Form S-3) to register the shares for such an
offering, the Company shall use its best efforts to cause such
shares to be registered for the offering as soon as practicable on
Form S-3 (or any successor form to Form S-3); provided ,
however , the Company shall not be required to effect
a registration pursuant to this Section 1.4:
(a)
in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
(b)
if the Company, within ten (10) days of the receipt of the
request of the S-3 Holders, gives notice of its bona fide intention
to effect the filing of a registration statement with the SEC
within forty-five (45) days of receipt of such request (other
than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any
other registration which is not appropriate for the registration of
Registrable Securities), and does so file within said forty-five
(45) day period and makes reasonable efforts to cause such
registration to become effective;
(c)
during a period of ninety (90) days following the effective
date of a registration statement;
ShoreTel (Series H) –
Rights Agmt
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(d)
if the Company has effected two (2) registrations pursuant to
this Section 1.4 within a twelve (12) month period from
the date of such request; or
(e)
if the Company shall furnish to such S-3 Holders a certificate
signed by the President of the Company stating that in the good
faith judgment of the Board of Directors, it would be detrimental
to the Company and its shareholders for such registration statement
to be filed on or before the date filing would be required and it
is therefore essential to defer the filing of such registration
statement, in which case the Company shall have the right to defer
such filing for a period of not more than ninety (90) days
after the furnishing of such a certificate of deferral;
provided , however , that the Board of
Directors shall not exercise such right to defer a filing more than
once in any consecutive twelve (12) month period.
In the event
such S-3 Holders propose to offer the shares of Registrable
Securities pursuant to this Section 1.4 by means of an
underwriting, the proposed underwriter(s) shall be reasonably
acceptable to the Company, provided , however
, that in the event such underwriter(s) is (are) not
reasonably acceptable to the Company, the Company shall be required
to furnish to the Holders, within twenty (20) days of the
receipt of the request for registration from S-3 Holders pursuant
to this Section 1.4, the names of at least two
(2) underwriters acceptable to the Company, who agree to act
as underwriter for the proposed offering on terms no less favorable
to the Holders than those terms proposed in writing by the
underwriter(s) selected by the S-3 Holders. The Company shall give
written notice to all Holders of the receipt of a request for
registration pursuant to this Section 1.4 and shall provide a
reasonable opportunity for other Holders to participate in the
registration, provided that if the registration is for an
underwritten offering, the terms of Section 1.2(b) shall apply
to all participants in such offering.
1.5
Expenses of Registration . All Registration Expenses
incurred in connection with any registration pursuant to this
Section 1 shall be borne by the Company except as
follows:
(a)
The Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 1.2 the
request for which has been subsequently withdrawn by the Initiating
Holders (in which case, such expenses shall be borne by the Holders
requesting such withdrawal), unless the Initiating Holders agree to
forfeit their right to one (1) registration pursuant to
Section 1.2; provided , however , that if at the
time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business or prospects of the
Company from that known to the Holders at the time of their request
and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2 or 1.4.
(b)
The Company shall not be required to pay fees or disbursements of
legal counsel of a Holder unless the Holders holding a majority of
the shares included in the registration specify one special
counsel.
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(c)
The Company shall not be required to pay underwriters’ fees,
discounts or commissions relating to Registrable
Securities.
1.6
Registration Procedures . In the case of each registration
effected by the Company pursuant to this Rights Agreement, the
Company will keep each Holder participating therein advised in
writing as to the initiation of each registration, qualification
and compliance and as to the completion thereof. Except as
otherwise provided in Section 1.5, at its expense the Company
will:
(a)
Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective
for up to one hundred twenty (120) days or, if a shorter
period, until securities included in the registration statement are
sold.
(b)
Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement.
(c)
Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d)
Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any
such states or jurisdictions.
(e)
In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter
into and perform its obligations under such an
agreement.
(f)
Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the
happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
(g)
Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to
this
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Section 1,
if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date
that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from
the independent public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(h)
Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(i)
Provide a transfer agent
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