IKANOS COMMUNICATIONS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

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Exhibit 4.2

IKANOS COMMUNICATIONS
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

        THIS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this" Agreement ") is made as of the 5th day of March 2004, by and among Ikanos Communications (f/k/a Velocity Communication) (the " Company "), a California corporation, the investors in the Series A Preferred Stock listed in Exhibit A attached hereto (the " Series A Investors "), the investors in the Series B Preferred Stock listed in Exhibit B attached hereto (the " Series B Investors "), the investors in the Series C Preferred Stock listed in Exhibit C attached hereto (the " Series C Investors "), the investors in the Series D Preferred Stock listed in Exhibit D attached hereto (the " Series D Investors "), the investors in the Series E Preferred Stock listed in Exhibit E attached hereto (the " Series E Investors "), and Behrooz Rezvani (the " Founder ").

RECITALS

        WHEREAS, the Company, the Series A Investors, the Series B Investors, the Series C Investors, the Series D Investors and the Founder are parties to that certain Third Amended and Restated Investor Rights Agreement dated as of January 30, 2003 (the " 2003 Rights Agreement "), pursuant to which the Series A Investors, the Series B Investors, the Series C Investors, the Series D Investors and the Founder were granted certain rights regarding registration of the Company's securities under the Securities Act of 1933, as amended (" Registration Rights "), and other rights;

        WHEREAS, the Series E Investors, in connection with their proposal to purchase certain shares of the Company's Series E Preferred Stock pursuant to the Series E Preferred Stock Purchase Agreement (the " Series E Agreement ") dated of even date herewith by and among the Company and the Series E Investors, desire to obtain the rights provided for herein;

        WHEREAS, the Company, the Series A Investors, the Series B Investors, the Series C Investors, the Series D Investors and the Founder, to induce the Series E Investors to purchase the Series E Preferred Stock, desire to terminate the 2003 Rights Agreement and further desire that this Agreement supercede and replace the 2003 Rights Agreement in its entirety; and

        WHEREAS, the 2003 Rights Agreement may be amended or modified upon written consent of the Company and those Series A Investors, Series B Investors, the Series C Investors and the Series D Investors who hold at least two-thirds ( ² / 3 ) of the Registrable Securities (as such term is defined in the 2003 Rights Agreement), excluding any shares held by the Founder;

        NOW, THEREFORE, in consideration of the foregoing, the mutual promises set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree, subject to the closing of the purchase of Series E Preferred Stock pursuant to the Series E Agreement, as follows:

        1.      Certain Definitions . As used in this Agreement, the following terms shall have the following respective meanings:

        " Commission " shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

        " Common Stock " shall mean the common stock of the Company.

        " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

         " Holder " shall mean any holder, or a transferee or an assignee under Section 14 hereof, of Registrable Securities which, for purposes hereof, includes Registrable Securities issuable upon conversion of any Shares (as defined below).

        " Initiating Holders " shall mean any Holders who in the aggregate are Holders of thirty percent (30%) or more of the outstanding Registrable Securities.

        " Investors " shall mean the Series A Investors, the Series B Investors, the Series C Investors, the Series D Investors and the Series E Investors, collectively.

        The terms " register ," " registered ," and " registration " shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement.

        " Lighthouse " shall mean Lighthouse Capital Partners III, L.P.

        " Registrable Securities ," subject to Section 6 hereof, shall mean shares of Common Stock (i) issued or issuable pursuant to the conversion of the Shares (as defined below), (ii) issued in respect of securities issued pursuant to the conversion of the Shares upon any stock split, stock dividend, recapitalization, substitution, or similar event, (iii) held by TeleSoft Partners IA, L.P., TeleSoft Strategic Side Fund I, L.L.C., and Anthelion Capital II, L.P. as of February 14, 2000 (as adjusted for any stock splits, stock dividends, recapitalizations, substitutions, or similar events), (iv) held by the Founder, but only to the extent provided by Section 6(c) hereof and (v) held by Lighthouse, including, without limitation, shares of Common Stock issued or issuable upon conversion of any Shares or other convertible securities held by Lighthouse or issued or issuable upon the exercise of any warrant or warrants held by Lighthouse.

        " Registration Expenses " shall mean all expenses (excluding underwriting discounts and selling commissions) incurred in connection with a registration under Sections 5, 6, and 8 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, and the reasonable fees and expenses of one counsel for the selling Investors (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company).

        " Restricted Securities " shall mean the securities of the Company required to bear or bearing the legend set forth in Section 3 hereof.

        " Rule 144 " and " Rule 144(k) " shall mean Rule 144 and Rule 144(k), respectively, promulgated under the Securities Act as in effect at the time in question and any successor to Rule 144 or Rule 144(k) and any similar exemption adopted in the future.

        " Securities Act " shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

        " Selling Expenses " shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities.

        " Shares " shall mean outstanding shares of the Company's Series A Preferred Stock, outstanding shares of the Company's Series B Preferred Stock, including, without limitation, those shares of Series B Preferred Stock issued or issuable to Lighthouse upon exercise of any warrant or warrants held by Lighthouse, outstanding shares of the Company's Series C Preferred Stock, outstanding shares of the Company's Series D Preferred Stock and outstanding shares of the Company's Series E Preferred Stock.

        2.      Restrictions on Transferability . The Restricted Securities held by the Investors shall not be transferred except upon the conditions specified in this Agreement, which conditions are intended to insure compliance with the provisions of the Securities Act or, in the case of Section 14 hereof, to assist in an orderly distribution. Each Investor will cause any proposed transferee of Restricted Securities held by that Investor to agree to take and hold those securities subject to the provisions and upon the conditions specified in this Agreement.

        3.      Restrictive Legend . Each certificate representing (i) the Shares, and (ii) shares of the Company's Common Stock issued upon conversion of the Shares, and (iii) any other securities issued in

respect of the Shares, or the Common Stock issued upon conversion of the Shares, upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted or unless the securities evidenced by such certificate shall have been registered under the Securities Act) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE ACT, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

        Upon request of a holder of such a certificate, the Company shall remove the foregoing legend from the certificate or issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received either the opinion referred to in Section 4(i) or the "no-action" letter referred to in Section 4(ii) to the effect that any transfer by such holder of the securities evidenced by such certificate will not violate the Securities Act and applicable state securities laws, unless any such transfer legend may be removed pursuant to Rule 144(k), in which case no such opinion or "no-action" letter shall be required, and provided that the Company shall not be obligated to remove any such legends prior to the date of the initial public offering of the Company's Common Stock under the Securities Act.

        4.      Notice of Proposed Transfers . The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Prior to any proposed transfer of any Restricted Securities (other than under circumstances described in Sections 5, 6 and 8 hereof), the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in transactions in compliance with Rule 144 promulgated under the Securities Act or for a transfer to a holder's spouse, ancestors, descendants, affiliated companies, partners, members or a trust for any of their benefit, or in transactions involving the distribution without consideration of Restricted Securities by a holder to any of its partners or retired partners, or members or retired members of a limited liability company (or a member of a member) or to the estate of any of its partners or retired partners) by either (i) a written opinion of legal counsel to the holder who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act or (ii) a "no-action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by such holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the restrictive legend set forth in Section 3 above, except that such certificate shall

not bear such restrictive legend after the date of the Company's initial public offering under the Securities Act if the opinion of counsel or "no-action" letter referred to above expressly indicates that such legend is not required in order to establish compliance with the Securities Act or if such legend is no longer required pursuant to Rule 144(k).

        5.      Requested Registration .

        (a)    Request for Registration . If, at any time after the earlier of (i) March 5, 2007 (but not within six (6) months of the effective date of the Company's initial public offering under the Securities Act) and (ii) six months after the date of the Company's initial public offering under the Securities Act, the Company shall receive from Initiating Holders a written request that the Company effect any registration covering the sale of a number of Registrable Securities equal to at least the lesser of (i) 10% of the Registrable Securities or (ii) the number of Registrable Securities that would have an aggregate offering price, net of underwriting discounts and commissions, of at least $5,000,000, the Company will:

        (i)    within ten (10) business days give written notice of the proposed registration to all other Holders; and

        (ii)   use its reasonable best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such 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 delivered to the Company within fifteen (15) days after receipt of the Company's written notice to such Holders of the Initiating Holders' registration request; provided that the Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 5:

        (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)  After the Company has effected two (2) such registrations pursuant to this Section 5(a) and such registrations have been declared or ordered effective and the sales of such Registrable Securities have closed;

        (C)  During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or

        (D)  If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 8 hereof, unless the Underwriter (as defined below) requires the registration to be on Form S-1.

        Subject to the foregoing clauses (A), (B), (C) and (D), 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 sixty (60) days after receipt of the request or requests of the Initiating Holders; provided , however , that if the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the time 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 (but not more than once during any twelve month period) for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders;; and provided further that the Company shall not register any securities for the account of itself or any other shareholder during such ninety (90) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, a registration solely of debt securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered).

        The registration statement filed pursuant to the request of the Initiating Holders, may, subject to the provisions of Section 5(b) below, include other securities of the Company which are held by officers or directors of the Company or which are held by persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration, but the Company and such officers or directors of the Company or other such persons with registration rights shall have no right to include any of its securities in any such registration except as provided in Section 5(b) below.

        (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 a part of their request made pursuant to Section 5, and the Company shall include such information in the written notice referred to in Section 5(a)(i) above. The right of any Holder to registration pursuant to Section 5 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 with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds.

        If officers or directors of the Company shall request inclusion of securities of the Company other than Registrable Securities in any registration pursuant to this Section 5, or if holders of securities of the Company who are entitled by contract with the Company to have securities included in such a registration (such officers, directors, and other shareholders being collectively referred to as the " Other Shareholders ") request such inclusion, the Initiating Holders shall, on behalf of all Holders, offer to include the securities of such Other Shareholders in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Agreement. The Company shall (together with all Holders and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters (the " Underwriter ") selected for such underwriting by the Initiating Holders holding at least fifty-one percent (51%) of the Registrable Securities proposed to be registered by all Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 5, if the Underwriter in its sole discretion advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the Company shall (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting. In such event, the Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following priority: first, among all Holders of Registrable Securities (and pro rata among such holders on the basis of all Registrable Securities then held by such holders); and second, among all Other Shareholders in proportion, as nearly as practicable, to the respective amounts of securities which they had requested to be included in such registration at the time of filing the registration statement. If any Holder or Other Shareholder disapproves of the terms of any such underwriting, such holder may elect to withdraw therefrom by written notice to the Company and the Underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If the Underwriter has not limited the number of Registrable Securities or other securities to be underwritten,

the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited.

        6.      Company Registration .

        (a)   If the Company shall determine to register any of its securities for its own account, other than (1) a registration relating solely to employee benefit plans; (2) a registration relating to a corporate reorganization or other transaction under Commission Rule 145; (3) a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities; or (4) a registration on Form S-3, the Company will:

        (i)    within ten (10) business days of such determination, give to each Holder written notice thereof (which, to the extent then known, shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and

        (ii)   include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests made by any Holder within twenty (20) days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 6(b) below. Such written request may specify all or a part of a Holder's Registrable Securities.

        (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 6(a)(i). In such event the right of any Holder to registration pursuant to Section 6 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 selected for underwriting by the Company. Notwithstanding any other provision of this Section 6, if the Underwriter in its sole discretion advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then (a) if such registration is the first registered offering of the Company's securities to the public, the Company may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto, and (b) if such registration is other than the first registered offering of the sale of the Company's securities to the public, the Company may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in such registration and underwriting to not less than twenty-five percent (25%) of the total number of shares of stock of the Company to be included therein. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting by persons other than the Company shall be allocated in the following priority: first, to Holders of Registrable Securities (other than Founder) (and pro rata among such Holders on the basis of all Registrable Securities then held by such Holders); second, to Founder; and third, among all Other Shareholders in proportion, as nearly as practicable, to the respective amounts of securities which they had requested to be included in such registration at the time of filing the registration statement. If any Holder or Other Shareholder 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 or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

        (c)    Piggyback Registration Rights . The Founder shall be entitled to include (subject to any underwriter cutbacks as provided in this Agreement) shares of Common Stock in any registration by the Company under Section 6(a).

        7.      Expenses of Registration . All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company, and all Selling Expenses shall be borne by the holders of the securities so registered pro rata on the basis of the number of their shares so registered; provided , however , that the Company shall not be required to pay any Registration Expenses if, as a result of the withdrawal of a request for registration by Initiating Holders, the registration statement does not become effective, unless such withdrawal is caused by a material adverse change in the business or operations of the Company after such request for registration, or unless the Initiating Holders agree to have such registration considered a registration pursuant to Section 5(a)(ii)(B). If the Company is not required to pay any Registration Expenses, then the Holders and Other Shareholders requesting registration shall bear such Registration Expenses pro rata on the basis of the number of their shares so included in the registration request, and such registration shall not be considered a registration for purposes of Section 5(a)(ii)(B).

        8.      Registration on Form S-3 . The Company shall use its reasonable best efforts to qualify for registration on Form S-3, and to that end, the Company shall comply with the reporting requirements of the Exchange Act within six (6) months following the effective date of the first registration of any securities of the Company for a registered public offering. After the Company has qualified for the use of Form S-3, each Holder of Registrable Securities shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by each such holder), subject only to the following limitations:

        (a)   The Company shall not be obligated to cause a registration on Form S-3 if, within ten (10) days of receipt of the holder of Registrable Securities, the Company gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within ninety (90) days of receipt of such request (other